The HINDU Notes 23rd August 2019

FATF Asia-Pacific Group may blacklist Pakistan

The assessments, represented from Pakistan by State Bank of Pakistan Governor Baqir Reza, will conclude on August 23.

•After being greylisted at the Financial Action Task Force (FATF) plenary, Pakistan now faces being put on the “blacklist” of the FATF’s Asia affiliate, the Asia-Pacific Group (APG), that will conclude its meetings in Canberra, Australia, on Friday.

•While the two processes are separate, the APG blacklisting, or ‘Enhanced Expedited Follow Up’ status would definitely impair Pakistan’s chances at extricating itself from the FATF greylist that deals with countering terror-financing and money-laundering, at its Paris plenary later this year.

•Sources told The Hindu that the APG meeting, which began on August 18, completed a third evaluation (MER) of Pakistan’s actions over the past five years on building anti-money-laundering and countering financing of terrorism (AML/CFT) safeguards, and found them wholly inadequate.

•According to the APG’s final report, expected to be made public after the meeting ends, Pakistan failed in 32 of 40 ‘compliance’ parameters for its legal and financial systems, and failed 10 of 11 ‘effectiveness’ parameters for enforcing safeguards against terror-financing and money-laundering by UN-sanctioned entities and other non-government outfits.

•As a result, Pakistan is likely to be placed on the fourth and lowest rung of the APG’s Follow-Up (FU) listing, the Enhance Expedited Follow Up, the sources said. This would make the Pakistani government’s next steps, as it faces FATF reviews in September and October much more challenging.

•India is a member of both the APG and the FATF consultations and is represented by a team of officials from the Ministries of Finance, External Affairs and Home Affairs. However, the actions demanding Pakistan’s review have been pushed by the U.S., the U.K., Germany and France. Pakistan’s multi-ministerial team at the APG meeting is led by its State Bank Governor.

Against Hafiz Saeed

•Last week, Islamabad had submitted a 450-page compliance document that details all the changes the government has made to existing laws, and actions against terror groups in the past year and a half. Pakistan has claimed that it has charged Lashkar-e-Taiba/ Jamaat-ud Dawa (JuD) chief Hafiz Saeed with terror financing, and frozen all assets of the JuD and other UNSC banned outfits this year, as part of its ongoing efforts to crack down on terror.

•The compliance document will be reviewed against a 27-point action plan set out by the FATF, which could decide one of three options: to remove Pakistan from the greylist, to continue to keep it on the greylist, or to downgrade it further to its blacklist. Review meetings will be held in Bangkok on September 5, with a final decision at the Paris plenary session on October 18-23.

•If Pakistan stays on the greylist, or is blacklisted, it faces not only a financial downgrade and restrictions on its markets, but will have a tough time managing capital inflows from IMF and other agencies, as well as servicing debt that adds up to about 25% of the government’s revenues at present.

India-U.S. 2+2 meeting being held in California
Focus is on advancing cooperation

•Indian and U.S. officials have gathered in the Naval Postgraduate School at Monterey, California, for the 2+2 intersessional and the Maritime Security Dialogue.

•The U.S. will be led by Acting Assistant Secretary for South and Central Asia Alice Wells and Assistant Secretary of Defense for Indo-Pacific Affairs Randall Schriver. Gourangalal Das, Joint Secretary, Americas, and officials from the Indian Embassy in Washington will participate from the Indian side.

•“During the intersessional, the two sides will discuss ways to advance cooperation on critical diplomatic and security priorities, including our shared vision of a free and open Indo-Pacific region, and review preparations for the next 2+2 Ministerial Dialogue,” the State Department said through a statement issued on Wednesday.

•External Affairs Minister S. Jaishankar and U.S. Secretary of State Michael Pompeo are set to meet for the 2+2 Dialogue later in the autumn in the U.S.

•Since their first 2+2 Dialogue in September 2018, India and the U.S. have had intense engagement albeit with mixed results in the trade, strategic and defence aspects of their relationship. Since August 5, the U.S., including President Donald Trump, have engaged with the administration of both countries at the highest levels.

•During Friday’s Maritime Security Dialogue, the two countries will discuss maritime developments in the Indo-Pacific and the strengthening of bilateral maritime security cooperation.

•Five officials from the Ministry of Defence — the Joint Secretary (International Cooperation) and the Joint Secretary (Navy), the Assistant Chief of the Naval Staff (ACNS) Foreign Cooperation and Intelligence (FCI) and a one-star officer from Headquarters Integrated Defence Staff (IDS) as well as the Director International Cooperation (IC) — will attend the Security Dialogue.

