The Hindu Notes – 29th August 2018

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The Hindu Notes for 29th August 2018

The final frontier of populism?

How crucial constitutional questions are being fought in the highest courts in the world’s largest democracies

If a baker refuses to make a wedding cake for a same sex couple citing his religious beliefs, is that an exercise of religious liberty or a case of discrimination against homosexuals? The Colorado Civil Rights Commission in the U.S. ruled it was a case of discrimination. The baker moved the U.S. Supreme Court where he also argued that his refusal also involved a question of the freedom of expression. Creating a wedding cake was an artistic expression and he would not do that in support of a homosexual wedding.

The U.S. Supreme Court reversed the Colorado commission’s order, in June, on the narrow grounds that its procedures were tainted by an animus towards the baker’s faith. The court, however, did not rule on the questions of religious liberty, the freedom of expression and discrimination raised by the case — which are sure to come up in the future. The Indian Supreme Court is seized of the conflict between a religious belief and charges of discrimination in a case on Sabarimala, the Kerala temple where women of a particular age are not allowed entry.
When questions such as these come up in the context of executive or legislative action or inaction, it becomes the task of the judiciary to test them against the Constitution. There is a long-running debate in the U.S. on how the judiciary should interpret the Constitution. One school of thought, the originalists, believe that the constitutional text ought to be given the original meaning or intent that it would have at the time it was written. The evolutionists believe that the Constitution is a living document and the meaning of its text changes over time, as social attitudes change, and that the judges should interpret it accordingly.
Building a legacy
U.S. President Donald Trump’s two picks for the Supreme Court (in less than two years in office) come from the originalist school. Justice Neil M. Gorsuch and Brett M. Kavanaugh, Mr. Trump’s second nominee who awaits Senate confirmation as Supreme Court justice, came through the ranks of the Federalist Society, founded in 1982, by American conservatives and libertarians to promote originalism. Behind the smokescreen of his Twitter outbursts, Mr. Trump is building a legacy that could outlast his presidency by decades, through appointments to the higher judiciary. Unlike in the case of his foreign and trade policy, the entire spectrum of the American right wing, and the Republican Party, is solidly behind the President’s attempts to reshape the country’s judiciary. The Trump administration supported the baker’s argument in the Supreme Court.
As of July, Mr. Trump has successfully appointed 43 judges, which includes Mr. Gorsuch, 22 appeals court judges and 20 district judges. Barack Obama and George W. Bush had each appointed only nine appeals court judges at this point in their presidencies. Dozens of more Trump nominees are awaiting Senate confirmation. Mr. Trump inherited a huge number of judicial vacancies from the Obama presidency, as the Republican-majority Senate had slowed down appointments. It even refused to consider a Supreme Court nomination made by Mr. Obama, and the vacancy was filled only with Mr. Gorsuch’s appointment.
Mr. Trump’s nominees are not only almost entirely originalists but they are also far less diverse than the cohort of judges appointed by Mr. Obama. Only 10% of Mr. Trump’s appointees are racial or ethnic minorities; he has nominated one Hispanic and one black so far. Bringing in the highest share of non-whites in the judiciary in the history of the country, Mr. Obama had appointed 58 blacks, 31 Hispanics and 18 Asians over eight years. Out of the 324 judges he appointed, 116 were minorities. According to a Pew analysis in March, the proportion of female judges appointed by Mr. Trump was half as many as appointed by Mr. Obama. And 60% of all sitting federal judges in America are white men.
Tensions in a democracy
Judges are not impervious to public opinion but they are not meant to be its slaves either. They do not need to win popular votes This one layer of insulation from instant public opinion enables the judiciary to be the guardian of the fundamental values of the society, which too change but over a longer period of time. The tensions between the legislative or executive branches and the judiciary are unavoidable, and to some extent desirable, in a democracy. Varying degrees of judicial review provide a way to negotiate a balance between public opinion and values in democratic societies. In India, the judiciary can review even constitutional amendments.
When a society is in the midst of conflict over its elemental values, such tensions become more fraught. The legislative and executive branches are quicker in responding to people’s will and often, shaping it. When Franklin D. Roosevelt was legislating New Deal measures in the 1930s, the American judiciary threw a spanner in the works. The President sought authority from the U.S. Congress to appoint six new justices on the Supreme Court. The Supreme Court began to relent, and scaled back its resistance to the New Deal, and a populist takeover of the judiciary was averted.
India also has seen a similar phase, when the judiciary resisted progressive legislative measures such as land reforms in the early years of the republic. Those tensions continued all the way until an equilibrium was reached, with the Supreme Court establishing the concept of the basic structure of the Constitution in the 1970s. Roosevelt and India’s Congress governments were pushing for redistributive measures. At the core of the tensions between the judiciary and the more political branches was the search for a balance between justice and liberty, a perennial source of conflict in a democracy.
A turbulence within
It is one thing to expect the judiciary to be cognisant of evolving notions of rights and justice in a society, but quite another to demand the remaking of the judiciary in accordance with a majoritarian agenda. “The power granted to American courts to pronounce on the unconstitutionality of laws (is)… one of the most powerful barriers ever erected against the tyranny of the political assemblies,” Alexis de Tocqueville wrote on American democracy. The Trump movement and his judicial appointments seek to bend the judiciary to majoritarian pressures. Reshaping of the judiciary has been a core component of Mr. Trump’s populist agenda and his campaign speeches. Originalism implies the intent and meaning of a group of white, Christian men who wrote the country’s Constitution. Crucial questions on affirmative action, voting rights, immigration, abortion, religious liberty and homosexuals will be reviewed by the U.S judiciary in coming years.
The turbulence within the Indian judiciary and in its relations with the political executive and the legislature could also be seen in the context of the ongoing populist project to reshape the country. A judiciary dismissive of the popular will could disrupt the balance of power among the branches; but a judiciary subservient to majoritarianism will certainly undermine democracy.
varghese.g@thehindu.co.in

