Monthly Archives: January 2017

With IMF trimming India’s growth rate from 7.6% to 6.6%, has the demonetization movement really costed India’s economic outlook?

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By Baani Gambhir, a first year sudent from India studying International Relations at King’s College London.

Withdraw 86 percent of the country’s currency in one full-swoop, add a pinch of rhetoric, mix with an economic and moral reasoning like ‘flushing out the black market’ and wrap it up with nationalism- and your recipe for disaster is ready to cause unprecedented damage to the world’s largest and fastest growing economy. Still want more? Keep on high flame for about two months or more, and you have the growth rate cut down by a full percent.

A little over two months has passed since the Narendra Modi government’s ensnare on its own currency. Not only has this manoeuvre costed India’s economic outlook but apparently has resulted in the death of one hundred people.[1]This brings to focus a pressing question, if mass misery is great, why haven’t protests broken out?

The answer lies here: the debate over demonetisation, instead of being about logic or evidence, is framed as a challenge between two beliefs: If you are pro-demonetisation, you are patriotic; and if you are against it, you are not only ‘anti-national’ or ‘Pakistani’ but also corrupt and support criminal activity. By turning criticism of demonetisation into an unpatriotic and corrupt act, Prime Minister Narendra Modi has destabilised the ability of political parties and NGOs to organise protest. [2]

Indian Nobel laureate and Bharat Ratna awardee, Amartya Sen said “decisions like these get taken in China based on the vision of a small group of people, while in a democracy like ours, things move only when there is a public demand for it.” [3]

“Our political decisions, however, in contrast have to involve the public,” he said, comparing our situation with China and going on to mention the demonetisation exercise as an aberration from such a convention. Furthermore, he termed note ban as an unguided “missile” fired “unilaterally” by the government without adhering to the democratic conventions. “…every now and then we get missiles fired by the government unilaterally. Demonetisation one fine morning is of course just such a missile where there are reports coming in of hardships and suffering though it is not quite clear where the missile has landed,” Sen said. [4]

Two leading macroeconomists: Harvard’s Kenneth Rogoff and Lawrence Summers have also spoken about India’s recent demonetisation. Both are well-known for their opinion that in the US and Europe, high-denomination notes mainly aid tax evasion and crime, are of little usage in normal transactions, and should be banned.[5] Though Rogoff does not out rightly disregard the long-term benefits of India’s demonetisation, he is surprised by the introduction of a Rs. 2,000 note, even as a Rs 1,000 note is being scrapped on grounds that it encourages illegal cash hoarding. He adds that an overnight outlawing, as opposed to a phased decommissioning, entails too much “collateral damage” [6]

“Basically agreeing, Summers adds to this reasoning a basic utilitarian principle that it is better to let a few criminals go free than hurt so many innocent people — 93 per cent of India’s labour force, after all, is in the informal economy. Additionally, Summers thinks the costs of such a policy exceed the likely benefits.” [7]

Simply put, the ‘Modi demonetisation scheme’ does not follow the established logic of a currency ‘stabilisation’ measure; the Indian economy is hardly suffering any hyperinflation to even remotely authorise such a move. Demonetisation would haphazardly lead to extraordinary monetary tightening, with nearly Rs 15 lakh crore worth of currency being withdrawn overnight from circulation. This untimely, and probably unintended, ‘stabilisation’ has the potential to create a full-blown recession.

For the purpose of attaining public approval, this move, has instead, been projected as a ‘structural reform’, directed at restructuring public approach towards currency with a vision to move towards a cashless economy. However, in a country with less than 75-80 per cent literate, with another 25-30 per cent barely literate, with poor connectivity and ambiguous laws about privacy, the idea of a cashless economy might turn out to be an outrageous fantasy. Like Modi, Rogoff also favours cashless exchanges, but for him, it is viable only in a rich economy, where most economic exchanges are in the formal sector. It can trigger an economic blow in an overwhelmingly informal economy, like India.

The Modi government has said that the withdrawn Rs 500 and Rs 1,000 denomination notes will be replaced with new currency with enhanced security features.” But that’s easier said than done. To start with, printing itself — the total demonetised banknotes numbered 2-300 crore pieces — may take 5-6 months, according to various estimates. Even after printing, the new currency has to be delivered to bank branches and ATMs not just in Delhi and Mumbai. [8]

Dubbing the government’s claim that demonetisation would weed out black money and corruption as “hoax”, former Union Finance Minister P. Chidambaram has also criticised the Centre for not knowing the printing capacity to churn out new currency notes to cater to the demands of the people.

