Author: Balaguru Mamundi

Trading up: On the World Bank’s India Development Update

The World Bank’s growth prognosis for India moots some policy shifts

In its latest India Development Update, the World Bank has raised its 2024-25 GDP growth forecast for the economy to 7%, from 6.6% estimated earlier this year. The projection is now in sync with predictions from the International Monetary Fund and Asian Development Bank, but a tad lower than the 7.2% uptick projected by the RBI and Fitch Ratings. Earlier growth hopes for India were slightly modest, partly due to its strong 8.2% growth last year, and prospects of the global economy staying weak due to restrictive monetary policies and persistent geopolitical tensions. The World Bank estimates global growth to be the same as last year’s 2.6% pace, way below pre-pandemic levels. Despite this subdued external environment and the dissipation of post-COVID-19 rebound effects, the Bank’s economists now expect India’s growth to remain strong this year at 7%. However, external risks could cloud this, including pressures on supply chains and commodity prices, and a resurgence of inflation that could compel central banks to hold interest rates ‘higher for longer’.

The Bank expects private consumption to rise 5.7% and the farm sector to grow 4.1% this year, from last year’s anaemic trends. A recovery in farms could offset a slight moderation in industrial growth, and revive weak rural demand and help bolster private investment in the medium term, with GDP growth expected to hover in the 6.5%-6.7% range in coming years. On India’s imperative to generate non-farm jobs, the Bank acknowledged ideas such as the Production Linked Incentive schemes to support private manufacturing investments, and the new Employment-Linked Incentives. But these may not be able to generate the scale of activity India needs to engage its young workforce. The Bank has emphasised the need for a rethink on India’s approach to a critical growth engine — trade. India’s global trade share does not match its economy’s size, and it is yet to capitalise on the opportunity presented by China’s withdrawal from labour-intensive production or the much-vaunted ‘China plus one’ global reset. A concern is a decline in export-related jobs over the past decade, flagged by the Bank, coinciding with a shift towards capital- and skill-intensive exports. While trade facilitation steps and the pursuit of free trade agreements are commendable, some like the one with EFTA have limited potential, it noted. Progress has been hampered by new barriers to goods, services and investments, and it has called for a new strategic trade plan that reduces tariffs, non-tariff barriers as well as FDI curbs, and a rethink of the reluctance towards multilateral/ plurilateral pacts such as the RCEP. Policymakers must heed this prescription in earnest, and urgently.

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Title: ​ Demolition squad: On the Supreme Court and ‘bulldozer justice’

In raising questions about the legality of the demolition of houses belonging to alleged offenders, the Supreme Court of India has articulated a valid and widespread concern about the use of the bulldozer as a form of retribution. The targeted demolition of Muslim houses has become part of the governance model in BJP-ruled States and if the Court can end the impunity with which these extra-legal measures are used by those in power, it would be a wholesome intervention. As Justice B.R. Gavai, heading a Division Bench with Justice K.V. Viswanathan, remarked, the law indeed does not permit anyone’s home to be demolished just because they are accused in a case, and it cannot happen even in the case of a convict. The judiciary cannot be oblivious to the political symbolism that the bulldozer has acquired as an instrument of collective punishment inflicted on those the authorities label as rioters. There are instances of the houses of named suspects being demolished, without regard to the fact that the rest of the family may have nothing to do with the offence. However, considering that local laws do permit removal of encroachments and unauthorised constructions, the Bench has articulated its intention to lay down uniform guidelines on a pan-India basis to streamline the procedure for action against such structures. Observations by Justice Viswanathan indicate that these may involve the manner in which unauthorised structures are to be identified, notices issued to those concerned and a fair hearing given to them before any action.

It is here that the Court should tread carefully. The laying down of guidelines should not send out a message that the obvious correlation between incidents of communal violence, and the demolitions that follow them, can be blurred by administrative trickery. In many cases backdated eviction notices are produced to justify these demolitions, even as obvious gloating over the inhabitants’ plight betrays the political and communal motive. The idea of digitalising eviction notices may address the problem of backdated notices, but it may not be possible to make the transition in all parts of the country. The real question that the Court should grapple with is whether the claim that only encroachments are being demolished is enough to justify the egregious violation of the rule of law and absence of due process in several recent instances in Uttar Pradesh, Madhya Pradesh, Haryana and Delhi. It ought to be clear by now that the ruling party in these States seeks to gain political mileage by giving the impression that the regime is acting sternly against anti-social elements, even while thinly masking the blatantly communal action by passing it off as an anti-encroachment drive.

