This Week Was A World In Conflict — In India, Gaza And Over Trade
An unalloyed piece of good news is that the duty on alcoholic beverages imported from Britain is slated to come down sharply after the India-UK trade deal. We could raise a toast to that.
The week in review has been explosive, literally. India used air-to-surface missiles and heavy-duty artillery to blow up nine targets that India’s intelligence agencies had identified as terror infrastructure used by three Pakistan-based outfits, Hizb-ul-Mujahideen, Jaish-e-Mohammad, and Lashkar-e-Tayaba. Operation Sindoor was designed to punish Pakistan for the terror attack at Kashmir’s Pahalgam on April 22 that had killed 26. Neither the army nor the Air Force, which carried out the attack, crossed over into Pak-controlled territory.
Pakistan has vowed to retaliate, while claiming, without evidence, that Pak forces shot down five Indian aircraft. India’s stock markets have discounted any major escalation, staying steady, refusing to react in shock and fear, and choosing to savour, instead, the dollar’s weakness, foreign portfolio investors’ renewed interest in India, and the strong rise in the April purchasing managers’ index for both manufacturing and services. Pakistan’s stock market has taken the threat of retaliation more seriously, and crashed, forcing cessation of trade on Thursday, following reports of India having neutralised Pak air defence radars and systems in Lahore, in response to Pak attempts to send drones and other munitions across the border in the intervening night of Wednesday and Thursday.
A World In Conflict
US and Chinese representatives will hold talks on the two countries’ trade standoff in Switzerland. US president Donald Trump is coming under increasing pressure to retreat, as his approval ratings drop, the US dollar weakens and yields jump, even as the US Fed stalls any rate action, not knowing whether to raise rates to combat the clear prospect of inflation or to lower rates, in order to ward off the possibility of negative first quarter GDP growth developing into a trend.
Trump criticises Fed chairman Jerome Powell for not cutting rates. But even those who do not believe in following a dogma, whether four legs are better than two, or low rates are better than high rates, would hope that chairman Powell would not behave like Buridan’s ass. The ass, it may be recalled, famously died of starvation and thirst, after finding himself, while equally hungry and thirsty, placed equidistant between a pile of hay and a pail of water, and, looking for a logical reason to prefer either fodder or water over the other, found none.
In the Vatican, the preference of the Catholic hierarchy to stick with the archaic and the arcane is adding to climate change, a major concern for the laity. The Conclave of 133 cardinals, gathered at the Vatican to elect the new Pope, after the passing of Pope Francis, has been unable to make a choice, with at least two-thirds of the members concurring. The Cardinals signal success or failure of the voting by sending up smoke from a designated Vatican chimney, black for failure, and white for success. The effort is on, at the time of writing.
The Gaza war has turned into a euphemism for a process that should realistically be called slaughter. Israel has been bombing hospitals, aid convoys and whatever else takes its fancy. Acute shortage of food, medicines, power and water is smothering life out of the Palestinian population that remains on the Gaza Strip. Israel would, of course, be shocked if anyone suggested that what it is doing to the Palestinians resembles, in essence, if not in every gory detail, what the Nazis did to the Jews.
In a remarkable development, Germany’s secret service has said that AfD, the political party polling the second largest chunk of votes in the country, qualifies as an extremist political organisation. Germany had earlier disbanded an elite commando force for being under the influence of extremist political ideology. The 80th anniversary of the end of World War II in Europe, provoked by the very same extremist political ideology, is being observed this Friday. The führer is dead, but those who hail him live on, in different parts of the world.
Imports Mess
The US economy’s first quarter negative growth (-0.3%) is being blamed on a rush to import goods and hoard them, before the prohibitive tariffs announced by President Trump kick in. This is analytically faulty. It is true that GDP is the sum of consumption, investment and next exports, subsuming government consumption and investment in the respective aggregates. Extra imports do reduce net exports. So, what is wrong with blaming additional imports for a smaller GDP?
An economy’s imports are not a standalone aggregate independent of consumption and investment. Imports take place to support consumption, investment and exports. The additional imports meant to augment stocks before high tariffs kick in go into inventories. Inventories are part of investment. The addition to stocks, counted as part of investment, cancels out additional imports in the computation of GDP. So, additional imports carried out to pre-emptively add to stocks are not responsible for negative US GDP growth in the first three months of the current calendar year. Blame that on lower government expenditure and a deceleration in consumer spending.
Census And A Trade Deal
The government of India has decided to carry out an enumeration of castes, along with the next population census. The Congress, under Rahul Gandhi’s leadership, has been demanding a caste census. It hopes to count the official decision to carry out a caste census as a political victory. But the government’s decision effectively takes away the only political plank the principal Opposition had come up with, with which to confront the ruling party. Now, the ruling party owns that plank.
A caste census would, in the short run, intensify politicking in the name of castes, raising demands to increase the proportion of the overall reserved quota, and the quotas for different categories within the overall quota. But that would change, once the dust has settled over this, and the caste census reveals the material living conditions of members of different castes, including those of the few that have had the privilege of having their caste leaders run their state governments. That revelation is likely to show up the fallibility of the notion that mere kinship, in the absence of effective governance and creative policymaking, will improve the lot of the disprivileged. That would open the door to politics that transcends caste.
India has signed its Free Trade Agreement with Britain, post-Brexit Britain’s first major trade deal. Britain is widely expected to strike a trade deal with the US also. So is India. The UK deal will serve to blunt any criticism that India has caved in before the bullying tactics of president Trump.
The India-British trade deal will greatly reduce tariffs on Indian exports to the US, and of British exports to India on a wide range of goods. An important success has been in Indian professionals working in the UK for short-term onshore stints of up to three years not having to pay social security taxes while they work. Such taxes are a free gift to the UK treasury, as the workers who pay them in would not be around to receive the social security benefits in their old age.
An unalloyed piece of good news is that the duty on alcoholic beverages imported from Britain is slated to come down sharply. We could raise a toast to that. Cheers!
