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Retail inflation hardened in June to a three-month high of 4.81%, from May’s 4.31%, driven by a spike in food price gains due to the rising costs of items like cereals, pulses, milk and tomatoes. Food price inflation quickened to 4.5%, from less than 3% in the previous month.
While June’s pace of consumer price gains snapped a four-month streak of moderation from the 6.5% uptick logged in January, urban consumers faced almost 5% inflation last month with food price inflation almost doubling in pace from May’s 2.4% to 4.3%.
June was the fourth month in a row that retail inflation stayed below the Reserve Bank of India’s (RBI’s) upper tolerance threshold of 6%, but economists opine that the ongoing upturn in vegetable prices and the “flooding plus uneven monsoon” situation could exacerbate food price pressures on headline inflation.
While the RBI is unlikely to release its ‘pause’ on interest rates at next month’s monetary policy review, the inflation trend may further push back the prospect of rate cuts.
Editorial
Loot, intransigence, and the darkening of a colonial blot (Page no. 6)
(GS Paper 1, Culture)
The recent news that the Netherlands will return 484 valuable artefacts it looted from Indonesia and Sri Lanka during the colonial period — it includes the fabled “Lombok treasure” of precious stones, gold and silver jewellery to Indonesia and the exquisitely-decorated bronze-and-gilt cannon of Kandy to Sri Lanka — once again puts the focus on an issue that will not go away.
The British have stubbornly refused for decades to return the so-called Elgin Marbles, a collection of classical Greek marble sculptures purloined by Lord Elgin from the Parthenon temple in Athens, or the Rosetta Stone taken from Egypt in 1802.
But they had shown more generosity in repatriating some of the Benin Bronzes (looted by British forces in 1897) to Nigeria.
Yet, when it comes to their extensive treasure trove of Indian artefacts, from the Kohinoor diamond to the sculptures from the Amaravati stupa, they dig in their heels, fearful of starting a haemorrhage that, in the words of former Prime Minister David Cameron, would soon leave the British Museum empty.
We cannot blame the British for everything that is wrong in our country today; nor should we see the return of such looted items as a panacea to cure all the ills and wrongs of colonialism.
One can even accept that there is a statute of limitations on colonial wrongdoings, but there is none on human memory, especially living memory, for as I have pointed out in my book, An Era of Darkness, there are still millions of Indians alive today who remember the iniquities of the British Empire in India. History belongs in the past; but understanding it, and doing whatever we can about it, is the duty of the present.
Quiet diplomacy could ease South China Sea tensions (Page no. 6)
(GS Paper 2, International Relation)
The Foreign Ministers of India and the Philippines met at the fifth meeting of the Philippines-India Joint Commission on Bilateral Cooperation, in New Delhi, on June 29. Building on the shared interests of the two maritime Asian republics and nearly 75 years of diplomatic history, the External Affairs Minister of India, S. Jaishankar, and the Secretary for Foreign Affairs of the Philippines, Enrique Manalo, outlined the path for a strengthened bilateral partnership between Manila and Delhi in the 21st century.
The decision to open the resident defence attaché office in Manila; boosting cooperation between the Coast Guards of the two countries; acquisition of naval assets by Manila under a concessional line of credit from Delhi; expansion of training and joint exercises on maritime security and disaster responses, and commencing a maritime dialogue are some examples of the evolving strength of this nautical partnership.
However, the most notable development was the agreement on regional and multilateral issues, particularly on maritime highways such as the South China Sea.
While India reiterated its consistent position on adhering to international law, including the United Nations Convention on the Law of the Sea (UNCLOS), its unambiguous call to respect the 2016 Arbitral Award on the South China Sea is a departure from India’s earlier position. From ‘noted’ to ‘adherence to the 2016 Arbitral Award’ is a candid recognition of its legitimacy.
The Philippines had submitted a case of arbitration to the Permanent Court of Arbitration (PCA) in order to settle disputes with China. Despite China’s formal withdrawal from the arbitration on February 19, 2013, the proceedings continued as scheduled under UNCLOS guidelines.
The UNCLOS’ Annex VII stipulates: “The absence of a party or the failure of a party to present its case shall not be a bar to the proceedings.”
The PCA finally released the Award on July 12, 2016. The arbitration took into account maritime rights, the status of particular marine features, historical rights, and the legitimacy of particular Chinese actions in the South China Sea, that Manila claimed to be illegal.
