Daily Editorial Analysis for 25th June 2021

Staging a comeback, re-energizing India’s Africa policy

Background

• Africa is considered a foreign policy priority by India.
• The Government of India designed a forward-looking strategy to deepen relations with African countries.
• Its implementation was managed quite well, with much political will invested in expanding the multi-faceted engagement.
• Even as the COVID-19 era began in March 2020, New Delhi took new initiatives to assist Africa through prompt dispatch of medicines and later vaccines.
• But now the policy implementation needs a critical review.

The macro pictures

• The latest economic data confirms what was apprehended by experts: India-Africa trade is on a decline.
• Bilateral trade valued at $55.9 billion in 2020-21, fell by $10.8 billion compared to 2019-20, and $15.5 billion compared to the peak year of 2014-15.
• Total investments over 25 years, from 1996 to March 2021, are now just $70.7 billion, which is about one-third of China’s investment in Africa.
• COVID-19 has caused an adverse impact on the Indian and African economies. India’s top five markets today are South Africa, Nigeria, Egypt, Kenya and Togo. The countries from which India imports the most are South Africa, Nigeria, Egypt, Angola and Guinea.
• India’s top three exports to Africa are mineral fuels and oils (processed petroleum products), pharmaceutical products and vehicles.
• Mineral fuels and oils, (essentially crude oil) and pearls, precious or semi-precious stones are the top two imports accounting for over 77% of our imports from Africa.

Global competition

• These latest trends in bilateral economic relations should be assessed against two broad developments.
• COVID-19 has brought misery to Africa. Africans have been deeply affected and remain ill-equipped.
• A recent World Health Organization survey revealed that 41 African countries had fewer than 2,000 working ventilators among them. Despite these shortcomings, Africa has not done so badly.
• Experts suggest that the strength of community networks and the continuing relevance of extended family play an important supportive role.
• Sadly though, with much of the world caught up in coping with the novel coronavirus pandemic’s ill effects, flows of assistance and investment to Africa have decreased.
• Recent Gateway House study showed, Africa experienced a sharpened international competition, known as ‘the third scramble’, in the first two decades of the 21st century.
• Nations from the Americas, Europe and Asia have striven to assist Africa in resolving the continent’s political and social challenges and, in turn, to benefit from Africa’s markets, minerals, hydrocarbons and oceanic resources, and thereby to expand their geopolitical influence.
• While China has successfully used the pandemic to expand its footprint by increasing the outflow of its vaccines, unfortunately India’s ‘vax diplomacy’ has suffered a setback.
• The imperative to consolidate its position in the Indo-Pacific region have compelled New Delhi to concentrate on its ties with the United Kingdom, the EU, and the Quad powers, particularly the U.S. Consequently, the attention normally paid to Africa lost out.

India’s role

• For mutual benefit, Africa and India should remain optimally engaged. Touching on politico-diplomatic dimensions, the foreign secretary regretted that “the voice of Africa is not given its proper due” in the Security Council.
• The foreign minister highlighted India’s role in peacekeeping in Africa, in lending support to African counter-terrorism operations, and contributing to African institutions through training and capacity-enhancing assistance.
• His visit to Kenya has helped to re-establish communication with Africa at a political level.
• It is time to seize the opportunity and restore Africa to its primary position in India’s diplomacy and economic engagement.
• The fourth India- Africa summit, pending since last year, should be held as soon as possible, even if in a virtual format.
• Fresh financial resources for grants and concessional loans to Africa must be allocated, as previous allocations stand almost fully exhausted.

Areas with promise

• The promotion of economic relations demands a higher priority.
• Industry representatives should be consulted about their grievances and challenges in the COVID-19 era. Developing and deepening collaborations in health, space and digital technologies.
• Finally, to overcome the China challenge in Africa, increased cooperation between India and its international allies, rates priority.
• The recent India-EU Summit has identified Africa as a region where a partnership-based approach will be followed.
• Similarly, in summit of the Quad powers is held in Washington, a robust partnership plan for Africa should be announced.

