RBI

Modi finds his nerves tested by US on Iran

(This is a reprint from NewsBred).

United States wants India to cut down its oil imports from Iran which stands as its third biggest supplier after Iraq and Saudi Arabia. President Donald Trump has followed his pre-election promise with withdrawal from the 2015 Joint Comprehensive Plan for Action (JCPOA) which had enabled China, Russia, France, Germany UK, European Union and the US itself to dilute the economic sanctions against Tehran. Now the sanctions are back in place with the deadline of November 6, 2018 and the world is in turmoil, no less India.

The Trump administration has chosen a new way to browbeat the countries which don’t fall in line. Last August, it introduced CAATSA (Countering America’s Adversaries Through Sanctions Act) to scare those away from trade relations with “hostile” countries such as Russia, North Korea and Iran. International banks and companies which defy the sanctions would bear the brunt. Less oil imports from Iran would hike up the prices and import bills, not just of India but of many around the world. It would hit both inflation and Indian rupee. Since US dominates the re-insurance and payment gateways, bypassing them is difficult.

India’s dilemma is apparent. Before 2005, it paid $12-14 billion annually to oil bills by Iran. But signing the 2005 Indo-US Nuclear Civil Deal, gave New Delhi’s leash in US hands. India voted against Iran in the IAEA General Conference in September the very year; dithered on the Iran-Pakistan-India Pipeline and sounded the death knell of Turkmenistan-Pakistan-India (TAPI) gas pipeline project. By 2014, India had reduced the Iranian oil imports to $4 billion annually.

The US treasury methodically shut down the banking options for India who then began paying Turkey by cash which then converted it to gold bars and sent it across to Tehran. India was in no position to pay oil bills in US dollars. India did try the balancing act: while Reserve Bank of India (RBI) ceased dealing with Tehran-based Asian Clearing Union in 2010, it came to an understanding with Iran to pay half of its bill in Indian rupees in 2012.

But once the JCPOA came into being, India-Iran trade relations grew back to 2012 days. India also decided to pay out $6.5 billion it owed to Iran, held up due to sanctions. Modi government renewed the stalled Chahbahar port project. Its’ ministers made a beeline to Tehran with promises of oil and infrastructural projects. Iran obliged on its part by granting Oil and Natural Gas Commission (ONGC) the gas fields of Farzad B for exploration. The air of optimism only grew better when Iranian president Hassan Rouhani visited New Delhi this February with his oil minister Bijan Zanganeh. India pledged it would double its oil imports from Iran in 2018-2019. Iran, on its part, promised to cut down the freight by $1 per barrel. India pledged to increase import by 500,000 barrels a day.

But now comes the fresh US imposition. Even though foreign minister Sushma Swaraj has reiterated India would only abide by the mandates sanctioned by the United Nations (UN), it’s easier said than done. India and US have a booming trade of $140 billion which could take a grave hit, as well as around $31 billion of bilateral trade surplus advantage India has. Chahbahar port project, which could save millions in trade and increase Afghanistan’s tilt towards India, stands to lose steam. Besides, it just would give a bigger fillip to China to snug closer to Iran, shutting the doors on India.

India would be encouraged by the stand of UK, France, Germany who have expressed “regret and concern over Trump’s disruptive action. The Modi government meanwhile has started to flex its own muscles: in reaction to US postponing the 2+2 dialogue, India has declined US’ offer to host Defence Minister Nirmala Sitharaman. India also seems steadfast in increasing its military deals with Russia which faces similar offensive sanctions from United States.

The one fall-out of all this, including trade barriers ratcheted up by both US and India, is Modi government swinging back appreciably into the China-Russia zone. India has this strategic advantage where countries are looking to wow India rather than the other way around. However, India-US relations for the moment are several notches down than they have ever been since Trump came to power.

Why Rs24,000 withdrawal limit must stay

It’s a fervent hope that the cap on Rs 24,000 withdrawal a week on individual bank account stays till mid-2017. If the limit is lifted, all those bank accounts bulging with submission of black money will be emptied in no time. The pre-demonetization black money will return albeit in the form of new 500 and 2000currency!!!

Sure, a time will come when the limit on withdrawal would have to go. After all, government can’t deny people their own money forever. It would be a disincentive against earning and spending more. In a way, it would encourage people to hoard cash which in turn would result in bad books of Reserve Bank of India (RBI) by way of “missing” currency.

However, as of now, this limit stipulation must stay. And that’s because the issue in question is the “existing” black money. Not the “future” black money. The priority is to cleanse the existing clogged drain. As for black money in future, new mechanisms could be put in place. For example, allowing the automatic deduction by banks on any withdrawn amount. We could be wiser for future. As of now, the existing stink must go.

We all are aware how opposition political parties, mainstream media and academia have raised heavens on the “pains of demonetization inflicted on the poor.” Images are manipulated, like-minded “experts” are invited on TV debate shows, Stories of people dying in queues have multiplied without any basis. Farmers’ plight, trucks off road, no fresh sowing are kind of news which have been planted without basis. The food prices have actually gone down, the trucks are doing just fine and no mandi is closed. These propagandist mouthpieces whose only interest is to hurt the nation so as to benefit themselves, haven’t bothered to inform as to why there are no riots and no violence, leave alone any mass disquiet in the country in the wake of demonetization. Or why despite the unpopular move BJP seems to be winning every civic election in sight.

Such forces desperately want the limit on Rs24,000 withdrawal to go. The idea is for the cash to be available for political parties to benefit and influence voters like they used to do in the past. The unearthed money of Mayawati and the “chit-funded”Mamata’s goons are just a tip of the iceberg. The rantings of Rahul Gandhi or the “fixed pari-war” of Yadavs are an offshoots of this existential dilemma. They claim to speak for the poor of the country when all they have done in their various tenures in offices is to keep them poor and deprived. All they rely on is people’s short memory. And the “minority fear” which a Hindu-majority Bharatiya Janata Party (BJP) apparently evokes.

The arguments in defence of cash limit withdrawal are weak. If only 24 lakhs tax-payers in the country show an income of Rs10 lakhs or more in a year, the average comes to less than Rs 1 lakh a month which the cash-withdrawal-limit of Rs24,000  a week fulfills adequately. That the statistics of only 24 lakh tax payers with income of over Rs 10 lakhs per year is a cruel joke is lost on all opponents of demonetization.

So the cash withdrawal limit of Rs 24,000 per week must stay. At least till the bulging accounts are thoroughly scrutinized by the investigating agencies. The war has just begun. Those entrenched vested interests bent upon weakening the fibre of this country won’t go away in a hurry. They are amidst us in the form of political parties, media and academia working as proxy for their masters. Find them, recognize them, and neutralize them. That’s the mantra for all those who want a Strong India.