The year 2021 should see a cementing of the many trends that had their genesis in 2020. Leadership change in the United States is perhaps the most awaited change, but is unlikely to bring about a major power shift in the international arena. Even before the changeover, and despite the promise of a Biden presidency to invigorate the U.S.-Europe axis, Europe has turned its back on the U.S. and revived its China links, by ‘concluding in principle the negotiations for an EU-China Comprehensive Agreement on Investment’. In one swift move, Europe has thus shattered all hope that China would remain ostracised in 2021.
Many countries will now find themselves scrambling for cover. India which has greatly curtailed its relations with China since April 2020, (in the wake of Chinese aggression in Eastern Ladakh) will find itself ‘out on a limb’, with many countries likely to seek closer economic relations with China now.
A stronger China
The year 2021, hence, begins on a triumphal note for China and China’s Supreme Leader, Xi Jinping. China is about the only major country which had a positive rate of growth at the end of 2020, and its economy is poised to grow even faster in 2021. Militarily, China has further strengthened itself, and now seeks to dominate the Indo-Pacific Ocean with its announcement of the launch of its third aircraft carrier in 2021. Simultaneously, it is seeking to strengthen its military coordination with Russia. Consequent on all this, and notwithstanding Chinese intransigence in several matters including its heavy-handed actions in Hong Kong and Uighur, China’s position across Asia is, if anything, stronger than in 2020. News emanating from China is that President Xi will further cement his position, both as Party leader and as President during 2021, despite internecine tensions within the Communist Party of China. China is, hence, unlikely to concede any ground to its opponents across the world in 2021, a fact that India will need to reckon with. It cannot expect any Chinese concessions in Eastern Ladakh, until India ‘makes amends’.
Economy first for Europe
The new year will be dominated by strong authoritarian leaders like Xi Jinping in China, Vladimir Putin in Russia, and Recep Tayyip Erdoğan in Turkey. International politics may not be very different from that in 2020, but any hope that the Compact of Democracy would emerge stronger will need to be eschewed. Europe, minus Britain following Brexit, and the retirement of Germany’s Angela Merkel, could become even less relevant in world affairs. The China-EU Investment Treaty which saw Europe capitulating to China’s brandishments is an indication that Europe values its economy more than its politics.
Major changes are afoot in Eurasia and West Asia which could lead to significant shifts. Russia is beginning to display greater interest in the affairs of countries on its periphery and, together with strengthening ties with China and reaching an entente with Turkey, this seems to signal reduced interest in countries such as India. In West Asia, the Abraham Accords, leading to a realignment of forces in the Arab world, have sharpened the division between the Saudi Bloc and Iran-Turkey. Despite the hype surrounding the Abraham Accords, the situation, however, remains fluid and has not reduced the risk of a confrontation between Iran and Israel. This does pose problems for India, since both have relations with it. Meanwhile, China demonstrates a willingness to play a much larger role in the region, including contemplating a 25-year strategic cooperation agreement with Iran.
Saudi Arabia could find the going difficult in 2021, with a Biden Administration taking charge in Washington. The healing of wounds among the Sunni Arab states in the region should be viewed as a pyrrhic victory at best for Saudi Arabia. One by-product of this could be a sharpening of hostilities between the Sunni and Shia camps. Given the strategic flux in the region, Iran could well be tempted to use its nuclear capability to enhance its position, confident that the West may be unwilling to challenge it at this juncture.
At the start of 2021, India seems the odd man missing as far as these developments are concerned. No breakthrough in Sino-Indian relations has, or is likely to occur, and the confrontation between Indian and Chinese armed forces is expected to continue. India currently plays no significant role in West Asia. India-Iran relations today lack warmth. In Afghanistan, India has been marginalised as far as the peace process is concerned. While India’s charges against Pakistan of sponsoring terror have had some impact globally, it has further aggravated tensions between the two neighbours, and in the process, also helped Pakistan to cement its relations with China. While hostility between India and Nepal appears to have reduced lately, relations continue to be strained. Through a series of diplomatic visits, India has made valiant efforts to improve relations with some of its neighbours such as Bangladesh, Myanmar and Sri Lanka, but as of now worthwhile results are not evident. One key takeaway is that as India-China relations deteriorate, India’s neighbours are not averse to taking sides, increasing India’s isolation.
