Mains Current Affairs UPSC CSE -Oct Week 3
Scholarship in times of populism
The task of a scholar is not only to coin clever sound-bytes. Intellectuals have to bring a historical and comparative perspective to bear upon the present. Their job is to tell us what the historical processes that brought us from ‘there’ to ‘here’ are, identify political problems, and, if possible, help resolve them. But reflection, analysis, critique and conceptualisation need stable political contexts. We must know of what we speak when we speak of categories that allow us to tidy, challenge and remake our worlds. We must be sure of the empirical referents we address.
Threat to civil liberties
- Till the first decade of the 21st century, the political context in which scholars theorised was more or less settled. We knew what we spoke of when we spoke of constitutional democracy.
- Today the political battleground that constitutes our worlds, which is the context for our words, is consolidated by the emergence of right-wing populists across countries. The empirical referrals of analysis, critique, conceptualisation and theory have rapidly changed. Still, we might succeed in understanding where we have come from. What on earth are we headed towards?
- The first lesson we learn is that we cannot take anything for granted. For long we believed that civil liberties codified in the Constitution and defended by the civil liberties movement had been secured. We could move on to transforming Directive Principles of State Policy, notably the right to social goods, into fundamental rights. Today our basic civil liberties are threatened. Civil society has been rendered powerless, and state institutions that could make a difference prudently keep away.
- Who would have thought that over seven decades after India’s independence we, the legatees of a magnificent freedom struggle, have to prove citizenship? Who could have imagined that one day a democratic government would spend its time and our money into figuring out who is a citizen, and who is not, and build bare detention camps for the latter?
- These summon up terrible historical parallels. Television images of tin-topped sheds evoke horror and disbelief. They have been designed for our own people, who have mixed their labour with the land they wish to live in.
Appropriation of nationalism
- The second lesson we have learnt is that nationalism can be easily appropriated. Nationalism formed the anchor of our freedom struggle. It is also the excuse for some very unpalatable efforts to repress us.
- The concept has been deployed by governments to target minorities and immigrants, to dismiss dissent as sedition, to justify oppression, and to reduce our status from citizens to subjects.
- Nationalism has legitimised rhetoric and decisions that would have aroused widespread political protest a few years ago. The vulgarities of a nationalism that prevents debate, let alone dissent, bewilders; it saps energies.
- Have scholars underestimated the power of nationalism to push other commitments out? Perhaps. Have we overstated the distinction between civic and ethnic nations and nationalism? Perhaps. We unthinkingly fell into the trap of believing that we had a civic nation, other countries of the postcolonial world had ethnic nationalism.
- The distinction was a western construct and continues to be so. Writing in the aftermath of the Second World War, Hans Kohn argued that territorially based civic nationalism is infinitely more desirable than cultural or ethnic nationalism.
- The former is the culmination of a political movement that sought to limit governmental power and secure civic rights in the United Kingdom, the United States and France. The temporal and the spatial contexts for ethnic nationalism, which arose later in central and eastern Europe and in Asia, were different.
- Consolidated in times of social and economic underdevelopment, ethnic nationalism articulated the belief that a community is held together by ‘blood and belonging’.
- Kohn’s distinction between two sets of nationalism set the stage for subsequent discussion on the subject. The difference has by now become an integral part of literature on nationalism. In the 1990s, ethno-cultural nationalism again raised its head in distressingly ugly forms, that of ethnic cleansing and genocide in former Yugoslavia and other countries of Eastern Europe.
- The duality was reinforced. Scholars continued to believe that the idea of the civic nation was best conceptualised by Ernest Renan and the ideology of the French Revolution. The concept of ethnic nationalism articulated by Johann Gottfried von Herder and German Romanticism arose as a reaction to the Enlightenment and its commitment to reason.
- The distinction between the two is overstated. In 1923, V.D. Savarkar, the prime ideologue of the Hindu right, cast the political category of the Indian nation in the mould of the majority religion. The nation is Hindu because the community has a common history, common heroes, a common literature, a common art, a common law, and a common jurisprudence, common fairs and festivals, rites and rituals, ceremonies and sacraments. Others are outsiders.
- This was not the kind of nation that India’s first Prime Minister Jawaharlal Nehru conceptualised and dreamt of, democratic, secular and inclusive. In 1933 Nehru wrote in The Bombay Chronicle: “Whither India? Surely to the great human goals of social and economic equality, to the ending of all exploitation of nation by nation, and class by class, to national freedom within the framework of an international cooperative socialist world federation.”
- Within a decade we see two incompatible notions of the nation taking shape and shaping each other. Beneath and around civic nationalism marked by citizenship rights, lurked ethnic nationalism that divided and excluded. Today it is precisely ethnic nationalism that has won the battle. Civic nationalism gasps for breath.
