An Indian Economy That Is Surging Towards $7 trillion in GDP and 3^rd Position Globally By 2027 Posts 7.2% Growth In Fiscal 2022

The end of the coolest May in 36 years in India’s capital New Delhi, brought the bracing news from the National Statistical Office (NSO), on May 31^st, that the annual growth rate for the last fiscal is 7.2%.

This matters more when the inflation rate has slowed to an 18-month low of 4.7%. 

Contrast this with European economies and those in the Americas which are seeing double-digit inflation in some cases, and next to no growth or recession as in Germany, the biggest economy in the EU.

India is now, and has been for some time, the fastest growing major economy in the world, described by the World Bank, IMF and other multilateral lending agencies as a ‘bright spot’ in a sea of gloom. And, despite our low per capita income, spread over 1.42 billion people, we are still 3^rd largest already in purchase power parity (PPP) terms.

This 7.2% GDP growth is on the back of 6.1% growth achieved in the January to March quarter that ends financial year 2022-23.

Of course, this 7.2% closing for fiscal 2022 comes after a 9.1% growth in fiscal 2021-22, to remind us of what is not just possible, but likely in the years ahead. Particularly, as it saw a 13.1% growth in April-June 2022. But even if we stay at no more than a sedate 6 to 7 percent growth year on year in the decade ahead, we will still become the 3^rd richest major economy.

 India is currently at $3.3 trillion in GDP. The projection is to reach $ 5 trillion in 2025, delayed somewhat by Covid and the vagaries of the Russia-Ukraine War. And a figure of $ 7 trillion or more by 2027 when we would have overtaken both Germany and then Japan.

Our foreign currency reserves have stabilised close to $ 500 billion, even as we extend rupee trades and UPI digital trades with a number of nations. This is despite rupee weakness and its declining value against the US dollar.

The rupee is weak because the dollar is strong and we hold most of our reserves in US dollars. And because we run substantial trade deficits with most of our biggest trading partners, including America and China.

This current scenario is on account of improved numbers from agriculture, at a 5.5% expansion. There are increasing attempts and awareness of modernisation in methods, resulting in efficiency, better yields, superior storage and cold-chain facilities. There are still too many people employed in agriculture. This is giving way to sweeping mechanisation, more than ever before.

But the fact is, even with inefficient agriculture, low yields, bad storage conditions, massive wastage, we are food grain surplus enough to feed several other countries in need, as was seen during Covid. Our sugar, again in surplus, is being exported at a good price currently.

Manufacturing, which is featuring much more strongly on the economic map than heretofore, saw a 4.5% surge in the January-March 2023 quarter, compared to a minus 1.4% in 2021, and just 0.6% growth a year ago. It is expected to seize a full 5% points by 2030 from the expanded GDP pie. That is will employ many people in the process, is one of the reasons why it is being given high priority by the government also.

Mining, up at 4.3% in the final quarter of fiscal 2022 compares to 2.3% in the same quarter a year previous. It has revived on the back of fewer environmental restrictions.

The construction sector grew 10.4% in the fourth quarter, up from 4.9% in the corresponding quarter in fiscal 2021, coming out of the doldrums, despite the Modi government’s sustained attack on black money often associated with this sector.

The government should encourage this sector because it has the ability to absorb much of the rural migration to cities in search of work as well as contribute almost, if not more handsomely, to the GDP, than agriculture.  

The services sector such as trade, hotels, transport, communication surged to 9.1% in the fourth quarter, up from 5% a year before. People have shrugged off the pandemic and are moving themselves as well as goods and services. Tourism too has picked up as has railway and air travel in modernised facilities.

There is also some fiscal consolidation based on good revenue collections, and this has actually reduced the fiscal deficit in 2022. By 2025, the government expects the fiscal deficit to be no more than 4.5% of the enhanced GDP figures.

To paraphrase an oft quoted saying, you can’t keep a good economy down. This has relevance because many developed economies which prefer to look at India as a place to sell to, are nervous about opportunities going forward, particularly with increased aatmanirbharta and the price competitiveness India offers.

India is actively wooing the relocation of supply chains from China, and a big company, amongst the very biggest, Apple, has responded to an extent. Semiconductor manufacture may soon come to India. In a decade, India can become a significant exporter of military equipment as well.

Some analysts however are projecting lower numbers in 2023-24, lower than fiscal 2022 estimates of just 6.5%, citing global headwinds and lower exports.

The lack of enough capital expenditure from all except the top tier such as Tata, Reliance and Adani in the private sector, is also a projected drag on growth.

However, consumption has picked up quite sharply, and could blunt this pessimism. Again, there are those who think consumption is linked to higher wages, and may not go up as much as all that.

Government expenditure on infrastructure development is expected to continue soaring as it tries to unclog all logistical bottlenecks to reduce costs by as much as 5%. So, this development acts as a foundational force for the Indian economy, and is also being used to connect neglected parts of the country.

The infrastructure sector embracing coal, fertiliser, electricity showed 7.7% growth in Jan-March 2023 and should continue to boom based on demand.

Arch-rival China, which is now being accused of inflating its GDP numbers and other statistics, grew its economy by only 4.5% in the Jan-March 2023 quarter. China claims $ 18 trillion in GDP even now, but objective observers from outside peg it more realistically at between $ 7 to $ 9 trillion, not very much more than double or treble that of India. This, despite 30 years of tremendous growth from the 1980s in the Deng years.  But this was before the woes of a global slow-down, Covid, the war in Ukraine, its own belligerence resulting in global supply chains being altered. This has coincided with very low growth or recession in most of the West.

The lack of revenue and a massive accumulated external and internal debt of over $ 23 trillion has also stymied most of China’s belt and road projects abroad. However, as a totalitarian near dictatorship, many Western investors and analysts have confidence in the Chinese story, and its ability to deliver, over and above the tumultuous volatilities of a democracy such as India.

It is this perception based on years of a profitable relationship, that prejudices many Western analysts to ignore the considerable distance in supply-side reforms that India has travelled in the last nine years of the Modi administration. They continue to carp about underperformance against India’s potential, and rich equity valuations in the Indian stock market.

Some, like Ridham Desai, now MD at Morgan Stanley, point favourably to India’s policy reforms, particularly transformative infrastructure development, massive growth in broadband subscribers, digital transactions that now account for 76% of GDP, steady growth in GST collections, a competitive corporate tax structure.

However, takers for the India story are largely amongst the lending and rating agencies, Western countries and their politicians who think they can turn it to their advantage, and the denizens of the domestic market.

The domestic market is the primary driver for India and has the ability to take it to No.3 even without a significant export market, albeit slower.

There is also some scepticism about the possible strength of the Modi and BJP win in 2024, a consecutive third term. If there is less than a majority for Prime Minister Narendra Modi and the BJP on its own, it will seriously affect India’s progress in future. This particularly with a highly Socialist section amongst the influential opposition parties, wedded to a culture of populism and ‘freebies’. The BJP under Prime Minister Modi’s leadership would be weakened, and it would have to compromise a lot at the head of a ruling coalition.