Whether India’s perceived marginalisation from global mainstream events as we enter 2021 signifies a sharp drop-off in its foreign policy capabilities is, no doubt, debatable. India’s foreign policy objectives are to widen its sphere of influence, enhance its role across nations, and make its presence felt as an emerging power in an increasingly disruptive global system. It is a moot point though whether any of these objectives has been achieved. Today, India’s voice and counsel are seldom sought, or listened to. This is a far cry from what used to happen previously. India will serve as the president of the powerful UN Security Council for the month of August, 2021, but if it is to make a real impact, it must be seen to possess substantial weight to shape policies, more so in its traditional areas of influence.
Diplomacy and perceptions
Many explanations could be available for this state of affairs. Admittedly, our diplomats conduct their activities with a high degree of competence, but they are possibly hampered by other factors. One, could be the kind of policy choices the country has adopted in the recent period, which have possibly altered the perception of India in certain quarters. There is again a perception that India’s closeness to the U.S. has resulted in the weakening of its links with traditional friends such as Russia and Iran, impacting the country’s image. Perhaps the most relevant explanation could be the shifting balance of power in the region in which India is situated, notably the rise of China, and the enlarging conflict between the two biggest powers in Asia, compelling many nations to pick sides in the conflict.
A less obvious, but perhaps more relevant aspect, could also be that India’s foreign policy suffers from an ideational vacuum. It is not the sharp decline in the economy, problems caused on account of the pandemic, or the growing polarisation in values across nations and societies, but more possibly India’s inability or failure in the ideational realm that lies at the root of our foreign policy inadequacies.
More misses than hits
Currently, India remains isolated from two important supranational bodies of which it used to be a founding member,viz., the Non-Aligned Movement (NAM) and the South Asian Association for Regional Cooperation (SAARC). Efforts to whip up enthusiasm for newer institutions such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), have hardly been successful. India has opted out of the Regional Comprehensive Economic Partnership (RCEP) (a majority of Asian countries are members), and failed to take advantage of the RIC, or the Russia, India and China grouping, even as relations with Russia and China have deteriorated. On the other hand, India’s foreign policy imperatives, across Asia and South Asia in particular, today seem to be a mixture of misplaced confidence, sometimes verging on hubris (as in the case of Nepal), a lack of understanding of the sensitivities of neighbours such as Bangladesh and long-time friends (such as Vietnam and Iran), and according excessive importance to the policy needs and pressures of nations such as the U.S. There is possibly a misplaced perception in much of Asia that the India of today is not unwilling to sacrifice its strategic autonomy under U.S. pressure.
As part of the ideational restructuring of India’s foreign policy, what is urgently required, apart from competent statecraft, is the adoption of prudent policies, pursuit of realistically achievable objectives, and, above all, a demonstration of continuity of policy, irrespective of changes in the nature of the Administration. These may be time consuming, but are a surer recipe for success in attaining foreign policy objectives.
M.K. Narayanan is a former National Security Adviser and a former Governor of West Bengal
The mechanics of all elections are flawed. Each country has different rules regarding its voting systems, and each set of rules is necessarily a compromise. Some countries use ‘first past the post’ systems, while others use electoral colleges. Yet others use referendums where two choices are pitted against one another, such as the Brexit vote.
The influence of the minority
The mathematician Kenneth Arrow laid bare the flaws in elections. Arrow’s doctoral thesis, completed in the 1950s, identified that in any electoral system where three or more preferences exist, a curious paradox comes into play: proponents of the minority voice can dictate the broader choice. His finding is now called Arrow’s Paradox.
This can be illustrated with an example. Let’s say a population participates in an election in which candidate ‘A’ says let’s go to war and candidate ‘B’ says let’s not go to war. While there are only two choices (war or peace), the voting populace may be distributed along three lines: the first category comprising the hawks who are in a minority but want war; while the other two categories, the majority of the voters, comprising those who don’t want war. The majority is more or less evenly split into the doves who prefer not to go to war ever and the realists who don’t want to go to war unless it’s absolutely necessary.
In an election where only two choices can be made, the hawk minority, which wants war, can dictate the outcome by convincing the realists (who believe in not going to war unless absolutely necessary) that war is actually needed at this moment. Note that this isn’t the minority swing vote which causes a ‘tipping point’ in an election; it is a systematic way for a minority to go about setting a voting agenda such that it carries the day.
