Politics Now

A Reversal of Fortunes

The fact that China has been a vociferous exporter and a tame importer of global goods may not come as much of a surprise. What hits hard, however, are the numbers behind the game. That ratio, disproportionately behemoth, was pegged at 127.16 (December 2018): which is to say, Chinese exports was a mind-boggling 127 times higher than its net import! All through these years, as an almost direct consequence, China has had an current account surplus. The time for merry-making may soon be running out; as China today faces the threat of racking up a current-account deficit for the first time in decades.

Analysts at global agency Morgan Stanley predicts China may face an imminent deficit in 2019, the first time since the last such deficit arose in 1993. This metamorphosis from a state of surplus, to that of a deficit, will bear an immediate cascading effect on both the Chinese economy, as well as State-run institutions. The Chinese model under Xi Jinping has become increasingly closed-door, with several accusations of skewed policy priorities for local competitors and expropriation of foreign-based technology. This shift might represent a rare willingness to jump over onto an era of economic liberalization, a perennially sore point between the interests of the United States and its Chinese counterpart.

Looking at the roots

Historical economic data makes it clear that China has saved way more than it invested. However, the working progeny of the yesteryear generation has almost an imbued tendency to splurge more. This is made clear by exponential increase in the consumption of smartphones, cars, and other luxuries. A report published by CEIC Data highlighted how Chinese tourists were the largest spenders abroad. In 2018 alone, China ran a $240 billion deficit in its tourism industry- its highest yet. This problem is only set to aggravate, as an ageing population draws down its savings, thereby further complicating matters.

A deficit in the year ahead will be negligibly small with respect to the Chinese GDP. Moreover, China has a sizeably good buffer of $3 trillion worth of foreign exchanges that could be used to head down immediate triggers of worries. This should give China time. What remains to be seen is what China does to revive its flailing mast. In April 2019, China is set to enter the Bloomberg Barclays bond index, which would help accelerate foreign funding into Chinese bonds to the tune of approximately a hundred billion dollars, all within two years. It has also eased quotas for foreigners who buy bonds, apart from luring pension and mutual funds who would now think about increasing their exposure to China.

Yet, on the reform front, moves remain limited. Restrictions for Chinese citizens were enforced in late 2017 on monetary withdrawal from Chinese banks overseas- and was capped at $15,000. While the official statement read that it was aimed at curtailing terrorism financing, money laundering and tax evasion, the fine print is not difficult to read this time around. China clearly has a sense of the upcoming perplexity. Such hardline State control may ultimately deter external investors from pumping their money into China, as it is uncertain if money once pushed in, can be taken out with ease. A system which treats locals on a higher ground than foreigners is not only conceptually flawed, but also smacks of corruption and instability.

Economists Douglas North, Daron Acemoglu and James Robinson have in a paper shown that the development of an open political system, aided by strong state institutions, help foster long run growth. While the West would inevitably want China to return to normalcy and develop institutions of global credibility, any such turn under Xi’s rule was out of question. In January, China reported that its economic growth cooled down to its lowest in twenty-eight years. This development is in line with the steep fall in exports, which fell an unexpected 4.4% in December 2018, along with a contraction in manufacturing activities.

Figure 2: A Graphical Representation of North, Robinson and Acemoglu’s work
of a linear relationship between openness of institutions and long run growth.

Acute Debt Problem

On top of that, exists China’s humongous debt problem. China’s pile of $34 trillion dollar worth of public and private debt is akin to a ticking “debt bomb” to several economists. Among the forefront of such vocal critics is Arvind Subramanian, who brought out two pivotal pieces in Project Syndicate last year. Subramanian argues that China’s tactic of cooling down financial crises through increased State investment in domestic infrastructure projects only help embroils, or rather disguise, the mess that the debt represents. A near-normal economy that runs with a whopping 270% debt-to-GDP ratio is unarguably beyond the laws of economics. To put a benchmark reference, the Greek economy collapsed when debts reached 188% of the GDP. Stein’s law holds that if something cannot go on forever, it must stop. Yet, Chinese debts are on the roll. It has repeatedly tried to finance its domestic debt through external investment that reaps bountiful profits for China. The Belt and Road (BRI) initiative, that spans 68 countries and involves 40% of the world’s GDP, is one such attempt. Countries, however, are only growing aware of the increasingly compounded terms of such Chinese projects: even workers for those projects are of Chinese origin. Several countries have already cancelled Chinese projects due to high fiscal stress. The newly elected Malaysian Prime Minister Mathir Mohammed cancelled $22 billion worth of Chinese projects, which were passed by his predecessor Najib Razak, as such projects would be an added burden for Malaysia’s promising economic future. China’s loaning system is inherently biased, and to the extent that Harvard University’s Ricardo Hausmann recently termed it usurious.

The Road Ahead

On an overall front, the current fiscal year should be the year for undertaking structural reforms to the Chinese economy, to help it become more resilient against internal volatility and the threat possessed by an ageing workforce. This must be backed by political willpower, as such changes will help ensure benefits in the long run. The US-China trade war is only the fruit of a myopic vision on both ends: while China seems to resist liberalization on the front that it would seem pliable to western ascendancy, America’s continued persistence on the importance of a stable yuan over far greater concerns of a global slowdown as a result of the under-performance of the Chinese economy is upsetting.