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Title: ​ Another escalation: On the Manipur ground report

In a significant deterioration of an already fraught situation in Manipur, two persons were killed and at least nine were injured in a bomb attack using drones in villages in the Meitei-majority Imphal West district. The perpetrators are believed to be Kuki-Zo militants. Kuki-Zo groups and partisans have claimed that the attacks were in retaliation to an attempt by Meitei vigilante and insurgent groups to “ambush” Kuki-zo people in the area. While this claim remains unproven, the use of drones — a tactic employed by pro-democracy insurgents in Myanmar against the junta — points to a dangerous escalation of the ethnic conflict in the State. Coming in the wake of Chief Minister N. Biren Singh’s assertion that a peace resolution will be achieved in six months, the dastardly attacks could indicate that they are either a deliberate ploy to heighten tensions or just another reminder that ethnic hostilities remain entrenched. That insurgents could use sophisticated drones to attack civilians also suggests a glaring intelligence failure and the inability of the security forces to ensure that the militants are contained. The government has ordered police combing operations but this will not be enough. Unless there is a strong measure to disarm the various groups in the valley and the hills, the situation could exacerbate further.

For nearly 16 months, both the Union and State governments have been content with using security forces to maintain law and order through the creation of buffer zones between the hills and the valley and for the political status quo to remain intact. Repeated violence and the inability of both governments led by the ruling Bharatiya Janata Party (BJP) to work out any breakthrough that will allow for even a dialogue between civil society representatives from these communities suggest that this policy is a failed one. There is little doubt left any more that the hardening of ethnic identities among the Meitei and Kuki-Zo communities is a consequence of the failure of the policies pursued by the Union and State governments. Neither Prime Minister Narendra Modi nor Mr. Singh has changed tack since the setback faced by the BJP in the 2024 general election, when it lost both the Lok Sabha constituencies in the State. The Centre continues to ignore critiques of its lackadaisical approach, while Mr. Singh is hell-bent on remaining in power despite his incompetence and a distinct lack of confidence evinced by both communities. While the fresh attacks call for security forces to calibrate a strong response, a concomitant change in approach and leadership in the State is a must for a chance to be given to peace.

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Open season: On the U.S. Open

The new order in tennis has been a long time coming, but it is here 

There was a time in men’s tennis when the defeat of a favourite, the top seed or the defending champion in the first week of a Grand Slam tournament was less of a shock and more awe. But over the last two decades, wherein Roger Federer, Rafael Nadal and Novak Djokovic have been the hegemonic forces, such bursts of surprise have been few and rare. Seen in this context, the exits of Carlos Alcaraz and Novak Djokovic — against Botic van de Zandschulp and Alexei Popyrin, respectively — in a 24-hour span from the ongoing US Open appear seismic. Alcaraz is the World No.3, a four-time Major champion and a bona fide title-contender wherever he plays. Djokovic is the World No.2, the defending champion and winner of a men’s record 24 Slams. The reverses could well be attributed to the draining summers, physically and emotionally, Alcaraz and Djokovic experienced. The 21-year-old Spaniard won the French Open-Wimbledon double — among the hardest feats in all sport — and fought Djokovic tooth and nail in the Paris Olympics final before settling for the silver medal. Djokovic underwent a knee surgery in early June but made the Wimbledon final in less than six weeks after that before clinching the elusive singles gold medal in Paris, the one prize that was missing from his glittering cabinet.

In a larger sense, however, it is Djokovic’s third-round loss that can upend world tennis. Not since the 2017 Australian Open, when he lost in the second round to Denis Istomin, has the Serb gone out of a Major this early. It also means 2024 will join 2017 as the only two seasons since 2010 that have not seen him lift a Major. The failure is a telltale sign that Djokovic, at 37, will no longer be at the top of the totem pole. In fact, 2024 will be the first since 2002 without a Slam winner from among Federer, Nadal and Djokovic. World No.1 Jannik Sinner now has a golden opportunity to firmly establish the new order by adding the US Open to his 2024 Australian Open crown. The Italian entered New York under a cloud, with the revelation that despite testing positive for a prohibited substance twice in March, he was cleared of any wrongdoing. The 23-year-old wobbled in the first round but has since looked serene. Sinner is drawn to meet the 2021 titlist Daniil Medvedev in the last eight, a tough nut to crack despite having beaten the Russian the last five times on hard courts. But as the legendary Billie Jean King once said, “pressure is a privilege, and champions adjust”.