Some other long time India backers, like Christopher Woods, currently Global Head of Equity Strategy at Jefferies, says India’s resilience, both in its real economy and its stock market, has been impressive. He also thinks the stock valuations have been matched by earnings growth now. And he says, investors have begun to sell China, implying that more investment will come to India.

Also, though Woods did not say this, the monetary tightening stance of the RBI, that took up interest rates nearly 300 bps, is now over. As interest rates start coming down after a holding period, it will set off another economic boom in the real economy and a bull run in the stock market.

There are others, ethnic Indians like Ruchir Sharma of Rockefeller Capital Management and Fareed Zakaria of CNN, both long term commentators and critics on the socio-politico-economic scene in India, that have turned unequivocally bullish.

The tide has turned. It is India’s time and so we can surely expect to be presented with a very different set of options within a decade. Today’s economic numbers are a harbinger of this.

(1,612 words)

June 1^st 2023

For: Firstpost/News18.com

Gautam Mukherjee

 

 

 

A See-Saw Election Favouring Congress That Wants To Do Without An Alliance With the JDS

At 10.30 -11.00 am on the 13^th of May as the seventh to eighth rounds of counting was ongoing, the Congress Party was clearly ahead in the Karnataka assembly elections. The Karnataka electorate, true to form, was getting ready to change horses after the end of the BJP term in office. BJP could not beat anti-incumbency of a strong order, unlike in the minor disgruntlement in Gujarat.

Congress was ahead by two seats beyond the half way mark of 113, given that one person will exit to become the Speaker. However, for the stability of the incoming government, the Congress tally needs to be better than 120. As the counts progress, these figures could well be achieved, and Congress Party commentators are quietly saying so.

At 1 pm. Congress had 128 seats, a little later, 132, prompting a euphoric CM aspirant and probable Siddaramaiah, to  address the press. He not only expressed pleasure at the results, beaming throughout as fire crackers were let off, but waxed eloquent. He suggested this election was important as an indication that the people of India wanted the Modi government out at the centre too. He said multiple rallies addressed by Prime Minister Modi were to no avail in Karnataka. With Opposition unity, the BJP could be ousted at the Centre, and Rahul Gandhi could become prime minister.

How all this, designed to please the Congress high command, will sit with other aspirants in the Opposition, is the question.

This figure of 132 seats won is just as well, as the Congress can now launch its government without any fear of defection or erosion of its majority for other reasons.

The only way the Congress government in Karnataka could crumble now is if there was a major split due to internal rivalries, a possibility that the BJP could well look into, given its past record.   

The anti-incumbency affecting the BJP has restricted it to under 70 seats. The charges of rampant corruption and lack-lustre leadership have bitten deep, as has the partial abandonment of the critical Lingayat community. Apparently, certain Lingayat Mutts were angered by demands for commission as kick-backs from the monies paid to them by the BJP government.

A ‘double engine’ sarkar with an incompetent, weak, corrupt, local engine, clearly does not work. With the media saying so for long in the lead up to the elections, why did the BJP leadership choose to ignore this ground reality? They not only lost the support of some of the Lingayats, but also the tribals that had voted solidly for the BJP in 2018.

Party President JP Nadda and Home Minister Amit Shah have to introspect and course correct. It is not enough to use the charismatic Prime Minister Modi at the penultimate moment to compensate for all local problems. In the end, it ends up embarrassing him too.

The forthcoming assembly elections in Madhya Pradesh, Rajasthan and Chhattisgarh are all direct contests between the BJP and Congress. The BJP is now seen as vulnerable, their strategies ineffective and in disarray. The Opposition can feel strengthened with Congress as its national pivot provided this can be sold to the regional satraps.

If BJP is not able to reverse its losing streak in the remaining assembly elections before the general elections of 2024, it may be in trouble for them as well. Even on a post-election basis, assuming the ultimate leadership issues are not solved in advance, the Opposition could come together to oust the BJP unless they win a majority of the seats.

Can the BJP, perceived by many as arrogant, looking at two losses in a row, after Himachal Pradesh, both in direct one-on-one battles with the Congress, learn from this one?

In both elections, Congress stuck closely to local issues and offered well designed incentives and sops for the people. These were apparently appreciated by the voters, most recently the so-called ‘five guarantees’ in Karnataka. BJP did not change strategy in response.

And with an increasingly remote High Command, many of the BJP’s core voters feel let down. They voted for a Hindutva promoting party, and not one that is increasingly wooing the minorities with little result.

The past tells us that assembly elections have often been decided on local considerations and national issues do not have much resonance. The same people generally vote differently in Lok Sabha elections, but is the Narendra Modi led BJP going into elections in 2024 representing its core voter interests? Items such as the Uniform Civil Code are only promised at election time in state after state and then quietly shelved.

Many seem to think Chief Minister Yogi Adityanath In Uttar Pradesh is doing a better job at what the core BJP voter expects, than the Modi-Shah combine at the Centre.

The loss of Karnataka is a loss of BJP’s only gateway to the South of India, except for an NDA presence in Pondicherry, and the impact of this loss will be profound. With talk of a breakaway Republic of South India, possibly as a pressure tactic, Rahul Gandhi’s notions that India is a ‘Union of States’ and mention of Karnataka’s ‘sovereignty’ by Sonia Gandhi in a recent speech, the implications can be ominous.  

Things may have gone very differently with a strong BJP local leadership in Karnataka. For example, Uttar Pradesh had municipal local elections simultaneously, with the BJP sweeping them. The strength of the Yogi administration is cited as the main reason. And this in the Yogi government’s second consecutive term in office.

The Basavraj Bommai administration in Karnataka, by way of contrast, displayed neither energy and charisma in the election campaign, nor administrative skill over his term. He came out to concede the election at about 12.30 pm.

So why was Bommai, who has not performed, retained for the entire length of time? So many incumbents were replaced at the time of handing out party tickets for this election, so why not Bommai? Can Bommai, who is still in position, lead the opposition for the years going forward which will see a general election in 2024?

The marginalisation and on-off usage of Lingayat patriarch BS Yediyurappa has also cost the BJP dearly, and not for the first time. LK Advani had also pushed out allegedly corrupt Yediyurappa in the first BJP term in Karnataka, resulting in the loss of the state. Introduction of Yediyurappa’s son to compensate for his absence in semi-retirement in this election, did not pull the same weight with the voters.

Congress ultimately does not need to reach out to some of the five to seven independents showing leads, in order to bolster their numbers. Nor does it need the help of the ‘kingmaker’ JDS, which ended up with around 20 seats.

However, all is not necessarily well. There are extreme rivalries between top Karnataka Congress leaders. One between former Chief Minister Siddaramiah and aspirant State Party President DK Shivakumar. Several other Congress leaders are there with ministerial ambitions they won’t like to be done out of. One more incoming MLA from the tribal community, KH Muniyappa, wants to be chief minister too.   Dalit Congress Party President Mallikarjun Kharge’s name has also been put forward by DK Shivakumar as a possible CM contender.

