Answered: Mains Marathon – UPSC Mains Current Affairs Questions – June 19

1. The soft trend in inflation is expected to continue, raising hopes of a favorable policy shift by the RBI. Give your opinion.(GS 3)

Live Mint

Introduction:-

• It was only recently that RBI took a hawkish note on inflation, changing its stance from ‘accommodative’ to ‘neutral’.

Raising hopes of favourable policy shift because:

• The RBI’s concerns primarily came from four factors :-
  • The rising dollar index
  • The rupee’s vulnerability to the Fed’s tightening stance
  • The firming of commodity prices, especially crude
  • The rising US 10-year yield.
• However none of them played out the way the RBI had feared. In fact, all of them have moved in the opposite direction, favouring a dovish stance instead of a hawkish one.
• Surprisingly, the dollar index is back to the pre-Trump-era level and the US 10-year yield is hovering at a six-month low.
• Even the rupee, instead of a downward risk, which the RBI had factored, the rupee has firmed up.
• Recent developments in commodity markets have caused renewed optimism on the inflation front for India.
• Commodity heavyweights like iron ore and crude have slumped significantly from their recent highs.
• Moreover, with rising rig levels in the shale gas industry in the US, the outlook for crude has worsened.
• Also the retail as well as wholesale inflation rates have actually softened (instead of moving up) since RBI hardened its stand on inflation.
• All these put pressure on the RBI and show the need for a favourable policy shift.
• Even RBI has taken the first step towards a transition. Its recent policy statement is dovish leaving markets to bet and borrowers to believe that rate cuts could just be a matter of time.

 No shift in policy because:

• RBI calculations for the earlier policy shift felt crude prices would continue to climb or it feared the monsoon could be way below normal.
• Simply because no monetary policy authority particularly RBI can afford a U-turn in just two months without risking its reputation.
• Growth in the Indian economy is too weak to justify a neutralmonetary policy stance, but having changed its stance only a few months back,the Reserve Bank of India will find it difficult to justify a change again,
  

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  2. The main causes of the current slow global growth are declining populations, protectionism, de-leveraging and no major productivity-enhancing revolution.  Critically examine this statement. (GS 3)

Indian Express

Introduction:

• World Trade Organisation slashed its forecast for growth in trade of goods from 2.8% in 2016 to just 1.7%, implicitly predicting that for the first time in 15 years, trade would grow more slowly than GDP.

Yes:-

• The period between World War II and the financial crisis was characterised by population growth, major investment, productivity gains, increases in global trade and cross-border flows of people a debt boom. Today, in most countries, these trends are decelerating.
• Declining population:-
  • For most countries, a declining population was already on the way prior to the financial crisis. Population growth boosts economic growth through an increase in the workforce, aided by an increase in productivity.
  • Many European countries and Japan are suffering from ageing population. Working population is relatively low.
• Protectionism:-
  • BREXIT and the recent US policies show that protectionist tendencies are on the rise and this harm the investments and overall growth as well.
• De leveraging:-
  • Each country have comparative or absolute advantage over other with respect to resource utilisation.
  • Cross leveraging of each other’s capabilities has been slow down due to narrow tendencies of protectionist leaders and economic/political rivalry among countries.
• No major productivity enhancing revolution:-
  • The changes in the digital world and technology is still unable to offset economic productivity and challenges related to skilled forced still remain.
  • With banking system in chaos after financial crisis ,there was not enough opportunity to involve in major productivity enhancing revolution as well

There are other reasons as well like :-

• Lower costs encouraged a web of supply chains to form, so that parts that were previously manufactured domestically could be shipped and assembled in foreign countries. Now that costs are not falling as quickly, the process may have run its course.
• China’s spectacular economic growth over the 2000s was driven by huge increases in investment, which gobbled up imports such as oil and iron. As China switches to a more consumption-led approach to economic growth, the growth in trade volumeswill naturally slow.
• The capacity for fiscal intervention at least among developed economies has been underutilized.
• Ultra-loose monetary policy, which, by flooding financial markets with liquidity, was supposed to boost growth. But it remains unclear whether elevated asset prices are supporting aggregate demand or mainly shifting the distribution of wealth. It is equally unclear what will happen to asset prices when monetary assistance is withdrawn.
• Disparity between the behavior of financial markets and that of the real economy. Judged only by asset prices, one would have to conclude that growth is booming. Obviously, it is not.
• The stagnation of incomes in the bottom 75 percent of the distribution presents an especially large challenge, because it depresses consumption, undermines social cohesion .
• Also Not all the economies in the world are witnessing slow economic growth. Some economies in Asia like India and Bangladesh and also some African economies are displaying relatively better economic growth.
  

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  3. “Constant development is the law of life, and a man who always tries to maintain his dogmas in order to appear consistent drives himself into a false position.” Critically comment.(GS 4)

• Everyday there is something to learn in life.When people think they know everything and don’t make an effort to learn that is when they are pushed backwards.
• One can always improve the things one does but this is about challenging the way one always think about things. It is always about re-evaluating the things one has already evaluated.
• India as a country has been under constant development trying new things for the welfare of the society.During British era there were restrictions on speech and expression .But this got rectified by the freedom movement leaders after independence by imbibing article 19 in the constitution.
• Similarly in administration with digital world the growth of transparency and accountability has increased which was not possible earlier with multiple mechanisms available for the same thing leading to duplication of work.
• So reevaluating the current and striving for further development is how the life moves forward.
• However in the effort for constant development sometimes the society is adversely affected as seen with the discoveries and certain inventions like atom bomb,dynamite because of which some societies suffered excessively.
• Also in an effort for constant development the societies tend to forget the ethical values based on which the learning has to sustain leading to corruption.This needs to be avoided.
  

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