India’s new West Asia approach is a welcome break with past diffidence

The first summit this week of I2U2, which brings together India, Israel, the United Arab Emirates and the United States – is exploratory in nature.

I2U2 forum

Following the Abraham Accords between Israel and the UAE, I2U2 was founded in October 2021 to address marine security, infrastructure, and transportation challenges in the region.

It was known as the ‘International Forum for Economic Cooperation’at the time. At that time, UAE had referred to the new grouping as the ‘West Asian Quad’.

I2U2 seeks to empower the partners and encourages them to collaborate more closely, resulting in a more stable region.

India is seen as a large consumer market as well as a large producer of high-tech and highly sought-after items in the United States.

This has led India to enhance its relationship with Israel without jeopardising its ties with the UAE and other Arab states.

How I2U2 matters to India

India can contribute to peace and prosperity in the region: The initiative signifies the US bet that India can contribute significantly to peace and prosperity in the region.

West Asian engagement: It also underlines a new political will in Delhi to break the old taboos on India’s West Asian engagement.

Consolidation of  India’s Middle East Policy: The I2U2 marks the consolidation of a number of new trends in India’s Middle East policy that acquired greater momentum in the past few years.

What stands out sharply in India’s new thinking in the Middle East is that the summit involves three countries that Delhi had traditionally kept a safe political distance from.

India-Israel relations

Although India was one of the first countries to extend recognition to Israel in 1950, Jawaharlal Nehru held back from establishing full diplomatic relations with the Jewish state.

 PV Narasimha Rao reversed that policy in 1992 but he did not travel to Israel nor did he receive an Israeli prime minister.

Atal Bihari Vajpayee of the BJP, which had a more empathetic view of Israel, hosted Israeli PM Ariel Sharon in 2003.

While the relationship steadily expanded, there was ideological reluctance in Delhi to give the partnership a political profile.

In the past few years India imparted a political character to the Israel ties.

No backlash from the Arab countries: There was little negative reaction to the more open pursuit of India’s ties with Israel.

The problem was never with the Middle East but Delhi’s ideological preconceptions that distorted India’s view of the region.

Turkey, now a champion of political Islam, had diplomatic ties with Israel since 1949.

Egypt normalised ties in 1980.

Under the Abrahamic accords promoted by the Trump Administration, the UAE, Bahrain, Sudan and Morocco set up formal ties with Israel in 2020.

India’s relations with the Arab countries

India’s engagement with Israel was matched by effort to deepen India’s ties with the Arab world.

 During his first visit to Israel in 2018, Prime Minister Mode also became the first Indian PM to visit Palestine.

Even more important has been the transformation of India’s relations with the Gulf Kingdoms, especially the UAE and Saudi Arabia.

India’s traditional preference in the Arab world was for engaging the republics.

Engagement with monarchies: Delhi remained wary of engagement with the monarchies, telling itself that they were pro-Pakistan.

 No Indian PM visited Saudi Arabia between 1982 and 2010 and UAE between 1981 and 2015.

After 2015 India developed strong ties with these governments without a reference to Pakistan.

Despite Delhi’s ideological posturing, the Middle East had long ceased to be a political priority for India.

In contrast with the past, recently the prime minister has travelled four times to the UAE alone, negotiated a free trade agreement with it, and has ambitious plans for the transformation of bilateral relations.

The UAE has also backed India’s 2019 constitutional changes in Kashmir and is ready to invest in the union territory.

Change in India’s approach to the region

India-US ties: For political Delhi, the US and Western policies in the region were a main part of the problem.

The immediate focus of Nehru’s policy after independence was to actively oppose US moves in the region in the name of promoting an “area of peace”.

That policy had no lasting impact as many regional countries sought active economic, political, and security cooperation with the US and the West.

The I2U2 then marks a big break from the anti-Western tradition in India’s approach to the region.

Negotiating the terms of joint engagement: In the past, standing up to the West in the Middle East was part of India’s approach, India now is prepared to confidently negotiate the terms of a joint engagement.

Conclusion

India’s participation in the West Asian Quad brings Delhi in line with other major powers– including Europe, China, and Russia – to try and engage all parties in the region. The I2U2 sets the stage for a new and dynamic phase in India’s relations with the Middle East.