- The case is not all that different in Europe. In France, England and the U.S., wrote the noted historian Eric Hobsbawm, democratic revolutions produced a populist consciousness, which was hard to distinguish from a national and even a chauvinistic patriotism.
- Merely by dint of becoming a people, the citizens of a country became citizens of a community seeking for things in common, “places, practices, personages, memories, signs, and symbols”. Today within these societies, norms of democratic, civic nationalism cannot prevent hate against immigrants and suspicion of the outsider.
- All nationalisms, howsoever moderated they may be by constitutionalism and civic sentiments, show a terrifying tendency to xenophobia.
- History has warned us. The concepts and the theories we explore and expand upon might prove provisional. The days when political philosophers dreamt that they had resolved political dilemmas have gone. Politics, we have learnt is chancy, unpredictable, and contingent. How can our theories be neat, confident, and predictive?
- We no longer know what we speak of when we speak of democracy, or accountability, or the power of citizens to hold their elected government responsible. The terms of the social contract are up for grabs. Life has become much more unpredictable, much more uncertain and much more frightening. Do we have the luxury to conduct intense intellectual debates and charged polemics?
- We might have to put aside, for the moment at least, some very sophisticated debates that marked academia hardly six years ago. We have to get back to the basics. We have once again to reiterate and defend the basic principles of constitutional democracy.
Taking national data seriously
- The Prime Minister recently compared data to property at the advent of the industrial era. Data is being considered as a nation’s new wealth.
- How data will be employed fruitfully, and its value captured, will decide a nation’s rank in the emerging new global geo-economic and geo-political hierarchies. The global digital or artificial intelligence (AI) economy is currently a two-horse race between the U.S. and China.
- It is feared that all other countries, including the European Union (EU) and major developing countries such as India, will have to become fully digitally dependent on one of these two digital superpowers.
- This will considerably compromise their economic and political independence, something referred to as digital colonisation.
- The shift to digital power, and its concentration, is very evident. Seven of the top eight companies by market cap globally today are data-based corporations. A decade back, this list was dominated by industrial and oil giants. Almost all top digital corporations in the world are U.S. or Chinese.
Importance of data sharing
- All credible efforts to escape such a dismal situation, like in the French and the U.K.’s AI strategies, numerous EU documents, and India’s NITI Aayog’s AI strategy, focus on one central issue — more data-sharing within the country, and better access to data for domestic businesses.
- But how is this to be actually achieved when a few global digital corporations such as Google, Facebook, Amazon and Uber, continually vacuum out India’s and Indians’ data, and then by default treat it as their private property, including freely sending it abroad?
- French AI strategy calls for an aggressive data policy, and control on data outflows. NITI Aayog’s AI strategy has sought mandated sharing of data for social purposes.
- Appropriate data policies must ensure that the required data is actually available to Indian digital businesses. After all, most of this data in the first place is collected from Indian communities, artefacts and natural phenomenon, and is about them.
- Global corporations like to consider data as a freely shareable open resource till the data is out there, with the people, communities, outside ‘things’, etc. But the moment they collect the data, it seems to become their de facto private property and they refuse to share it, even for important public interest purposes.
- This lawless logjam can only be broken by asserting a community’s legal right over data that is derived from, and is about, the community concerned, or about ‘things’ that belong to it. This is the concept of community data inscribed in India’s draft e-commerce policy.
Preserving data policy space
- News reports indicate that at the Regional Comprehensive Economic Partnership trade negotiations, being held with Association of Southeast Asian Nations, China, South Korea, Japan, Australia and New Zealand, India may accept free data flow clauses with some public policy exceptions.
- The history of trade agreements clearly show that such public policy exceptions almost never work, especially for developing countries. It needs to be understood that suitable data controls and policies are not to be exceptions but the mainstream of a digital economy and society.
- In signing on a free flow of data regime, however cleverly worded, India will largely end up ceding most of its data policy space, and data sovereignty. And with it, it will give up any chances for effectively using Indian data for India’s development, and for digital industrialisation to become a top digital power.
- It will effectively be laying the path for permanent digital dependency, with India’s data flowing freely to data intelligence centres in the U.S., and now some in China. From these global centres, a few global “intelligence corporations” will digitally, and intelligent-ally, control and run the entire world.
- With countries yet hardly clear about appropriate data policies, and the data-related requirements for digital industrialisation, it is not clear what the hurry is to sign global free flow of data agreements. The digital economy seems to be growing and flourishing very well even without such regimes.
- Disengaging from signing binding agreements on uninhibited data flows across borders does not mean that a country would simply localise all data. Some kinds of data may indeed need to be localised, while others should freely flow globally.
- It just means that a country retains complete data policy space, and the means to shape its digital industrialisation, and thus its digital future. Our understanding in these areas is just now beginning to take shape. It will be extremely unwise to foreclose our options even before we discover and decide the right data and digital polices and path for India.
