IASbaba’s Daily Current Affairs – 25th September, 2015

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IASbaba’s Daily Current Affairs – 25th September, 2015

INTERNATIONAL

India: No-more ‘a recessed power’

UN Sustainable Development Summit:

• With a pivotal role to play and having a positive correlation with the estimated success of the 2030 agenda, India is being viewed as ‘engine of the south’. A decadal 8% growth rate of India saw much progress with the implementation of the social security schemes successfully.
• With an increased enthusiasm, the level of expectations from India has increased with respect to the achievement of the goals as well as facilitating low-cost innovation and technologies to the developing countries.

Silicon Valley:

• Technology + Innovation + Clean Energy is the key towards a long-standing collaboration of India-US
• “India-US Start-up Konnect” initiative will be helpful in linking innovations of both these countries closely.

UNSC- The ‘Right’ Ignored:

• Japan + India + Brazil + Germany came together as the Group of Four (G-4) in 2004, in favour of the expansion of U.N Security Council and a bid to acquire permanent seats for themselves.

Challenges:

• Probable dilution of the magnitude of the ‘Right to Veto’ which guarantees an exclusive and dominant role to be played as well as their extra-ordinary privileges
• Flaring up of regional competition w.r.t. the ongoing conflicts or differences of ideology

India’s Right:

• Founding member of the United Nations
• Biggest democracy in the World
• One of the largest constant contributor of troops to United Nations Peacekeeping Missions
• Over 8,500 peacekeepers in the fieldà Twice (more than UN’s five big powers combined)

The New Prism:

• 2008 financial meltdown: India was invited, and agreed to become a member of the G-20 to join hands with the other economies to help the world deal with the tight fiscal situation.

• International Atomic Energy Agency (IAEA) and the Nuclear Suppliers Group: Sanctifying India as a responsible ‘nuclear member’ of the world

• Extremism: India is placed strategically to deal with the expanding base of the Jihadist groups and others, and is capable in lending the world a better approach and flexibility to blunt the offensive actions

• Refugee Crisis: The current Refugee crisis and the brave show put up by India, time and again, has pacified the global community showcasing resilience and inherent strengths; providing a benchmark as well as a model to emulate.

• Cooperation: Both India and Germany with their willingness, human resources and skills can help the world get rid of the crisis, portraying to the world its willingness and suitability to carry forward the goal of a ‘one community world’.

IASbaba’s Views:

With great power comes greater responsibility and India’s movement from a ‘State-centric approach’ to a ‘multi-stake-holderism’ has made the world recognize India as a ‘global power’ in the 21^st century.

But:

• There is a need to present the ‘growth versus sustainability dichotomy’ in a better light which will be possible only with the formulation of innovative policies and citizen-ownership of goals with greater flexibility, at all levels.

• Economic Resurgence should be signalled with a full reorientation of India’s willingness to shoulder the geopolitical responsibilities and delivering on reforms promised.This productive moment should also be leveraged with preferential trade deals, investment treaties facilitating commercial ties, encouraging greater economic and technology flows and it should be synced with a simultaneous domestic economic reforms.

Connecting the Dots:

• Indian Diplomacy today is guided by a new multilateralism. Examine the principles on which India should progress ahead to re-align its aspirations in becoming a ‘Leading power’.

ECONOMICS

Indian economy staring at deflation, Is it a good news? 

Paradox in Indian Economy:

Food prices continued to be high, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.

Understanding WPI and CPI Index:

The WPI and CPI index often move at different paces and even in different directions because they are each calculated using different baskets of goods and services.

The consumer price index, for instance, measures the prices of services as well as manufactured goods

The wholesale price index only looks at price changes for manufactured goods.

• Based on WPI inflation, India is in a deflationary situation because, for the 10th straight month, inflation is in the negative zone.
• That is, prices have been falling every successive month.
• As compared to the deflationary trend in the WPI, the CPI is experiencing disinflation. That is, while prices continue to rise, the rate of inflation (or price rise) is slowing.
• This is contrary to what the trend in the WPI suggests. In essence, it implies that consumer prices continue to rise, but at a progressively slower rate.

By looking at both these indices (WPI and CPI) one would, be unable to come to a conclusion regarding deflationary pressures. The ongoing confusion about whether or not India is experiencing deflation is largely due to the divergence in these two main price indices of the economy.

Points to be noted:

• Central Statistical Office (CSO) has started providing CPI numbers for rural and urban areas.
• The CSO also provides CPI data for 22 states.
• This data can provide some regional perspective on inflationary trends for the purpose of macroeconomic policymaking.
• The trends in both rural and urban areas suggest that the divergence in urban areas is less than the divergence in rural areas.
• This suggests that the decline in inflation in rural areas across the states is less uniform.

Way Forward:

• Under the circumstances, and to avoid confusion, it might be a good idea to discontinue the WPI and focus on a producer price index (PPI).
• A PPI maps the prices received by domestic producers in the wholesale market and is, as such, a better measure. The work for building a PPI is already underway.
• So instead of using WPI data and arriving at erroneous estimates of GDP growth and its deflators, it would be better to simply dump the index itself.

IASbaba’s Views:

• Deflation is a real danger. While India may appear to be far from a deflationary situation, there is clearly disinflation in the economy.
• This deceleration in inflation could be due to external factors as well as a fall in domestic demand.
• Monetary policy, while focusing on the headline and sectoral prices, also needs to take into consideration the regional inflation perspective.
• Both the Centre and the states should work to ensure that rural consumption smoothens. Else, growth in India might take much longer to recover.

Difference between Deflation and Disinflation:

Deflation is a decrease in general price levels of throughout an economy. If there is a higher supply of goods and services but there is not enough money supply to combat this, deflation can occur. Deflation is mainly caused by shifts in supply and demand. It can be called as negative inflation.

Disinflation, on the other hand, shows the rate of change of inflation over time. The inflation rate is declining over time, but it remains positive.

Connecting the Dots:

• In your opinion what is more dangerous for an economy, deflation or disinflation? Is India trapped in deflation or disinflation? What could be the reasons?
• Highlighting the difference between deflation and disinflation, suggest ways to solve the WPI and CPI anomaly.