Pieces of the Asian dream

India should maximise its soft power in South, East and Southeast Asia even as it resets ties with China

This has so far been the year of the India-China reset. From the informal Narendra Modi-Xi Jinping summit at Wuhan on April 27-28 to Prime Minister Modi’s keynote speech at the Shangri-La Dialogue in Singapore on June 1, to the Shanghai Cooperation Organisation (SCO) Summit in June 9 at the Chinese port city of Qingdao, all have sparked a lot of analysis as to what kind of strategic positioning India is gearing itself into at a time when the U.S. and China are caught up in geopolitical rivalry in the Asia-Pacific. In Singapore, Mr. Modi’s speech proclaimed India’s ambitions to garner influence in the Indo-Pacific region by increasing engagement with the Association of Southeast Asian Nations (ASEAN), developing friendship with China, maintaining cordial ties with Russia, pursuing interests with Australia and engaging more with the U.S. The question is, what shape will India’s lead take?
Tug of power
The reality is that the tug of power between India and China continues to impact sea lanes and chokepoints, with these two Asian giants pursuing interests in the littoral states spread across the Indo-Pacific. While India pursues influence through heightened diplomatic, bilateral and military engagement, China has started to garner influence through hard investments in cash-strapped littoral nations suffering from massive infrastructural deficits. China’s heavy investments in ASEAN nations have brought these nations closer into its orbit of influence to the point where despite an international ruling against its activities in the South China Sea (SCS), the ASEAN as a bloc agreed to cooperate with China on a Code of Conduct instead of pursuing the international ruling.
The influence of China on certain ASEAN states like Cambodia has been such that during the 2016 ASEAN ministerial meeting, Phnom Penh refused to endorse the joint communiqué if it referred to the international court ruling against Beijing. China is today Cambodia’s largest provider of foreign aid and has invested in dams, oilfields, highways, textile operations and mines. In the Philippines, President Rodrigo Duterte has been seeking rapprochement with China, especially after 2016, when U.S. legislators blocked the sale of about 26,000 M4 rifles. Beijing provided rifles worth about $3.3 million to the Philippines police and guns worth $7.35 million to fight against extremists in the city of Marawi. Although India enjoys cordial relationship with all ASEAN nations, it is unlikely that diplomatic hobnobbing alone will help garner the grouping’s support for its Indo-Pacific strategy against China’s raw cash power and growing military presence. ASEAN’s trade with China far surpasses that with India, and Chinese foreign direct investment in ASEAN is nine times higher than India’s.
India also has so far failed to provide any concrete plans for its immediate neighbourhood in South Asia, with countries like Nepal and Sri Lanka demonstrating interest in partnering with China. Souring of relations with Nepal due to the 2015 fuel blockade and failed strategic interventions in Sri Lanka have both undermined India’s regional leadership. On the other hand, China’s multibillion dollar investments in Sri Lankan ports and cities have inched the country much closer to China, and last year Sri Lanka handed over its Hambantota port to China on a 99-year lease. Under its Belt and Road Initiative (BRI), China has over the years promised billions to littoral states in the Indian Ocean Region to build a series of ports, something resource-constrained India will find difficult to match.
However, the overt-assertiveness of China has driven many countries in East and Southeast Asia to seek friendship with India, and today Indonesia and Singapore are looking to bolster relations with India. ASEAN has a cultural affinity with India with its shared religious diversity, ancient ties and a sizeable Indian diaspora in countries like Singapore and Malaysia. After the U.S., India enjoys global soft power through its art, literature, music, dance and cinema. India is perceived by many in East Asia as a friendly democracy, making the country a safe ally to have in the long run. Japan has significantly increased its engagement with India and the two countries enjoy robust military ties. India and Australia have initiated the ‘2+2’ dialogue signalling Canberra’s interest in deepening a maritime security partnership with India. But India still has to develop a strategy to leverage its soft power and optimise its military power to effectively counter China’s cash and hard power.
The big reset
With China, India can strike a better strategic bargain compared to the smaller states in the region. For example, it would be difficult for China to take forward the BRI without participation from India, which has reservations on the China-Pakistan Economic Corridor (CPEC). By demonstrating a willingness to join the BRI, India can positively influence China to reevaluate the details of the CPEC. With a strategic partnership with China, India can better pursue its own regional groupings like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and Bangladesh, Bhutan, India and Nepal (BBIN) initiative. Since India can’t match China’s resource spending, strategic understanding with China can help streamline regional connectivity projects and help India gain influence in the region. At the SCO Summit, Mr. Xi renewed China’s agreement with India on sharing data on the cross-border flow of waters from the Brahmaputra during the flood season, and the two countries signed a protocol that would enable all varieties of rice exports from India to China, a demand India has been pressing for quite some time to rectify its adverse balance of payments against China. Mr. Xi has also suggested a trade target of $100 billion by 2020, signalling a gradual thaw in relations.
India is clearly seeking its rightful place in the league of nations by outlining its geopolitical role, particularly in the Indo-Pacific region. What remains to be seen is how, with limited resources, India’s ambitions will play out against a resourceful and assertive China.
Syed Munir Khasru is chairman of the think tank, the Institute for Policy, Advocacy, and Governance, and is based in Dhaka

