Reform Measures and GST Benefits to Drive India’s Growth Momentum
India will reverse 2 years of declining growth as the economy is set to expand by 7.3% in fiscal year (FY) 2018 and 7.6% in FY2019, aided by various growth-oriented policy measures, says a new Asian Development Bank (ADB) report.
In its latest Asian Development Outlook (ADO) 2018 report, ADB notes that the dip in growth to 6.6% in FY2017 was driven in part by lingering effects of demonetization, which impacted the informal sector in the first half of FY2017. Teething issues related to implementation of the Goods and Services Tax (GST), which hampered operations of small and medium-sized enterprises and exporters, also contributed to growth moderation.
“Despite the short-term costs, the benefits of reform—such as the recently implemented GST—will propel India’s future growth,” said Yasuyuki Sawada, ADB’s Chief Economist. “Robust foreign direct investment flows attracted by liberalized regulations, and the government’s steps to improve the ease of doing business will further bolster growth.”
India’s growth in FY2017 was driven primarily by services, which grew by 8.3% due to improved growth in finance and real estate, and in trade, transportation, and communication services. Industrial activity slowed down largely due to manufacturing growth’s weakening to 5.1% in FY2017, compared to 7.9% a year earlier. Agricultural performance was also modest, as food grain production marginally exceeded the good harvest a year earlier. Although consumption growth dropped to its lowest level in 5 years in FY2017, there was a sequential pickup in investment during the year.
Going forward, the ADO expects growth to pick up supported by various measures aimed to bolster farmers’ purchasing power, including higher procurement prices, agriculture market reforms, and investments in irrigation and logistics. Investment revival is expected to continue, albeit at a modest rate, as firms and banks strive to improve their balance sheets, and capacity utilization levels pick up.
Inflation is expected to inch up to 4.6% in FY2018 and 5.0% in FY2019 driven by further firming of global commodity prices and strengthening of domestic demand. The uptick in inflation along with deferment of fiscal consolidation and expected hikes in the US Federal Reserve’s interest rate has reduced the room for policy rate cuts to stimulate growth.
A pickup in growth in advanced economies will likely help exports to grow at a healthy rate. At the same time, imports are also expected to increase as a result of higher commodity prices and the uptick in domestic demand. With the rise in imports offsetting the increase in exports, the current account deficit is expected to widen a bit to 2.2% of GDP in FY2018 and 2.4% of GDP in FY2019. The current account deficit is expected to be financed comfortably by capital flows, as India remains an attractive destination for foreign direct investment and portfolio flows.
Political Crisis, Power Distribution and Taliban in Pakistan
The political crisis in the Islamic Republic of Pakistan tends to evolve. Elite groups in the government and the opposition will be unable to find proper means to resolve the issue. The economic crisis and financial problems will also prevent Islamabad from stabilizing the political situation in the country. In addition, interethnic contradictions between Punjabis and Pashtuns are actively developing in the country, which tends to escalate. The Taliban’s power in neighboring Afghanistan does not contribute to solving the political crisis in Pakistan but contributes to its deterioration. This was stated in a note to Modern Diplomacy by political scientist Georgi Asatryan.
The political scientist also noted that the Pakistan army would give former prime-minister Imran Khan no chance to regain his political standing. “The opposition and political circles close to Khan will attempt to perform protest activity in the country. There will be continued nationwide unrest. The traditional control of the Pakistani military and the ISI over political processes will be raised, and human rights, democratic processes, and freedoms will, unfortunately, be limited. Overall, Pakistan will remain a center of instability in the region”, Georgi Asatryan noted. The political scientist added that the Pashtuns in Pakistan, representing the second largest ethnic group, see Imran Khan as their man and will support him. The same goes for the Taliban in Afghanistan, whose sympathies are also on the side of the Pakistani opposition leader.
Georgi Asatryan does not rule out the possibility of a new military coup but estimates its possibility in the short-term as unlikely. When a country’s institutions become ineffective, anyone can suspect a situation developing a coup d’etat. This was apparent during the spring protests led by Imran Khan, where Khan’s supporters fought with paramilitary police.