The Internet, and especially social media, help this minority instigate a large part of the populace. This is a more recent development that boosts Arrow’s Paradox to levels hitherto unheard of. The recent U.S. presidential election and its aftermath is an example.
In today’s digital world, humans are constantly bombarded with messaging of all kinds, and our attention spans have dwindled. We make up our minds in ever smaller bits of time — often within the first few seconds of viewing an Internet-based message or video. Most readers would have experienced this phenomenon.
Research has been dedicated to this phenomenon and books have been written about it. Adam Alter, the author ofIrresistible – The Rise of Addictive Technology and The Business of Keeping Us Hooked,said in an interview to the U.S.’s National Public Radio: “Ten years ago, before the iPad and iPhone were mainstream, the average person had an attention span of about 12 seconds.” Now, he says, “research suggests that there has been a drop from 12 to 8 seconds — shorter than the attention span of the average goldfish, which is 9 seconds.”
As recent events around the U.S. election have proved, newly online populaces do not have the ability to discriminate or adequately process what they see online. Ancient scripture advocates “shravanam, mananam, nidhidhyaasanam” (listen, continuously reflect on what you heard, and then deeply contemplate what you heard before arriving at the truth). But today’s combination of shortened attention spans, the relentless bombardment of messaging, and the indisputable mathematics of Arrow’s proofs make for an incendiary mix. This is true even in the most technologically advanced regions such as the State of California in the U.S.
Vote on Proposition 22
For instance, during a U.S. presidential election, other referendum choices are also on the ballot in each State. Given last year’s circus, many of these issues, some of them pivotal, got relegated to the back seat. One such issue was California’s referendum on Proposition 22, which was critically important to companies such as Uber and Lyft. These gig economy businesses that use ‘casual’ workers had threatened to leave the State if the measure was not voted in. These businesses wanted their drivers to be classified as contractors and not as employees.
California is a left-leaning State and voted overwhelmingly for Joe Biden. It is also the undisputed tech capital of the U.S. Yet, Proposition 22 made it through. The gig economy ride-hailing apps spent over $200 million to win. Those opposed to it could only muster about a tenth of that sum. Bigger money paid off. Over 58% of California’s voters opted to continue classifying drivers at these services as contractors, seemingly acting after mereshravanam, without the additional steps needed after that to get to the truth.
Employee classification would have given rise to a slew of labour rights that today’s gig workers do not enjoy as ‘independent contractors’. Workers will not have the same rights as other employees to paid sick days, overtime pay, unemployment insurance or a workplace covered by occupational safety and health laws. California’s Assembly had tried to head this off earlier with a law of its own called Assembly Bill 5, which would have guaranteed these rights.
California’s voters seem to have been won over by misleading campaigns run before the election to sway voters’ opinions in this otherwise left-leaning State. They were bombarded with emails, glossies, text messages and video spots. Gig companies put out messages that in the first few seconds promised that they would pay their contractors more than the minimum wage. This appears to have caught voters’ attention and led them to act without stopping to reflect on what was the real truth. The truth, at least according to the National Employment Law Project (NELP), was that someone driving an average of 35 km every hour in a 40-hour work week would make $287 less per week if Proposition 22 passed. The NELP says a “permanent underclass of workers” has now been created.
Gig businesses will take heart from the victory in California and hope to replicate this success across the U.S. (and beyond its shores). Emboldened by the result in California, Uber and the other companies will move similar legislation in other U.S. States and possibly other countries.
It is certain that there will be future attempts at influencing elections using both intense messaging which takes advantage of our shortened attention spans as well as the setting of agendas of electoral choice which Arrow first described.
We should learn from such issues in India. Enlightened legislation may be needed.
Siddharth Pai is founder of Siana Capital, a venture capital firm focused on Indian Deep Tech and Science
It is 45 days and counting since lakhs of farmers have gathered in Delhi protesting against the farm laws. Leaving aside the merits and demerits of the laws, many are aggrieved about the process of promulgation of the laws as it lacked any consultation with those that the laws are purportedly meant to serve.
Very often, policy makers ignore the need for dialogue and deliberation with beneficiaries. Consultations are needed during the initial stages of law making of a government programme as much as a continuous dialogic exercise must be the norm for effective programme implementation. Even when policies are anchored in good principles, their implementation is often messy and requires iterations based on people’s concerns. In particular, redistributive, people-facing welfare policies need constant feedback.
