The Hindu Editorial Analysis
28 March 2020

1) RBI’s guns boom: On lockdown relief


  • CONTEXT:
  • The Reserve Bank of India (RBI) finally rolled out its big guns on Friday to fight the effects of the coronavirus on the financial system.
  • Businesses were clamouring for relief and Governor Shaktikanta Das’s measures address the crucial factor of sustaining system liquidity while offering palliatives to individuals and businesses.

  • BEST CASE SCENARIO:
  • The measures seem to have been designed assuming the best case scenario that the country will be able to fight off the maleficent effects of the virus in the next few weeks.
  • But there is no certainty over how long this uncertainty will prolong which means that Mr. Das’s announcements, as indeed that of Finance Minister Nirmala Sitharaman on Thursday, can only be the initial steps needed to protect the economy.
  • There will be more to do as the crisis evolves; governments and regulators are reacting to events, as opposed to being proactive, simply because this is a kind of crisis that they have not dealt with before.
  • Viewed from this perspective, the RBI’s steps are exactly what is needed at this point in time.
  • They reflect the central bank’s willingness to listen to impulses from the ground and its effort to stay ahead of the curve, which is laudable.
  • MEASURES TAKEN:
  • The sizeable rate cut will obviously make the headlines though its impact will be largely on sentiment.
  • Existing borrowers will benefit assuming that banks pass on the cut quickly — it is hoped that they really do so — but there is going to be nothing like the cut spurring fresh investment, which will be the last thing on the minds of businessmen.
  • To that extent the size of the cut appears a trifle too large. But where the RBI scores is in the liquidity enhancement measures that it has unveiled.
  • The sum total of new long-term repo operations of ₹1-lakh crore, and ₹1.37-lakh crore each from the cut in cash reserve ratio and increase in marginal standing facility (overnight borrowings by banks from the RBI) adds up to a very significant ₹3.74-lakh crore.
  • Together with the ₹2.8-lakh crore pumped in through various market interventions since February, the RBI’s liquidity injection amounts to a whopping 3.4% of GDP.
  • To be sure, there will be consequences of heightened liquidity but that is a problem for another day.
  • The priority is to keep the system lubricated. The moratorium on term loans and deferment of interest on working capital loans will reduce anxiety among businesses and individuals who will see a fall in income/cash flows.
  • CONCLUSION:
  • The central bank has also done the right thing by widening the policy rate corridor — the reverse repo rate cut is 15 basis points more than that in the repo rate.
  • This will hopefully push banks away from their ‘lazy banking’ practices and force them to lend more.
  • India’s financial system will need more support as the virus crisis evolves.
  • In sum, it is a good start by the RBI but it needs to keep thinking on its feet and react quickly as the situation evolves.

 

2) Trial and turmoil: On Israel government formation


  • CONTEXT:
  • Thursday’s election of Benny Gantz, leader of the opposition Blue and White party, as Speaker of the Knesset, signals the path to a unity government in Israel after three inconclusive general elections in 12 months.
  • In a U-turn, the former military general who was invited by Israel’s President to form a government after the indecisive polls, nominated himself as leader of the legislature and won backing from members.

  • UNCLEAR FUTURE:
  • The full implications of this latest twist in Israeli politics remain unclear.
  • But Mr. Gantz had until now repeatedly rebuffed calls from Prime Minister Benjamin Netanyahu to collaborate on a unity government with a view to breaking the year-long political deadlock.
  • He had even contemplated legislation to limit the Prime Minister’s tenure to two-terms, as well as to block persons indicted for corruption from occupying the office.
  • The target was Mr. Netanyahu, Israel’s longest-serving leader who also faces trial in three cases of graft.
  • While Mr. Gantz’s latest move is possibly a response triggered by the pandemic, the sudden about-turn has caused outrage among supporters of Blue and White and its allies as a complete betrayal and could split the party.
  • But despite the awkward compromises involved, the political reconfiguration bodes well for democracy in Israel.
  • RESTRICTION DUE TO PANDEMIC:
  • Parliament was suspended after the March polls on the pretext of restrictions arising from the pandemic by Yuli Edelstein, the former Knesset Speaker and Netanyahu ally.
  • That decision was subsequently overruled by the Supreme Court, which ordered Mr. Edelstein’s successor to be chosen on Wednesday, forcing the latter’s resignation.
  • Mr. Gantz’s elevation has averted the risk of a constitutional void.
  • Politically, the step could be the first in a complicated process leading to a power-sharing arrangement with his arch-rival, Mr. Netanyahu and his Likud party.
  • Netanyahu has earned another reprieve, but it might not last long.
  • The new government would be confronted with the ticklish issue of Mr. Netanyahu’s trial, which has already been postponed until May.
  • While the Prime Minister has consistently denied any wrongdoing, a conducive climate for an independent investigation would infuse much confidence into the administration.