It would be wise to recall Rüdiger Dornbusch’s law, which cautions that “[t]he crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

Populism over Prudence

The Interim Budget prima facie looks like a blunt attempt to appease important sections and classes in India that could reap rich electoral dividends: with the limelight on the farmer, the salaried taxpayers, and the demographically strong unorganised sector. Departing from the convention that interim budgets must do no macroeconomic harm, it was an instrument to drive votes for the meeting of narrow political ends. This is thus, a textbook case of populism over prudence.

The Union Budget allocation for 2019-20 is about 10% higher than that of its predecessor, with an outlay of ₹27.8 lakh crores. While most sectors witnessed a rise in allocation of funds in absolute terms, their share as a percentage of the total funds demarcated has fallen. Interest payments on debt accounted for the lion’s share in the 2020 budget: 24% (₹575,795 crores). Defence sector spending came a close second (₹284,733 cr), and was followed by subsidies (food, fuel and fertiliser subsidies), which totalled an expenditure of ₹264,336 crores (10-11% each).

Above: Comparison of Funds Alloted to Different Ministries

The budget was expected to primarily focus on a resolution to the agrarian distress, but the government went out of its way to ensure that the middle class and the informal sector workers did not harbour any feeling of being left out. Hence, the budget was mostly an appeasement budget; one laced with doles and sops- and hardly any revenue-generating schemes. Under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, farmers who have holdings less than 2 acres will be entitled to an annual sum of ₹6,000 per family. The agricultural distress is a resultant of traditionally low rates of productivity, coupled with drastic price falls and low size of farm holdings. In an op-ed, C. Rangarajan writes how the average farm size declined from 2.3 hectares in 1970-71 to 1.08 hectares in 2015-16. This is a barrier to efficient use of modern agricultural methods, including mechanisation and other novel technologies like precision farming, which can push current production capacities to a new horizon. Thus, a price support mechanism must be put in place urgently. The government’s hastily announced PM-KISAN, while harbouring good intent, has several fault lines. A permanent solution can only be implemented once long-run considerations are taken into account. Telangana’s Rythu Bandhu scheme which offers ₹10,000 per acre, per year, is more inclusive and is a better choice overall. Odisha’s newly introduced KALIA scheme is also a step in the positive direction.

The Modi government has come up with sufficient relief for the middle class, targeting especially the salaried group, and workers lodged in the informal sector. The Income Tax exemption limit has been raised to ₹500,000 from ₹250,000. This is a direct blow to the already frailty tax collections in India. Income Tax departmental data for the year 2017-18 showed that 66% of the return filers fell under the ₹5-lakh bracket. Hence, the move will wipe out almost 66% of all previously eligible taxpayers from the tax net, and is sure to dent any immediate prospects of tax-fuelled growth. The standard deduction limit has been raised from ₹40,000 to ₹50,000. The Pradhan Mantri Sharam Yogi Maandhan Scheme has been developed as a mega-pension scheme for the unorganised sector, which will pay ₹3,000/- a month to registered beneficiaries. The recent CMIE Report has highlighted how 11 million jobs were lost in 2017-2018 alone, out of which 8.8 million were women.

Union Finance Minister Piyush Goyal announced that in a bid to fund the newly introduced schemes, the government would miss its fiscal deficit target not only for the upcoming year, but also for 2020. Governmental fiscal deficit for 2018-19 and 2019-20 would be 3.4%. In fact, funding the PM-KISAN scheme alone would entail a DBT burden of ₹75,000 crore to the exchequer. The NK Singh Committee on the FRBM Act, had proposed that the fiscal deficit was to be contained within 3.0% of GDP in FY18-20, 2.8% in FY21, 2.6% in FY22, and finally 2.5% in FY23. The government has thus, in the act of fiscal profligacy, sent fiscal prudence for a toss. Furthermore, while the government is overly enthusiastic about a sharp spike in GST collections, the fact remains that receipts from the GST is ₹1 trillion less than the budgetary estimates. Fiscal marksmanship analysis must be implemented rigorously and should try to close the gap between actual and predicted values.Arvind Subramanian mentions that while new schemes are constantly introduced, old schemes that are no longer relevant are hardly taken off the funding radars. This glaring error costs the government by causing fiscal leakage. For example, there is a ninety-six year old scheme, called the ‘Livestock Health and Disease Control’ (under the Department of Animal Husbandry), and it was alloted ₹251 crores in the Union Budget 2015-16. Moreover, pile up of new, expansive schemes pushes the government into higher debt levels. Celebrated Harvard economist Kenneth Rogeff, had predicted that countries with a debt/GDP ratio greater than 90% experience negative growth rates. This was evident through breakdown of Greece’s financial environment. Greece had a staggering debt/GDP ratio of 188% when the economy collapsed. India’s debt/GDP in 2017 touched 71.18% in 2017, and came marginally down to 69.55% in 2018. Thus, consistent and serious efforts must be made to bring down the debt levels.

