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Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.

Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.

Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.

S&P Global Ratings on Monday projected India's economic growth at 7.3 per cent in the current fiscal with downside risks and said inflation is likely to remain above RBI's upper tolerance threshold of 6 per cent till the end of 2022.

In its Economic Outlook for Asia Pacific, S&P said India's growth next year will get support from domestic demand recovery after the coronavirus pandemic.

"We have retained our India growth outlook at 7.3 per cent for the fiscal year 2022-2023 and 6.5 per cent for the next fiscal year, although we see the risks tilted to the downside," it said.

Other agencies have cut India's GDP growth forecast amid higher inflation and rising policy interest rates. Earlier this month, Fitch Ratings slashed the growth estimate to 7 per cent for the current fiscal from 7.8 per cent pegged earlier. India Ratings & Research too had reduced its projections to 6.9 per cent from 7 per cent earlier.

Asian Development Bank has cut the projection to 7 per cent from 7.5 per cent earlier.

The Reserve Bank of India (RBI) expects the Indian economy to grow 7.2 per cent in the current fiscal (April-March). The growth last year (2021-22) was 8.7 per cent.

Indian economy expanded 13.5 per cent in the April-June quarter, sequentially higher than 4.10 per cent growth clocked in the January-March period.

On inflation, S&P Global Ratings pegged the average rate in the current fiscal at 6.8 per cent and projected it to fall to 5 per cent in the next fiscal beginning April 2023.

"India headline Consumer Price Inflation (CPI) is likely to remain outside the Reserve Bank of India's upper tolerance limit of 6 per cent until the end of 2022. That's amid substantial weather-induced wheat and rice price increases as well as sticky core inflation. And food inflation may rise again," it said.

Retail or consumer price inflation has remained above RBI's upper tolerance threshold of 6 per cent for the eighth month in a row and was at 7 per cent in August. Wholesale price inflation remained in double digits for the 17th straight month and was at 12.41 per cent in August.

According to S&P Global Ratings, elevated core inflation would drive up policy rates further in India, and projected policy interest rates to be 5.90 per cent by the end of this fiscal.

To tame stubbornly high inflation, the central bank has already hiked benchmark interest rates by 1.40 percentage points to 5.40 per cent. In its monetary policy review on September 30, RBI is expected to hike rates by another 50 basis points to a three-year high level of 5.90 per cent.

After over two decades, the party president’s office at the AICC will open its doors for ordinary workers” is how a Congress leader described the one possible change expected after the upcoming organisational elections to the President’s post.

Due to security reasons, the Congress President’s designated office at the All-India Congress Committee (AICC) headquarters at 24, Akbar Road in Delhi has virtually been closed ever since Sonia Gandhi took over the reins of the party from Sitaram Kesri in March 1998.

Rahul Gandhi followed suit in his tenure from December 2017 to May 2019, and later Sonia Gandhi continued with this practice after reassuming office in August 2019.

The Special Protection Group had suggested that the Gandhis —  Sonia Gandhi, Rahul Gandhi, and Priyanka Gandhi Vadra — should not officiate from the AICC headquarters.

As a result, Sonia Gandhi’s residence at 10 Janpath, adjoining the party headquarters, became the power centre during all these years, and later Rahul Gandhi’s official home at 12, Tughlak Lane was the go-to-place for Congress leaders.

While easy accessibility was cited as the spur behind the SPG’s proposal, the flipside of the move translated into a denial of access to common party workers, or at least that was the perception created.

With a non-Gandhi is set to become the Congress President now, the AICC could once again reclaim its glory days as a nerve centre of the grand old party, although 10 Janpath and 12 Tughlak Lane will continue to occupy the central place in the party.

While this might be the obvious change on the ground, the bigger challenge for the next Congress President would be to dispel the notion of being a rubber stamp of the Gandhi family.

Congress’ political rivals have already claimed that the incoming chief would be remote-controlled by the Gandhis.

The Gandhis have repeatedly assured of their neutrality in the contest, but reports suggesting that Rajasthan Chief Minister Ashok Gehlot has the blessings of Sonia Gandhi may cast a shadow on the results.

Many in the Congress believe that a ‘puppet’ President would not be able to establish control over the organisation, or bring about the much-needed changes in the party, and the status quo will persist.

The big question is whether the Gandhi family would continue to be the ‘high command’, or the new head would wield those powers.

Sonia Gandhi will undoubtedly continue to be the patron of the grand old party, with Rahul Gandhi as its driving force, and Priyanka Gandhi a key office bearer. Navigating these power centres to establish his writ on the party will be a tough challenge for the new party President.