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  • VIABLE COALITION:
  • Moreover, stitching together a viable coalition would be no mean challenge, given that Mr. Netanyahu, 70, remains a highly polarising figure.
  • For instance, any support from the Joint List, the third largest bloc in the Knesset, comprising factions within Israel’s Arab community, would depend on the extent of influence parties of the extreme right exert in any new government.
  • With the 15 seats it controls, the bloc will manoeuvre hard for influence.
  • With its strong anti-Arab stance, Avigdor Lieberman’s Yisrael Beiteinu party — it has seven seats — would be another important factor. Mr. Netanyahu may have earned another reprieve.
  • But after more than a decade in office, he cannot afford to underestimate the strength of sentiment against him.

 

3) It’s also a fight against punitive measures


  • CONTEXT:
  • A global pandemic demands game-changing actions by all nations in order to halt its global spread, provide relief in terms of medical supplies and to rebuild shattered lives.
  • The global community has the responsibility to rise to the occasion. Any global cataclysm affects poor countries more than the rich ones as the former do not have the resources to meet the unexpected economic challenge.
  • While the developed countries and their groups provide economic packages to themselves and their partners, developing countries stare into the distance with hope of handouts from the international financial institutions or some generous rich allies.

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  • LIFTING ECONOMIC SANCTIONS:
  • One way of dealing with the emergency in an emergency mode is to consider lifting of economic sanctions imposed by the United Nations and individual countries on developing countries.
  • Many international sanctions imposed on the basis of political and economic decisions and taken as a part of diplomatic efforts by countries, multilateral or regional organisations against states or organisations exist around the world.
  • These were meant either to ‘protect national security interests, or to protect international law, and defend against threats to international peace and security.
  • These measures include the temporary imposition on a target of economic, trade, diplomatic, cultural or other restrictions’ and can be lifted only through a long process of ascertaining whether their objectives were met.
  • The UN Security Council has a ‘mandate by the international community to apply sanctions that are binding on all UN member states.
  • They serve as the international community’s most powerful peaceful means to prevent threats to international peace and security or to settle them’.
  • Peace enforcement is possible if the sanctions fail, but that is only in the rarest of rare cases.
  • The sanctions often lie dormant for technical reasons even if their original intent and purpose have lost their relevance.
  • The victims of these sanctions suffer in silence or engage in negotiations to get relief.
  • WHEN AMERICA STRUCK:
  • Apart from UN sanctions, there are ‘unilateral sanctions that are imposed by individual countries in furtherance of their strategic objectives.
  • Typically intended as strong economic coercion, measures applied under unilateral sanctions can range between coercive diplomatic efforts, economic warfare, or a threat of war’. These take the form of economic, diplomatic, military and sport sanctions.
  • The unilateral sanctions are naturally not mandatory to any other state, but the United States has often stipulated, like in the case of Iran, that those countries which do not apply sanctions to Iran would be debarred from doing business with the U.S., a Hobson’s choice in many cases.
  • After the initial invasion of Kuwait by Iraq, the UN ‘placed an embargo on the nation in an attempt to prevent an armed conflict.
    • A naval and air blockade was added. The purpose of the initial sanctions was to coerce Iraq into following international law, which included the recognised sovereignty of ‘Kuwait’. But even after the liberation of Kuwait, a series of sanctions were created to weaken the country.
  • A UN plan to purchase food and medicines by selling Iraqi oil to the world became one of the most serious scandals to hit the UN and its Secretary General.
  • U.S. sanctions against Iran over the years broke the back of the country and forced it to reach an agreement to limit its nuclear activities.
  • The U.S.’s withdrawal from the Iran deal has now resulted in Iran facing crippling sanctions.
  • Perhaps, the impact of COVID-19 was severe in Iran on account of the sanctions and the resultant economic crisis in the country.
  • There are many more cases of sanctions against many countries still in existence.
  • Temporary sanctions in protest against the policies of countries often result in expulsion or withdrawal of diplomatic personnel.
  • The politics of sanctions entered a new era when U.S. President Donald Trump signed into law the “Countering America’s Adversaries Through Sanctions Act” (CAATSA) that grouped together sanctions against Russia, Iran and North Korea.
  • Currently, the U.S. alone, or together with other countries has sanctions against Belarus, Myanmar, Côte d’Ivoire, Cuba, the Democratic Republic of Congo, Iran, Iraq, Liberia, North Korea, Sudan, Syria, and Zimbabwe and several other countries.
  • The wide network of sanctions is comprehensively monitored by the Office of Foreign Assets Control of the US Department of the Treasury.
    • It enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes and related entities and individuals.
  • NO CALCULATION:
  • There is no estimate of the losses sustained by these countries on account of these sanctions.
  • But these countries will be much relieved if these restrictions are removed. The present global pandemic and the requirement of massive resources may be an occasion to lift these sanctions.
  • The countries which have imposed these sanctions will not have to make any financial outlay to assist these countries at this time of a humanitarian emergency.
  • The G20 Chairman, the King of Saudi Arabia, on a suggestion by Prime Minister Narendra Modi, had convened a video conference of G20 leaders.
  • As a follow up of that meeting, the G20 could consider proposing the lifting of multilateral and bilateral sanctions.
  • CONCLUSION:
  • As Winston Churchill said, “Never let a good crisis go to waste”