As it turns out, not only was the Reserve Bank of India (RBI) not ready with an appropriate amount of substitute currency, it will take substantial amount of time to do that. To deal with the short-run liquidity crisis, it rationed note distribution from banks, which will continue, though with a higher daily ceiling. The RBI has also tossed and turned, sometimes within a day, which makes a mockery of the economic principle that short-run monetary consistency is essential for financial trust. This creates serious doubts about the political autonomy and independent functioning of the RBI and raises serious doubts such as: Has the RBI become an arm of the political executive?

In the final analysis, demonetisation has caused serious economic distress in India, raised reservations about the wisdom of the government’s decision in achieving its said objectives vis-à-vis the costs to the people and abridgement of their rights and has costed India its economic outlook, due to a sharp decrease in trade.

 

BIBLIOGRAPHY:

[1] Worstall, Tim. “India’s Demonetisation Kills 100 People Apparently – This Is Not an Important Number.” Forbes(Forbes), December 8, 2016. http://www.forbes.com/sites/timworstall/2016/12/08/indias-demonetisation-kills-100-people-apparently-this-is-not-an-important-number/#c0fc47411a7c.

[2] Varshney, Ashutosh. “The Indian Express.” January 5, 2017. Accessed January 29, 2017. http://indianexpress.com/article/opinion/columns/post-truth-demonetisation-donald-trump-cash-crunch-narendra-modi-4456232/.

[3] “The Indian Express.” January 28, 2017. Accessed January 29, 2017. http://indianexpress.com/article/india/amartya-sen-on-demonetisation-note-ban-an-undemocratic-move-akin-to-unguided-missile-4495942/.

[4] Varghese, Roy. “Amartya Sen Urges Healthcare for All.” January 29, 2017. Accessed January 29, 2017. http://businessworld.in/article/Amartya-Sen-Urges-Healthcare-For-All-/29-01-2017-112092/.

[5] “The Indian Express,” “Post-Truth demonetisation,” January 5, 2017, accessed January 29, 2017, http://indianexpress.com/article/opinion/columns/post-truth-demonetisation-donald-trump-cash-crunch-narendra-modi-4456232/.

[6] “India’s cash bonfire is too much too soon” in “Financial Times”, December 9, 2016, accessed: January 15, 2017, available at: https://www.ft.com/content/59c3e922-bd72-11e6-8b45-b8b81dd5d080.

[7] “India’s cash bonfire is too much too soon” in “Financial Times”, December 9, 2016, accessed: January 15, 2017, available at: https://www.ft.com/content/59c3e922-bd72-11e6-8b45-b8b81dd5d080

[8] “Why Narendra Modi’s demonetisation move is unprecedented” in “The Indian Express,” January 21, 2017, accessed January 29, 2017, http://indianexpress.com/article/opinion/columns/narendra-modi-demonetisation-digital-cashless-economy-4484306/.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CIA Russia hacking report, Twitter Sarcasm and the Prospects of Russia-U.S. Relations

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By Aleksandra Serebriakova, a 3rd year International Relations student at King’s College London with a strong interest in post-Soviet Union space and Russia in particular.

On the 6th January the Office of the Director of National Intelligence (ODNI) released the unclassified report that openly accused Russia of interfering in the U.S. presidential elections. The report argued that findings were based on the “understanding of Russian behavior” in its “longstanding desire to undermine the US-led liberal democratic order” and preconditioned by Russia’s “clear preference for President-elect Trump”, but nevertheless did not argue that hacking affected the election results.

The whole language of the Report was supported by the logic of ‘judgements’ rather than hard evidence through analyses of the CIA and two other agencies (FBA and NASA). This absence of strong evidence was explained by inability to “reveal sensitive sources or methods and imperil the ability to collect critical foreign intelligence in the future”. Thus, the Report has stated that the campaign to undermine U.S. presidential elections was ordered directly by Vladimir Putin who wanted to “denigrate Secretary Clinton, and harm her electability and potential presidency”. What is more, Russia’s military intelligence agency and its Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation (GRU) has been accused for directing the hacks into the emails of Democratic Party officials and released them with a help of Guccifer 2.0 hacker through Wikileaks and DCLeaks.com beginning in March 2016. Notwithstanding the fact that this kind of reporting would be ridiculous in any other democratic country, as it would confirm that administration itself had a “clear preference” for the Presidential candidate ignoring the desires of its own population, two interesting points can be picked up from this Report: U.S. open advertising of ‘Russia Today’s’ (RT) ability to influence American population and reaction of Russia’s officials to these findings that has often been sarcastic and undiplomatic.