 

GS PAPER III            

The rural economy can jump-start a revival

Why in News

• The second wave of the COVID­19 pandemic could be slowly receding with a decline in the official estimates of daily infections and deaths.
• The economy is also very gradually getting back to normal, with many States’ beginnings to ease some of the restrictions imposed in their lockdowns.
• According to the National Statistical Office (NSO) estimates, the Indian Gross Domestic Product (GDP) growth for the fiscal year 2020­21 declined at 7.3%, was slightly better than expectation, even though this is a gross underestimate of the reality given the methodological issue of underestimation of the economic distress in the unorganized sector.

Making things worse

• Economic growth has already decelerated to 4% in 2019-20, less than half from the high of3% in 2016-17.
• Since then, the slowdown in the economy has not only made things worse as far as economic recovery is concerned but also come at a huge cost for a majority of households which have lost jobs and incomes.
• The sharp decline in GDP was partly a result of the trend of a slowdown in economic activity since 2016­17.
• But a large part of the economic outcome in the first year of the pandemic is also a result of a mishandling of the economic situation.

Agriculture, a key driver

• Despite the lack of fiscal support, an important contributor to the better­than­expected economic performance was the resilience of the rural economy, particularly the agricultural sector.
• Agriculture was the only major sector (other than electricity, gas, water supply and other utility services) which reported an increase in Gross Value Added (GVA) in 2020­21.
• It not only provided jobs to returning migrants but also sustained the economy in the rural areas.
• Agriculture has not only been the biggest savior during the period of the pandemic but has consistently been an important driver of the economy throughout the last five years which has seen the economy slow down sharply.
• The average growth rate in agriculture GVA in the last five years, at 4.8%, is significantly higher than the GVA growth of the economy as a whole, at 6%, in the last five years.
• The expectation of positive growth in 2021-22 fiscal year may suggest recovery. However, given that the economy has already suffered last year, any recovery will largely be a statistical artefact driven by the low base of last year rather than a real recovery.
• The fact that a majority of households have already suffered job losses and income decline which are yet to regain their pre­pandemic levels suggests caution in making any inference on an economic recovery.
• The second wave affected rural areas disproportionately, in terms of health but also in terms of livelihoods.
• It will not be surprising if rural areas now witness a sharp rise in indebtedness from no institutional sources.
• For the country as a whole, despite an increase in employment demand in NREGS, the person-days generated in May 2021 was only 65% when compared to May 2020.
• While the free food­grain scheme has been extended this year as well, it does not include pulses as was provided last year. Similarly, there has not been any cash transfer to vulnerable groups, unlike last year.

Decline in jobs, income

• The impact of declining incomes and job losses on demand is now visible even in rural areas.
• While real wages have continued to decline with the latest estimates of April 2021 showing a decline in rural non­agricultural wages by 0.9% per annum in the last two years, agricultural wages continue to stagnate.
• One indicator of declining demand is the decline in wholesale prices of most of the agricultural commodities.
• Cereals and vegetables, which together account for more than half of crop output, have seen prices decline on a year­on­year basis for more than six months now. This is happening at a time when international agricultural prices are at an all-time high.
• This reflected in the rise in inflation in pulses and oilseeds groups, both of which are largely imported.
• The net result is a peculiar situation where output prices for dominant agricultural commodities in the domestic market are declining while consumer prices of essentials such as edible and pulses are contributing to rise inflation.

Inflation threat

• Rising inflation further threatens to reduce the purchasing power of the rural economy struggling with declining incomes and job losses.
• The rise in input prices for diesel has already contributed to rising input costs but the recent increase in fertilizer prices for most of the complex fertilizers have also added to the misery of farmers.
• Rising inflation in international commodity prices also threatens the rural non­farm economy. A majority of the rural non­farm sector already struggling from low demand has now seen its profit margins getting impacted due to the increase in the cost of raw material.
• Despite these setbacks, the rural economy including the agricultural economy continues to remain crucial for any strategy of economic revival.

Conclusion

• The rural areas have been lagging behind in the overall rate of vaccination. At the same time, rural areas will also need greater fiscal support, both in terms of direct income support to revive demand in the economy but also through various subsidies and protection from the rising inflation in input prices.
• This urgent intervention is not just necessary to support economic revival but also prevent another humanitarian crisis, this time as a result of economic mismanagement.