Financial stability and the RBI
The Reserve Bank of India (RBI) recently carried out its mandatory bi-monthly announcement on the future course of monetary policy. These announcements ostensibly offer ‘forward guidance’ to economic participants, so that they may plan their future. Arguably, though, the public would have perhaps been more interested in knowing how the RBI intends to respond to the unusually large number of instances of fraud that have surfaced in the financial sector of late. The RBI’s reputation as a regulator has been affected by these. What led the bank to this place needs understanding.
Role of a central bank
- Central banks command an important position in the market economies of the West today. How in a democracy so much power could be ceded to an unelected body must itself come as a surprise.
- It reflects two things: the political power of financial interests in the U.S. economy and the global intellectual influence of the American economic model.
- This model revolves around the goal of maximum creation of wealth by private individuals unimpeded by societal objectives. Leave alone the distribution of income, not even the objective of ensuring stability of the economy is allowed to come in the way of private individuals pursuing wealth enhancement.
- Public regulation, which sets limits to private activity, is rejected as an unnecessary interference in beneficial activity that maximises social gain, and is therefore to be avoided. When applied to finance, this model requires of the government only one action, namely, the control of inflation.
- Now, it is difficult to see why anticipated inflation, being an increase in all prices at the same rate, is harmful to production, the basis of an increase in wealth. After all, when prices rise together, no one individual is worse off if the inflation has been perfectly anticipated.
- It is unanticipated inflation that is the problem for producers, as it has the potential to derail their profit calculations. However, inflation, even when fully anticipated, can harm holders of financial assets yielding fixed incomes by eroding their wealth.
- Borrowers on the other hand are better off with inflation as the real value of their outstanding loans are now less. While the problem of inflation can in principle be tackled through inflation-indexation, the practice is not widespread. This leaves owners of financial wealth averse to inflation.
- As the volume of financial wealth in an economy increases so does the power of its owners over government. Now inflation control tends to take centrestage in economic policy formulation. When inflation control is implemented via monetary policy it results in higher interest rates.
- Managers of financial wealth lobby for such a policy on behalf of their clients. This lobbying is the origin of the policy of inflation targeting. Inflation targeting by the central bank involves use of the interest rate to keep inflation under control.
- As it targets inflation it must let go of the employment objective. Though ‘flexible inflation-targeting’ is meant to take care of this objection, inflation is retained as the target and the central bank is not accountable for unemployment.
- In fact, in situations where growth, employment and inflation are jointly determined, and mostly they are, inflation-targeting via the interest rate can lower inflation only by suppressing growth. This is the mechanism by which inflation-targeting inevitably lowers growth.
- Is this an argument for leaving inflation unchecked? No, it isn’t. On the other hand it points to other means of keeping inflation low, which, as has been demonstrated for India, would take the form of checking food-price inflation.
- If inflation-targeting is essentially a response to the concerns of the financial sector, it tends to go with the view that the sector needs no particular regulation. This view was ascendant in the United States and the United Kingdom before the ‘North Atlantic Financial Crisis’ of 2008, so dubbed by Rakesh Mohan and Partha Ray to convey that its provenance is related to the policies pursued in that geography.
- Following this crisis, however, there has been substantial re-thinking on inflation-targeting and the role of central banks. Essentially it was recognised that lulled into complacence by low inflation, the U.S. central bank had ignored the possibility of financial instability.
- Instability had progressed due to the complete violation of the norms of prudence by U.S. investment banks and housing societies in a climate of relatively lax regulation. Alan Greenspan, the chairman of the U.S. Federal Reserve for 19 years, an arrangement seriously questionable in a democracy, was to acknowledge to a congressional committee that everything he had believed in regarding the functioning of the economy turned out to be false.
India’s hawkish stand
- In a monumental failure of the imagination, India’s policymakers adopted inflation-targeting as the defining function of its central bank, even as the rest of the world was reassessing its credibility. Though the switch was effected by legislation only in 2015, a hawkish inflation stance had emerged at the RBI some two years prior to that.
- The real interest rate swung upward by over 5 percentage points. Inflation did come down, but that it continued to decline even as the real interest did not do so commensurately belies the possibility that inflation-targeting alone is responsible for it.
- Commodity prices, both of oil and domestic agricultural goods, have grown slower since. Oil prices have actually been declining in certain phases, and would surely have had a direct impact on inflation. But the slowing of the economy after 2016, which we are still experiencing, suggests that inflation-targeting may have had an impact on growth. This would not be surprising at all.
- After the adoption of inflation-targeting in India, besides the slowing growth, we see the repetition of a pattern observed in the U.S. We have seen the appearance of stress in the financial sector. Following the rising non-performing assets, or NPAs, of public sector banks, we now see the emergence of instability in the private segment of the financial sector.