The tribunal’s decision is “final and binding” in accordance with UNCLOS Article 296 and Article 11 of Annex VII.
Opinion
How the CPI basket conceals the inflation picture (Page no. 7)
(GS Paper 3, Economy)
Imagine entering an antique store and coming across an old wooden trunk. Your eyes wander to a dusty corner where an old radio sits beside a stack of audio cassettes.
Suddenly, you’re transported to a time when these items were cutting-edge technology, a time when their presence in households was commonplace. However, today, these items are deemed obsolete.
This nostalgic scene could well be a metaphor for our current process of tracking the Consumer Price Index (CPI) and subsequently calculating inflation.
We continue to monitor a basket of goods that includes torches, radios, tape recorders, CDs, DVDs, audio/video cassettes, and trunks, among some 300 other items.
Although these have a minimal weight in the overall CPI calculation, we are clinging onto the past, tracking items that no longer hold the same relevance in our consumption patterns.
The CPI basket should not be viewed as an unchangeable artefact frozen in time. On the contrary, the real consumption basket of a common Indian is fluid and continually evolving, mirroring the shifts in societal needs, preferences, and economic conditions.
As time progresses, consumption patterns of individuals and households inevitably change. Technological advancements introduce new products and services.
It is not just these items which make the CPI flawed. In the current CPI (base year 2012), weights of various groups are as follows: food and beverages (45.86); paan, tobacco and intoxicants (2.38); clothing and footwear (6.53); housing (10.07); fuel and light (6.84); miscellaneous (28.32).
The weightage of food in the CPI basket has decreased from 60.9 (in 1960) to 57.0 (in 1982) and to 46.2 (in 2001). This gradual decline indicates that as the economy grows, the proportion of income spent on food decreases.
This is a common trend known as Engel’s Law, which suggests that as income rises, the proportion of income spent on food falls, even if the absolute expenditure on food rises.
Over-reliance on food inflation today distinguishes Indian inflation from many other developed countries where the food weight is much smaller.
Explainer
Is it possible to have partial app bans? (Page no. 8)
(GS Paper 2, Governance)
Last week, the Telecom Regulatory Authority of India (TRAI) sought inputs on whether it would be possible to have “selective” app bans instead of internet shutdowns, in order to reduce the impact that a wholesale communications lockdown can entail.
Internet shutdowns are imposed in States and districts across India from time to time in order to prevent the rapid spread of provocative content during communally charged periods. The Indian government considers Internet shutdowns a legitimate tool of maintaining law and order.
Shutdowns can be prolonged, with access to education, work, banking, and information strained. As such, the government has sought to stay the course on imposing restrictions but not at the scale of a shutdown.
In Jammu and Kashmir as well as in Manipur, authorities and courts have gradually loosened long-term restrictions by allowing wired internet connections and limited wireless internet access.
The approach suggested by TRAI would require telecom operators and messaging app firms like WhatsApp to cooperate with each other and stop access to services during a shutdown.
The telecom regulator has sought inputs on licensing messaging apps in India, which may require firms to be subjected to surveillance and blocking requirements.
What is the National Research Foundation? (Page no. 8)
(GS Paper 2, Education)
The Union Cabinet has approved the introduction of the National Research Foundation (NRF) Bill in Parliament, placing once again the debate on science and technology funding in the spotlight.
Setting up the NRF was one of the key recommendations of the National Education Policy 2020.
The NRF intends to act as a coordinating agency between researchers, various government bodies and industry, thus bringing industry into the mainstream of research.
In addition to providing research grants to individuals, the NRF plans to seed, grow and facilitate research in India’s universities, especially State universities, by funding research infrastructure and researchers.
The NRF will operate with a budget of ₹50,000 crore for five years, of which 28% (₹14,000 crore) will be the government’s share, and the remaining 72% (₹36,000 crore) will come from the private sector.
The NRF draft proposes the government’s share to increase eventually to ₹20,000 crore per year. Out of the government’s share, ₹4,000 crore will be used from the existing Science and Engineering Research Board’s budget, which will be subsumed under the NRF. Therefore, the government has earmarked an additional 10,000 crore over the next five years for the NRF.