We illustrate this through an example of the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in Rajasthan. Rajasthan has a healthy tradition of consulting with worker groups and civil society organisations not only in the initial stage of policy formulation but also to take continuous feedback from the field and carry out periodic midway course corrections. In the case of MGNREGA, engagement with civil society organisations had been institutionalised in the MGNREGAsamvads; some of which were attended by the Chief Minister of Rajasthan.
MGNREGA wages are now directly credited from the central government to a worker’s bank account. While there is a case to be made for direct transfers, this system is not without its pitfalls. An overreliance on the technical architecture of MGNREGA has subverted workers’ rights. The troubles are compounded when things go wrong as workers run from pillar to post knocking on the doors of various government officials, banks, payment disbursement agencies, panchayat officials, etc.
Issue of payment rejections
One such vexing problem is that of payment rejections which are like bounced cheques. These occur when the government initiates the payment, but money does not get credited due to technical issues. There are numerous reasons for rejections and their resolutions require a thorough understanding of the complex payment architecture that not only involves various line departments and banks but also the National Payments Corporation of India (NPCI). Workers are bereft of their own money unless the core underlying problems are successfully addressed. For example, on occasions, the block level data entry operators make errors in entering the account or Aadhaar details of workers. At other times, banks consider accounts as ‘dormant’ when the accounts are not used for some time.
While these are somewhat tractable, a very common rejection reason called ‘Inactive Aadhaar’ is more complex to resolve. This happens when the linkage of the worker’s Aadhaar and their bank account is broken in the software maintained by the NPCI. Let alone workers, many government officials and bank officials are unaware of how to resolve these errors. Short-staffed and overcrowded banks mean that workers have to make multiple trips to banks only to be told rudely that their ‘payments have not come’. Field officials often resort to temporary and incorrect quick fixes which backfire leaving the workers in an abyss.
Notwithstanding the range of hostilities workers face in the process, the reasons for rejections are rarely provided, thereby adding more uncertainty to their precarity. From the perspective of the administration, it is difficult to look into each payment, understand the reasons for rejection and help the worker take action on an individual basis.
Guidelines after a workshop
To resolve payment rejections, the Department of Rural Development of the Government of Rajasthan has held numerous discussions. These resulted in a workshop involving worker groups and civil society organisations who interacted directly with the aggrieved workers, administrative officers from the village level to the State level, and bankers. As the dialogue evolved, detailed guidelines were issued with well-defined responsibility, clear timelines, and monitoring and protocols to be followed by officials. This has resulted in a significant reduction in payment rejections in Rajasthan. In a period of one year from the workshop, the Rajasthan government was able to clear Rs. 380 crore worth of payments to workers that were earlier stuck due to rejections. Currently, only 2.7% payments are pending regeneration from the State government, and 12.3% are under process by the banks; the goal is to ensure that every person who has worked, gets their full payment on time.
Open communication channels, an eagerness to work with worker groups and a keen ear to the ground have benefited thousands of MGNREGA workers in Rajasthan. The Right to Information (RTI) Act that had its origins in people’s movements in Rajasthan, mandated proactive disclosure of information. However, programme information on many occasions continues to be inaccessible and, when available, some are in ill-defined formats. This provision got a major boost in Rajasthan as the Rajasthan government launched the Jan Soochna Portal, or JSP (https://bit.ly/2LmKLmv), in 2019. The JSP is a single platform in the public domain providing information across 60 departments of over 104 schemes. The design and formats of each scheme have been painstakingly arrived at through a ‘digital dialogue’ involving government officials and numerous civil society organisations.
The American civil rights activist Jesse Jackson said, ‘Deliberation and debate is the way you stir the soul of our democracy.’ Federalism and good governance require constant constructive engagement between people and officials. If a government is committed to constitutional principles, then paying attention to multiple points of view and listening to the voices of the marginalised is a prerequisite. While there is still a long way to go, the ongoing consultative experiences in Rajasthan do offer hope.
