US President Donald Trump’s assault on the global economy and, in particular, the world’s poor, continues. While he has extended the Iran ceasefire indefinitely, American forces continue to commit piracy, boarding and taking over ships that the US had sanctioned over the export of Iranian oil.

The Trump administration struggles to reach an agreement on Iran’s nuclear programme that matches, at least, the deal that Obama had negotiated and Trump had torn up in his first term as president. In what amounts to cocking a snook at the US and Israel, Iran has reportedly started resuming domestic flights, effectively discounting the possibility of Iran’s airspace being invaded by the forces of Israel and the US.

The IMF has warned that, in case the war continues and oil prices stay elevated, the world economy would go into recession (unlike in the case of a national economy that must suffer negative growth for two quarters, all that is required for the Fund to declare a global recession is for world output growth to dip below 2.5% a year).

Trump is unable to extricate himself from this war of choice he has launched, and is watching his approval rates dip and gasoline prices climb at US fuel stations.

He has tried to shore up support among his MAGA base by reiterating his commitment to cleansing America of non-Americans. He reconfirmed his commitment to ending birthright citizenship, reposting an anti-immigration rant that describes India and China as hellholes.

Trump had tried, earlier, to intimidate Supreme Court justices hearing the Federal government’s appeal against lower court verdicts against the Trump administration’s executive order ending the right of any child born in the US to have citizenship of the country by birth.

As the US president continues to demonstrate his disdain for India, India must rethink its slide, under the present administration, into deeper entanglement with the US and Israel than a policy of strategic autonomy would warrant.

True, Trump is not the US. There is an America that still values India. But India’s efforts to maintain good relations with America should not lead to the abandonment of long-held policies of safeguarding India’s own dignity, and of respect for the sovereignty of nations, breached by the Trump administration most blatantly in Venezuela and Iran.

The Ethanol Delusion

As oil prices climb and the shortage of aviation turbine fuel (ATF) hits major airlines, India has tried to nudge airlines into blending ethanol into ATF.

The entire policy of trying to substitute a largish chunk of products refined from imported crude with indigenously produced ethanol is misguided. Ethanol blending is neither environmentally friendly nor sparing on the use of foreign exchange.

As things stand, 56% of ethanol available from domestic sources is made from grain — corn, and even rice. Only the rest comes from sugarcane.

All crops are grown in India using large quantities of fertilisers and water for irrigation, often pumped up from deep underground. Fertilisers are import-intensive, even when produced in domestic factories. The natural gas or naphtha used is mostly imported.

Further, crops in India are subsidy-intensive. The power for pumped irrigation is supplied for free, maintenance of canal irrigation is free, even in those few instances when canal water is paid for, fertiliser is heavily subsidised, and grain is often supported by official procurement at fancy prices.

The government allowed 5.2 million tonnes of rice from the Food Corporation of India’s stocks to be fermented for ethanol production last year.

This is not the only problem. When the demand for corn goes up, because of higher demand for ethanol, farmers abandon crops like soybean, a vital source of edible oil. India is a major importer of edible oils. Greater cultivation of corn for ethanol will force India to import additional quantities of edible oils, draining foreign exchange. The problems do not stop here.

Corn is the principal ingredient of chicken feed. The more corn is diverted for ethanol, the less there is of it for feeding chickens, increasing egg and chicken prices, and adding to the malnutrition Indians already suffer.

The only ethanol used up in the air must be what is served along with in-flight meals (the ordinary tippler might baulk at his drink being dubbed ethanol, but from the point of view of chemistry, what is blended into fuel and what is best had on the rocks are both, in essence, ethyl alcohol, or ethanol).

Move Over, MOOWR

The India Energy Storage Alliance recently petitioned the government against the import of equipment, particularly batteries, under the Manufacture and Other Operations in Warehouse Regulations (MOOWR), 2019 scheme.

The scheme was thought up to make it easier for manufacturers to make goods in India with imported components. It was thought up, but not thought through. The scheme ends up hurting most Indian manufacturers while helping a certain class of manufacturers.

The scheme allows a company to treat its premises as a bonded warehouse, into which things can be imported without paying import duty until manufactured goods that are used up the imports as inputs are shipped out of the factory. This saves the entrepreneur the cost of financing the cost of customs duties.

Consider another company that imports goods under the traditional route, paying customs duty before it is cleared from the terminal where it arrived. This company will recover the cost of the import, complete with the import duty paid, only when the goods manufactured with the imported inputs are sold.

Clearly, those who have to finance the import duty payment are at a disadvantage, as compared to those who do not have to finance the import duty payment, as manufacturers making use of MOOWR first recover the cost, including import duty of imported inputs, from its customers, before paying import duty.

Matters are worse for domestic makers of capital goods. Capital goods imported under MOOWR bear no import duty at all, as it is not shipped outside the premises of the importing firm. Indian producers of capital goods suffer negative protection, from what is, technically speaking, inverted duties. They have to pay import duty on imported inputs for making the capital goods, but have to compete against capital goods that bear zero import duty, when imported under MOOWR, and further, bear no Goods and Services Tax that buyers of India-made capital goods have to pay.

This is a case of one Make-in-India policy harming the cause of Indian manufacturing in general.