Microplastics in drinking water not a health risk for now: WHO

In its first report into the effects of microplastics on human health, WHO looked into the specific impact of microplastics in tap and bottled water.

•The World Health Organization (WHO) on Thursday said the level of microplastics in drinking-water is not yet dangerous for humans but called for more research into potential future risk.

•In its first report into the effects of microplastics on human health, WHO looked into the specific impact of microplastics in tap and bottled water.

•“The headline messages to reassure drinking water consumers around the world, that based on this assessment, our assessment of the risk is that it’s low,” said Bruce Gordon, WHO coordinator of water and sanitation.

•WHO said that data on the presence of microplastics in drinking water is currently limited, with few reliable studies, making it difficult to analyse the results. The organisation has called on researchers to conduct a more in-depth evaluation into microplastics and the potential impact on human health. It has also urged a crackdown in plastic pollution to benefit the environment and reduce human exposure to microplastics.

•The report said that irrespective of human health risks caused by microplastics in drinking-water “measures should be taken by policymakers and the public to better manage plastics and reduce the use of plastics where possible”.

•WHO said that microplastics larger than 150 micrometres are not likely to be absorbed by the human body but said the chance of absorbing very small microplastic particles, including nano-sized plastics, could be higher, although it said data is limited.

•“We urgently need to know more about the health impact of microplastics because they are everywhere — including in our drinking water,” said Maria Neira, director of the Public Health Department at WHO, in a statement.

•“We also need to stop the rise in plastic pollution worldwide.”

•The report warns of other dangers ahead: if plastic emissions in the environment continue at the current rate, microplastics could present widespread risks for aquatic ecosystems in a century, which could in turn increase human exposure.

•Experts recommend wastewater treatment, which can remove more than 90% of microplastics in water by using treatments such as filtration.

•WHO said those measures would have a double advantage as it would also address the problem of faecally contaminated water by removing microbial pathogens and chemicals that can cause deadly diarrhoeal diseases.

Rupee hits eight-month low
‘Financial conditions tightening despite RBI easing rates’

•A combination of global and domestic factors pulled the rupee down 26 paise against the dollar though the currency was able to cut back some losses in the closing hours of trade.

•The rupee ended at an eight-month low of 71.81 a dollar after slipping close to 72-a-dollar mark during the day when it touched 71.98. However, it cut some losses towards the end of the trading session.

Yuan depreciates

•According to dealers, all emerging market currencies, including the rupee, came under pressure after the Chinese yuan depreciated suddenly, in addition to the strengthening of the dollar index.

•The weakness was accentuated by the pressure on domestic equities, with the benchmark indices falling 1.6%. Dismal growth in direct tax collection in the current fiscal, which further reflected the economic slowdown, also weighed on the rupee, dealers said.

•Direct tax collection growth was below 5% till mid-August, which makes achieving the 17% target difficult.

•Also, there are uncertainties about a fiscal stimulus which the market was anticipating as the Chief Economic Adviser sounded caution over such a step.

•“There is a need to ease financial conditions through fiscal stimulus and manage [rupee] weakness,” Bank of America Merrill Lynch said in a note to its clients.

•The note said despite RBI easing interest rates by 110 basis points (bps) in 2019, financial conditions had tightened and policymakers should take note, failing which such a scenario would undo the benefits of monetary easing.

‘Fiscal boost needed’

•“We believe the Indian economy warrants a significant fiscal stimulus at this stage, which does not result in higher borrowing costs. In other words, what India needs is a fiscal boost funded by offshore borrowings,” the note added.
? New norms: On regulations for foreign investors

SEBI’s liberalised norms for FPIs will make Indian markets attractive to foreign investors

•Foreign investors who have been fleeing the country since the Union budget presented early last month have something to cheer about finally. On Wednesday, the Securities and Exchange Board of India (SEBI), based on the recommendations of the H.R. Khan committee, eased several regulatory restrictions that are likely to make life easier for foreign portfolio investors (FPIs). Among a slew of measures, the financial markets regulator has simplified the registration process for FPIs by doing away with the broad-based eligibility criteria, which required a minimum of at least 20 investors in a foreign fund, and certain documentary requirements. FPIs can now also engage in the off-market sale of their shares with fewer restrictions. Further, SEBI has allowed entities registered at an international financial services centre to be automatically classified as FPIs. This might help foreign investors bypass some of the restrictions. Mutual funds with offshore funds too can invest in India as FPIs to avail certain tax benefits now. Central banks that are not members of the Bank of International Settlements are also allowed to register as FPIs and invest in the country under the new norms. Smart cities, along with other urban development agencies, will now be allowed to issue municipal bonds to raise funds for development. These measures to cut red tape will help lower the regulatory burden on investors, globalise India’s financial markets, and aid the growth of the broader economy by increasing access to growth capital.