Global rating agency Moody’s has marked India’s interim budget as “credit-negative”, underscoring the fact that it has only give-aways and little to recover from. Business tycoon Anand Mahindra remarked that the budget was a “pump-priming” exercise for the government, as higher incomes would lead to greater consumption and drive growth. In my opinion, several schemes that have little rational base can be wiped off and their funds can be relocated to more efficient schemes. For example, farmer support which has been pegged at ₹6,000 can be increased if fertiliser subsidies are decreased, as excessive use of fertilisers and soil enhancers takes a toll on the long term farm productivity (we are over-discounting fertilisers in any case). Disregard for fiscal discipline, especially in times when the chilly winds of protectionism are blowing all over the global economy, is a dangerous trend. As Paul Krugman puts it aptly, it is prudent to maintain “profligacy in depression, and austerity in good times”. Well said!

10 ka Dum: On the Quota for the Forward Class

India’s remarkable demographic diversity has often been a subject of awe; and its track record as a pluralistic State enshrined on the focal principles of mutual harmony and respect serves as a fantastic example to the world. Quantitatively, more than two thousand ethnic groups lie within the political territory of India. Appreciable variation in social indices, such as income distribution and education levels also lends a great degree of heterogeneity amongst the population. However, over the due course of time, certain groups of the populace were found to be left out of the bandwagon of national progress– or socially backward, with causes ranging from historical subjugation to exploitation and vulnerability post-Independence. Reservations by means of providing quotas in higher educational institutions and in public jobs have been adopted to provide an equitable platform to the societal castaways. On 8th of January, 2019, the Lok Sabha passed unilaterally the bill to introduce a 10% reservation quota among the forward classes, on top of the existing fifty-percent reservation limit demarcated for the Scheduled Castes, Scheduled Tribes and other backward classes.

Historical Context

The idea of preferential treatment for the socially disadvantaged is very old in India. India was the pioneer of affirmative action, or ‘positive discrimination’ for the backward classes, holding the belief that bringing the handicapped masses to the forefront would require State effort via reservations. In medieval India, the caste system was conceptualized so as to segregate people on the basis of their occupation. The Brahmins were delegated the responsibility of administration and worship, the Kshatriyas that of warship, and the Vaishyas generally looked after business affairs. The sudras were the supposed ‘untouchables’. As time passed and orthodox sentiments took predominance, the walls constricted enough to make the system divide the people with narrow barriers. In 1949, Article 17 of the Constitution was thereby introduced as a measure to counter the practice of untouchability. The British Raj had also used reservation as a policy measure to counter social evils widely prevalent in the time through the Government of India Act, 1909. In 1921, the Madras Presidency introduced the Communal GO, which brought into force a reservation of 44% for non-Brahmins, while 16% was for earmarked for the Muslims, Anglo- Indians & Christians, and 8% for Scheduled Castes to combat Brahminical preponderance.

Legal Background

The 124th Constitutional Amendment bill will certainly run into legal hurdles, and more so because the Supreme Court had already capped the maximum ceiling for reservation limits at 50% vide the 1992 Indra Sawnhey judgement

From the section, On the Road Ahead

There have been several cases in the legal world wherein the idea of reservation, and associated procedures, was put to test. I will restrict our scope of discussion to four important judgements, each delivered by the Supreme Court of India, yet highly relevant in shaping the public policy as regards reservation in India. It was through the judicial route that the Constitutional void on the distinction between caste and class was evaluated closely. All of the judgements refer to Articles 14, 15 and 16 of the Constitution, which deals with the equality before law, prohibition of discriminatory practices on the basis of race, caste, religion, sex, or place of birth; and equality of opportunity in matters relating to public employment, respectively. 

