1.ASEAN rising and The ASEAN embrace (The Hindu)

2.The oil risk (The Hindu)

1.ASEAN rising and The ASEAN embrace (The Hindu)

Synoptic line: It throws light on the issue of importance of ASEAN for India. (GS paper II)

Overview

  • India in its Republic Day hosted heads of government of the 10 members of the Association of Southeast Asian Nations (ASEAN). As India’s ‘Look East Policy’, matures into an ‘Act East Policy’, a strong relationship with ASEAN is no longer a policy option; rather it is an economic and strategic necessity.

India and ASEAN

  • The ASEAN-India Commemorative Summit, followed by their attendance at the Republic Day parade as joint chief guests, underlined the new consensus on the need for Southeast Asia and India to boost cooperation.
  • The ASEAN-India leaders last gathered together in New Delhi in 2012 to mark the 20th anniversary of the dialogue partnership, they had made a similar commitment to trade and maritime security, and several promises are yet to be realised. With trade with ASEAN at $76 billion, India ranks lower than not just the U.S. and China, but also South Korea, Japan and Australia.
  • The other big unfulfilled promise is on connectivity, between ASEAN countries and India, as well as India’s connectivity through its Northeast to Myanmar and beyond. Work on the extension of the India-Myanmar-Thailand Trilateral Highway, the Kaladan multimodal highway, and Tamu-Kalay rail link to Myanmar has lagged behind deadlines. Border trade posts and infrastructure in the Northeast need much improvement to attract investment in the region.

ASEAN importance for India

  1. For trade and economy- Indian investments continue to remain marginal in the ASEAN region (it was around $224 million in 2015-2016, while Chinese investment over the same period totalled over $3 billion). Though Indian investments in ASEAN are likely to grow due to increased liberalisation and deregulation regarding outward foreign investments. For example Tata Group already has a strong presence in Myanmar and is investing in the IT and agricultural sectors, which will create capacity and generate employment.
  2. Infrastructure development- Infrastructure is a key area with huge potential. The India-Myanmar-Thailand Trilateral Highway and the Kaladan Multimodal Transit Transport Project will significantly boost connectivity between India-Myanmar leading up to the rest of Southeast Asia. Enhanced connectivity between the two countries will not only serve India but also neighbouring Bangladesh.
  3. For Strategic issues and security- Uncertain regional geopolitics coupled with the rise of economies in the region will require Asian governments to adapt to a newer political environment, economic realities, and a different regulatory ecosystem. The region’s multifaceted challenges require dynamic and forward-looking policymaking.
  4. India and China rivalry- The tug of war between China and India to dominate the Indian Ocean has given rise to maritime rivalry. When it comes to the South China Sea, it is in India’s interest to have freedom of navigation, unfettered access to common waters and respect for international maritime law. However, India-ASEAN strategic cooperation gets trickier given China’s territorial claim on the resource-rich South China Sea. The prevailing regional power imbalance created by a declining U.S. and an assertive China, India and ASEAN are well poised to become strategic partners in ensuring regional peace and stability.
  5. For Socio-cultural ties- The presence of Indian Diaspora in almost all ASEAN nations has also helped strengthen ties. For example around 1.6 million Indians call Malaysia their second home. Also Southeast Asia is even overtaking Europe as a filming location for Indian films.

Way ahead

  • In the region an assertive China driving the Belt and Road Initiative and U.S. disengagement provided India to navigate carefully especially when many nations, including those in ASEAN, are looking for options that promote economic interests and protect territorial sovereignty.
  • Due to a critical juncture in East and South Asian geopolitics, the significance of ASEAN from an Indian perspective can hardly be overemphasised. India must be the “part of the Southeast Asia’s balance of forces” and “a counterweight to China” in the Indian Ocean. The “Act East” policy needs to be acted upon with a sense of purpose and priority before India can become a reliable and strategic partner of ASEAN.

QuestionIndia and Southeast Asia need to move beyond summitry to deeper integration”. Analyse.

2.The oil risk (The Hindu)

Synoptic line: It throws light on the issue that how the impact of higher oil prices will affect India. (GS paper III)

Overview

  • Oil prices have been rising steadily, reaching their highest level since 2015, as India is the world’s third-largest oil importer, raise impact India adversely. Higher fuel prices could result in higher consumer price inflation (CPI). India will have to brace itself for the economic risks of expensive energy.

The rise in pricing and India  

  • Recently the Brent crude oil futures were trading at about $70 a barrel, marking a four-year high and a price increase of close to 6% since the start of the year. The rise in international prices has been particularly sharp given that oil had been selling at below $45 in June. This is a rally of about 55% in a matter of just months. Oil price dynamics have often been explained by changes in the supply outlook influenced by the decisions of major oil producers.
  • According to the IMF, last year, for instance, Saudi Arabia would break even on its budget with oil at $70. The recent spurt in oil prices, however, seems to be more the result of a weakening of the U.S. dollar than anything else.  However, in Davos U.S. Treasury Secretary was in favour of a weak-dollar policy, as the weaker dollar would be good for American trade.
  • Even though India is in a relatively strong macroeconomic position, a higher level of oil prices could still pose challenges for policymakers. Consumers in India are already beginning to feel the pinch as petrol and diesel prices have hit multi-year highs. The rise in domestic fuel prices is on expected lines given the policy of dynamic daily pricing of petrol and diesel adopted by the Centre. But as rising oil prices put pressure on domestic consumers, the government will have to desist from resorting to subsidies to ease the pain.
  • The even bigger risk posed by higher oil prices is to the government’s fiscal management. With the fiscal windfall from low oil prices likely to end for now, the government should think for the long term and make crucial tweaks to its hydrocarbon exploration and licensing policy to expedite oil discovery and production.
  • The higher oil prices could have the opposite effect and impede economic recovery in the coming quarters. They could have implications for growth, inflation, currency, current account deficit and fiscal deficit.

Way ahead

  • Government needs to work towards rationalising taxes on petrol and diesel to bring down retail prices, as this will help consumers without imposing an undue burden on the oil marketing companies. It will be extremely important to keep fiscal deficit in control in order to protect hard-won macroeconomic stability.

Question – Explain how the rising oil prices will affect growth in the Indian economy? Also suggest some Measures.