•It is not immediately clear whether SEBI’s move on Wednesday was motivated by the recent flow of funds out of India’s capital markets. Capital in excess of ₹20,000 crore has left Indian shores in the last few weeks after Finance Minister Nirmala Sitharaman’s budget decision to increase taxes on FPIs. Policymakers were clearly under pressure to do something to allay the fears of foreign investors, so the timing of SEBI’s move is no surprise. But given the broader trend of capital flowing out of emerging markets across the world, it remains to be seen whether SEBI’s present move will yield immediate benefits. Even if it fails to do so, the move will still help Indian markets become more attractive to foreign investors in the long-run. While the steps taken by policymakers to make amends for their previous policy errors are obviously welcome, they should not deflect attention from the larger and persistent issue of overreach by the government against investors. In a world of globalised capital markets, where many nimble emerging markets compete to attract capital from the developed world, India cannot afford to be seen as flip-flopping on its commitments.

Internal affairs: On Assam NRC
With Bangladesh out of the picture, the government should clarify its post-NRC plans

•External Affairs Minister S. Jaishankar’s statement in Dhaka on Tuesday that the soon-to-be-published National Register of Citizens (NRC) in Assam is India’s internal matter lets Bangladesh off the hook as far as a possible return of those who don’t find their names in the NRC is concerned. The Supreme Court has repeatedly asked the Centre to ascertain from Bangladesh whether it would accept those persons, who might be declared foreigners, after the NRC exercise is completed in Assam. In fact, the Supreme Court has had occasion to say that the Centre had not engaged Bangladesh in a substantive dialogue on the issue. By stating that the NRC is India’s internal matter, the External Affairs Minister has conceded to Bangladesh a point that Dhaka has repeatedly made — that the 40 lakh-odd people who don’t figure in the draft NRC lists are not its citizens and it is not responsible for them. In fact, Bangladesh has never accepted that any of its citizens ever illegally entered Indian territory. Other than the cryptic remark about the NRC being an internal matter for India, The Daily Starnewspaper quoted the Bangladeshi Foreign Minister A.K. Abdul Momen as saying that Mr. Jaishankar had conveyed to him not to worry about the NRC issue. Bangladesh could well be satisfied with New Delhi’s position on the NRC, but Indians are none the wiser about what the Centre plans to do with the lakhs of people — Hindus and Muslims — who are likely to find themselves missing from the Register when it is finally published on August 31.

•The BJP has long promised that it will deport all illegally resident Bangladeshis from Assam and the rest of India, a view that it has articulated time and again over the years. But this position doesn’t tally with what Mr. Jaishankar told his Bangladeshi counterpart. The party has simultaneously promised that all non-Muslims, whose names don’t figure in the NRC, will be given citizenship rights by amending the law. Other than this, there is no clarity on what the government plans to do with the lakhs of people likely to be rendered stateless after the NRC exercise is completed. Though these persons would have access to foreigners’ tribunals and the courts of the country, the Centre and the Supreme Court should have had a plan in place about how they will deal with the impending humanitarian crisis in Assam. Many of the affected are abjectly poor people, with little or no understanding of how the NRC process works, and entered this country in the hope of a better future for themselves and their children. It is the duty of the Government of India and the Supreme Court to ensure that these individuals are treated with dignity. The government would also do well to treat all communities who don’t figure in the NRC in a non-discriminatory manner.

Taking a ‘Far East’ turn to deepen a friendship
During Modi’s visit to Vladivostok, India should signal more willingness to invest in a less-developed part of Russia

•Some 48 years ago, when the U.S. and British Navies tried to threaten Indian security during the India-Pakistan war in 1971, the Soviet Union dispatched nuclear-armed flotilla from its Pacific Fleet based at Vladivostok in support of India. Ever since then, the city of Vladivostok, located in Russia’s Far East, has had a special place in the hearts of Indians. When Prime Minister Narendra Modi visits the city as the guest of honour at Eastern Economic Forum (EEF) in September, he would be announcing India’s plans to invest in Russia’s Far East, thus, paying back the long-held Indian debt to Vladivostok.