It is also worth citing that the country’s economic situation is complicated and can be described as a full-fledged economic and financial crisis. According to the data, Pakistan has a debt of $ 125 billion, and 25% of this amount is owed to China. The rapid growth of inflation – 36.4% in April, demonstrates the difficult economic circumstances of Pakistan. This indicator is noted as the highest in the last sixty years. Concerning the country’s foreign reserves, Pakistan has only 4.3 billion dollars, which is enough to cover imports for a month. In order to temporarily mitigate the financial situation of the state, Saudi Arabia extended the term of the deposit in foreign currency for $ 3 billion deposited as a loan in 2021. Also, China extended a $2 billion loan to Pakistan at the end of March. Islamabad’s external debt has been plunged by more than $10 billion. This reduced the current account deficit from July 2022 to April 2023 to $3.3 billion, significantly lower than $ 13.6 billion for the same period 2021-2022. This indicator decrease is due to a reduction in imports to $ 47 billion from July 2022 to April 2023 compared to the previous period – $ 65.5 billion.
The Problem of “jihad” and the Power in the Taliban
The situation within and around Afghanistan continues to evolve actively. Unfortunately, political and social processes have negative dynamics, which can lead to degradation and decline of the situation, both within the country and along its borders. Thus, in May, the UN UNAMA mission called on the Taliban movement controlling the country to stop flogging and public executions immediately. The UN papers note that convicted persons for theft, homosexuality, alcohol consumption, fraud, and drug trade were publicly flogged. It is worth noting that such critical statements by international organizations against the Taliban have become much more frequent in recent months. “After seizing power in Afghanistan, the Taliban regularly carry out public executions, floggings, and stoning. In the last six months alone, 274 men, 58 women and two boys have been publicly flogged in Afghanistan. Most of the punishments were related to convictions for infidelity and running away from home,” the UNAMA report says.
During the first Taliban rule in Afghanistan from 1996 to 2001, public corporal punishment and executions were regularly carried out against convicts at large squares, such as sports stadiums, and at busy city intersections, the authors of the document recall. According to them, the first public flogging after the Taliban returned to power was recorded in October 2021 in the northern province of Kapisa. A woman and a man convicted of adultery received 100 blows each in the presence of religious leaders and representatives of local authorities. In December 2022, the Taliban executed an Afghan convicted of murder, the first public execution since they came to power again. The execution, carried out with a rifle gun by the victim’s father, took place in the western province of Farah in the presence of hundreds of spectators and senior officials of the movement. The Taliban began using corporal punishment and public executions despite initial promises of a more moderate rule than during their previous term, UNAMA states.
Gradually, they tightened restrictions concerning women, prohibiting them from visiting public places such as parks and gyms, under their interpretation of Islamic laws, the document states. These restrictions caused an international resonance, increased the country’s isolation during the economic crisis, and aggravated the humanitarian crisis. In April, the Taliban informed the UN that Afghan women working on its mission would no longer work there. Humanitarian organizations operating in Afghanistan have stated that these measures will negatively affect the provision of urgent assistance throughout the country. In turn, UN Secretary-General Antonio Guterres called the ban on women’s work an unacceptable violation of human rights.
In addition to the constant growth of political violence based on the radical ideology of the Taliban and their specific ultraconservative interpretation of Sharia, there is an inevitable diffusion of power within the movement. The specific of the Taliban movement is that this structure was initially totalitarian. The power of the spiritual leader of the Taliban has always been untouchable, and there was no serious opposition capable of challenging the leader significantly. The theory of political science has a consensus opinion regarding such totalitarian ethno-religious organizations. Unity of command and the indisputable sending of a leader is an integral characteristic of the functionality of such structures. Since the founder of the Taliban, Mullah Omar, had absolute power, his orders were considered binding, and these were the will of Allah. A separate but crucial topic is the publication of doctrinal documents of the Taliban, which were distributed as a guide to the management of tactical units of the organization.
However, the movement’s evolution led to a new Taliban. In the world media, the term Taliban 2.0 has been used more and more often. This term has logic and, to a certain extent, correctly shows the deep transformations that have taken place within the movement. The modern Taliban has become much more intelligent, flexible, and diversified. In fact, in the last years of the war in Afghanistan, the United States and NATO had to confront a network organization led by dozens and hundreds of field commanders who only coordinated their operations but no more. The Central command gave only general orders and impacted the promotion of certain provincial leaders and “night” governors. The Taliban gradually became like the Haqqani Network.