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Growth matrix: On the economy’s performance

Economic outlook is evenly poised but reforms need acceleration

The first official gauge of the economy’s performance so far in 2024-25 pegs real GDP growth at 6.7% between April and June, a five-quarter low and below the central bank’s projection. The Reserve Bank of India (RBI), which expects a 7.2% GDP growth through 2024-25 following last year’s 8.2% surge, had revised its estimate for Q1 from 7.2% to 7.1%, earlier this month. The actual numbers are underwhelming and mark a clear cooling in the economic momentum, although some base effects are in play. Growth in the Gross Value Added (GVA) in the economy came in higher at 6.8%, after a year of widening divergences with the GDP print. At the onset of this fiscal year, major hopes hinged on a normal monsoon boosting farm sector output and easing inflation, which could lift the weak rural demand and private consumption witnessed last year. Higher demand would bolster private firms’ propensity to invest in new capacities, and ease the pressure on public spending to prop up growth. That the government would still ramp up capital expenditure by 17% to ₹11.11 lakh crore this year, while it waited for this narrative to unfold, was the other pillar underpinning this year’s growth aspirations.

As things stand, this script is yet to fully play out. The stretched general election has sharply scuppered public capex, and the government will need to redouble efforts to meet its spending goals. The good news is that private consumption spends bounced to a six-quarter peak of 7.4%, partly thanks to easing headline inflation. But food prices remain elevated. The monsoon has been better than last year but a tad erratic and uneven, temporally as well as spatially. Farm GVA growth has moved up to a four-quarter high of 2% but the next few weeks will determine whether the sector rebounds in earnest (and food inflation cools). Projections of above normal downpours in September may well affect standing kharif crops. This is a key monitorable for the RBI, whose independent monetary policy panel members have flagged a 1% GDP growth loss this year and next, if interest rate cuts are delayed. India may still grow 6.5% to 7% this year, but most expect growth to slip to 6.5% in 2025-26, with the medium-term potential hovering around that number. This is too slow for comfort. As top IMF official Gita Gopinath pointed out recently, policymakers need to urgently pursue meaningful reforms across all aspects of the economy, and improve the efficiency of its institutions and the judiciary. This is critical to lift its growth potential and fulfil hopes of creating gainful employment for its young, fast enough for India’s demographics to yield a dividend.

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Title: ​ Biotech enigma: On the BioE3 proposal and beyond

Earlier this week the Cabinet cleared a proposal, though without specifying a budget, called BioE3 or Biotechnology for Economy, Environment and Employment. Its thrust is to boost manufacturing in the biotechnology sector. Since 1986, India has had a dedicated department for biotechnology, and which deserves substantial credit. For instance, the progress in vaccine development, diagnostics and biologicals, that has bolstered India’s reputation as a ‘vaccine factory’, is due to the initiatives of this department. However, biotechnology did not quite spawn the equivalent of the IT revolution. There is much more to an industrialised biotechnology sector beyond vaccines. There are billion-dollar conglomerates today that rest on high-value microbes, gene-modification technologies, bio-plastics, bio-materials, and high-precision medical devices. However, despite the know-how and human resource capital, only a few Indian biotechs have global resonance, as there are few local manufacturers who can supply Indian laboratories/startups with the ingredients and devices to make products. The reliance on imports means that India loses its international competitiveness. The BioE3 policy aims to correct this.

In the last four decades, India has funded biotech research institutions but now sees that it needs to be going beyond and setting up companies, in public private partnership mode, to bolster biotechnology manufacturing. There are six verticals that this initiative envisages: bio-based chemicals and enzymes; functional foods and smart proteins; precision biotherapeutics; climate-resilient agriculture; carbon capture, and futuristic marine and space research. Futurists have been saying that the era of fossil-fuel industrialisation is over and humanity will have to rely on the natural world — for food and for making consumer products. This is to solve the global problem of non-biodegradable waste and carbon emissions. Future industries must be grounded in environmentally benign products, and this is impossible without sophisticated biotechnology. By setting up bio-foundries and bio-artificial intelligence hubs, the policy hopes there will be avenues for a variety of biotechnologists to congregate. Well intentioned this may be, but India’s woes with manufacturing have chronic causes. Without establishing enabling grounds for long-term capital investment — and these have little to do with biotechnology per se — top-down initiatives will have limited impact. The BioE3 policy must be a deeply collaborative effort between Centre and States. Rather than expect quick returns, the government must provide financial and infrastructural support over the long term.

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