Sakina Dhorajiwala is a Researcher with LibTech India. Purna Chandra Kishan is Secretary, Rural Development and Commissioner MGNREGA, Rajasthan. Inputs by Rajendran who teaches in Azim Premji University, Bengaluru and is associated with LibTech India
Is the electoral promise of paying women for carrying out domestic work and care work a progressive public policy? The proposal, put forth by Kamal Haasan’s political party, Makkal Needhi Maiam, has generated curiosity and reopened the old but unsettled academic debate. On the face of it, the proposal might appear progressive. However, closer scrutiny suggests otherwise.
Disproportionate burden of work
Women bear a disproportionately high burden of unpaid domestic work and care work in India. It would be instructive here to examine how Tamil Nadu, where the electoral promise is being made, fares vis-à-vis India. The all-India Time Use Survey (2019) says that 82% of females (six years and above) as against 24% of males from Tamil Nadu participate in unpaid domestic work. The huge disparity persists even if we look at the age group of 15-59 years: 90% of females and 24% of males participate in domestic work. A similar disparity prevails at the all-India level as well: 81% of females (six years and above) and 26% of males participate in unpaid domestic work. There is an equally huge disparity in the average time spent by participating males and females. While females (six years and above) in Tamil Nadu spend, on average, 261 minutes a day in unpaid domestic work, males spend only 91 minutes. The corresponding figures for females and males in India are 299 minutes and 97 minutes, respectively. The data suggest that females bear more than 83% of the burden of domestic and care work both in Tamil Nadu and India.
Can the proposed policy address the huge burden that women are forced to endure daily? Posed differently, what should a progressive policy proposal aim at: paying women a wage for domestic and care work or addressing the huge gender disparity? The insights offered by the feminist economist Diane Elson (2017) are pertinent. The gist of her argument is this: public policy should aim at closing the huge gender gap in unpaid domestic and care work through ‘recognition, reduction and redistribution’ (Triple-R).
The party’s proposal only satisfies the first component of Triple-R, that is ‘recognition’. Paying a wage is a formal recognition of the fact that unpaid domestic and care work are no less important than paid market work, as the latter is parasitic on the former. Since it is women who predominantly carry out unpaid domestic and care activities, often at the expense of their employment prospects and health, the monetary reward is a recognition of their contribution to the well-being of the household and the opportunities forgone by women. The proposal appears progressive, for this reason and to that measure.
Failing two aspects
If the broader aim of a progressive public policy is to close the gender gap in unpaid domestic and care work, how does the proposal measure up? Specifically, will paying women a wage for domestic and care work reduce their disproportionately huge daily burden? The proposal not only fails miserably in this aspect, but also has the potential to increase women’s burden. This is because paying monetary benefits carries with it the possible danger of formally endorsing the social norm that domestic and care work are ‘women’s work’, for which they are being paid. The purportedly progressive proposal thus has the risk of furthering the gender disparity in unpaid work within homes.
What’s more, it also fails in the other crucial aspect of ‘redistribution’ of the burden of unpaid work. In fact, it might give space for men to claim that women are bound to do these unpaid activities as they are being compensated for the time spent or income foregone, and that women can at best expect men only to help but not participate daily in carrying out these activities.
The fact that only 24% of men from Tamil Nadu participate in and spend less time than women on unpaid domestic work calls for a policy proposal that increases men’s participation and the time they spend in unpaid work at home. Instead of incentivising men to participate more in household work and reducing women’s burden by redistributing the responsibility, the current proposal might do the opposite.
Incentivising men, monetarily or otherwise, to participate more and spend longer hours in carrying out unpaid domestic work is one thing, but paying women a wage for shouldering the primary responsibility is another. At best, the latter might help meet what the academic Caroline Moser referred to as ‘practical’ gender needs. But it cannot possibly address the ‘strategic’ gender needs of reducing and redistributing women’s burden. The electoral promise, therefore, lacks the transformative potential of achieving gender equality in sharing unpaid work.