Firstly, due to inability to provide strong evidence the Report had to explain Russia’s alleged influence through its ‘covert intelligence operations’ and ‘over propaganda efforts’ with a help of Russian Government agencies, paid social media users (internet ‘trolls’) and state-funded media, with RT and Sputnik news outlets being examples of this ‘propaganda machine’. Seven pages of unclassified version of the Report were devoted to assessing RT America TV’s activities in relation to “undermine faith in the US Government and fuel political protest”. Without profoundly discussing RT’s efforts to meddle in the current election and only briefly touching upon its ‘negative’ portrayal of Hilary Clinton and open support for Donald Trump, the short Report devotes a substantial part to the discussion of the channels attempts to “fuel political protests” during Occupy Wall Street movement and rise criticism on the U.S. economic and political systems. Overall, the Report presents RT America as some kind of international criminal syndicate with enormous power and financial connection to Russian Government. The argument that “RT recently was the most-watched foreign news channel in the UK” and the tables of comparison that present this channel as the most popular on YouTube out of foreign broadcasting companies (image 1) has caused a stream of comments and jokes from the Russian officials.

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Image 1: Comparative Tables from ODNI Report, Appex A

Thus, the Russian Embassy in London claimed that the Report findings have been the best advertising for RT (image 2). Indeed, RT preferences for Trump were clear from the start but how can the coverage of one channel that has a clear connection to the foreign government be argued to have such an enormous power to indirectly influence election process in a sovereign country? While RT should definitely be grateful to this Report for its promotion, we still should be willing to get some more evidence in support for the existing accusations. Otherwise, it all too sounds more as a Cold War scare.

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Image 2: Twitter of the Russian Embassy in London, 7th January 2017

What is more, the reactions of Russia’s officials to this Report were not at all surprising. Seen as another groundless attempt to discriminate Russia in the eyes of international community following the traditions of doping scandal and McLaren report, CIA report was met with sarcastic comments from Russian officials. Thus, Dmitry Peskov, the Press Secretary of Putin, called the accusations on Russia’s involvement in hacking a “witch hunt” and said that Obama’s administration is “behaving like an elephant in china shop”; while Maria Zakharova, a Director of the Press Department of the Ministry of Foreign Affairs, called Obama’s team in Facebook “a group of foreign policy losers, anxious and short-sighted”. At the same time, Russian Embassy in the UK called the Report a “pathetic attempt at tainting American’s vote by innuendo coached in Intel new-speak” (image 3) but also posted a bunch of memes in Twitter mocking the Report and Obama administration for its efforts to unleash the Cold War.

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Image 3: Twitter of the Russian Embassy in London, 7th January 2017

What is so telling about such an active engagement of Russian officials with Twitter and Facebook in such an ‘undiplomatic’ way? In 2015 Andrew Hoskins and Ben O’Loughlin have argued that Russia was one of the most successful countries to accommodate the chaotic dynamic of social media and user-led content that for some time upset policy-makers ability to influence and control information. In particular, they argued that Russia was successful in “arresting the mainstream media” through its engagement with Twitter, Facebook and VK by allowing only certain parts of the conflict, such as the one in Ukraine, to be visible and framed in a certain way. Russia’s open engagement with social media allows mediatization of conflicts and disagreements and is trying to be especially proactive in promoting its own definitions of how certain disagreements should be seen and which side should be blamed for their existence (well, definitely not Russian). The Twitter and Facebook comments of Russian officials on hacking claims has signified a change in the platform for diplomatic exchanges and showed how influential it might be for promoting a particular view especially when sarcasm, the competition of memes and social media logic of shareability are present.

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Image 4: Twitter of the Russian Embassy in London, 29th December 2016

All of these raise a question over the prospects of future Russia-U.S. relations. While during the last press-conference Barak Obama called Russia “a smaller and weaker country”, which nevertheless was able to meddle with the U.S. elections through hacking processes, new sanctions against Russian officials and diplomats summed up the last two years of Obama’s administration unsuccessful politics towards Russia. At the same time, Trump’s position over Russian involvement into the election process was ambiguous. While his Twitter praised Putin’s decision not to expel the U.S. diplomats in reciprocal measures by tweeting that he always knew that Putin was very smart, at the same time condemning findings of the hacking report, his positions somehow changed after few days when he actually agreed that the hacking took place, but due to the “gross negligence by the Democratic National Committee” that would never happen again when he becomes the president. Russian press such as independent Novaya Gazeta news outlet has suggested that such change in the rhetoric is occurring mainly due to the pressures Trump is experiencing from his own Republican party and other officials that take hacking report seriously and do not share his admiration for Putin. Overall, it is clear that unpredictability of the next American president and the pressures he will be experiencing in the White House might force him to completely change the rhetoric in a more anti-Putin and anti-Russian way that will definitely be followed by reciprocal tweets and Facebook posts from Russian officials in even more sarcastic manner.

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