  1. The very first of these was in the form of State of Madras v. Smt. Champakan Dorairajan (1951). As already discussed earlier, under the Communal GO, seats in State run Medical and Engineering colleges were reserved for the backward classes. The plaintiff pointed out that the State’s policy to refuse her admission despite the higher marks, in favour of some other person from a notified backward class, was violative of her rights under Article 15(1) and 29(2) of the Constitution. While clause 1 from Article 15 provided that a State could not discriminate between any two or more person(s) on the grounds of race, religion, caste or gender, Article 29(2) spelt out that a person could not be denied admission into any State sponsored educational institute on aforementioned grounds of race, caste, and the like. A seven-Bench jury ruled the verdict in the plaintiff’s favour, pointing out that while Article 16(4) permitted reservations for depressed communities in employment opportunities, no such Constitutional provision existed in Article 15. Pursuant to the judgement, the Parliament soon amended the Constitution with a clause 4 in Article 15, which made it clear that exceptions could be made in order to facilitate the upliftment of socially and educationally backward communities.
  2. The second case, M.R. Balaji and Ors. v. State of Mysore came up in 1963. In Karnataka, reservations were in force even before the adoption of the Constitution, which continued thereafter. The State of Mysore considered that all non-Brahmin communities were socially and educationally backward, and introduced quotas upto 75% in educational institutions for the SEBCs, SCs and STs. The SEBCs were further categorised into backward classes and more backward classes. In a particular order, reservation for 68% of the seats in the State’s technical education institutions was put into effect, which was challenged in the Court under Article 32 of the Constitution. The court unilaterally declared that for the consideration of Article 15(4), backwardness must be both social and educational. The court further held that reservation for such classes cannot continue in perpetuity, and the government should consider periodic tests to ascertain whether such reservation would be justified. It also recommended a reasonable rate of reservation (around 50%) so as to ensure the fair access for the forward castes. The court also made it clear that further clarification of the SEBCs into two categories was redundant, and had to be done away with.
  3. The Indra Sawhney v. Union of India (1992) had a considerable impact on the general idea on policymaking for reservations. The apex court proclaimed after considerable analysis that economic status could not be the sole parameter to judge the backwardness of a particular group. It also made note of the fact that there was a Constitutional vacuum on the definition of ‘backward class’ of citizens. It clarified that by backward classes, the Constitution meant the class of people who served the forward castes. The top court also recommended the setting up of a commission to examine the requests for inclusion of communities into the OBC lists and also for timely exclusion of any pseudo OBC communities that might have crept into the list. The Mandal Commission undertook the task to define other backward classes by objectively assessing each new inclusion under social, educational and economic parameters. Under the new definition, the OBCs included people for whom either per-capita income was 25% less than the State average (economic), or the percentage of those who have never attended, or dropped out, is twenty-five percent above State average (educational), and those whose main source of livelihood is manual labour, and whose females engaged in active work is 25% more than the corresponding State figures (social).
  4. Ashok Kumar Thakur v/s Union of India (2008) was a unique legal battle. It was a PIL that challenged the Constitution (Ninety-third Amendment) Act, which legitimized 27% reservation for OBCs- thereby reducing the seats for a general candidate to 50% only. The Court found that the Ninety-third amendment Act did not violate the “basic structure” of the Constitution in cases relating to State run institutions. The Court did not allow the “creamy layer” concept to be applied to the SCs and STs, while it was applicable to the OBCs. This was perhaps, with all due respect, an anomaly; a case wherein reservation could continue unchecked despite social advancement of the already-benefited.

The Road Ahead

The Government’s bid to introduce a 10% quota cut for the poor amongst forward classes is a fallacious idea to start with. Reservations are meant for the socially downtrodden and historically neglected, and should never be based on the economic status. Demarcating a portion of the quota-pie for the poor is nothing but an anathema to social justice. The move on part of the Government to introduce the upper cast quota bill has the potential to unearth new faultlines; and can single-handedly re-define the very purpose for which the policy instrument of reservations are used.

The 124th Constitutional Amendment bill will certainly run into legal hurdles, and more so because the Supreme Court had already capped the maximum ceiling for reservation limits at 50% vide the 1992 Indra Sawnhey judgement (see point 3, legal background). What is even more worrying is, despite widespread acceptance of the fact that such an introduction of quota goes against the very spirit of social justice, not a single national party has opposed the passage of the bill- a no-brainer for populistic legislature. In a nation where 11 million people lost their jobs in 2018 (CMIE) and unemployment figures are at a twenty-seven month high, squeezing existing, stagnant jobs through a ten percent quota cut makes no sense. Poverty eradication must be achieved through economic reforms, in which case the engine of national growth pulls out the impoverished from their state of misery. Bypassing the question of introducing much needed reforms through the use of the reservation short-cut may seem like a clever ploy for the time being; but has fundamental ramifications in the long run.

The present dispensation has a smorgasbord of choices if it genuinely intends to go hard on alleviating poverty. It could, for one, take the route of subsidy through low educational loan rates. It should also revert its focus back on generating jobs and wealth creation so as to strike at the heart of the disease of unemployment. In theory, capital-starved states can be witnesses to an exponential influx of capital provided local policies are supportive and political alignment is favourable. However, last-mile bureaucratic red-tape and grassroot level hindrances deter high investments. The Government must, therefore, redress these concerns before setting out on a mission to crack down on poverty, Rambo-style.

Thoughts on the RBI’s Independence

The country’s apex bank, the Reserve Bank of India, is back in the news again, and with concerns that have been aired earlier as well: on the autonomy and independence of the central bank. However, what makes it different this time around is the severity of the friction that currently dominates the atmosphere between the RBI and the government. In a recent lecture, the deputy governor of the RBI, Viral Acharya lashed out at the government for encroaching on the independence of the RBI and warned of disastrous repercussions if the role of the RBI was allowed to be undermined on purpose.

The disparaging remark triggered an avalanche of questions from commentators of diverse backgrounds. How much of autonomy should be granted to the Reserve Bank? Can the apex bank have a free run? More importantly, how much should the government ideally intervene in the day-to-day functioning of the RBI? The Reserve Bank as we know it today, was first institutionalised by the RBI Act (1934) under the British Raj. Originally, the role of the RBI was “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage.” In a world today which is highly interlinked and of which India aims to be an integral player, sour relations between the prime banking institution and the government can prove to be a major hurdle to a growing economy.