‘We have neglected employment data for far too long’

The former Chief Statistician on calculating GDP back series and indicators of development, and the fall of the rupee

The draft of the back series GDP data, which was made public by the government recently, is unlikely to change drastically even if other methods of calculation are used, says former Chief Statistician of India, Pronab Sen. The noted economist discusses GDP, employment and poverty data; the value of the rupee; and how the absence of a Chief Statistician will affect India when it takes new decisions. Excerpts:
neglected employment data
The government has said that the back series GDP data is a draft, and that other methodologies are under consideration. If other methods are used, would the numbers change drastically?
No, very unlikely. The most common method is called the splicing method and what it does is very basic. You start with the latest estimates, which is 2011-12. You assume the growth rates in the previous years remain unchanged, and then you calculate what the levels of GDP would be in the previous years. What that does is it leaves the growth rates unchanged, it just changes the levels, and in a fairly predictable way. That is the simplest method. It is not done for GDP as a whole, but for each component of the GDP. After doing it for all goods and services, it is added up again.
What this method [the one made public] has done is that it has looked at those goods and services that existed in 2011-12 but did not exist in 1993-94 in the GDP tables. For just these goods, they have essentially done a back distribution. They have assumed 1993-94 to be zero, and 2011-12 to be what it is, and then simply put an exponential curve fitting between the two and then they have added these back in. They have not said what they did with the goods and services that existed in both time periods, but I suspect they used splicing for them.
Looking at the back series does matter, because when we talk about how the economy is doing and how we are doing in the future, these are all based on relationships that you have established in the past. All the policymaking bodies need these relationships. If you have only six-seven years of data, you can’t establish anything. You need to be able to go much further back. It is a very important exercise.
Normally what would happen is that MOSPI [the Ministry of Statistics and Programme Implementation] would have come out with the back series within three-four months of the main revision. The main revision was released in 2015-16, so it’s already been three years instead of three months.
Overall, do you feel there is too much importance given to GDP numbers and not enough to other indicators?
The GDP number is important because it is an estimate of the total income being produced in the country in a given year. It defines, if you will, the size of the cake. But there is a whole bunch of other indicators. After all, the size of the cake is only one part of the story. How that cake is divided into different groups of people, sectors, that is equally important. When you talk about jobless growth, the growth part is coming from the GDP estimate and the joblessness part is coming from employment data. The GDP data are critical to know the pattern of growth you are seeing that is leading to the lack of jobs.
Employment is another big indicator. As a country, we have neglected employment data for far too long. It’s only in the last decade or so that we have started to say it is important, and finally got around to doing something about it only last year.
The second, which is simply not produced, is the damage we are doing to our natural assets. There is scattered data on forest cover, air pollution, water pollution, but you don’t have a measure of the state of our natural capital. Are you getting high income growth but at the cost of the environment? Is that trade-off worth it?
The third is to know how income is distributed. Poverty measures, for instance, are important. Because they tell you, is this increase in income benefiting the poor?
We have various estimates of poverty right now.
Well, you have a very peculiar situation where the existing poverty estimates were brought into question by UPA II. The Rangarajan Committee was set up to go into it. They came out with a recommendation and that was rejected. What we have is the Tendulkar methodology, which was questioned by those who had commissioned the Tendulkar report, the UPA II. So we are in a bit of a limbo. The NDA has taken no position on it. It has remained studiously silent on poverty estimation. Nobody is questioning it because no data are coming out.
The government has accepted that there is shortage of employment data. Do you feel the economy is capable of providing so many jobs?
The thing is, unless the data are there, you cannot even assess capability. In a world where technologies are changing rapidly, you have sectors which at one time used to be labour-intensive but are rapidly becoming not so intensive. Textiles, for example, in many countries.
When this happens, you need to have employment data to assess which sectors are generating employment and which are not. And then you have to assess whether we are growing fast enough in the sectors that are generating employment to be able to absorb the labour force. That’s how employment data tie in with GDP and sectoral growth.