In the end, the senior Siddaramaiah, who said this was his last election, will probably be chosen to lead the Congress government. DK Shivakumar, a life- long Congressman, who is only 61, may have to wait his turn.   

(1240 words)

May 13^th, 2023

For: Firstpost/News18.com

Gautam Mukherjee

 

The West Insists On Earning Bad Karma By Insulting Hindu Gods Thinking No Harm Will Come To Them

There is basic incomprehension in the largely Abrahamic West when it comes to Ma Kali. Of course, it is not just Ma Kali. The West has discarded the large pantheon of Roman and Greek Gods of old, with their passions and contradictions that might have provided an insight.

Very few in the West understand our ancient religion which many of us call a way of life as well. Except, that is, for a most respectful sliver of those who are aware of the nuances, subtleties and tenets of Hinduism. These few people know it is a loosely woven repository of wisdom and spiritual knowledge combined with science, yoga, meditation and astrology. It has survived thousands of years without ever taking to the sword or trying to convert anyone.  And there are many paths to salvation within its teachings.

To Hindus these aware people in the West are born again Hindus in the Western sense of having found new or dormant religious beliefs in adulthood, or are simply reincarnations of Hindus.

It is the oldest religion in the world, going back over 10,000 years, in contrast to Abrahamic religions, all born cheek-by-jowl in the deserts around present day Jerusalem and Mecca, at less than 2,000 years ago.

At its core, the Hindu religion embraces paradox, illusion it calls Maya, redemption, contradiction, all to the utter exasperation of the Western mind. It is very hard for a superficial appreciation of it to make its way in the maze most Hindus proudly embrace, and take for granted since birth.  

So, for most Westerners giving to ‘either-or’ binary thinking, it is just so much horrifying and self-serving paganism, practiced by India’s caste-ridden teeming millions, at least by over 75% of them.

The Abrahamic Muslims, converted largely by force in the subcontinent, Shia, Sunni, Ahmadia, Bohra, Aga Khan’s followers, some 20% of the Indian population, are schooled to think likewise.

If they belong to Opposition political parties, they regularly insult Hindu Gods. This includes many with ostensible Hindu names out to insult the BJP, Hindus and Hindutva, while pandering to their own minority vote banks. This is, after all, a very large number of people, given India’s population is now around 1.42 billion people. Their notions, of ‘animal worshipping’ Hindus that drink cow urine, with 33,000 crore Gods to their one, are also upheld and used by the subcontinental Mohammedan diaspora.

This sort of prejudice is backed to an extent by a smattering of erstwhile subcontinental Roman Catholics and Protestants, perhaps frustrated in their attempts to convert more and more Hindus. Recent legislation against forcible or inducement based conversions has cramped their style. Clamp downs on illegal NGO funding is another flashpoint.

However, this evangelising and conversion does not hesitate to incorporate Hindu symbolism and that of the Sikhs to draw in their prospects. Bhagwa and tilaks are used, Christ and the Virgin Mary are depicted considerably Indianised, congregations are called satsangs.  

All this influences  and confounds the surface skimming White man in his views on Hinduism. He has enough Hindu-hating sub-continentals to take a cue from. The virulence against is even more pronounced amongst the Pakistanis abroad, brainwashed to hate Hindus from birth. So many poison pen pieces are written and TV shows anchored by ethnic sub-continentals.

Most Christian and Muslim preachers in India attempt to look down on Hinduism as just so much sacrilegious activity of unbelievers destined to never be admitted to Heaven. The same song is sung in mosques and churches frequented by sub-continentals abroad in the West.

 But any Hindu will tell these blasphemers, because that is what they are from the Hindu perspective, that it is not at all a good idea to insult or denigrate Ma Kali, even if it is born of ignorance and prejudice.

Karmic retribution, Hindus believe, will certainly follow. This is a grand belief that does not involve the slaughter of the Kafir or non-believer in the Abrahamic style. Not a finger needs to be lifted against the culprit, because he will be made to pay for his sins automatically by the workings of his Karma and the ‘Akashic Record’ of his deeds. Particularly, it is said, the motivations behind them.

The plight that post-Brexit Britain finds itself in these days, its reduction to a middle grade power, that too in terminal decline, many Hindus believe, is because the British are now paying for their atrocities in India during their colonial domination. They are finding difficulty in feeding themselves and paying their day-to-day bills. Karmic retribution, it is known works for centuries, is carried over from past lives. It is also inescapable.

That the British inflicted great hardship on many other countries during their imperial period, the same Hindus believe, will also be counted and duly punished. Of course, the West as a whole, thinks all this is so much esoteric mumbo jumbo, but a few amongst them are not so sure nowadays.

The White man is generally caught up in Ma Kali’s popular depiction. There she is, nude and blue, with a Kharga dripping with blood in one of her hands, her tongue sticking out in error at having accidentally stepped upon her Lord, red and vivid, a garland of human heads around her torso and waist, proud breasts exposed, hair worn long and open. She is standing with one leg on her husband Lord Shiva, lying prone at her feet.

That Ma Kali, sometimes the burning ghats Ma Kali, sometimes worshipped by bandits and thugees, is also Lord Shiva’s generally benevolent consort Parvati as well as Ma Durga, is lost on these people of little knowledge. The same deities with equally valid and myriad forms, is a concept hard to grasp for occidental thought.

To the ignorant and propaganda-soaked White man, brought up on racist ideas, this striking depiction of Ma Kali in her retributive form, is conveniently representative of innate Hindu bloodthirstiness. It can therefore always be used against the Hindu religion and its practitioners. We are meant to be savages beyond redemption because of our regressive religion without borders, beginning, or end. It is another matter that Hinduism spread across a large part of the Asia-Pacific along with Buddhism without any attempt at conquest.

 The White man does not do much better with the Pashupati Lord Shiva in his animal skins and his necklace of cobras, Lord Ganesha with his elephant’s head, Lord Hanuman in his form of the celestial monkey, even Buddha, his ribs showing, meditating interminably under a Bodhi tree.

There’s Lord Vishnu, lying on a raft made of the divine snake Sheshnag, quite often with his wife the Goddess Lakshmi. And another blue-hued Sri Krishna playing his flute surrounded by cows and his band of loving Gopikas. And this is just a sampling, without going into the avataras of each God, and indeed our 33,000 crore deities. There is nothing ridiculous about it but it is too much to expect Abrahamic religions to understand this.

Ma Durga, again depicted in multiple forms with different aspects, is yet another form of Lord Shiva’s consort. She is almost always depicted fighting evil, killing demons called asuras, riding a lion, weaponry in several of her hands. It goes on and on.

Ma Durga’s children- Lord Kartikeya, a bold warrior and epitome of male beauty, Ma Lakshmi, the Goddess of Wealth, Ma Saraswati, The Goddess of Learning, Lord Ganesha, the learned one, who wrote down the epic Mahabharata as the sage Vyasa recited the verses, is the auspicious God of all new beginnings. He is always prayed to first.