Exploring the RBI’s Claims

In this power tussle, both parties involved demand a fair share of their rights. The RBI has put up certain preconditions that it believes are essential for the healthy run of the Indian economy.

  • For one, it wants to exercise greater control over the Public Sector Banks. A volley of accusations were fired at the RBI after the humongous 13,000 crore fraud at Punjab National Bank. Urjit Patel, the present governor of the RBI, promptly responded by making it crystal clear that the RBI had far lesser control over the Public Sector Banks than it enjoyed over the private lending institutions. A quick fact-finding session revealed that RBI’s legal powers to supervise and regulate PSBs are very limited. It does not hold the authority to remove the PSB directors or the management, who are appointed by the government of India, and neither can it force a merger or trigger the liquidation of an ailing public bank. Its position in regard to any public bank is limited to that of a mere watchdog. Thus, in effect, the governor rightly rolled the ball back into the hands of the government by calling for effective legal reform that would grant the RBI supervisory powers over the Public Sector Banks, permitting it to do the needful at the right moment of time.
  • Certain opinions resonate that the Public Sector Banks could be recapitalized entirely if only the RBI paid a larger dividend to the government. The Reserve Bank feels that the Government should not mandate the quantum of dividends to be paid to it. The RBI generates surplus profits in a number of ways. It does so by issuing deposits to commercial banks, which are its liabilities, and on which it pays no interest whatsoever. It also buys financial assets from the market, typically domestic and foreign governmental bonds, which pay handsome interests. So, a large part of the income is generated simply because the RBI has not the need to pay the interest on its liabilities. This surplus profit is more than all of the public sector banks put together. This belongs entirely to the citizens. Thus, after setting aside what is needed to be retained to retain the creditworthiness of the RBI, the Board pays out the remaining surplus to the government. In 2016, the amount was 65,876 crores, in 2017 it lowered to 30,659 crores, and in the current financial year it was pegged at 50,000 crores.On delving into former governor Rajan’s thoughts on the question of payable dividends, he is of the opinion that a special dividend would not help the government with its budgetary constraints. In reality, much of the surplus that the RBI generates comes from interest on government assets, or monetary gains it makes off other market participants. When this money is paid back to the government, the RBI in essence puts it back into the system- thus entailing no additional reserve creation.
  • Third, the RBI is unsatisfied with recent government proposals to set up an independent payments regulator outside the purview of the RBI. An inter-ministerial panel established to finalise the Payment and Settlement Systems Act, 2007, had recommended that the payments regulator should be an independent regulator with the chairperson appointed by the government in consultation with the RBI. In a dissent note submitted by the RBI, the RBI noted that there was no need for such an independent regulator. It cited the report by the Ratan Watal committee on digital payments, which recommended setting up of the Payments Regulatory Board (PRB) within the overall structure of the RBI.

Why is the Government miffed?

The government, however, has other reasons to wage a high-pitched war against the RBI. It seems to have developed a prima-facie dislike for the RBI, which is understandable: the RBI has railed against most of the government plans which disregarded economic sense. It complained that the RBI had kept it in the dark as far as the reforms in the approach to NPA handling was concerned. The Centre views the Prompt Corrective Action (PCA) framework by the RBI, which restricts weak banks from lending, as a key factor behind the ongoing liquidity crisis. The Reserve Bank’s circular on February 12, 2018 highlighted the importance of assets recognition as a step to mop up public banks from the bad loan mess. It scrapped all previously existing mechanisms and declared that even if the default was for a day, the defaulter must be dragged to an insolvency court and the asset must be declared as an NPA- thus ending the practice of forbearance. All these measures were taken in the public interest and in the hope for long-run gains. While the government is looking at growth, the RBI aims for stability. As was already discussed, the government also wanted the RBI to pay it higher dividends to gap its fiscal deficit, but RBI had expectedly negated the request. The government was also considerably miffed when the Reserve Bank declined the request to relax norms for lending to micro and small enterprises. This was subsequently a topic of discussion when Rajan in a note to the Parliamentary Estimates Committee pointed out that schemes like MUDRA and Kisan Credit Cards, despite being popular, could serve as potential sources of credit risks.

A supreme example of the consequence of subverting the RBI’s advice was the demonetisation debacle. On November 8th, 2016, the government announced out of the blue the scrapping of high-value currency notes in use; effectively wiping out currency worth 15.41 lakh crore from circulation. The government ignored several appeals from the-then governor of the RBI, Raghuram Rajan, to not tread on this experimental path for an economy so large in scale. This gave rise to a massive cash crunch which subsequently knocked out many small to medium scale industries which were primarily dependent on cash as a form of business. More so, this was a slap in the face for the government, too- which had claimed that the demonetisation exercise was carried out with an intent to dissolve the black money in existence, worth around 3 lakh crores. The RBI, after undertaking the tedious process to oversee the counting of uncountable number of returned notes, reported that 99.3% of the demonetised notes had found its way into the bank’s vaults, despite stringent restrictions in play. Furthermore, the government’s back-up claim of demonetisation having boosted the digital economy could not be verified in the absence of any reliable sources of data. While the benefits of demonetisation may require some pondering, its adverse impacts are clear: it hurt the economy growth rate by a staggering 1.5%.