Sunny Jose is RBI Chair Professor at the Council for Social Development, Southern Regional Centre, Hyderabad. Views are personal
The Union Education Ministry’s directive to the States to launch a mission to avoid large-scale dropouts in schools in the coming year, partly by relaxing the detention policy, should end the anxiety of millions of students about their academic prospects. Managing schooling during COVID-19 has been a challenge, with UNESCO estimating that at the end of 2020, about 320 million students were locked out of schools globally. South and West Asia are among the regions where students are at highest risk of not returning to schools and tertiary institutions, along with sub-Saharan Africa. Assessing the problem is key to planning for 2021. The Indian school education system remains top-down in making policy, which may not advance educational reform, but the vast administrative resources can be used to quickly assess the pandemic’s impact on students, teachers and schools. The pandemic year has thus far witnessed apprehensive governments keeping the majority of school instruction online, and treading carefully when it comes to reopening campuses. They must prioritise the door-to-door surveys needed to identify students who are not in a position to return to classes when schools reopen, and whose economic circumstances have changed due to the pandemic’s impact on their families. Clearly, the priority should be to draw up a database, to plan incentives that will prevent dropouts. Education continues to be covered by a cess on tax, and the funds could be deployed in 2021 towards this objective, through the Centre’s Samagra Shiksha scheme and other COVID-19 relief plans.
The irrevocable role played by examinations in determining the fate of students, who come from varied backgrounds and preparation, has long been criticised for its rigidity, and these arguments were raised afresh when the Centre removed the no-detention policy under the RTE Act a couple of years ago. In the year of the virus, asymmetries among groups of students stand aggravated, and any detention would be illogical and unjustified. Particular mention should be made of the situation for girls, whose enrolment in higher numbers has been achieved over the years with considerable effort, as well as children in less-urbanised States where access to schools is weak. When the pandemic had still not swept India in February last year, Education Minister Ramesh Pokhriyal said, among the reasons for children remaining out-of-school or dropping out were poverty, economic reasons, and ill-health. The economic factors have, over the past dozen months, been exacerbated by COVID-19, while the digital divide witnessed in online education became an unprecedented cause of deprivation. Moreover, vaccination cannot cover the bulk of the population quickly, and education can possibly achieve a semblance of normality only well into the next academic year. This is the time to create a safety net for education, letting no student fall through.
The Gulf reconciliation summit, in Al-Ula, Saudi Arabia, where the kingdom and its allies decided to end their blockade of Qatar, has brought to an end, for now, their long feud. In 2017, Saudi Arabia, under the leadership of Crown Prince Mohammed bin Salman (MBS), the UAE, Bahrain and Egypt imposed the blockade and severed diplomatic ties, accusing the tiny Gulf country of supporting terrorism. They also issued 13 demands for it to be lifted, which included shutting down the Qatar-funded TV network, Al Jazeera, closing a Turkish military base and reducing diplomatic relations with Iran. Qatar did not budge despite the heavy economic cost. When the Saudi and Emirati airspaces were closed, Iran offered Qatar global connectivity. Al Jazeera is still live. And, Qatar has invited more Turkish troops, bolstering its ties with Ankara, which is eager to play a bigger role in West Asia. Moreover, it played an important role in the U.S.-Taliban deal and continued to host talks between Taliban representatives and the Afghan government. If the original Saudi plan was to isolate Qatar and make it kneel, it has backfired. And in the last weeks of the Trump administration, MBS and his allies seem to have realised their strategic folly.
Qatar has made few concessions to reach the reconciliation. The 13 specific demands were replaced by a broad agreement on non-intervention in other countries’ internal affairs and cooperating to ensure regional stability and security, which can be open to different interpretations for different sides. After the summit, Qatar’s Foreign Ministry has said that the country had no intention of altering ties with Iran and Turkey. In practice, the Saudi side stepped down from its demands and made amends with an unshaken Qatar as a new President is going to assume power in the U.S. The Saudi U-turn could be the result of a genuine tactical rethink. The rift in the Gulf helped Iran and Turkey, Riyadh’s main rivals, while it failed to scuttle Qatar’s standing. Iran, reeling under U.S. sanctions, also got some financial relief from Qatari payouts for using its airspace. By lifting the air and sea blockades, the Saudis and the Emiratis could deny Iran of those funds and also try to put up a united Arab regional front as Joe Biden is preparing to renegotiate the Iran nuclear deal. The Saudis may also be hoping that bridging the Gulf between two American allies would help them warm up to the Biden administration. While ending the feud is welcome, it cannot be overlooked that this unnecessary crisis was born out of an ill-thought-out Saudi-Emirati strategy of coercion. It reflects poorly on them. They should learn from the mistakes and build ties based on mutual interests and cooperation, not on threats and coercion.
The devaluation of the Cuban peso (CUP) and the withdrawal of the convertible peso (CUC), the second currency of the country, neither of which can be traded internationally, caps Cuba’s gradual economic transition since the end of the Soviet Union.
