25 JANAURY 2016
Sobering reflection from Davos
China’s stock market turbulence and the impact its growth slowdown is having on the global economy were dominant themes last week at the annual World Economic Forum in the Swiss Alpine resort of Davos. And as the four-day gathering of international finance and corporate captains, government policymakers and central bankers wound down on Saturday, the jury was still out on whether China is headed for a hard landing or is in control of its transition. That China and its fortunes have come to dominate discussions is testimony to the extent to which its companies and manufacturing industry have integrated with the rest of the world, as well as to the increased international concern over the perceived opacity of the country’s banking and financial sector’s real levels of indebtedness. This was perhaps best reflected in International Monetary Fund chief Christine Lagarde’s exhortation that financial markets need more “clarity and certainty” about China’s management of the yuan’s exchange rate, especially with reference to the U.S. dollar. A modeling study done by Oxford Economics posits that a 10 per cent decline in the value of the Chinese currency against the dollar by the third quarter of 2016 — if accompanied by resultant competitive devaluations among emerging market peers — could roil economies and markets worldwide, with the eurozone and Japan projected to be the hardest hit. The domino effect could retard global growth by 0.2 per cent and hurt countries including the U.S., Brazil, Russia and India. Interestingly though, the same study projects that China would have little to show by way of gains from the yuan’s weakness, lending credence to the Chinese authorities’ assertions that they are not interested in engendering a scenario of competitive devaluations. Still, that second-order effects of what happens in China will be hard to hazard a guess about has already been proven by the recent volatility seen in markets worldwide. And the brave words of regulators notwithstanding, central bankers are running out of ammunition. As Reserve Bank of India Governor Raghuram Rajan said, monetary easing may have run its course and reached the limits of efficacy as a policy tool.
The other key takeaway from this year’s meeting at Davos was showcased in Pope Francis’s admonition to the global political and economic elite to reflect on their own role in creating inequality. An Oxfam study, released ahead of the WEF meet, said the richest 1 per cent owned as much wealth as the remaining 99 per cent combined did, with the gap in wealth widening even faster than anticipated. With politicians across continents and the entire ideological spectrum, from the far-right to the far-left, focusing their rhetoric and stances on the growing rich-poor divide and seeking to tap the burgeoning discontent for electoral gains, the Pope’s call to the wealthy and powerful to act to help address the inequality lends a powerful moral edge to the issue.
Alert, fair, transparent
The arrest and detention of at least 18 people from across the country by the National Investigation Agency and the Delhi Police over the last few days for their alleged terror plans and sympathies to the Islamic State is a stark warning that the authorities need to be on heightened alert. The Delhi Police caught four young men from Uttarakhand, while the rest have been arrested by the NIA from across India. Both groups are accused of planning to carry out major terrorist attacks. The NIA believes that the 14 men in its custody were in the process of organising a training camp to prepare for multiple attacks against domestic and foreign targets. Officials say that both the arrested groups had been in touch with Shafi Armar alias Yusuf, who heads a terrorist group named Ansar-ul-Tawhid that is aligned with the Islamic State and has former members of the Indian Mujahideen in its ranks. This is a clear indication that the IS is no more a danger lurking in some distant land. In fact, next-door Bangladesh has already witnessed a few lone-wolf attacks suspected to have been carried out by IS sympathisers.
The authorities now have the challenge of identifying terrorist modules, and possible lone wolves, without allowing any attendant excesses. Real-life investigations are painstaking tasks, and the Indian agencies have often failed in due diligence on that front. Therefore it is important that the government keep a close watch to ensure that the NIA and the Delhi Police carry out transparent and professional investigations into the recent arrests. That will ensure public safety and also protect the individual liberty of those accused of terror, but pending a fair trial. Experience worldwide has shown that the perception game is practically won or lost while dealing with terrorist suspects. The investigations must be time-bound and chargesheets must be filed within a reasonable timeframe. A quick trial is advisable — to showcase that India has an uncompromising posture against terrorism and will hand out punishments without any delay and swiftly, while protecting the constitutional rights of each of its resident. Showcasing such a balanced approach towards terrorism is also very important to send out the message to the aggrieved and those influenced by violent ideologies that Indian democracy is their best bet for a fair life. Young people drawn to various waves of violence through history have mostly been individuals harbouring a perceived strong sense of grievance against the state. Their violent activities are a response to what they believe to be injustices inflicted by the powerful. In India, there have been three distinct waves of domestic Islamist terrorism since the early 1990s. There is no better way of addressing the grave threat posed by young citizens drawn to extremist, violent ideologies than a fair, transparent and swift trial.