•The Far East lies in the Asian part of Russia and is less developed than the country’s European areas. As part of his ‘Pivot to Asia’ strategy, President Vladimir Putin is inviting foreign countries to invest in this region. The country’s outreach to Asian nations has especially gained momentum after the 2014 Crimea crisis spoiled its relations with the West.

•At the same time, the idea of an ‘Indo-Pacific region’, which signals India’s willingness to work with the U.S. mainly to counter China’s assertive maritime rise, has also left Russia concerned. Moscow is apprehensive that the U.S. would exert pressure on India’s foreign policy choices and that it could lose a friendly country and one of the biggest buyers of Russian military hardware.

For a multipolar Indo-Pacific

•New Delhi, on its part, has maintained that Indo-Pacific is not targeted against any country and stands for inclusiveness and stability. Mr. Modi made this clear to Mr. Putin during their Sochi informal summit in 2018. Later, at the Shangri-La dialogue, he again emphasised that for India, Indo-Pacific is not a club of limited members and that New Delhi wants to have inclusive engagement with all the relevant stakeholders.

•This constant engagement has borne fruit and the two countries are now working for a multipolar Indo-Pacific. India has also been able to convince Russia that its engagement with the U.S. is not going to come against Russian interests.

•On its part, Russia also wants to make sure that China does not become a hegemon in the Eurasian region and is hence deepening cooperation with countries like India, Vietnam and Indonesia. Here, the Far East has the potential to become an anchor in deepening India-Russia cooperation; more so considering that New Delhi has expanded the scope of its ‘Act East policy’ to also include Moscow.

•At least 17 countries have already invested in the Far East which, with its investment-friendly approach and vast reserves of natural resources, has the potential to strengthen India-Russia economic partnership in areas like energy, tourism, agriculture, diamond mining and alternative energy.

•Mr. Modi’s visit to Vladivostok would not be an event in isolation as New Delhi and Moscow have been drawing up the plan to cooperate in the region in the last few years. A bilateral business dialogue was included in the business programme of EEF in 2017 and, in 2018, India was one of the 18 countries for which Russia simplified electronic visas to encourage tourism in the Far East. New Delhi will also provide an annual grant of $10,000 to fund the study of Indology at the Centre of Regional and International Studies at Far Eastern Federal University. Also, a Memorandum of Understanding has been signed between Amity University and Far Eastern Federal University to intensify cultural and academic exchanges in the areas of research and education.

•A lack of manpower is one of the main problems faced by the Far East and Indian professionals like doctors, engineers and teachers can help in the region’s development. Presence of Indian manpower will also help in balancing Russian concerns over Chinese migration into the region. Further, India, one of the largest importers of timber, can find ample resources in the region. Japan and South Korea have also been investing and New Delhi may explore areas of joint collaboration.

State-to-province ties

•Mr. Modi has also given due importance to ‘paradiplomacy’ where Indian States are being encouraged to develop relations with foreign countries. States like Uttar Pradesh, Gujarat, Maharashtra, Haryana and Goa would be collaborating with Russian Provinces to increase trade and investments. Earlier this month, Commerce and Industry Minister Piyush Goyal led a delegation to Vladivostok that included Chief Ministers of these States and representatives from about 140 companies. For India, there is immense potential for mid-sized and small businesses who should be assisted to overcome language and cultural barriers so that they successfully adopt local business practices. A meeting between the heads of the regions of Russia and various Chief Ministers from Indian States may soon take place and this should become a regular feature.

•The two countries are also looking at the feasibility of Chennai-Vladivostok sea route that would allow India access to Russia’s Far East in 24 days, compared to the 40 days taken by the current route via Suez Canal and Europe. This route would potentially add the required balance to peace and prosperity in South China Sea and could open new vistas for India, like the India-Russia-Vietnam trilateral cooperation.

•Great power rivalry is back in international politics, making it more unpredictable. In times when U.S. President Trump is interested in ‘deglobalisation’ and China is promoting ‘globalisation 2.0 with Chinese characteristics’, it makes sense for India and Russia to increase their areas of cooperation and trade in order to hedge against disruptive forces and make their ties sustainable.

Belt and roadblocks
Given mounting criticism of BRI, will China incorporate best practices in the project?

