Best of BS Opinion: How policy moves can trigger a cascading effect

Our editorials and columns look at the consequences of policy actions, and how they can have far-reaching impacts

Hello and welcome to the BS Views newsletter, our round-up of today’s editorial and columns.   

You must have played, or at least seen, a domino toppling game at some point. The cascading effect of one domino knocking over the next is a lot like economic and political moves, with consequences that reach far beyond the next domino. Let’s see how policy moves can sometimes set off similar effects.   

The Reserve Bank of India’s Monetary Policy Committee started its last meeting for this financial year today. Our lead editorial argues that given the fiscal deficit is within limits, it may be time for the RBI to consider an interest cut. However, this is fraught with uncertainty given the US’ threat of tariffs. That will have a cascading effect: US inflation could rise, forcing the Fed to keep interest rates high, which would, in turn, strengthen the dollar, making Indian imports more expensive and pushing up domestic inflation. In such a scenario, the central would do well to wait and watch, but simultaneously find ways to inject more liquidity into the system.   

Our second editorial parses US President Trump’s declaration of taking over Gaza and rebuilding it into something resembling Manhattan at best, a suburban strip mall at worst. The plan could have a ripple effect across West Asia, even the world, even as it contradicts the US’ own position on the two-state solution to the Israel-Palestine conflict. Not surprisingly, even US’ allies have decried Trump’s plan. Instead, the US should bring together a coalition of nations to rebuild Gaza and persuade Israelis to lift the blockade.   

Ajay Srivastava points that despite President Trump’s claims that India imposes high tariffs, the actual tariff burden on the top 100 products, which constitute 75 per cent of US imports, is less than 5 per cent. He also cautions that India should avoid any mini trade deal, which could further push it into a legal grey zone. While India is sensitive to US needs, we should also be ready to respond in equal measure if the US imposes overwhelming tariffs, he recommends.   

Our next columnist Ajay Chhibber looks in the rearview mirror and conjectures that perhaps an income-tax cut for individuals in 2019 – instead of the corporation tax that was reduced – might have had a better domino effect on consumption growth. As it is, corporates have failed to plough the tax savings back into capacity utilisation for sales. And to meet its aim of bringing the debt-to-GDP ratio down, the government must pursue aggressive divestment, and enact factor reforms, particularly labour and land acquisition, which can have a multiplier effect on the economy.   

Aditi Phadnis’ review of Mayank Gandhi and Shrey Shah’s ‘AAP & Down: An Insider Story of India’s Most Controversial Party’ comes at a most opportune time, when voting for the Delhi Assembly has just ended. The book (an updated second edition) is an insider’s view of the progress – some might say decline – of the Aam Aadmi Party, which was founded after the popular India Against Corruption (IAC) stumbled into incoherence about the way ahead. Gandhi, once Arvind Kejriwal’s confidant and party president for Maharashtra, succinctly captures how the party’s vaunted ideals fell like dominoes as it stumbled into the realm of politics-as-usual.