However, a subversive and terrorist war against US and NATO forces is one issue, and the management of the state, bureaucracy, and government system is an entirely different one. In totalitarian political systems, network management is impossible. Opposition to the central government leads to its erosion and subsequently to the aggravation of the political power crisis. Political science knows no examples of network management in totalitarian or authoritarian political societies. Therefore, there is a dilemma of academic and theoretical nature. How will the political system of Afghanistan develop? Or, how will the distribution of power take place inside the Taliban? The question was raised at the time by the classic of political science Talcott Parsons concerning developed democratic societies.
Since we have already written in detail about latent conflicts within the Taliban leadership, we will not return to this topic. In short, the Taliban is split into two elite groups. One led by the leader Mawlawi Hibatullah Akhundzada. The Defense Minister and the son of the founder of the Taliban, Mullah Yaqoob, and the Interior Minister Sirajuddin Haqqani, the son of the founder of the Haqqani Network, head the second one. This general and schematic picture has yet to be studied and investigated in detail. For obvious reasons, it is impossible to conduct such studies within the framework of the social sciences methodology now.
Following the above, the problem of the distribution of power and the dilemma of power arises in the language of political theory. It is also worth noting that tension between the Taliban and their main sponsors and mentors, the Islamic Republic of Pakistan, escalates occasionally. This factor further complicates the situation. Given the political and economic crisis in Pakistan, which has become a lure, this country cannot maintain order among its radical clients by the system.
There is a danger of the illusion of a lasting systemic order in Afghanistan. Moreover, among the top leadership, the temptation is to solve their personal problems of competition for power by exporting energy outside Afghanistan.
So, recently, the Taliban leader said that establishing Sharia in Afghanistan is only the first stage of a successful Taliban jihad. According to him, in the future, the Taliban and the Afghan ulema must lead the whole world to Sharia leadership. Thus, the leader of the Taliban made it clear that the jihad would not be limited only to the territory of Afghanistan. “The success of the Afghan jihad means not only pride and glory for Afghans but also glory for all Muslims. It is the desire of Muslims all over the world,” Maulavi Haibatullah Akhundzada said in his speech to religious scholars from Kabul. “Therefore, your responsibility is not only to establish Sharia in Afghanistan but also that the scientists of Afghanistan are obliged to lead the whole world to the regime of Sharia.”
In his speech, Mawlawi Akhundzada also made it clear that the international community’s expectations of an “inclusive government” in Afghanistan are in vain. Representatives of the United Nations, the United States, Russia, India, China, Iran, European countries, and Central Asian republics have been trying to convince the Taliban regime of this for more than a year and a half from different sides. Mawlawi Akhundzada made it clear that all these hopes were in vain. Thus, the stability issue in Afghanistan remains relevant, and it is unlikely that the international community should forget about the political dynamics in this country.
Anti-Indian Sentiments in Nepal
The 2023 International Freedom Report on Nepal has sparked controversy due to allegations that right-wing religious groups associated with the ruling party of India are providing money to influential politicians.
Nepalese politicians have a notorious history marred by scandals. In 2013, a voice recording of a prominent politician Krishna Bahadur Mahara surfaced in an effort to buy 50 MPs with the help of a Chinese friend. Furthermore, the recent fake Bhutanese refugee crisis has led to the arrest of high-profile politicians from the country’s largest and second largest parties of Nepal reflecting the pervasive corruption and scandalous nature of Nepalese politics.
The right-wing religious groups associated with BJP would support any person who agrees with their political philosophy and may even believe that such states which share their political ideology would be more aligned with India.
International Religious Freedom Report clearly states funding is given to “influential politicians of all parties”, the Hindu nationalist party of Nepal- Rastriya Prajatantra Party issued an open letter to US Embassy stating it as a baseless allegation against the RPP. In reality, RPP is the fifth largest party but isn’t influential enough to stir Nepali politics.
The RPP letter focused that they disliked external interference and may it be as stated in the report on the “continued to pressure politicians in Nepal, particularly the RPP, to support revision to a Hindu state” even though revision to a Hindu state is the primary agenda of why their voters vote RPP.
Nepalese politicians have a long history of distancing themselves from India. In 2020, the Nepalese parliament unanimously voted to unveil the new map of Nepal which included territories that are under Indian jurisdiction. Meanwhile, a single Parliamentarian Sarita Giri was expelled from the Nepalese Parliament by her party after she refused to support the proposed amendment by a party accused of being pro-Indian.