And then there is the deep and abiding belief in reincarnation, the quality of a subsequent life based on one’s deeds, the indestructability of the soul. The concept is shared by spin-off religions like Buddhism and Jainism as well.

The Abrahamic religions have suppressed the doctrine of reincarnation, though the doctrine of the resurrection exists in Christianity to this day.

So what does the West understand when it depicts our Gods on underwear, floor-mats, chappals, umbrellas and so forth, and when in civilised mode, on T shirts?

Sticking to Ma Kali in the main here, it is clear that when the West wants to be particularly malicious about Hinduism, Ma Kali in her retributive form, is the chosen deity. There’s enough blood and gore there to titillate Western audiences.

The irony is, sometimes there are sub-continentals, even putative Hindus, living in Canada, for example, Leena Manimekalai, who depicted Ma Kali with a Pride flag in the background, drinking, smoking, street walking in Toronto, in a film launched at the Aga Khan Museum there. The Museum took the film down after the ensuing outrage from Indian lawyers and others, but the filmmaker remained unrepentant. She proceeded to brazen it out. Its free publicity, after all, for the woman who had made an execrable film, safe in the knowledge that Hindu outrage won’t result in her being beheaded. But the bad Karma that comes from this kind of thing is undeniable and that she will have to pay for.

The Hindu public is agitated also at the constant insults to its Gods in the largely ISI, Qatar and other elements antithetical to India financed Bollywood films. Of late, several have been boycotted involving some of its storied Muslim and Woke stars.

Companies that show Hindus in a bad light, or nudge them towards Islamic cultural mores in their advertisements at Diwali and Holi, such as Tanishq and Fabindia have also faced the brunt of public disapproval.

One of the most pernicious and predatory phenomenons recently is the practice of ‘Love Jihad’ that cold-bloodedly lures Hindu and Christian girls into conversion and often grisly ends thereafter.

A famous Sufi shrine in Ajmer has lost a lot of its Hindu worshippers because of relentless and gratuitous insults to Hinduism, and support in the beheading of a Hindu tailor in Udaipur by  ISI trained  and radicalised terrorists.

Hindu festivals are subjected to Muslim stone-pelting on a routine basis these days, though the converse is much more rare. The same applies to cattle smuggling and illegal slaughtering.

The good thing in a sense is that the Hindu majority has awakened at last, and it is no longer an easy one way street. If nothing else, the enormous buying power of the Hindu is acting as a deterrent.

The latest effort at foreign denigration has come from a Ukraine being slowly demolished by Russia. The perpetrators may be annoyed with Indian neutrality in the Russia-Ukraine War. And so, Let us insult Ma Kali.

Ukraine’s Defence Ministry tweeted an image of Ma Kali over a blast fume and labelled it ‘Work of Art’. Following outrage from Indian tweeters, the Ukraine Defence Ministry did delete it fairly rapidly. What purpose did it then serve?

The concepts of Hinduism are too deep and ancient for these cheap shots to make any difference. However, the problem of hostility to Hinduism, Hindutva, in the only country with a massive Hindu population, under siege to an extent by rapid increases in Muslim population, is going to take a lot of work to set right.

(1,849 words)

May 1^st, 2023

For; Firstpost/News18.com

Gautam Mukherjee

 

China Sets Up A Military Base At Cocos Islands As Part Of Ambition To Dominate The Indian Ocean  

Despite the era of very efficient spy satellites that can focus on objects the size of a generous handkerchief, China has been proactive in setting up its spying and military facilities in the Myanmar owned Cocos Islands, 300 km off the Myanmar coast. This is with the newly minted junta’s blessings, after it staged a coup in 2021, and got rid of Myanmar’s elected government.

However, the fact is, the Chinese have been present on the islands since 1994, when they apparently leased one of them from Myanmar. The Cocos Islands are just 55 km from India’s Nicobar Islands.

With India’s decision to militarise its presence in a comprehensive manner all along the 638 km of the Andaman and Nicobar Islands, the present upgrading at one of the leased Chinese Cocos Island assumes special significance. But can it do very much beyond the obsessive spying?

India’s plans for its own territory are far more substantial. It is upgrading the airport at INS Kohassa, Shibpur, in the North Andamans, as well as at the Campbell Airport on Nicobar Island into full-fledged fighter bases. The airport at Agatti in Lakshadweep is being transformed for military operations to secure both the Bay of Bengal, and the Arabian Sea up to the Gulf of Aden. Anchorage for Indian Navy ships and those from other friendly countries is being created. Submarine and unmanned underwater vehicle facilities are likewise being strengthened. Drones, UAVs,  surveillance and fighter aircraft facilities, accommodation of personnel etc. are all being transformed. India has truly bitten the bullet on this militarisation.

The islands will now vastly extend the Indian Navy’s reach in the region, 1,000 Km from the Indian mainland, and secure all of triangular India. The armed forces are getting ready to move simultaneously at sea if there is any aggression on our land borders or against our blue water assets.

Lakshadweep sits on the Nine Degree Channel. It lies on the 9 degree line of latitude north of the equator. The Andamans and Nicobar Islands together are being prepared to dominate the Six Degree and Ten Degree Channels towards South East Asia and North Asia. This is being done on a theatre command basis, using a joint Tri-services model so that it can operate efficiently.

 Of late, the Chinese have built updated listening posts, installed new radar and beefed up the runways to receive all manner of military aircraft on Cocos Island. They have built hangars, accommodation, and other infrastructure. All this is plain from Indian and American satellites monitoring the islands.

China has also been flying spy balloons over the Andaman and Nicobar Islands, mapping the ocean floor around the area for its submarines, and spying on ship movements in the Bay of Bengal, and along the East coast of India, including its satellite and missile launch sites there.

The Chinese are also seeking to set up a military base on Sri Lankan land near the state-of-the-art Hambantota Port, which China has built and acquired on a 99-year lease. China has been sending its spy ships there as well.

China is also expanding its presence and facilities at cash-strapped Cambodia’s Ream Naval Base.  It is ‘assisting’ the setting up of naval bases at Kyaukphu, Manaung and Haing Gyi in Myanmar, plus at Mergui and Zadaikyi Katan Islands in Thailand.

All this in addition to their other presence in Djibouti, off Karachi in Pakistan, the island of Feydhoo Finolhu in the Maldives leased by it, and via greater access to Iranian ports near the Persian Gulf.

 After recently declaring that the Indian Ocean is not Indian, just because of its name, China is pursuing its goal of trying to dominate the IOR. But China is at a disadvantage with their facilities being built in politically unstable regions that could undergo changes in government and consequent reversals in policy. Besides, The South and East China Seas are not just Chinese.

India is much better off with its tri-services bases coming up in the Andaman and Nicobar Islands. One end overlooks the Malacca Straits, just 80 km away, which links the Indian Ocean with the Pacific and oversees the Bay of Bengal. The other end of the islands secures the Arabian Sea.

The islands belong to it, and India’s QUAD/AUKUS and other alliances act as a force multiplier with interoperability and regular joint naval exercises in the region.