The Way Forward

Unlike armchair politicians and commentators, the RBI cannot afford the luxury of economic inconsistency. It is often the scapegoat for under-performance, and is blamed rather unjustly for every other economic fluctuation that arises. In this environment, where the central bank has to occasionally stand firm against the highest echelons of central and state governments, its decisions to not waver from the targets of economic stability and prudence must be commended. At the same time, while the ability of the RBI to say ‘no’ in the face of adversities must be protected, it also cannot be free of all constraints and should work under a framework set by the government. In this context, certain suggestions come to my mind.

First, the responsibilities of the RBI must be clearly defined. When the responsibilities of the RBI are fuzzy, its actions can be subject to continuous questioning. Instead, if the competent authorities outline a framework within which the RBI can operate, it can steer its course consistent with those responsibilities and can be held accountable for outcomes in those fields. Inflation targets set by the government serve as a good example. Second, the freedom of the RBI to take key operational decisions from time to time is important. The RBI is tasked with the job of maintaining macroeconomic stability, and this requires the RBI to often turn down attractive proposals for the short run. With passing days, government entities are increasingly seeking oversight over various sectors of the RBI’s work. Such oversight by non-technical personnel only leads to delay in the decision making process and is not desirable. Third, and perhaps the most important of them all, the RBI must continue to fill its vacancies through clearances approved by the RBI Board and not put in place government officials who may have very little knowledge of the technicalities involved. Formulation of the Monetary Policy of India is a brilliant example of the benefits that accrue if an independent entity is allowed to deliberate on the most crucial economic policy in India.  RBI, through an effective monetary policy has been able to meet the indicator targets that it had set for itself- and it is running the show by itself, through independent analysis.

Democracies thrive on the independence of regulators, but today India finds itself ruing its absence. This contrariety is at the heart of the fault line between the two parallel institutions. Truly, institutional independence lies at the heart of any liberal democracy. If we cannot protect the RBI’s independence, and other institutions of similar importance that hold the national rudders, we cannot sustain national growth for long. One can only hope for sense to prevail, and an end to the the rather unsavoury tensions that exist at present.

Of Dissent and Dissenters

Representational image of the Supreme Court.

Dissent, in any form, is a wonderful way to practise democracy. A differing view in popular context is often assumed to be fallacious, and this has been the case over centuries. However, dissent has perhaps never assumed a more important role than now; it is the backbone of any democratic revolution. Dissent in the legal structure over specific judgements are particularly noteworthy, for it is them that keeps open the scope for future review and undoing of any potential injustice that might have been served earlier. India is one such fantastic example, as the apex court here plays a crucial part determining the validity of a wide variety of questions and issues. The success of a pluralist nation lies in its ability to celebrate difference- and thus the top court being truly reflective of India’s gigantic diversity, would naturally foster difference of opinion in most cases of judicial importance.

In the last week of September, which incidentally coincided with the remnant days of former Chief Justice Dipak Misra’s tenure, the Supreme Court was noticeably pro-active, delivering a voluminous amount of judgement over matters of national momentousness. We will restrict ourselves to three such monumental verdicts, each of which has a strikingly common feature- that of a dissenting judge. What is heartwarming in such majority verdicts is that instead of railing on the practice of majoritarianism stifling minority viewpoints, the Supreme Court has shown that divergent views can, and should be, appreciated. Such dissent often helps better, and in the process enrich, public discourse.

Examining the Cases

The verdict on the constitutional validity of Aadhaar would be a fine specimen of legal difference of opinion in the top court. Aadhaar, which was the brainchild of the erstwhile UPA regime, and crafted under Nandan Nilekani, was pushed forward as an Unique Identification Scheme for the teeming population of India. In subsequent years, what was touted as an identification scheme to expedite the delivery of welfare services to the needy soon became an all-pervasive tool that effectively armed the government with the sensitive biometric data of all Indians. The present NDA government had made Aadhaar mandatory in every possible sector, from banking to subsidy collections, from entrance registrations to issuance of certificates, the list went beyond the obscure. The concern was not only about the security of the biometric data in the hands of the government- but manifested itself into a case of breach of personal privacy by the State, which by all means is a serious accusation. Thus, the Supreme Court had to determine the Constitutional validity of the scheme.

On September 26, the Supreme Court upheld the validity of Aadhaar, but it came with considerable riders- which included the court declaring the provision of mandatorily linking Aadhaar with organisations (whether public or private) as unconstitutional, and thus void. This view was held by CJI Misra, who presided over the case, and three other judges of the Bench. However, it was Justice DY Chandrachud who strongly differed from the view held by the rest. He was of the belief that the Aadhaar project suffered from “constitutional infirmities and violations of fundamental rights”, that “constitutional guarantees could not be subject to vicissitudes of technology”, and noted that the Aadhaar Act was unquestionably unconstitutional as it failed to meet the basic criteria to have been certified as a Money Bill. In what could be regarded as a brilliant reflection, he observed that the “dignity and rights of individuals cannot be made to depend on algorithms or probabilities”. Chandrachud, thus, has through his dissent and obiter dicta kept alive a scope for an increased focus on the issue of State Surveillance in India- which the majority verdict does not explicitly mention.