The rupee is hovering around 70 to a dollar. Is it moving towards a new normal?
The value of the rupee in the long run really depends on how your own inflation rate compares with the inflation rate of other countries. If it is high, what will happen is that the rupee will sooner or later have to depreciate because your currency is losing value faster than other currencies, and that’s what the exchange rate measures. It measures the relative value of currencies. In India, the high inflation period ended in 2013, but the rupee started depreciating after that, so there is a lag between the two.
Several ratings agencies have said that the rupee depreciation will likely mean that the current account deficit (CAD) will start heading towards 3%.
They have got the cause and effect a little wrong. When the exchange rate depreciates, you should expect the CAD to improve. Because when the rupee depreciates, exports become more profitable and imports become more expensive. So there is a tendency to export more and import less. However, if you start by saying that the CAD is going to get worse, then the rupee will depreciate in the future. The cause-effect is not very clear.
The big issue is, why have our imports shot up? If you look at the trajectory of imports over the last three-four years, what you find is that the spike in imports coincides with demonetisation. What happened with demonetisation was that unorganised sector production got badly hit, and essentially created a vacuum. People wanted to buy the stuff, but producers couldn’t supply it because they didn’t have the money to produce. The net result was that a lot of these products were imported from China. That was one of the reasons why imports were shooting up. This is the non-corporate sector. Shortly after that, you had GST [goods and services tax]. GST didn’t affect imports very much, but it hit exports. So you have two effects happening simultaneously — demonetisation leading to higher imports, and GST hitting exports because the GST refunds were not happening.
So, what you are seeing in the CAD is the combined effect of demonetisation and GST. Over time, these are likely to correct themselves. So, first it will show up in the CAD and then in the rupee.
But we have a third problem facing us: the trade war between the U.S. and China. You have a situation where the U.S. and China are imposing tariffs on each other. What will end up happening is that both will start looking for alternative markets for their products, and India is the other large market. The danger is that both will start dumping in India.
Is the solution for us to also impose duties?
We have already done that. We have had two rounds of increases in duties, but you need to be careful in doing that. The increase in duties as a device to buy yourself time in an unstable trade environment is one thing, but if these duties persist for too long, they become protective duties and lead to inefficiencies. So, these should be seen as temporary measures to meet a temporary situation. Once the situation goes away, we should seriously look at reversing these duties.
There are some indicators of private sector investment picking up again. Is that a sign that the economy is getting back on track?
Yes, and no. Corporate investments picked up three-four years ago. We haven’t been noticing it. But what has gone down quite significantly is investment by the non-corporate sector. The business newspapers focus on the corporate, but the real decline is in the non-corporate sector. That is something that is not reversing itself. In fact, year on year, the share of non-corporate investments in total investments has been coming down quite sharply. It’s the lingering effect of demonetisation and GST.
Looking at the fiscal deficit, the government is saying it will meet its target, but GST revenue is still about ₹10,000 crore a month less than it should be. It is an election year. Do you think the government will meet the target?
It’s too late. The election year effect should have already found its way in the Budget. If it’s not in the Budget, you can’t spend it. The Budget is now history, you know what’s in it. The real question is, will you spend more of the Budget before the election than you did earlier, and the answer is probably no. At the end of the day, your capacity to spend depends on the capacity of various government agencies to spend the money. I have no sense that that has gone up.
When people talk about the election year effect, I think they make too much of a big deal on the fiscal side. The real effect is that political parties start spending money that they have stashed away, and that usually provides a massive boost to the economy. Usually what happens is that your growth tends to go up in election years.
We still do not have a Chief Statistician of India. Is this in any way hampering the performance of the MOPSI?
The absence of the Chief Statistician will not have a substantial effect on those activities of the Ministry which have been established. The data sets that have been brought out regularly will continue to do so. They are more or less on autopilot. The problems are going to come up when you try to do new things, such as this exercise of compiling employment data.

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