China is desperate to find another viable trade route in addition to the well- used if not congested Malacca Straits, that carries some 20% of global trade as well. Other potential routes are at least 1,200 km longer, need to be thoroughly surveyed and mapped for weather, currents, draughts. Lonely civilian cargo ships and tankers are vulnerable to attack from pirates, in the absence of heavy security accompanying. All this puts up the Chinese costs.

Unfortunately for China, it is not possible to definitively secure the Malacca Straits exclusively for itself. It is an international passageway through another country and is used by many nations.

China has been trying to interest Thailand in creating a new sea route between the Indian Ocean and the Pacific by ploughing through a narrow water-way, Suez Canal style, at the Kra Canal. The proposal is being talked about, but it hasn’t got very far. It has, in any case, been pending for over 70 years. The Kra Canal is meant to slice through the Malay Peninsula about 800 km south of Bangkok, to connect the Gulf of Thailand with the Andaman Sea.

Do either China, or a politically turbulent Thailand, have the money to get this done in the present straightened circumstances? President Xi Jinping led Red China, which now accounts for half the total global debt, along with the United States, also has precarious finances caused by a drastic shrinkage of its exports. Its domestic construction companies and manufacturing facilities have crashed and domestic consumption is sluggish. Chinese GDP has shrunk from double digits to around 5% per annum or less.

The IMF calls this particular cocktail of revenue stress and gargantuan debt, the ‘doom loop’. So, will the Chinese economy, second largest in the world at $ 18 trillion, but with very few of the inherent advantages of the $ 25 trillion US economy, spontaneously split wide open?

China is obsessed with checking India in the IOR, and indeed as a rival in the Asia Pacific and on the world stage even though we are presently only at $ 3.5 trillion GDP. The fear is that in five years time, India is likely to be at $ 10 trillion in GDP and it will be too late to check us. But the IOR is much bigger than just India.

 It is an enormously strategic ocean for the world, through which 70% of global oil, 35% of bulk cargo, and 54% of container cargo passes. China receives 80% of its own oil, and 60% of its other goods via the narrow Malacca Straits.

Fortunately therefore, it is not just a matter of China surrounding India with its ‘string of pearls’. India has been countering its encirclement with radar bases of its own in the Seychelles, a more substantial set of facilities in a leased island off Mauritius close to Diego Garcia, access to an Omani base at Duqm, and so on.

France is present in Reunion, Mayotte and Tromelin Island chains.

America has long had a huge base on Diego Garcia with a 12,000 ft. runway for all types of aircraft. It has anchorage facilities for the world’s largest aircraft carriers and associated warships, and at least 250 military aircraft based on the island, including Poseidon surveillance aircraft.

The US maintains two Carrier Battle Groups and three Amphibious Task Forces ( ATFs) involving some 100 warships and over 40,000  naval personnel in the region.

The Chagos Islands have a British presence.

The Australians are also on some of the Cocos Islands.

The Russians, French, British, Indians, Australians, Singaporeans, Japanese, the Vietnamese, now the South Koreans too, the Americans, of course, regularly patrol the IOR.

America also has a base at Singapore for rotational ships and aircraft. China is fearful that the US could effect a naval blockade at the Malacca Straits if its friction with Taiwan occasions it - or for any other reason, such as Chinese militarisation and partial occupation of the South China Sea, a vital international maritime highway.

The CPEC corridor and Chinese built port at Gwadar in Balochistan has not yielded an alternative route as yet, through troubled Pakistan, all the way to Xinkiang.

The IOR comprises one fifth of the water area of the world and is connected to the Pacific Ocean that together girdle the earth. The IOR connects to Africa, West Asia, all the countries of the Asia Pacific.  Irrespective of what President Xi Jinping is telling the CCP at Beijing, China will never be allowed to dominate it.

(1,479 words)

13^th April 2023

For: Firstpost/News18.com

Gautam Mukherjee

 

Western Frenemies Do Not Want A Strong India To Contend With

Indian External Affairs Minister (EAM), Dr. S. Jaishankar called it a ‘bad habit’ that the West had. He said ‘the West thinks it has a God-given right’ to comment on the internal affairs of India, and cast aspersions on its leadership, including himself. He warns that that this sort of abuse of international protocol can go both ways. And he speaks, not only as a minister of the realm, but a distinguished former diplomat.

To a certain extent it already is, with the Indian media regularly calling out the Western interference, and pointing out its many shortfalls on its home turf.

It is a mote in one’s own eye syndrome, to paraphrase the Bible. Multiple matters, ranging from global warming-based natural disasters, forest fires, frequent shootings at schools, racist killings by police, pogroms allowed by dissident Islamists and Khalistanis, against Hindus, or Indian Missions, render most of the Western carping about India nonsensical.

It is also an intrinsic racist bias, where problems that concern the White nations are given precedence over those of others. Why should blue-eyed and blond children die in Ukraine, was one such proposition.  Similar questions are not ever asked about the ongoing turmoil in Syria. The EAM has pointed to this as well.

Overall, this refusal to take Western bias and distortion as acceptable is a feature of current Indian foreign policy.  

The EAM has also pointed to the efforts being made by Indian politicians who have lost electoral favour in India, attempting to pressurise the government by organising and lobbying ill-informed interventions from abroad. He said our Opposition should actually stop inviting comments from abroad on our internal matters.

Distortions on the revocation of Article 370 with reference to Jammu & Kashmir, which was, in the first place a temporary provision, should have been better understood by the West. Criticism of the Indian judiciary, when it  criminally convicts a politician, is tantamount to disrespect of our institutions, particularly when it is mixed up with allegations of motivation by the government. Slurs also need to be researched properly.

Perhaps the real reasons for all this go much deeper.

It is no longer China, Pakistan, Turkey and sundry others, who oppose Indian ascendancy economically, militarily and diplomatically.  

Against these detractors, from whose ranks Malaysia, with its massive sales of palm oil to India, has wisely dropped out, a large number of countries have come forward to back India.

These include the 120 countries India reached out to, in addition to the ones formally in the G-20, under India’s chairmanship for this year. Many are from all the nations of Africa, South America, West Asia and the Asia-Pacific.

Quite a few of these regard India as a torch-bearer and benign influence for the Global South. This more so as the United Nations General Assembly, (UNGA),  has fallen into ineffectiveness, hijacked by Islamic interest groups, and China.

But even as India is a member of QUAD, BRICS, SCO, G-20, ASEAN, BIMSTEC, etc, while associating with AUKUS; a certain resentment of its rise, even amongst its Western friends, seems to be brewing alongside.

Prominent friends in the West, including the United States, Canada, Britain, Germany, have taken to regularly commenting on and criticising India’s internal affairs and its leaders in its media for some years now. Targets include Prime Minister Narendra Modi, Home Minister Amit Shah, Uttar Pradesh Chief Minister Yogi Adityanath, and External Affairs Minister Dr. S. Jaishankar.