The following day, on the 27th of September, the Supreme Court decided in a 2:1 judgement against referring to a larger bench a plea to review its 1994 ruling on the Ayodhya dispute, in which it had ruled that the mosque was not essential to the practice of Islam, and that namaz could be offered anywhere by the Muslims, even in the open. While Justice Misra and Justice Bhusan rejected the plea for a review by a larger Bench, the third judge, Justice S. Abdul Nazeer, gave a contrary judgement. He opined that it was not possible for the Court to rule on such a subject matter unless there was a “detailed examination of the beliefs, tenets and practices” of the faith in question. He raised the crucial question whether Article 25, which dealt with the right to free practise of religion, only protected the beliefs and practices of particular significance from a faith or all practices that were deemed essential by the concerned faith. To further acknowledge his stand, he cited that the Supreme Court had referred to a larger bench a range of similar issues- such as the permission to hold the Ram Leela and Puja in public parks, or the issue of polygamy which was inherent to Islam.

Furthermore, on September 28, the Apex Court declared what could possibly be one of the most controversial verdicts till date- permitting women in their menstrual phase to enter the Sabarimala temple. The petitioners claimed that Lord Ayappa was a celibate and hence menstruating women could not be granted access inside the temple premises. However, the judges believed that constitutional equality was of paramount importance and that the practice of barring women between the ages of ten to fifty was nothing but a form of untouchability, which is not Constitutionally permissible. In this case too, it was a 4:1 verdict. Ironically, the lone dissenting judge was a woman- Justice Indu Malhotra- but she had solid reasoning behind her dissent. While Justices Misra, Nariman, Chandrachud and Khanwilkar refused to buy into the argument that the ban on menstruating women was an essential part of the faith, Justice Malhotra argued that what constituted an essential religious belief must be left on the religious community to decide. She emphatically noted that ideas and notions of rationality should not be invoked into matters of religion by the courts, as religion cannot be substantiated by rational defence alone. As history records, more often than not, the Supreme Court has been reluctant to take decision as far as religious matters are concerned. She concluded that unless a religious practice was “pernicious, oppressive, or a social evil, like Sati”, there would be no need for the Court to intervene.

The Way Forward

In all the above cases, the dissenting ideas presented were also equally pivotal for further deliberation. The Aadhar case raised the question of validity of the law itself (which was unduly passed as a Money Bill), the Ayodhya verdict intitated a new debate on the meaning of Article 25 as provided for by the Constitution, and the Sabarimala verdict opened a scope for people to question whether the Supreme Court should exercise self-restrain in verdicts requiring rationalisation of religion. Unless such contradictory opinions are thrust forward in the Court of Law, the vibrancy of a democracy loses its charm. The trend of appreciating dissent in the Supreme Court is indeed commendable. If it were looked down upon, today India might not have transgressed into a nation with such kind of enviable constitutional melange. More importantly, dissent goes on to show that the judiciary is not a singular entity working as one- a jury has minds of unquestionable legal acumen each working independently on a case. Thus, it would reduce the chance for any kind of inadvertent bias or possible error to creep into the judgement. In fact, even the top court has regarded dissent as the “safety valve” of democracy- perhaps only a subtle recognition of the indispensable nature that dissent plays.

As long as we have differing ideas, we have dissent, and as long as we can constructively debate on ideas while also taking into consideration the dissenting propositions, we evolve as a nation.



A Step Towards Equality: On the Decriminalization of Section 377 IPC

The rights of the LGBTQ+ group is an issue of contention in most parts of the world today. India, being a socially sensitive and a culturally diverse land consisting of different creed of people, has not been that open as far as recognising the LGBT rights are concerned. An archaic law from the colonial times was scrapped only recently, when in Navjot Singh V/S Union of India the Apex Court decided that Section 377 held no constitutional validity and consequentially decriminalised consensual homosexuality, triggering almost immediate Pride Marches across the nation and setting off a mood that the judicial neglect in Suresh Kumar Koushal v/s NAZ Foundation had been corrected at last. In this regard, a detailed study on the facts and obiter dicta for both the cases Koushal v/s NAZ, 2013 and Navjot Singh Johar v/s Union of India 2018 would prove insightful without doubt.

Need for Justice: Why the re-decriminalisation?

