Editorials/Opinions Analysis For UPSC 15 May 2023
- Pakistan’s Political Crisis’s Impact on India
- India is unfairly rated
- Since being expelled from power, Imran Khan and his PTI party have been opposing the administration of Prime Minister Shehbaz Sharif. Imran Khan’s detention sparked rallies across Pakistan, resulting in a political crisis.
- Economic crises and natural catastrophes have added to Sharif’s government’s unpopularity.
- Conflicts between Khan and Pakistan’s military have further complicated the political picture.
GS Paper-2: India and its Neighbourhood- relations
Analyse any potential effects that Pakistan’s political crisis may have on India. Consider the potential and difficulties it poses for India in terms of bilateral relations and regional security. (250 Words)
Reasons behind Imran Khan’s Arrest
- Imran Khan was detained due to allegations of corruption stemming from a money laundering case involving a well-known real estate magnate; the arrest provoked violent protests that left many people dead and others detained.
- Protesters attacked military facilities, which made the situation worse.
Current events in Pakistan:
The army has been sent in to stabilise the domestic situation, but a long-term solution to address complaints is questionable. Imran Khan and key party leaders are being questioned by the National Accountability Bureau.
Implications for Pakistani Politics:
- According to some observers, this crisis may mark a turning point in Pakistani politics.
- The military’s public dispute with a well-liked national politician has received criticism.
- Prime Minister Sharif’s approval ratings would suffer as a result of his absence during the crisis.
Challenges for India include:
- An increase in cross-border tensions, particularly along the Line of Control (LoC) in Kashmir as a result of the political crisis.
- Pakistan-based extremist groups could take advantage of the country’s internal unrest to target India, creating security issues.
- Compromised Regional Security: o Pakistan’s instability might erode regional security dynamics and exacerbate already-existing disputes, like those involving Kashmir.
- The situation would divert Pakistan’s focus away from counterterrorism initiatives, which might allow terrorist organisations to operate more freely.
- Impacts on Peace Process: o Any ongoing peace initiatives or conversations between India and Pakistan could be derailed by the political crisis, making it more difficult to address thorny problems.
- Nationalistic emotions and pressure from the Indian public may limit the government’s ability to engage with Pakistan in a positive way.
Opportunities for India include the following:
- Diplomatic Leverage: Pakistan’s internal unrest may give India a chance to improve its diplomatic position on issues relating to regional security.
- India can take advantage of the crisis in Pakistan to draw attention to worries about transnational terrorism and encourage international pressure on Pakistan to address these issues.
- Collaboration in the fight against terrorism: o Given the necessity of addressing common security issues, international partners may be more eager to work with India in this regard.
- Improved intelligence collaboration and sharing may help reduce cross-border infiltration and stop terrorist activities.
- Regional Power Projection: o In contrast to Pakistan’s domestic unrest, India can show that it can sustain peace and effectively address regional concerns.
- India’s standing as a responsible regional power might be improved by fortifying regional alliances and partnerships, notably with nations in South Asia and the Middle East.
Possible approaches India may take to deal with Pakistan’s political crisis include:
- Maintain Diplomatic Channels: India should keep up diplomatic relations with Pakistan, even when they are strained politically, to keep lines of communication open and avoid misinterpretations.
- Ongoing diplomatic efforts can aid in defusing tensions and advancing stability in the area.
- enhance Regional ties: To mitigate any potential negative effects of Pakistan’s political instability, India should enhance its ties with its neighbours and other regional powers.
- Cooperating with nations like the US, Japan, and ASEAN countries can give the area support and influence.
- Put an emphasis on economic development: o To strengthen India’s position as a regional economic powerhouse, place an emphasis on the country’s own economic growth and development.
- India’s influence and resiliency in the face of regional instability will increase with the strengthening of local economic sectors and the attraction of international investments.
- Encourage Soft Power and Cultural Exchange: o Use soft power instruments to promote goodwill and understanding between the peoples of India and Pakistan, such as cultural exchange programmes, interpersonal contacts, and educational efforts.
- Fostering cultural relationships can help close gaps and foster an atmosphere that is conducive to communication and collaboration.
- Alertness to Security Issues: o To reduce potential security risks brought on by Pakistan’s political upheaval, strengthen border security measures.
- Keep a strong intelligence network in place to track and address any threats to national security or cross-border operations.
- Place a Focus on Regional connection: To improve regional integration, give regional connection initiatives—such as infrastructure development, transportation networks, and energy partnerships—priority.
- Projects like the International North-South Transport Corridor, the South Asian Association for Regional Cooperation (SAARC), and the Chabahar Port project can promote economic cooperation and ease tensions in the region.
- Interaction with the International Community: o Interact with the international community, including multilateral venues like the United Nations, to raise issues and solicit backing for regional stability.
- Work together with nations that share similar viewpoints to solve common problems and forward a planned strategy for handling Pakistan’s political turmoil.
- Track-II Diplomacy and Civil Society Engagement: o Promote intercultural discussions, people-to-people contacts, and track-II diplomacy efforts to increase mutual understanding and trust between Pakistan and India.