In short, many of the distinguished politicians who have unfurled the proud banner of Indian nationalism as of 2014, when this administration first came to power with a large majority. Leaders, who define the ‘New India’ that will soon propel India to 3^rd rank economically, with a GDP upwards of $10 trillion per annum, and PPP rankings undoubtedly at No.1, up from the present No.3.

This, despite India being the most populous country in the world, already, with the largest young workforce. China, that would like to retard this process, has an ageing population. This is in common with much of Europe, Japan and America. None of these countries and regions have any hope of rectifying the situation despite population boosting measures taken, for at least three decades.

Part of it, a Catch-22 of course, is a local populace resistant to immigration from other races and cultures, while their own economies are faltering. Brexit has not been a great success, prompted as it was by such sentiments.

The Global South is rejoicing about this Indian good news, alongside India, but is this likewise in the G-7 and the G-20?

The criticism directed at India at present wants probably to slow down India’s rate of progress at around 7% in GDP growth year-on-year, the highest amongst any major economy in the world.

It is also a campaign of negativity designed to blunt, if possible, the chances of re-election of the present dispensation for an consecutive third-term in 2024.

A strong Indian government is less biddable from the Western point of view. And India’s propensity for building its foreign policy on enlightened self-interest is putting most countries in the West in an adverse negotiating position, compared to its facile domination of the exchange in the past.

India, as a food surplus nation of over 1.40 billion people is showing up the  currently food deficient West. It is also, more and more, the ‘Pharmacy to the World’, and first in innovation as the Start-Up Capital as well. Its banks are better managed than the West, and its sovereign debt-profile is infinitely better, as hailed by the international rating agencies, the World Bank, the IMF and others.

India is still the biggest buyer of armaments in the world, even in 2023, with an expanded buying list, despite its strong thrust at indigenisation for as much as 68% of its purchases. But this too, raises two new problems. India is emerging as an arms exporter, and a most competitive supplier. And it is buying less, and will buy even less progressively, from the expensive armaments industry of the West.

Therefore, there has been a step-up from the erstwhile media bias in certain well-known publications and broadcasters with a leftist orientation masquerading as liberalism, against the present Indian administration.

Unsubstantiated charges include a tendency to dictatorship on the part of a wildly popular Narendra Modi, communalism (read anti-Muslim and Christian), including of late, an anti- Sikh (read the terrorists that want to wrest Punjab into Khalistan), and anti-semitic bias (no basis whatsoever, given the excellent relations with Israel).

There are also charges of gagging of the Opposition (amplified by the constant whining of electorally feeble and criminally convicted Congress leader Rahul Gandhi), alleged, but spurious  claims, of subversion of Indian institutions including its judiciary, and muscular Hindutva (ditto).

The role of George Soros, a Hungarian Jew and naturalised American, also allegedly active against former President Donald Trump, soon to be in his felony trial in Manhattan, the NGOs and activists he finances, is not often mentioned in these quarters.

Neither is the avalanche of Chinese money via its embassies, Confucian Studies Institutes and direct investments in companies, universities, Hollywood and so on, being used to buy anti-India opinion. These extend to academia and amongst Western politicians, lobbyists, anti-India activists, opposition politicians and their financing.

Pakistan is ever active, despite its bankrupt status, through its official machinery, and its covert ISI. It is prominent in certain countries abroad, particularly Britain, which finds it difficult to stomach India’s rise. Dubai, where the Pakistani underworld has a network, via Bollywood, its infrastructure and financing, via terrorist and drug cartels, and also directly in India through disgruntled elements particularly amongst Islamists and Khalistanis. It is however having trouble keeping this up, given its own terrorism problems internally and breakaway movements in Balochistan, the NWFP, and friction with Afghanistan.

Blow-hot blow-cold countries including the immensely rich on liquefied natural gas (LNG), Qatar, is also sometimes anti-India for hardline Islamic reasons, financing terrorists, and criticising India via Qatar’s media outlet Al Jazeera. Qatar tends to play influence games with both sides. It is a GCC member, despite sometimes prickly relations with Saudi Arabia, and hosts a massive US air base in Doha.

India gets on very well with Israel, Egypt, the UAE and Saudi Arabia. It has a military base access at Duqm in Oman. Oman meanwhile is drawing closer to Saudi Arabia with a new railway line linking the two countries.

India is doing increasingly better with Iran, partially due to Russia’s good offices in addition to its own long-term ties. A land-route from Russia is already operational via Iran, an undersea fuel pipeline is extant.

Russia is developing another sea route from its north to India and India has been invited to build a new IT enabled city at Vladivostock despite Chinese claims on the city and its environs.

India is also doing very well with Greece in the EU, where it is developing the port of Piraeus in an effort to establish another sea route to Europe from India.

Mauritius is allowing India build a new military base in the Indian Ocean on one of its islands close to the British-US occupied Diego Garcia.

All this diplomacy and progress points towards future great power status in addition to India’s economic prowess. And it is being done with much greater bonhomie than anything China is up to in a variety of places around the world.  

So the causes of the disproportionate and intemperate Western media commentary on trivia and gossip are fairly clear. It is expressing discomfort and even a degree of fear at the prospect of a consecutive third term for the present dispensation of the BJP backed by a formidable RSS. If all this has been accomplished in under 10 years, what does the future hold in store?  

So now, various governments have now got in on the act. Government spokespersons in Western countries are commenting as well.  After The US, Britain, it apparently is the turn of Germany.

The US finds it difficult to stomach India’s neutral to independent stand on the Ukraine War under the Biden administration. Should the Republicans win in 2024, some 18 months from now, they will, almost certainly put an end to the Ukraine War, if it is still raging. The possibility of it tipping over into the use of tactical nuclear weapons or even WWIII is ever present already.  But the Republicans could end it because of a greater comfort with Russia than under the Democrats.

Presently, EU and British governments, beholden to American largesse, are chiming into the Biden narrative, though most are feeling the pinch worse than both America, and, ironically, Russia.

A strong reason for British sniping, including via the BBC, is its colonial history with India, and that India has already overtaken it in terms of its GDP. It is also about to overtake Germany next.

Germany also has continued good relations with China, strategically opposed to India, despite China’s role in the Covid pandemic and their support of Russia in the Ukraine War. German Chancellor Schultz recently visited President Xi Jinping in China, one of the first Western leaders to do so, after China called off its draconian Covid lockdowns recently. This despite the NATO and EU positions generally cool to ongoing Chinese ties and the dependence on Chinese supply chains.

Germany has also been the biggest buyer of Russian gas and fuel over the last several decades. It continues to do so to an extent, via a circuitous route, even now, compelled by otherwise very high fuel prices from elsewhere, despite stringent sanctions imposed on Russia by NATO, EU and Britain.

Germany, like Britain, has been steadily slipping in terms of its economy,  including in its vaunted car industry, and other engineering enterprises. This has limited its options and autonomy. France, the other big EU economy, despite its fiscal troubles, is on good terms with India.

Fortunately, so is Japan, which India is also destined to overtake economically,  and this bodes well for the future.