- The most prominent case is that of non-banking financial company, ILFS. While some part of the burden this company faced before it was rescued by the government of India may have been due to a slowing economy, there was evidence of malfeasance, which went undetected also in the cases of Punjab National Bank and the Punjab and Maharashtra Co-operative Bank (PMC Bank).
- Improper conduct was also evident in the cases of Yes Bank and ICICI Bank. Scenes of agitated depositors outside the PMC Bank’s office in Mumbai must have sent shivers down the backs of millions of Indians who have trustingly entrusted their hard-earned money to India’s banks, only to find their trust violated with impunity in pursuit of private gain.
- The latter would be unacceptable even if the act is not risky, which in the case of PMC Bank was extraordinarily so.
- The emergence of financial instability in India following the institution of inflation-targeting is in line with what we have seen in the Anglo-American economic area.
- In India, the virtual redefinition of the central bank’s functions appears to have encouraged the RBI to consider its work done once inflation is within target.
- Televised monetary policy statements every two months would be no more than a charade, if inflation slows for extraneous reasons, and a smokescreen, if financial stability has been compromised due to lax regulation of the financial sector.
A cost-effective way to power generation
India has been aggressively expanding its power generation capacity. Today’s installed capacity of 358 GW is about four times of what it was in 1997-98, which shows a doubling of capacity in each of the past two decades — or about 75 MW per day. By India’s historical standards, these are astonishing numbers indeed. In recent years, the major growth drivers have been renewable energy sources such as solar and wind power, and investment from the private sector. The private sector accounts for almost half the installed generation capacity. For the last three years, growth in generation from renewables has been close to 25%. India aims to have a renewables capacity of 175 GW by 2022 and 500 GW by 2030. Solar and wind power plants would account for much of the targeted capacity from renewables. How can this be achieved?
Project size and cost
- Today, thermal generation capacity accounts for about two-thirds the installed generation capacity in the country. This shows that though there is increasing awareness about the environmental impact of fossil fuels, the reliance on thermal plants is unlikely to end any time soon.
- Thermal plant capacities are large and therefore targeted capacity additions can be achieved by constructing fewer such plants.
- On average, it would take 18 solar or wind projects to generate the same quantity of power as one thermal plant. For the same reason, switching from fossil fuel to renewables will remain challenging as the administrative overheads that would have to be incurred in setting up the multiple projects could significantly add to the cost.
- Not surprisingly, infrastructure projects have an inverse relationship between size and unit cost, indicating economies of scale. As the capacity of power plants increases, the average cost of power per MW reduces.
- The average cost per MW for a thermal plant is about 25% lower than that of a solar plant. In order to surmount the cost advantages that large thermal plants enjoy today, we must focus on developing larger solar and wind power plants that can also exploit similar economies of scale.
- The next point is that of ownership. Over the last two decades, 63% of the total planned generation capacity has come from the private sector.
- Private investment has been even more pronounced in renewables, accounting for almost 90% of investment in wind and solar projects. So has private investment helped?
- Private sector plants have an average cost per MW that is 12-34% lower for all categories except solar. Lower capacity cost has a direct impact on electricity tariffs. Electricity tariffs broadly consist of two components: fixed capacity costs and operation and maintenance costs, which include fuel expenses. In general, capacity costs account for more than 90% of the levelised cost of electricity, irrespective of the fuel type.
- If we are able to create additional capacity at lower cost, then it will play a big role in keeping electricity tariffs low. Private investment in the power sector has not only helped in augmenting capacity but has also helped in lowering cost.
Marginal capacity costs
- Even as total capacity in generation has been growing, the cost of installing additional capacity has fallen.
- The reasons for the decline could be as follows: First, advances in technology have resulted in the construction of larger power plants. Compared to the 15-year period before 2013, power plants installed in the past six years have on average been significantly bigger, even twice as large in the case of hydel power.
- The economies of scale in power generation appear to have been dramatic. The second point could be the increasing share of private sector investment. The share of private sector in capacity creation has been 70% in the last decade as compared to 46% in the decade before that. And, as indicated previously, private sector capacity has lower costs.
- Falling marginal costs suggest that retiring some existing high-cost capacity plants with newer plants could be explored.
- With economic growth, the demand for power in India is only going to increase further. To put things in perspective, China added generation capacity that was equal to a third of India’s total installed capacity in 2018.
- As India continues to ramp up capacity, it is imperative to create generation assets with the lowest unit cost by optimising plant capacities and encouraging private sector investment. Declining marginal cost for capacity provides opportunities for replacing existing capacity with newer capacity that are more efficient. However, the challenge of replacing fossil fuel-fired plants with renewables prevails.
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