RBI sets up system to settle International Trade in Rupees

RBI has decided to put in place an additional arrangement of international trade for invoicing, payment, and settlement of exports / imports in INR.

Rupee Settlement System for International Trade

Banks acting as authorised dealers for such transactions would have to take prior approval from the regulator to facilitate this.

All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.

Exchange rate between the currencies of the two trading partner countries may be market determined.

Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.

These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).

Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

Why such move?

The rupee is at a historic low against the dollar.

The mechanism is meant to facilitate trade with countries under sanction.

Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.

As a result of the trade facilitation mechanism, we see easing of payment issues with Russia.

The move would also reduce the risk of forex fluctuation specially looking at the Euro-rupee parity.

We see this as a first step towards 100% convertibility of rupee.

It will also help stabilize rupee.

What does the change mean for exports?

Several countries including Sri Lanka and some in Africa and Latin America are facing forex shortage.

As such, the new mechanism will help India promote its exports.

It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.

Will the move help narrow trade deficit?

The gap between India’s exports and imports widened to record highs.

This puts pressure on the current account deficit, which some economists estimate would nearly double to more than 3% of GDP in FY23.

RBI’s decision may not benefit the external account immediately, but over the medium term, demand for dollars may come down.

This is partly because opening of new vostro accounts between banks may take some time.

United Nations’ World Population Prospects (WPP)

The 2022 edition of the United Nations’ World Population Prospects (WPP) was released.

Why in news?

India is projected to surpass China as the world’s most populous country in 2023.

What is the World Population Prospects?

The Population Division of the UN has been publishing the WPP in a biennial cycle since 1951.

Each revision of the WPP provides a historical time series of population indicators starting in 1950.

It does so by taking into account newly released national data to revise estimates of past trends in fertility, mortality or international migration.

Main takeaways for the global population

(1) Slow pace of growth

The world’s population continues to grow, but the pace of growth is slowing down.

The global population is expected to grow to around 8.5 billion in 2030, 9.7 billion in 2050 and 10.4 billion in 2100.

In 2020, the global growth rate fell under 1% per year for the first time since 1950.

(2) Region-wise differential

Rates of population growth vary significantly across countries and regions.

More than half of the projected increase in global population up to 2050 will be concentrated in just eight countries- Congo, Egypt, Ethiopia, India, Nigeria, Pakistan, the Philippines and Tanzania.

Disparate growth rates among the world’s largest countries will re-order their ranking by size.

(3) Ageing population

The population of older persons is increasing both in numbers and as a share of the total.

The share of the global population aged 65 years or above is projected to rise from 10% in 2022 to 16% in 2050.

The report suggests measures for ageing population by improving the sustainability of social security and pension systems and by establishing universal health care and long-term care systems.

(4) Decline in fertility rate

A sustained drop in fertility has led to an increased concentration of the population at working ages (between 25 and 64 years), creating an opportunity for accelerated economic growth per capita.

This shift in the age distribution provides a time-bound opportunity for accelerated economic growth known as the “demographic dividend”.

(5) International migration

This is having important impacts on population trends for some countries.

For high-income countries between 2000 and 2020, the contribution of international migration to population growth (net inflow of 80.5 million) exceeded the balance of births over deaths (66.2 million).

Over the next few decades, migration will be the sole driver of population growth in high-income countries.

In many of these countries, the outflows were due to temporary labour movements, such as for Pakistan (net flow of -16.5 million), India (-3.5 million), Bangladesh (-2.9 million), Nepal (-1.6 million) etc.

How reliable is the UN projection, and how do they compare with India’s Census?

In India, of course, the Registrar General comes out with a population projection based on the Census.

The last such projection was released in 2019 and it was based on Census 2011.

The Census projection is slightly lower than the UN projection.

Still UN projection is widely acknowledged across the world

What is the significance of India overtaking China?

That India would overtake China has been known for a while.

Moreover, in the past, when the world population was still at 5-billion or 6-billion levels, there was a concern about overcrowding.

Those concerns no longer exist because the global population is already 8 billion and several countries (including India) have achieved a replacement rate of fertility.

The concern now is not about the absolute numbers — India’s population is already 1.4 billion and may go up to 1.6 billion before declining.