However, this increase in the nation’s gross domestic expenditure on research and development (GERD) seems too meagre, (less than 2% of GERD) especially if one compares the GDP and the comparative spending in other big economies, such as the U.S. and China.
As per the last available statistics (2017-18), India’s GERD was ₹1,13,825 crore. While India’s GDP was 7.6 and 5.1 times smaller than that of the U.S and China respectively, India’s GERD was nearly 24 times less than both these countries during the same period. And in the last five years, that gap has further widened.
News
In UNHRC vote, India stands against desecration of Koran (Page no. 10)
(GS Paper 2, International Organisation)
India on Wednesday voted in favour of a draft resolution tabled in the UN Human Rights Council that condemns and strongly rejects recent “public and premeditated” acts of desecration of the Koran.
The Geneva-based 47-member UN Human Rights Council adopted the draft resolution ‘Countering religious hatred constituting incitement to discrimination, hostility or violence’, with 28 members voting in favour, seven abstentions and 12 nations voting against.
India voted in favour of the resolution that “condemns and strongly rejects the recent public and premeditated acts of desecration of the Holy Koran, and underscores the need for holding the perpetrators of these acts of religious hatred to account in line with obligations of States arising from international human rights law”.
Those voting in favour of the resolution included Bangladesh, China, Cuba, Malaysia, the Maldives, Pakistan, Qatar, Ukraine and UAE.
Nations voting against the resolution included Belgium, Finland, France, Germany, the U.K. and the U.S.
The draft resolution was brought by Pakistan on “behalf of the States Members of the United Nations that are members of the Organisation of Islamic Cooperation” as well as by the State of Palestine.
World
Zelenskyy persists with bid for Ukraine’s NATO entry (Page no. 13)
(GS Paper 2, International Relation)
Ukrainian President Volodymyr Zelenskyy welcomed fresh commitments of weapons and ammunition to fight Russia’s invasion even as he expressed disappointment over the lack of a clear path for his country to join NATO as the alliance wrapped up its annual summit.
“The Ukrainian delegation is bringing home a significant security victory for the Ukraine, for our country, for our people, for our children,” he said while flanked by U.S. President Joe Biden and other leaders from the Group of Seven most powerful democratic nations.
A joint declaration issued by the G-7 lays the groundwork for each nation to negotiate agreements to help Ukraine bolster its military over the long term. Mr. Zelenskyy described the initiative as a bridge toward eventual NATO membership and a deterrent against Russia.
Our support will last long into the future,” Mr. Biden said. “We’re going to help Ukraine build a strong, capable defence.” The announcement came as NATO leaders launched a new forum for deepening ties with Ukraine, known as the NATO-Ukraine Council. It’s intended to serve as a permanent body where the alliance’s 31 members and Ukraine can hold consultations and call for meetings in emergency situations.
The setting is part of NATO’s effort to bring Ukraine as close as possible to the military alliance without actually joining it.
Business
IIP rises 5.2%, led by infrastructure (Page no. 14)
(GS Paper 3, Economy)
Industrial output expanded at the fastest pace in three months in May buoyed by infrastructure to grow by 5.2%, compared with April’s 4.46%. Electricity generation snapped a two-month contraction to rise 0.9%.
Mining and manufacturing as a whole edged up at a swifter rate of 6.4% and 5.7%, respectively, data from the National Statistical Office (NSO) show.
Production of consumer durables rebounded to growth for the first time in six months, expanding 1.1% compared with a 2.5% contraction in April.
Infrastructure and construction goods’ output continued to drive up the Index of Industrial Production (IIP), rising 14% after an almost 13% rise in April. Capital goods’ production growth also accelerated to 8.2%, from April’s 6.2%.
Of the 23 manufacturing sectors tracked by the NSO, 12 sectors recorded a contraction in output in May, with apparel makers (-21%) and furniture producers (-20.5%) reporting the sharpest declines, followed by wood products (-12.7%), paper products (-8.6%) and computers and electronics (-5.7%).
This was counter-weighed by a sharp 20.9% uptick in pharma output and a 13.4% surge in motor vehicles’ production. Other transport equipment grew 10.9%, while non-metallic mineral products and machinery and equipment makers also upped output by more than 10%.
While the auto sector had done well thanks to post-harvest demand from rural India and the marriage season, Mr. Sabnavis said it needed to be seen if this was sustained.