 

4) Shift to upscaling food rationing now


  • CONTEXT:
  • Two days ago, the Finance Minister Nirmala Sitharaman announced a ₹1.7-lakh crore package of social security measures to deal with the COVID-19 pandemic in the period of the 21-day lockdown.
  • In respect of food security, the package falls far short of what is needed.

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  • ENSURING UNIVERSAL RATIONING:
  • I argue that we need to immediately ensure universal rationing with an expanded food basket, and special measures for cooked food in urban areas for the vulnerable population.
  • The burden of the current lockdown is borne disproportionately by the large unorganised workforce, comprising hundreds of millions of casual daily wage-workers and self-employed workers.
  • India already holds the record for the largest number of malnourished persons in the world.
  • As their ability to purchase food diminishes, a growing population of working people and their families will soon enter a phase of hunger and undernourishment.
  • The answer to this looming and very real scenario of food insecurity lies in a massive programme of food rationing, far greater than what the Finance Minister has promised.
  • LESSONS FROM HISTORY:
  • To ensure that all people have access to adequate food in the midst of this unprecedented health and economic crisis with potentially high levels of mortality, we must immediately expand our food security system.
  • Before I come to the components of such an expanded programme, let us briefly look at the lessons provided by the experience of other countries in using rationing in times of scarcity.
  • UK EXAMPLE:
  • In the United Kingdom in the 1940s, rationing or a policy of “fair shares” was introduced in a period of war and scarcity.
  • Starting in 1939, each and every person was issued a ration book, with a weekly entitlement that could be collected at a local grocery store.
  • Rationing encompassed many commodities, starting with butter, bacon and sugar, and later augmented by eggs, biscuits, tinned food, meat, cereals, etc.
  • A remarkable outcome of the war years was, as Amartya Sen has demonstrated, a significant improvement in vital statistics including a rise in life expectancy and a decline in the mortality rate.
  • Despite heavy war casualties and a decline in consumer expenditure per capita, life expectancy actually improved.
  • In the first six decades of the 20th century, the decade from 1941 to 1950 saw the largest increase in life expectancy in England and Wales.
  • INDIA’S TIMELINE:
  • In India, the British introduced rationing in six cities in 1942, mainly to supply industrial workers with adequate food.
  • Following demands from a strong political movement, Malabar became the first rural area to implement rationing in 1943.
  • In the mid-1960s, the system of rationing or the Public Distribution System (PDS) was made a national universal programme, which steadily expanded till 1991.
  • In the 1990s, the policies of liberalisation led to the withdrawal of universal rationing and its replacement by a policy of narrow targeting.
  • Differential entitlements were provided for BPL (Below Poverty Line) and APL (Above Poverty Line) households.
  • In 2013, the landmark National Food Security Act (NFSA), ensured legal entitlement to rations and other food-based schemes (such as mid-day meals in schools).
  • Around 75% of rural households, and 50% of urban households, that is, a total of two-thirds of all households, were eligible for inclusion (now termed priority households) in the NFSA.
  • The implementation of the NFSA — notably the PDS, the Mid-day Meal Scheme, and the Integrated Child Development Services scheme — varies significantly across States; nevertheless, the infrastructure for distribution of food is in place in all parts of the country.
  • CHINA’S STRATEGY:
  • In China, the National Development and Reform Commission (NDRC), a planning body, was the key coordinator along with the Ministry of Commerce (MOFCOM) in ensuring supplies of basic foods and price stability to the poor, especially in Wuhan province, the epicentre of the current pandemic, which was under lockdown since January 23, 2020.