There is a noticeable xenophobia within the Nepalese community towards India. However, this distaste is never realized by the Indian masses who encounter a community who are comparatively able to speak Hindi without any formal training and share religious sentiments.
The question arises: how can Nepal share language, culture, and religion while maintaining hostility towards India? These issues have much deeper historic roots that can be linked back to the beginning of Nepali written history.
The national flag and national emblem of India are both associated with Ashoka, reflecting the Indian perception of the country that links with its ancient history. Similarly, Nepal’s first inscription was also installed by Ashoka in the bordering towns of the Rupandehi and Kapilvastu districts. The most famous inscription dated 249 BCE, is in Lumbini, marking the birthplace of Gautam Buddha.
The Indians utilize the cultural perception that links Buddha’s origin to India, while the Nepalese emphasize the contemporary geopolitical borders that define the birthplace to be within Nepal.
The primary residents in the bordering regions of Nepal share the same ethnic group as found in Bihar and Uttar Pradesh, contributing to a considerable size of the minority in Nepal. Bordering communities between Nepal and India such as Maithili, Bhojpuri, and Awadhi communities, individually surpass the total population of Nepal.
Hilly people in Nepal are deeply concerned about safeguarding their sovereign territory and preserving their unique social and cultural identity. It is noteworthy that Indo-Aryan literature, such as Shrimad Bhagavatam has remarked ethnic groups found in hills such as Kirat and Khas are linked with the sinful act and by taking refuge in the Aryan god can purify themselves.
However, starting from the rise of the Licchavi era around 450 CE, Nepal gradually assimilated religious and cultural influence from India, as the Lichhavi dynasty itself originated from India. The indigenous knowledge of Nepal merged with the high culture derived from the Sanskrit language, to an extent that many Nepalese accept the Indo-Aryan literature to genuinely belong to Nepal.
Some Nepalese believe that the compiler of Vedas, the most important and earliest Indo-Aryan literature, was born in Tanahun, Nepal. On the other hand, Indians believe he was born on an island in the Yamuna River in India.
In 2020, the then Prime Minister KP Sharma Oli claimed that the real Ayodhya is located in Thori, west of Birgunj. This statement outraged many Indian politicians and the media. The fact that KP Sharma Oli’s party even after suffering many corruption scandals received the highest percentage of popular votes reflects the thought process of the Nepali masses.
The effort to build the Nepalese identity can be traced back to pre-modern times. Renowned scholar KP Malla noted that the assumed portion of Skanda Puran, an important Indo-Aryan religious literature, Nepala Mahatmya was a ‘pious fraud’ from the late Malla era rather than being a 9th-century text.
Religion is considered a binding force between Nepal and India but rather contributes to suspicion and accusation as faith doesn’t depend on academic research and reasoning but is a cocktail based on the teachings of community leaders and fierce sense of nationalism.
There is a strong possibility that the BJP supporters believe in promoting religious sentiments in Nepal would decrease the distance between Nepal and India. However, they may fail to comprehend how Nepalese religious groups perceive India as a potential threat.
Some Nepalese do not view India as synonymous with the ancient Bharat, as mentioned in Vishnu Puran. Instead, they conveniently consider it as a country formed due to British expansionism. Furthermore, over two centuries ago, the first ruler of the Shah dynasty in Nepal referred to Nepal as the true Hindusthan, Hindustan is another term used for India. Some groups of people even in India believe that due to invaders they have lost their glorious heritage due to invaders while Nepalese nationalism is deeply rooted in the notion of bravery and the ability to protect sovereignty and identity during various invasions.
Academics often associate Anti-Indian Sentiments with three factors- trade blockages, Nepalese border encroachment issues, and unequal diplomatic agreements. However, these issues overlook the cultural complexities between Nepal and India.
Indian tourists visiting Nepal may happily express that they feel as if they are in India, which can make Nepalese people threatened by the possibility of Nepal becoming the next Sikkim. Nepalese due to its nationalist sentiments want to be perceived as a distinct group of people.
The Indo-Nepal relationship is complex and has multiple layers that contribute to its complexity. The claims of BJP funding prominent politicians in Nepal to support the idea of a Hindu state may not result in improving the relationship between Nepal and India, instead, may further damage it.
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