It may be recalled that the buzz of the installation of KC Venugopal as the titular Congress President in August 2020 led to the emergence of the group of dissenters, known as G-23.

Some of the G-23 leaders, including Ghulam Nabi Azad and Kapil Sibal, have since quit the Congress.

Halting the growing attrition rate will be another tough task for the new chief given that a large number of leaders are feeling frustrated in the Congress following a series of electoral setbacks in states and nationally since 2014, and are easy pickings for other parties.

It would also be interesting to see if the new President reaches out to those who have left the Congress over the years, and tries to bring them back to the party fold.

Apart from dismantling all the walls that the managers or so-called strategists had erected between the leadership and workers from time to time, the other important tasks for the new President would be to accommodate some of the veterans and the side-lined leaders in the decision-making.

For the party’s revival, it is imperative for the leadership to communicate directly with the cadre, to make it fighting fit, and match the powerful machinery of the ruling Bharatiya Janata Party (BJP).

So far, the two names of Gehlot and Shashi Tharoor as candidates are doing the rounds, but a clearer picture of those who have decided to throw their hats in the ring will emerge on October 8, the last date of the withdrawal of nomination papers.

Among the two, Gehlot is a three-time Chief Minister, has a bigger stature, and a large following within the party. Although he is said to have agreed to relinquish the Chief Minister’s post if elected Congress President in accordance with the ‘one-man, one-post’ norm adopted as part of the Udaipur declaration, Gehlot is no pushover.

A wily politician, he is credited with being able to keep his flock together, and outwit his rivals within and outside the Congress.

While Gehlot’s loyalty towards the Gandhi family is unquestionable, the independent-minded politician is unlikely to acquiesce to be a rubber stamp President.

A glimpse of the master strategist's acumen was on display on September 25 night when his loyalists thwarted a meeting of the Congress Legislature Party (CLP) called to elect Sachin Pilot as his successor. As many as 90 legislators owing allegiance to Gehlot submitted their resignations to Speaker CP Joshi, plunging the party and the government in deep crisis. They want a Gehlot nominee and not Pilot to be the next Chief Minister, and that too after the election of the new Congress President on October 19.

However, first things first. While the debate on the fairness of the elections, the neutrality of the Gandhis and the effectiveness of the new President can rage on endlessly, all eyes will be on the first full-fledged contest in the Congress, nearly 22 years after Sonia Gandhi defeated Jitendra Prasada in 2000.

With its re-emergence to power in 2021, the Taliban has given out multiple statements on India, and Kashmir. It has reiterated that it wouldn’t target any country (including India); have no links with LeT or other militant organisations; wouldn’t interfere in the Kashmir issue; and would prefer India and Pakistan to resolve the Kashmir dispute peacefully. However, it also reasserted that it would raise its voice and stand in solidarity with fellow Muslims in Kashmir. While the Taliban’s contemporary rhetoric on Kashmir has remained the same, the ideological factors and interests shall determine its actual policy.

Terror Outfits, Ideology, and Interests

The Taliban share deep relations with al-Qaeda, and all its franchises, especially the Al-Qaeda Indian Subcontinent (AQIS). Some scholars even observe that it is difficult to differentiate the members of AQIS from that of the Taliban.

It is here that the Taliban’s policy will prove crucial for al-Qaeda. True, al-Qaeda’s existence in Afghanistan will not be as useful to the Taliban’s military might as it was during their fight against the West. From hosting bin Laden to sheltering al-Zawahiri in Kabul, the Taliban’s sympathy for al-Qaeda and its jihadist ideology has remained consistent. Interests-wise, al-Qaeda’s overt existence on Afghan soil may jeopardise the Taliban’s ambitions of seeking international legitimacy.

However, covert support to the organisation may enable the Taliban to stay connected with the rest of the jihadi world, and reap material and ideological benefits. This seems to be an easy alternative for the Taliban if it fails to gain international legitimacy. Given these ideological and organisational stakes, the Taliban will hesitate to completely prevent al-Qaeda from using Afghan soil for its activities (including against Kashmir).

The Taliban might also find fewer military advantages from sheltering the JeM. Ideologically, however, the Taliban’s sympathy is much deeper for fellow-Deobandi organisations. In the past, Deobandi organisations that targeted Kashmir, like Harkat-ul-Mujahideen, Harkat-ul-Jehadi Islam, and Harkat-ul-Ansar sought a safe haven and operational space in Afghanistan. The Taliban played a crucial role in the formation of Masood Azhar’s JeM too. Pakistan’s use of Deobandi organisations in Kashmir has only continued to incentivise the Taliban to shelter them on Afghan soil and leverage them to bargain with Pakistan.

