Best of BS Opinion: China must find political will to rebalance economy

Today's opinion pieces offer a sharp mix of macro and culture: China's demand shortfall, Prada's Kolhapuri move, the rupee's policy trilemma, why RBI needs better data, and a candid chess memoir.

Hello, and welcome to the Best of BS Opinion, our daily wrap of the day's opinion page. 

Global economic thought is finally coming around to recognise a problem in the Chinese economy: domestic demand is just not high enough to replace exports as a driver. IMG Managing Director Kristalina Georgieva has said that the country needs to speed up rebalancing, and to increase private consumption, the tardiness of which is a cause of concern for the Politburo of the Communist Party of China. It recently pledged to “adhere to domestic demand as the main driver” and to “build a strong domestic market”. The Chinese government is now facing the consequences of delaying essential reform. Consumer confidence and demand have suffered because of the upheaval in the property market. Meanwhile, most of the private sector is shackled by excessive government oversight. It is time for Beijing to summon the political will to take the necessary steps for rebalancing. 

 

After an ignominious social media outcry, Prada has now announced a collaboration with Indian craftsmen to develop the eponymous Kolhapuri chappal, which the Italian luxury house will now retail for Euro 930 a pair. The tie-up can act as a useful template of collaboration between India’s creative but resource-poor handicraft sector and global brands that have the capital and marketing outreach, says our second editorial. Similar deals could galvanise a sector that has languished for lack of a viable business framework. Nonetheless, IP protection must form the core of such arrangements. A key problem is that GI law in India restricts the misuse of names and labels but does not prevent the copying of aesthetics or visual styles. This is a good time to work on a more expansive IP protection framework to prevent the appropriation of aesthetic and cultural values. 

 

A key principle in international economics is that of the 'impossible trinity' or 'trilemma', which is that a country cannot maintain a stable exchange rate, allow full capital mobility, and pursue an independent monetary policy, all at once. Since 2016, when the RBI Act was amended, the objective of monetary policy has been outlined as maintaining price stability, while considering the goal of economic growth. It also set up a monetary policy committee (MPC) tasked with setting the policy rate to achieve an inflation target within a given band. But the MPC has been silent on the external environment even as the rupee slides to its lowest levels. While the central bank maintains that it does not target any USD/INR level and only intervenes to manage volatility, in practice, it is a key player in absorbing large balance of payment surpluses and deficits, thereby influencing both prices and volatility. What India needs, writes Ananth Narayan, is an informed debate on determining under what conditions maintaining currency market stability is essential in the short run, as well as on objective conditions under which financial stability and currency market could influence the conduct of monetary policy. 

 

The Reserve Bank of India’s (RBI) rate cut earlier this month came after data showed GDP growth rate of 8.2 per cent. Typically, in such a scenario, central banks are expected to tighten monetary policy to control inflationary pressures and stop the economy from growing too quickly. Despite inflation at below one per cent, it begs the question: Why provide more stimulus to a booming economy? Rajeshwari Sengupta argues that the decision makes sense when seen through the lens of a primary dilemma: the need to guide the economy through a thick statistical fog. The RBI cannot even forecast core inflation, because it cannot properly judge the underlying strength of the economy. The inability to come up with accurate macroeconomic forecasts has already confused financial markets, which has potentially weakened policy credibility. Therefore, it is imperative to resolve the data issues. The National Statistical Office (NSO) will soon release a new GDP and consumer price index (CPI) series, which will hopefully mark a significant improvement. Until then, monetary policy will remain constrained by data uncertainty.

 

'Dark Squares: A cult leader, a child prodigy, and the chess revolution', the autobiography of former chess prodigy and the current Chief Chess Officer of Chess.com Danny Rensch is searing in its honesty, and also very funny in parts, writes Devangshu Datta. The book offers an insider’s perspective on how a game that’s been around for a millennia became a leading e-sport. As a result, it is authentic in its depiction of the evolution of the sport: with zero technical chess content, the book looks at the personalities and the ecosystem. Given the profanity that laces the book, it feels like Rensch was describing his life to a therapist in an act of catharsis. Which is not so surprising, given that Rensch, a former alcoholic, wrenched himself free from the  bizarre cult he grew up in - how he went from there to being Chief Chess Officer is the rest of the story.