The reforms that came into force on January 1 aim to eliminate price distortions arising from multiple exchange rates and reduce Cuba’s dependence on imports of basic commodities. These conditions have been exacerbated by the fallout from the COVID-19 pandemic, decline in the export of the nation’s famed medical services, the depletion of foreign exchange revenues from tourism, and the crippling impact of U.S. economic sanctions.
As per the latest devaluation plan announced in December by President Miguel Diaz-Canel, the CUP’s artificial one-to-one parity with the U.S. dollar has been removed. The currency will instead trade at 24 pesos to the greenback and the CUC will be phased out in six months. The CUP is in circulation in the domestic economy and serves as the principal medium by which goods are priced and wages paid.
A dual domestic currency
During the turmoil in Cuba’s sugar industry and a plunge in nickel prices in the 1990s, a volatile CUP had fallen to 140 to the dollar. Against this backdrop, the CUC was introduced in 1994 as a unit of account and store of value, to prevent the country’s excessive reliance on the U.S. dollar following the end of the former Soviet Union. In recent years, this second currency has more or less steadied at one CUC to 24 CUPs in official exchange outlets and is the predominant mode of transaction for tourists and residents at high-end shopping outlets and other imported goods.
Apart from the disparities attributed to the prevalence of a dual domestic currency, Havana has at times had to deftly deploy the surge in dollar remittances and tourism to bolster the peso, by legalising the greenback in the 1990s. It has also had to respond in kind to American sanctions at other instances, as when the government in 2004 imposed a 10% tax on the exchange of the dollar for CUCs. Last July, Havana scrapped the 10% surcharge in a sequel to the 2019 opening of stores trading principally in dollars. The recent shift is part of the government’s bid to boost dollar transactions alongside other hard currencies, especially after tourism was closed in the wake of the pandemic. There is concern that the circulation of hard money could reinforce the segmentation and distortions of the past that resulted from access to the CUC for public sector companies at preferential exchange rates.
An important objective
The country’s switch back to a single currency was an important objective in the economic transformation plan envisioned in the 2011 Congress of the Communist Party of Cuba under former President Raul Castro. Among the expected gains from a unified peso are transparency of firms in terms of costs and profits, higher economic productivity and incentives for exports. Experts have opined that a corresponding devaluation of the peso was a necessary first step to discontinue the dual currency.
The government of President Diaz-Canel has sought to cushion the likely impact of high inflation resulting from the devaluation with a generous wage and pension hike for state employees, besides a roll-back of subsidies to state-owned firms. There are concerns, however, that it could still leave a sizeable private and informal sector labour force exposed. In addition, there is the real risk that the adverse effects from high prices could further incense protesters who have been demanding protection for civil liberties and artistic freedom following the detention of a well-known rap singer.
Predictably, the government has been quick to dismiss the voicing of dissent as U.S. interference in Cuba’s internal affairs. Havana must take citizens along in order to implement the new reforms.
Garimella Subramaniam is Director - Strategic Initiatives, AgnoShin Tecchnologies Pvt Ltd
Disregarding protocol, the Canadian Prime Minister, Mr Pierre Trudeau, to-day [January 11] garlanded Mrs. Indira Gandhi at New Delhi airport. Mr. Trudeau was carrying a garland in his hand as he emerged from the special aircraft which brought him to the capital. On stepping down, he put it around Mrs. Gandhi’s neck – even before he was formally welcomed. An embarrassed Mrs. Gandhi shook hands with Mr. Trudeau. Protocol then took its course, with the Delhi Mayor, Mr. Hansraj Gupta, garlanding the bachelor Prime Minister. With disarming informality, he also embraced an Indian diplomat, who was a fellow-student with him at the London School of Economics. As he was being introduced to the officials, Mr. Trudeau spotted Mr. K.R. Narayanan, Joint Secretary, Ministry of External Affairs, who had recently joined the Jawaharlal Nehru University for research on Nehru and non-alignment. Welcoming Mr. Trudeau, Mrs. Indira Gandhi told him that his visit had brought Canada closer to India. She said the task that confronted India was incomparable with that of any other country because of its vast population. Mr. Trudeau, in his reply, said his visit was indicative of the “lasting interest and friendship that unite our people.”