LeT, however, enjoys limited operational capabilities, and presence in Afghanistan. It increased its presence in Afghanistan only in 2006 — supplementing the Taliban’s capability to fight the West. It facilitated, recruited, and sheltered members from the Taliban, al-Qaeda, and other Deobandi organisations, and has occasionally supplemented them with manpower. However, despite this limited co-operation, LeT is looked upon with scepticism by several Deobandi outfits. This is for two reasons: ideological contradictions between the LeT’s Ahl-i-Hadith ideology and Deobandism; and LeT’s closeness to the ISI and acting as its proxy on several occasions. Relatively, the Taliban, thus, has a less ideological interest in letting LeT operate from Afghan soil, but the LeT’s proximity to the ISI ensures some bargaining and leveraging power to the Taliban. That is why LeT also operates in Afghanistan, albeit in a limited fashion.

India-Pakistan Factor

On the other hand, the Taliban have tried to shun their over-reliance on Pakistan by engaging with India. The Taliban has invited India to further its military ties and investments, and guaranteed not to harbour any terrorist organisation that can target India. In this regard, India has offered food and humanitarian assistance to the Taliban, and has also re-opened its mission in Kabul — largely to avoid another 90s-like situation in Kashmir.

Overall, the Taliban is attempting to weaken ISI’s influence within the organisation, and this will likely moderate its extent of support to terror outfits targeting Kashmir. However, considering its interests and ideology, the Taliban will likely harbour both anti-Indian and anti-Pakistani outfits. This will help it seek concessions and leverages from both sides. Yet, how the Taliban will tilt in its balance on Kashmir will largely depend on how India and Pakistan can accommodate the Taliban’s interests, and vice-versa.

As the Taliban completes more than one year of governing Afghanistan, it is clear that the organisation of today is no different to that of the 90s. Restrictions on women are imposed, terrorist organisations have continued to seek safe haven, and targeted killings go on. In this context, it is crucial to revisit the Taliban’s promises and policy concerning Kashmir.

The Taliban’s contemporary rhetoric on Kashmir has stayed the same since they first came to power in the 90s. However, indifferent to the rhetoric, its actual policy has been defined by two factors: ideology, and interests. Both of these factors still favour the Taliban to shelter terror organisations that target Kashmir. But, there remains a possibility of change — based on the Taliban’s evolving relations with Pakistan, and India’s willingness to accommodate the Taliban.

Rhetoric And Beyond 

The Taliban’s Kashmir policy has largely remained the same since it initially came to power in 1996. Till 2001, the Taliban maintained the rhetoric of not interfering in India’s domestic matters and Kashmir, and promoting a good relationship with India. In reality, however, a large part of its policy was shaped by its ideology and interests.

India’s intervention to protect the rupee is running down currency reserves at a rate that’s poised to eclipse the drawdown during turmoil a decade ago.

While economists and the Reserve Bank of India aren’t ringing any alarm bells just yet, investors are watching closely given the rupee’s slump to an all-time low last month and the risk of a widening in the current account deficit.

Given a steady buildup in the reserves through to their peak last year, they remain at a much healthier level than during the previous period that covered part of the Eurozone crisis and the taper tantrum triggered by the Federal Reserve.

Also Read: RBI net-sold $19.05 billion in forex market in July to protect rupee

That crisis saw the rupee tumble almost 30% against the greenback between September 2011 and September 2013, making it one of the worst-performing emerging-markets currencies at the time. It’s dropped about 6.8% against the greenback in 2022, which is a much smaller loss than that of most of its peers.

Still, the central bank does need to be mindful that foreign exchange reserves have declined by $90 billion from their September 2021 peak of $641 billion -- a drop of 13.9%, according to RBI data. The drop in the two years a decade ago was 14.3%.

“Falling FX reserves, persistently-high commodity prices, limited exchange rate pass-through to inflation and elevated INR valuations will likely tilt the balance towards a less interventionist FX policy in coming months,” Madhavi Arora, lead economist at Emkay Global Financial Services Ltd., said in a note.

The drawdown has reduced the import cover these reserves provide to nine months, still above a standard benchmark of three months, but far below the 19 months at the beginning of 2021.

So far though, central bank governor Shaktikanta Das maintains that the level of reserves and the banking system are both healthy and well placed to handle any external shocks.

The RBI has said it expects the country’s current account deficit to stay within 3% of GDP, which it judges to be sustainable amid softening global fuel, food and fertilizer prices while portfolio flows and exports pick up.