•China’s raging trade war with the U.S., mounting criticism of its Belt and Road Initiative (BRI), and growing schism in its Politburo on handling these issues has compelled the Chinese leadership to review the ininitiative. The BRI was conceived as a response to the vast overcapacity in infrastructure-related industries due to credit-fuelled growth in China in 2008 following the global economic recession, when its exports started dwindling. In 2009, former Deputy Director of China’s State Administration of Taxation, Xu Shanda, came up with a proposal called the Chinese Marshall Plan which suggested that China should utilise its vast foreign exchange reserves, expertise in building infrastructure, overcapacity in iron, cement, aluminium, glass, coal and shipbuilding industries and unemployed labour to meet the infrastructure demand in Southeast, Central Asia and Africa.

•Announced by Chinese President Xi Jinping in September 2013, the BRI consists of a belt of rail routes, highways, oil and gas pipelines and other infrastructure projects extending from Xian in Central China through Central Asia, Russia, West Asia and Europe. There is also a branch extending from Kashgar in Xinjiang to Gwadar in Balochistan via Pakistan occupied Kashmir (PoK). The ‘road’ segment comprises a network of ports and coastal infrastructure stretching from eastern China across Southeast Asia and South Asia, the Gulf, East Africa through the Mediterranean up to Rotterdam in Europe.

•According to China, more than 120 countries have signed and joined the BRI. China’s trade with these countries since 2013 has crossed more than $5 trillion and investment has totalled about $200 billion for 2,600 projects. In the first seven months of 2019, China’s trade with BRI countries was 6% higher than the growth of its global trade.


•However, BRI has not succeeded in the full utilisation of overcapacity in infrastructure industries. China has been forced to close many companies. About one-third of its projects are failing due to several anomalies. There is no open tendering, competitive bidding or practice of an independent pre-feasibility or environmental impact studies, as per global norms. Many projects suffer from lack of local inputs, protests on land procurement, pollution, performance delays, corruption, financial viability, unsustainable debt and low investment returns. The interest rates charged by China are high, upward of 3% on government loans and 17%-18% on commercial loans with sovereign guarantee of the local government. As many loans turn non-performing assets, China is becoming selective in giving new loans.

•Some BRI projects do not make economic sense. For example, the cost of transportation by the 12,000 km-long Yiwu-London rail line will be twice more expensive than shipping. Similarly, the cost of supplying crude oil and gas from Gwadar port to Tianjin in northeastern China via the 7,000 km-long pipeline proposed by China will be $10 per barrel costlier than ocean freight. Many countries such as the Maldives, Pakistan, Sri Lanka, Bangladesh and Malaysia have asked China to restructure or downsize the BRI projects. India has rightly decided not to participate in BRI over concerns relating to sovereignty (the China-Pakistan Economic Corridor passes through PoK), lack of transparency, openness, financial sustainability, high interest and the ‘tied’ nature of these loans.

The real challenge

•After a chorus of international criticism, the old swagger about BRI has faded. President Xi promised at the second Belt and Road forum in April that China would ‘finetune’ the BRI with open consultation, clean governance and green projects. The growth of BRI is down as China’s investment in these projects in the first quarter of 2019 grew only by 4% compared to 22% in 2018. The real challenge is whether best practices can be incorporated in BRI or it will remain only a ‘Chinese’ scheme given that state-owned enterprises play the lead implementing role.

‘Afghan, Pashtun fighters poised to enter J&K’
Over 100 trained militants positioned by Pakistan at LoC, warn defence sources citing intelligence inputs.

•Intelligence inputs have warned that Pakistan is recruiting Afghan and Pasthun fighters for infiltration into Kashmir and over 100 of them are positioned at various launchpads along the Line of Control (LoC).

•“There have also been specific intelligence inputs that Pakistan-based terror group Jaish-e-Mohammad (JeM) has deployed over a dozen Afghan and Pathan terrorists for Border Action Team (BAT) attempts, comprising of Afghan militants and highly trained Special Services Group (SSG) of the Pakistan Army and for infiltration across the LoC into Lipa valley in North Kashmir,” defence sources said. They added that Pakistan is desperately trying to keep the LoC active in an attempt to keep international focus on Kashmir in the aftermath of recent developments there.

•Intelligence inputs also warned of attempts by a group of terrorists to carry out major attacks in major cities across the country, defence sources added.

•On the situation in Kashmir, which continues to be under a security clampdown, officials said relaxing restrictions had to be calibrated to prevent violence.

•One official cautioned that violence will be calibrated and admitted that there will be some backlash in Jammu and Kashmir and other parts of the country and security forces have to prepared to meet the challenge. “Some of amount of backlash is expected. We need to be prepared for that,” he added.