(1,999 words)

April 3^rd, 2023

For: Firstpost/News18.com

Gautam Mukherjee

 

Bhutan Has Capitulated To Chinese Salami-Slicing Pressure In Doklam And India Is Immediately Affected

President Xi Jinping led China has made successful inroads into Pakistan, Nepal, Sri Lanka, Myanmar, and to an extent Bangladesh, using financial inducements, project finance, infrastructure development in the host countries, and even their infamous debt-trap style imperialism.

The latest country in the neighbourhood to succumb to pressure and Chinese financial muscle appears to be Bhutan. There are a growing number of Bhutanese youth in the kingdom keen on better relations between Thimpu and Beijing. The perception is that there is much more to gain by leaning towards China rather than India. This may be short-sighted, but there is certainly a growing opinion divide in Bhutanese society on the matter.

That Bhutan should choose this juncture to make its momentous strategic move is surprising, because China’s standing in the global arena is somewhat diminished post Covid and its ostensible alliance with Russia during the Ukraine War. The West sees China increasingly as a security threat, not only to the maritime trade routes around the Taiwan Straits, the constant threatening the world over Taiwan, the near occupation of the South and East China Seas, using North Korea to not only send arms to Russia and menace Japan and South Korea, plus its difficult relationship with most countries in its littoral.

Most of the countries in India’s vicinity have not had a happy experience by letting in the dragon. Nepal has also lost territory to China without being able to raise a murmur, and has been forced into being hostile towards India albeit in a blow-hot blow-cold manner, depending on whether the pro-China Communists or pro-India Nationalists are in charge.

India, for itself, does have its remedies. These include its membership of QUAD, one-on-one alliances with powers like France, Israel, UAE, and Russia. India is now building a massive tri-services and naval base in its Grand Nicobar Islands just 80 km from the Malacca Straights, through which 80% of Chinese imports pass. Then there is its ramped up Aatmanirbhar defence manufacturing programme. There are other alliances, with AUKUS, and most recently with South Korea and Japan in a troika. It is doing all it can to counter Chinese imperial designs and aggression. Besides it is a nuclear weapons power, the great equaliser.

India’s resistance to the Chinese in Bhutan began in 2017, when China intruded into Bhutan’s Doklam Plateau with an illegal road being built unilaterally through Bhutanese territory. The intent was to drive this road all the way to Mount Gipmochi and the adjoining Jhampheri Ridge on the tip of the plateau overlooking India. This would have given China a clear oversight of India’s narrow, just 23 km wide in parts, Siliguri Corridor. The famous ‘Chicken Neck’, part of the corridor is the only land bridge to all the Indian states in the North East, including Arunachal Pradesh, that China also claims.

  In 2017 Indian troops rushed into Bhutan’s Batang La, to push back. The Doklam Plateau consisting of about 270 sq.km, is only wanted by China to gain an advantage over India, rather than to  just satisfy its urges for territorial gain from Bhutan.

In June 2017, when Bhutan discovered the intrusion, its people began protesting and its government asked for Indian help.

However, after stopping the Chinese in their tracks, and ostensibly sending them back to the Chumbi Valley to the north, into adjoining Chinese territory, India withdrew to its own borders.

The actual two-month long stand-off at the tri-junction between India, Bhutan and China at Batang La, featured much pushing and shoving, in the absence of lethal weapons being used by either side. Unlike in Ladakh and most recently near Tawang in Arunachal Pradesh, a few years later, the Chinese did not bring spiked clubs and other thuggish weaponry with them either.

But China soon came back to Doklam. It increased its presence, built more roads, villages, and a bridge across the fast-flowing Amu Chu river in the area. All this with complete impunity, and no further protest from Bhutan or India.

It is possible, though unconfirmed, that Bhutan may have asked India to keep out of the matter. It is also likely that India has used the interregnum, anticipating the inevitable, to strengthen its military defences in the chicken-neck area and elsewhere along the Siliguri Corridor.

These would need to incorporate nuclear and conventional missile silos, as is the case along the LaC, tunnels, reinforced bunkers, reinforced hangars for aircraft and drones, more air strips, artillery batteries, satellite surveillance, permanent troop placements not only in the corridor, but in Sikkim as well. This defensive work ongoing, along with other vast improvements in connectivity to the North East states, may be the reason that India has not said much as yet. But the pronouncements and apparent policy shift signalled by Bhutanese Prime Minister Lotay Tshering is unmistakeable.

India’s relationship with Bangladesh has been growing well under its Look East Policy.  Both countries are cooperating in the movement of goods, services, cruise tourism by  and through their respective adjacent waterways. India has given a number of billion dollar soft loans to Bangladesh of late, and most recently built a high-speed diesel pipeline jointly, ranging hundreds of kilometres, from Assam into Bangladesh.

Bangladesh may well agree to road and rail connectivity through its territory alongside the Siliguri Corridor, or even a lease of some of its land alongside to India.

This will thwart Chinese designs to a large extent, because it is trying to woo Bangladesh as well into its debt-trap diplomacy. And the chicken neck will not stay a chicken neck if this happens.

India wanted then, in 2017, as it does now, to keep the sensitive tri-junction area at Batang La unchanged. China however claims the whole of the Doklam Plateau is Chinese territory. Boundary talks between China and Bhutan have gone through many rounds, over a dozen, and most recently at Kunming, China, in January 2023.

After this last round, there was a joint statement made that an MoU on a three-step road map for expediting the China-Bhutan boundary negotiations had reached a ‘positive consensus’.

Chinese intrusions and construction also involve territory in the North of Bhutan as well as the North East, in addition to Doklam. These lay Chinese claim to some 500 sq.km. in Bhutan’s Jakarlung and Pasamlung Valleys.

As such, border talks between China and Bhutan have been ongoing since 1984.  But now, Bhutan’s prime minister suddenly claims there are no Chinese intrusions into Bhutanese territory in what appears to be an utter capitulation to Chinese pressure.

As regards the Doklam Plateau, which primarily is of interest and concern for India, Bhutan’s prime minister has just called for a three-way negotiation, including India. This, in an interview recently given to the Belgian Daily La Libre.

‘There are three of us’ said Prime Minister Tshering. ‘There is no big or small country, there are three equal countries, each counting for a third’, he added in a rather hopeful sounding message. Most analysts see by this Bhutan’s willingness to cede its territory to China, under prolonged pressure or financial inducements or indeed both.

Tshering repeatedly said the Chinese have not intruded into Bhutanese territory, nor built its infrastructure on Bhutanese land. The position on Doklam has also changed completely from earlier statements made in in 2019 when Prime Minister Tshering cautioned against any ‘unilateral’ moves.

It appears therefore that Bhutan has been induced into endorsing the Chinese salami-slicing tactics and military pressure. This of course, renders the situation into a fait accompli in favour of China. If Bhutan is willing to give up its territory there is little India can do about it. 

In Doklam, the present tri-junction at Batang La is sought by China to be shifted 7 km south to the Mount Gipmochi peak, just as was the original intent in 2017.