A higher-than-anticipated rise in prices last month surprised analysts, much like the first-quarter GDP data had less than a fortnight ago. Headline retail inflation, 7 percent year-on-year in August, did not deviate as much from the consensus, 6.9 percent, as the 13.5 percent real GDP growth did, missing forecasts including the central bank’s, by 2.5-3 percentage points. Concerns about the growth deficit have also been compounded by July’s industrial output that rose a bare 2.4 percent year-on-year.

The latest data continue the doubt if the current inflation episode has concluded. This picked up compared to July’s 6.7 percent, while there are no convincing signs of a stabilising recovery. Which side of the equation will the central bank prioritise at its review meeting this month end is complicated by macro stability considerations. There are no easy choices.

The weaker-than-expected growth in the April-June quarter showed a sequential contraction of -1.4 percent in seasonally adjusted terms that, according to the OECD, was the second-worst amongst G20 nations (overall contraction of -0.4 percent) and lagged only China’s -2.6 percent.

Net exports pulled down the most; this drag could accentuate from a further slowing of the world economy ahead. Supply-side weaknesses showed up in sequential declines in manufacturing, construction, trade, hospitality, transport, and communication services’ segments. In fact, the shrinkage in the trade, hospitality, transport category is considerable over April-June 2019, whose level it trailed at 84.5 percent with construction rising 1.2 percent.

Progress in industrial output is also best compared to April-July 2019 due to distortions in Q1:FY21 and Q1:FY22. In this year’s first quarter, industrial production has risen 5 percent above Q1:FY20, slowing to 2.1 percent in July. The use-based production data is a good gauge of consumer demand strength. Here, signs are disappointing: Consumer durables’ output contracted -7.9 percent over April-June 2019, or at 92.1 percent of its level then; non-durables’ output, which proxies lower-end consumption demand more closely, still lagged at 98.8 percent of its size in the quarter three years ago; while capital goods contracted -4.4 percent. No visible improvements were seen in July 2022 over 2019 — durables contracted -6.8 percent, non-durables -2.5 percent, and capital goods output growth of 6.5 percent was upon a -7 percent year-on-year contraction in July 2019.

Many questions surface about the recovered demand strength, if the recovery is exhausting itself even before complete restoration, of an uncertain and uneven revival as substantial parts of the services’ economy lag behind, to cite some. The growth deficit in the trade, hospitality, transport category, and weak growth of construction is significant from the standpoint of aggregate demand — these are comparably informal economic segments employing large numbers of un- and semi-skilled persons; diminishment over a three-year period could reflect permanent damage or lowered potential output. In this context, the strong persistence of inflation, elevated unemployment and anecdotal evidences of K-shaped recovery, create uncertainty about the size of the output gap.

The August inflation data shows fairly broad-based price pressures, not restricted to food prices subject to much intervention and manipulation. Retail food and beverages inflation accelerated to 7.6 percent annually, that in cereals jumped to 8.6 percent from 6.8 percent in both categories in July; the impact of lower acreage, insufficient buffer stocks to influence prices, and incentives needs to be seen.

Core inflation is unmoving around 6 percent, prices of both goods and services components rose in August, the sequential momentum in different core-inflation measures was either firm or rose, services’ inflation shows signs of comeback pressures, while firms continued to pass-on costs and ease their burdened margin. Wholesale inflation data released on September 14 showed it moderating to 12.41 percent in August 2022 compared to 11.64 percent one year ago, from 13.93 percent in July and 16.23 percent in June. It remains high and in double-digit nonetheless; coupled with pipeline pressures, prospective passthroughs of costs to retail levels with the inception of festival demand this quarter and beyond cannot be ruled out.

The feeling that inflation is under a firm grip owes a lot to the passed peak of 8.3 percent in April that hasn’t resurfaced. But that does not diminish the fact that 7 percent inflation is way above target, that it looks neither low nor stable; and that inflation surprises, in both directions, cannot be ruled out. This doubts if the present inflation incident is durably over.

The trade-off is more complicated because the external environment has turned much riskier. The US central bank is expected reacting aggressively as US inflation and demand both remain strong; a 75-basis point increase is expected at the FOMC meeting on September 20-21.

Preserving macroeconomic stability at a time of extraordinary and fundamental realignments assumes importance, especially for the currency. Although supporting a recovery may have precedence, a growing divergence in monetary policy, negative real rates, would not be easy to sustain in a hazardous environment of unknown duration. Most expect the RBI, which will also revise its growth forecast the second time this year, to adjust the repo rate by 35-50 basis point this month. We should know soon.