- Work with non-governmental organisations, academic institutions, and civil society groups to foster communication and advance peaceful solutions.
The political crisis in Pakistan presents both challenges and opportunities for India in terms of regional security and bilateral relations. While the crisis may increase cross-border tensions and compromise regional stability, it also gives India diplomatic leverage, opportunities for counterterrorism cooperation, and a chance to engage in constructive dialogue.
- With a high degree of investor trust, India is one of the countries that receives the most foreign direct investment (FDI) and foreign portfolio investment (FPI). However, international credit rating agencies appear to have a preconceived notion about how to assess India’s economic structure.
- Fitch’s sovereign rating has been kept at BBB-, which is just above investment grade and denotes an outlier.
GS Paper-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development, and Employment
For their inaccurate assessment of India’s sovereign rating, credit rating firms have come under fire. Describe the elements that support a higher rating for India and the necessity for credit rating companies to modify their procedures in light of the current situation.
Companies vs. Sovereigns in Credit Rating
- The idea of a sovereign’s credit rating is distinct from a company’s.
- Credit rating agencies must take this risk into account when assessing a sovereign’s creditworthiness because countries can always print money to repay their debt, even at the risk of high inflation.
- While the agency evaluates the probability of default for companies based on their performance parameters, it evaluates the overall economic structure of the country for sovereigns to determine whether it can default.
Is this assessment appropriate for India?
- For India, however, practically all debt is completely in rupees, and even FPI involvement is in rupee bonds, therefore there is never a case of FX risk for India. Such an appraisal can be justified if countries have external exposure.
- The perception of the economy by investors is the deciding factor in a country’s credibility, thus if international investors are optimistic about India, a rating of only investment grade seems out of the ordinary.
- Since there is complete capital account convertibility there, these investors are genuinely putting their money on the table and have never experienced any problems pulling it out.
Strong Arguments for a Rating Upgrade:
- excellent Growth Statistics: o Even without comparing it to other countries, the growth rates of 7% in FY23 and 6-6.5% predicted for FY24 are pretty excellent.
- The performance is more than commendable, even though it falls short of the potential of 8–8.5 percent after the Covid blow.
- Nuanced Approach to Fiscal Stimulus: o In comparison to other countries, India took a particularly nuanced approach to fiscal stimulus during the crisis.
- While expenditure was adjusted by reform and policy actions, revenue was delayed.
- The industry benefited from using banking channels to provide support, while the financial system benefited from guarantee programmes.
- There is a commitment to returning to the road of fiscal restraint in a short amount of time.
- Expenditure is being reduced, as seen by the merger of the free food programme and the food subsidy.
- Banking System Rebound: The Indian banking sector has made a strong comeback and has taken advantage of the epidemic era to straighten out its records.
- This improves the banking system’s ability to offer financing and makes it possible for the economy to go to a higher development path.
The function of the RBI is as follows:
- Smooth Withdrawal of Accommodation: o In comparison to other countries’ central banks, the RBI has ensured a smoother route to normalcy.
- In this case, the accommodation withdrawal went well and was done inconspicuously.
- The interest rates have also changed in this area without having a significant impact on growth. This is significant because bond yields have moved within a smaller range in India, preventing the same level of volatility that has been experienced in the US as a result of the Fed hiking interest rates.
- Strong forex situation: o The RBI has made sure of two things: o First, as the dollar appreciated, the rupee always maintained the median level of depreciation compared to other currencies, ensuring there was no market panic and maintaining the competitive edge for exporters. o Second, forex reserves, which declined primarily due to valuation issues, have regained their level with a comfortable import cover ratio of just above nine months. The balance of payments is greatly aided by this.
- Better quality of public spending: o The Budget boosted the share of capital expenditures from 12–13% before the epidemic to 22% for FY24.
- Despite the year’s several approaching assembly elections, the Budget has chosen to practise fiscal restraint.
- innovative trade agreements: o India’s ability to pioneer innovative thinking on the trade front, as evidenced in the rupee trade agreement with Russia, which has since won popularity with numerous countries, was a significant development during the year.
- This is a significant step since these agreements can assist nations in reducing their reliance on the dollar and the euro, which will strengthen their economies.
- Although going domestic is a novel approach, it is a slow process that will take time to perfect.
- The rating agencies need to recognise this since it is a model that many emerging nations will find valuable.
- Digitization: India has made incredible progress in this area, from banking to the Covid vaccine campaign.
- The digitization drive has changed the economy’s structural makeup, making systems more effective.
- In order to maintain their reputation, international credit rating agencies must reinvent themselves and go back to the basics.
- India merits a fair and unbiased assessment given its distinctive domestic business strategy.
- The commentary supplied about India is typically positive, and the low rating given is unjustifiable.
- The rating procedures need to change to reflect the changing times since outdated mindsets undermine the credibility of the rating agencies.
- The rating agencies need to recognise India’s strong economic success and give it the rating it merits.