If that were to happen, then all of the Doklam Plateau would become part of China. And from Mount Gipmochi, China would gain a clear physical oversight of India’s Siliguri Corridor.

If India does join the tripartite talks, it can make clear that it does not accept any shift of the tri-junction from Batang La. China has already intruded into PoK over Indian objections for its road from Xinkiang to Gwadar through Pakistan. So, it remains to be seen what effect India’s objection will have.

China does respect force however, and would probably listen if India were to reoccupy PoK and Gilgit Baltistan, with American diplomatic support. Letting China get away with such blatant bullying of a tiny landlocked kingdom at this sensitive time in geopolitics, may not be countenanced by the West, if not purely for Bhutan’s sake, or indeed that of India’s, but for the precedent it sets.  

But will Bhutan see and portray the Chinese intrusions as a concordat instead,  designed for its complete benefit? It should remember the battered, bruised and bankrupt Sri Lanka post the reign of the Rajapakshas. It is India that is helping it to limp back into health with soft-loans and its good offices, and not  a predatory China.

Besides, Bhutan needs to take into account its dependence on Indian ports. The Chinese landmass to the north is the long way around for all its imports and exports. It is a hard reality, in competition with the intangible called ‘happiness’ that expensive-to-visit Bhutan has been projecting to the world.

(1,555 words)

March 30^th, 2023

For: Firstpost/News18.com

Gautam Mukherjee

 

Silicon, Signature, Bust, Six More US Banks Downgraded, Is It Building Towards A Global Banking Crisis?

Starting off tough as Silicon Valley Bank failed over the last weekend, the erstwhile 16^th largest bank in America, feted a few days ago by Forbes Magazine as one of the best banks in America, Treasury Secretary Janet Yellen rapidly caved in. She soon announced a federal fund to prop up bank liquidity across the board.

At first the Silicon collapse was sought to be portrayed as an IT bank that took some bad decisions. But this soon became unsustainable as a position, even as IT stocks, start-ups, unicorns, including some 40 from India were hit hard by the collapse of the $209 billion bank that dealt mainly with Silicon Valley clients and IT professionals.

The Chinese bank HSBC bought the Silicon Valley Bank (SVB) UK business for a symbolic one-pound sterling. SVB in UK is closely linked to the British Biotech industry

Is this latest US financial crisis, because it is not an isolated blip, due once again to banks holding illiquid sub-prime assets, based on housing mortgages  acquired during a much lower interest rate regime?

Or, is it just due to a hawkish Federal Reserve Bank policy that has been raising interest rates at each review? Can this crisis be sorted by holding further Federal Bank interest rate increases or even lowering them? The effort to calm inflation, the highest in the US in more than four decades, has not responded particularly well to the higher interest rates. However, US business and industry, and now banks, have been hit. The Federal Reserve Bank Chairman, Jerome Powell, may have to look at other ways to bring down US inflation.

Concern has already spread to Europe and Japan where stocks and government bonds such as JGB, fell sharply, particularly for those banks, pension funds, sovereign funds, high street businesses like Mitsubishi, Nissan, and Mazda, other investment vehicles allied closely to US trade, industry, construction, projects, stocks, bonds - including IT and Crypto assets.

International ratings agency Moody has downgraded the American banking sector from stable to negative for the systemic risks it poses.

Come last Monday after the crash of Silicon Valley Bank over the weekend, it has certainly hit banking stocks hard in the world’s stock markets and dampened sentiment on all stock market business, other scrips, including those in India. The Swedish Pension Fund is concerned.

The Indian stock market has long been dominated by Foreign Institutional Investors (FIIs) responsible, possibly through the anonymous Participatory Notes (P-Notes or PNs) for investors not registered with Securities and Exchange Board of India (SEBI). They are classified as offshore derivative instruments (ODIs).Any profits collected from these PNs go back to the original investors including the proceeds of ‘short-selling’ or shorting any stock, that is betting on a lower value of the stock than its prevailing price at any given time while the stock market is trading. This is most likely the method used by Hindenberg and friends to cause the bloodbath in Adani Group stocks post the ‘fraud’ and ‘over valuation’ accusations amongst others.

It is therefore rather ironic that Hindenberg banks its money with First Republic Bank that saw a sharp fall in its stock prices since the beginning of this trading week causing a run on its deposits. Likewise other related banking stocks like PacWest and Western Alliance.

Now, as the Western markets take a tumble and higher interest rates have largely closed the window for the arbitrage and foreign currency gains of the FIIs, it may be time for the large domestic institutional investors and the retail Indian investors to take over.

This more so because the FIIs still do not really trust the Indian stock markets or indeed the Indian economy as a sure-fire bet. America has very little investment in India compared to China as yet. They cling therefore, with notable exceptions, to the outdated notions of Western economic superiority, running mostly to US stocks at the first opportunity.

They have, it is seen, made a foolish exception for Red China, also drowing in debt, inflation and slow growth, possibly because of huge Western investments there, and the size of its economy, second only to that of the US.

As in 2008, a financial crash in America that spreads from financial institutions to main street businesses affects the economies of the whole world. However most Western countries in particular stubbornly believe all will be well, if expert analysis is to be believed.

America is the most indebted country in the world with nearly $ 32 trillion in direct ‘national’ debts, amounting to 96% of current GDP. In addition, there are other US liabilities under different classifications that take this figure much higher. And yet, the bank bailout is contingent on ‘credible collateral’ like US Treasury Bonds!

Banks are naturally vulnerable to runs on their liquid assets whenever there is an upset anywhere in the system. People with US bank deposits are nervous in this instance too, and are withdrawing their money, despite assurances designed to calm panic from President Joe Biden himself and other treasury and financial officials.

Gold prices, which reflect financial instability, are seen to be instantly rising.

A global recession is gaining momentum according to the World Bank because of this raising of interest rates, tighter monetary and fiscal policies, in many countries.

Though India, dependent to a large extent on its domestic market, is continuing to grow at about 7% in GDP year on year, it is only a $3.5 trillion economy. Yet, it provides an exception to the gloom of the global scenario. This, post Covid and Ukraine and before this latest black swan event.  India is expected to become a $5 trillion economy by 2028 quite independent of this global volatility.

 That may be why the World Bank has recently sanctioned a billion dollar soft loan to improve India’s health infrastructure. India, in turn, has extended soft loans to friendly countries in its immediate neighbourhood amounting to $ 15 billion since 2014, when it was just at $ 3 billion before that.

Trade with these same friendly neighbours like Bangladesh and Sri Lanka has increased 50%. Sri Lanka is trading with India in rupees to conserve its hard currency.

In Europe, Germany’s Commerzbank and the already weak Swiss bank Credit Suisse took big hits on their valuations.

Commodities too are affected.  Copper and other base metals plus Gold went up in price in London. Gold is above the key $1,900 level.

Meanwhile, India has chosen this moment to request a sovereign ratings upgrade. This, without cracking a smile.

I1,088 words)

March 15^th 2023

For: Firstpost/News18.com

Gautam Mukherjee