Prime Minister Narendra Modi did not meet one-on-one with Chinese President Xi Jinping in Uzbekistan on the sidelines of the 22nd meeting of the Shanghai Cooperation Organisation’s (SCO) Council of Heads of State. At least there is no publicly shared evidence of the meeting so far. One cannot be absolutely sure, of course, for such is the nature of diplomacy.

In a media briefing on the eve of the summit, Foreign Secretary Vinay Kwatra was notably cagey about what other bilateral meetings the Prime Minister would have apart from the one with the President of the host country, Uzbekistan.

If Modi and Xi did not meet, was it the case that either side did not request for a meeting, or that one or the other side did not accept the request? What are the larger implications of this development?

From India’s perspective, the non-meeting could be seen as a necessary corrective after the informal summits between Modi and Xi in 2018, and 2019. The only real outcomes of those summits after all, were Chinese success in misleading the Indians with post-Doklam bonhomie, and showing up the lack of Indian military preparedness to tackle the large-scale Chinese transgressions across the LAC in the summer of 2020.

One, if the Prime Minister chose not to request a meeting, or turned down a request for one with Xi, then this is also a fairly explicit declaration of the direction of India’s relationship with China given that there is an extremely high likelihood Xi will return to power for a third term as General Secretary of the Communist Party of China (CPC) in October.

A third term would underline Xi’s status as China’s most powerful leader since Mao Zedong, and likely mark an even more assertive turn in Chinese foreign policy than is already evident. India, will without doubt, be one of those at the receiving end of this assertiveness.

The argument could then be that Modi did not need to go through the motions by meeting with Xi if this assertive turn is inevitable.

Two, however, if this is the Indian approach, is New Delhi also ready for the consequences of rebuffing or ignoring Xi? Yes, Indian troops remain deployed at full strength along the LAC, and a new aircraft carrier has been commissioned but crucial tasks such as the theaterisation of military commands continue to plod along, and as important a vacancy as that of the Chief of Defence Staff remains unfilled nine months after the last incumbent was killed tragically in the line of duty.

This then leads to a third major question: was the non-meeting a concession to politics at home? In other words, is the government’s China policy still driven by various domestic dynamics rather than by a clear understanding of India’s foreign policy and security interests?

Several senior retired Indian Army officers who have served in the area have noted that India’s disengagement from various points of friction along the LAC in eastern Ladakh has involved the creation of ‘buffer zones’ on the Indian side, which prevent patrolling by Indian troops to points they earlier had access to.

Konchok Stanzin, councillor from the Chushul constituency along the LAC, has amplified such concerns by claiming that grazing grounds used by local herders have in the process not only now become ‘buffer zones’ but also ‘disputed areas’, and that decisions are being taken without democratic consultation. Under the circumstances, a Modi-Xi meeting could have been poor optics domestically.

The validity of the thesis of ‘buffer zones’ can be questioned, however. Disengagement is after all only one part of the ongoing diplomatic process between the India and China, and it can also be logically expected that the Chinese too have been forced to create buffer zones on their side of the LAC.

Meanwhile, what of the Chinese if they too did not request a meeting, or if it was them that rebuffed a request?

One rationale could be to not take attention away from Xi’s meeting with Russia’s President Vladimir Putin, which also had the purpose of showcasing an anti-Western front. A meeting with Modi, seen as a close ally of the United States could have ended up confusing the message.

Two, Xi might not have wanted to meet with the Indians for fear of highlighting the sharp differences between China and India on the response to COVID-19. While India made a hash of its response to the second wave, it has overcome with efficacious vaccines and a successful vaccination programme. The Indian economy too, is largely back to normal operations. China, by contrast, is still locking down cities with millions of people. With the 20th CPC Congress round the corner, the party’s image managers would have wanted toavoid unflattering comparisons.

Three, the Chinese probably did not want to give the impression so soon after the disengagement at PP-15 that they had bowed to any kind of pressure to get a meeting with Modi. Remember that India got China to vacate the Depsang intrusion in 2013 by threatening to cancel Premier Li Keqiang’s first planned foreign visit to New Delhi.

The Modi-Xi informal summits were poorly thought through, and a mistake from the Indian perspective, but by not meeting in the current circumstances, despite the opportunity available, the two leaders have also undermined in a way the entire diplomatic process underway. Even though there is an opportunity to make up at the G-20 summit in Indonesia in November, the non-meeting at Samarkand possibly marks a significant passage in the history of Sino-Indian relations.