The basis for the 2013 judgement by the Supreme Court, which drew much flak from all quarters, was the Delhi High Court’s order in 2009 pertaining to the decriminalisation of homosexuality. In Naz Foundation v/s Govt of NCT, Delhi, the Delhi High Court had taken the view that Article 15 of the Constitution prohibits discrimination on several enumerated grounds including sex. Discrimination, as per the High Court’s observations, were grounded in stereotypical judgements and generalisation about the conduct of either sex. The Delhi High Court judgement was challenged in the Suresh Koushal case, wherein the top court opined that acts which fell within the ambit of Section 377 IPC could only be determined with reference to the act itself and to circumstances in which it is executed. The Court believed that Section 377 IPC would apply irrespective of age and consent, for section 377 does not criminalize a particular set of people with a definite orientation, but only identifies certain acts which when committed naturally results in an offense under the law. The Court further observed that those who indulge in carnal intercourse in ordinary course and those who indulge in carnal intercourse against the order of nature constituted different classes of people, and that people in the latter category cannot claim that Section 377 suffered from the follies of arbitrariness. In what could be considered the final nail on the coffin moment for the LGBT movement in 2013, while reading down the 377 IPC, the Court mooted that it could not be overlooked that only a miniscule fraction of the country’s populace constituted the LGBT and the fact that in the last 150 years, less than 200 people had been prosecuted- hence rallying against the minority itself, the safeguard of whose rights formed the pillars of a democracy. While passing the order, it remarked that in its (Delhi High Court’s) anxiety to protect “so-called” rights of LGBT persons and to declare that Section 377 violates the right to privacy, autonomy and dignity, the High Court had extensively relied upon judgements of other jurisdictions- which as expected did not cut much ice with legal luminaries and the champions of the LGBT rights.

The 2018 verdict pronounced by the Supreme Court in the Navjot Singh Johar v/s Union of India is a much welcome relief. There were quite a number of interesting observations made by the Bench during deliberation and debate over the case. The Court noted that in the Suresh Koushal case, it had earlier erroneously upheld the constitutional validity of Section 377, stating that the LGBT population constituted only a miniscule fraction of the total population and that the fact that the Section was prone to being misused was not a ground to scrap it. The Bench felt that this was constitutionally impermissible, as the rights of even one individual is sacred and it was the duty of the Court to protect it. It also clearly brought out the fact that the Constitution was a “living, organic document” that was capable of evolving with the newfangled demands of the society. The role of the Courts, according to the bench, grows more important when the rights of a special class or minority group has been violated since the dawn of time. Therefore, it felt that it was their duty to robe the judiciary with the “armoury of progressive and pragmatic interpretation” to combat the evils of the society. Furthermore, it emphasized that transformative constitutionalism not only included within its purview the rights and the dignity of the people, but also to develop a supportive atmosphere wherein every person is bestowed with the opportunity to grow socially, economically and politically. Persons belonging to the LGBT segment of the society were denied such opportunities and oppressed at all possible junctions, resulting in a scenario of distasteful discrimination that struck at the very heart of a democratic society. Subsequently, it remarked that constitutional morality overrules social morality; and that nothing but constitutional morality can be allowed to permeate in the Rule of Law. The KS Puttaswamy v/s Union of India case elevated privacy to the stand of a fundamental right. The reasoning in Koushal case, wherein homosexuality was criminalised again as because the LGBT population was a minority, was found out of tune with constitutional mandates. The Court opined that the said reasoning was fallacious, as the makers of the Constitution could have never implied that the fundamental rights would only be extended to the majority, and not the minority.

The Way Forward

The takeaway is clear: The Supreme Court has now once again reaffirmed the fact that a citizen’s rights are inalienable, whosoever it be. To term the decision historic would be in more ways than one, an understatement. By one single masterstroke, the verdict restores the equality before the law of all sexual orientations and identities, which cover a diverse set of traits and people. More importantly, the decision brings to the forefront the apex court’s willingness to make the Constitution truly transformative- adapting and evolving with the ever shifting dunes of time. While India does have one of the largest constitutions of the world, legal perfection would arise only when the Constitution becomes flexible enough to leave behind social prejudices and civic ills of the past. Gender equality in India has always attracted the attention of the nation as a whole- and there, at last, seems to be hope that the most humiliated, damned and condemned would rise again to the pedestals of social success and acceptance.

In retrospect, the decriminalisation of section 377 IPC is indeed an appreciable verdict and a positive step. Now that the impetus has been provided, it is time that the subtler details are looked on carefully: the need to promote inclusivity in society. Those who have been ostracized and deprived of their legal, personal and political rights for long must be welcomed back into the society. However, this seems to be a difficult challenge. It is very easy to be an armchair commentator and paint flowery pictures of the reality that seems apparent. Social stigma is a dreaded disease in India; to eradicate it would require awareness drives from the grassroot levels. The 2014 NALSA judgement declared the transgenders as the third gender, and ruled that all private and public sector organisations must ensure workplace equality. MNCs have led the charge, which is a wonderful thing to observe. Bringing in sectorial reservation for the transgenders would ensure their livelihood and bring in economic security for their families, hence implementing the policy directives of the Constitution along with promoting the ultimate target of gender equality. This judgement is probably a move towards the New India we all want to see- a India apolitically united in its stand to secure the rights of the unrecognised, a India that celebrates, as it always had in the past its diversity; and a India that cherishes and celebrates variants from the perceived order of nature and accepts them as our own.