  • The Chinese strategy had multiple components, which included public corporations and ministries, 300 large private companies, 200,000 private stores, and local government institutions.
  • To illustrate, State-owned companies such as COFCO or the China National Cereals, Oils and Foodstuffs Corporation, and Sinograin (China Grain Reserves Corporation) supplied key commodities to Wuhan.
  • This included 200 tonnes of rice, 50 tonnes of flour and noodles, and 300 tonnes of edible oils each day during the peak of the pandemic in February 2020.
  • The National Grain Trade Centre has to date supplied 155,000 tonnes of corn and 154,000 tonnes of soyabean to Wuhan.
  • Special delivery trucks for transport of vegetables were arranged, and the local government organised open-air markets.
  • INDIA:
  • Kerala was the first State in India to announce a package with income support measures and in-kind measures including free rations of 15 kg (grain) and provision of cheap meals.
  • The government of Tamil Nadu announced free rations of rice, sugar, cooking oil and dal to all ration card holders.
  • The supply of rations for unorganised workers is to be through Amma canteens. The Delhi government will give 1.5 times existing entitlements at no cost to all ration card holders.
  • KEY POINTS OF A PLAN:
  • In India a system of expanded rations must have the following components.
  • First, for all rural households, free rations of rice and wheat at double the normal entitlement must be distributed.
  • The current entitlement is about half the quantity of daily cereal intake recommended by the Indian Council of Medical Research:
    • the new quantities should be the actual minimum requirement per person per day.
  • The government of India has now doubled rations (rice or wheat) to all priority households, from 5 kg to 10 kg per person per month.
  • However, this falls short, as the rations are not to all households but only priority households; the rations are not free (only the additional 5 kg is free).
  • Universal Provisioning: The provision of rations must be universal: this is not the time to demarcate households by type of ration card or whether they have a ration card or by any form of biometrics.
  • The system of identification of priority households is not error-proof, and no household wrongly excluded should be outside the ambit of rationing today.
  • This upscaling is feasible as the country has stocks of 58 million tonnes of rice and wheat; and the wheat harvest is currently underway in north India.
  • Second, for all rural households, additional rations of cooking oil, sugar, salt and lentils should be provided on a regular basis.
  • Soap must also be included in this list. As supplies have to be arranged, the distribution could be weekly or fortnightly in order to ensure smooth availability.
  • It is good to see that the government of India has announced one kg of dal per household, but it needs to provide more commodities quickly.
  • Third, if milk, eggs and vegetables (or one or more of them) can be supplied, we can not only ensure basic food security at the time of a major health crisis, but actually address our burden of malnutrition.
  • For urban areas, we need a combination of provision of dry goods and of cooked food. All households with ration cards can be given the same entitlements as proposed for rural households.
  • FOR WORKERS AND MIGRANTS:
  • For the vast numbers of workers and migrants in towns and cities, however, we must set up arrangements for preparation and delivery of cooked food.
  • The large numbers of closed community kitchens (schools and colleges, company and office canteens, for example) and restaurant workers now sitting idle or laid off can be brought together to undertake a massive programme of provision of cooked meals at subsidised rates.
  • Kerala has taken the lead here. This will require careful planning and technology to distribute food while ensuring physical distancing.
  • The answer is not to simply close the Indira Canteens (serving low-cost meals) as Karnataka has done.
  • CONCLUSION:
  • All the measures proposed must continue for at least three months, and be reviewed afterwards.
  • An imaginative massive exercise of expanded rations could not only provide succour in this pandemic but also bring in a policy shift that will help sustain a nourished and healthy population.