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U.S., India Set to Sign Defense Pact Amid China Border Standoff

The U.S. and India are set to sign a defense agreement and boost trade ties in high-level talks that come as the South Asian nation sees its worst border conflict with China in four decades.

Secretary of State Michael Pompeo arrived in New Delhi on Monday and along with Defense secretary Mark Esper will attend a 2+2 ministerial dialog with foreign minister Subrahmanyam Jaishankar and defense minister Rajnath Singh to discuss cooperation on pandemic response and challenges in the Indo-Pacific.

The discussions are taking place barely a week before presidential elections in the U.S. and at a time when India, a member of the informal four-nation Quad grouping along with America, Japan and Australia, is in talks to de-escalate military tensions with Beijing.

On Tuesday, India is expected to announce the signing of the Basic Exchange and Cooperation Agreement, which will give it access to the U.S.’ geo-spatial intelligence inputs to help improve the accuracy of automated hardware systems, missiles and drones, according to senior administration officials.

For more on India-U.S. ties:
Pompeo Calls for United ‘Quad’ Bloc on China in Virus Crisis
Xi’s Show of Force Against India Is a Strategic Gift for Trump
Why Chinese and Indian Troops Are Clashing, Again: QuickTake
India’s China Standoff Shows Risks of Getting Too Close to Trump
How Asia Fell Out of Love With China’s Belt and Road Initiative

The talks are also set to further boost India’s defense purchases from the U.S., currently at $20 billion, and help address its security concerns in the Indian Ocean region as it seeks to compete with China, which has an economy that is about five times larger.

“South Asia and the Indian Ocean is India’s primary strategic theater, and India’s domain of influence,” said Bec Strating, a senior lecturer in politics and international relations at Melbourne’s La Trobe University. “India is likely to want to maintain its influence in the Indian Ocean and South Asia, manage relations with U.S. and PRC to its advantage, and maintain its own strategic autonomy.”

Pompeo will also travel to the Maldives, Sri Lanka and Indonesia later in the week as part of the U.S. push to counter Chinese influence in Asia.

Building Alternatives

His visit will help ensure relations between the two nations “don’t lose momentum” during the transition period until a new administration is sworn in early next year, said Tanvi Madan, a senior fellow at the Washington-based Brookings Institution. “This is also a way of showing solidarity with India at a time when there is bipartisan support for its conflict with China.”

The U.S. has been increasingly concerned about China expanding its influence in the region through infrastructure and security investments in smaller neighbors.

Beijing committed $126 billion in Central and South Asia between 2000-2017, of which $120 billion was for infrastructure, according to Virginia-based AidData. In comparison, India spent $2.86 billion on aid to six of its neighbors over four years ending 2018, according to figures provided to the nation’s parliament and reported by the Economic Times.

“Secretary Pompeo’s visit to Sri Lanka, Maldives and Indonesia is a sign that the Indo-Pacific is being elevated as a region,” said Madan, author of the book “Fateful Triangle: How China Shaped US-India Relations during the Cold War.”

Trade Networks

Traditionally wary of both Chinese and American influence in its neighborhood, India has become more comfortable with outreach by friendly nations.

The South Asian nation has shown a willingness to build trade and strategic networks with partner nations, lending its support to the U.S.-Maldives defense pact and agreeing to Australia joining the Malabar naval exercises this year despite China’s reservations.

New Delhi is also working with Japan and Australia as the U.S. pushes to build an Economic Prosperity Network to reduce economic dependence on Chinese supply chains in a post-Covid world.

While Beijing is “certainly growing its influence in Bangladesh, Sri Lanka, and Maldives, these countries clearly prioritize their relationships with India over China,” said Derek Grossman, Washington-based analyst with the RAND Corporation. The U.S. is working with India to “build a more attractive alternative for these countries to work with in the future.”

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Business

India Will Tap Skill in Conducting Elections to Deliver Vaccine

India’s Prime Minister Narendra Modi asked his officials to prepare for a speedy delivery of Covid-19 vaccine to every citizen of the country by using the nation’s experience in successfully conducting the world’s biggest elections and disaster management programs.

The federal government has to collaborate with others, including states and civil society organizations, for distributing the vaccine, Modi said on Saturday according to a government statement, after assessing the pandemic situation in the country. The administration must plan for cold storage chains, monitoring mechanisms, and advance assessment, according to the statement.

India Has Potential to Boost Testing 10-Fold, Biocon Head Says

The South Asian nation’s experience in handling the complex task of holding elections in the world’s second-most populous country could help put in place a plan for distribution of the vaccine once it’s ready. The administration usually begins preparations for logistic and security arrangements for the federal election in the nation of 1.3 billion almost a year in advance.

The number of Covid-19 fatalities in India is 114,031, while 6.6 million have recovered from the disease. It has been about 37 weeks since the first case was reported in India.

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Business

India Cases Cross 7 Million as Experts Warn of Complacency

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New Delhi (AP) — India’s confirmed coronavirus toll crossed 7 million on Sunday with a number of new cases dipping in recent weeks, even as health experts warn of mask and distancing fatigue setting in.

The Health Ministry registered another 74,383 infections in the past 24 hours. India is expected to become the pandemic’s worst-hit country in coming weeks, surpassing the U.S., where more than 7.7 million infections have been reported.

The ministry also reported 918 additional deaths, taking total fatalities to 108,334.

The number of people who have died of COVID-19 has remained relatively low in South and Southeast Asia — from India to Vietnam and Taiwan — compared to European countries and the United States, said Dr. Randeep Guleria, a government health expert.

“We have been able to keep the curve rise slow, but I do agree that we have not been able to get it to move aggressively down. That’s related to our population density, diversity of our country and socioeconomic challenges in our country,” said Guleria, referring to India’s burgeoning population of nearly

1.4 billion.

Some experts say though that India’s death toll may not be reliable because of poor reporting and health infrastructure and inadequate testing.

India aims to provide vaccines to 250 million people by July 2021, Health Minister Harsh Vardhan said last week. He said that the government was planning to receive 450 million to 500 million vaccine doses and would ensure “equitable access”.

India saw a steep rise in cases in July and added more than 2 million in August and another 3 million in September. But it is seeing a slower pace of coronavirus spread since mid-September, when the daily infections touched a record high of 97,894.

It’s averaging more than 70,000 cases daily so far this month. India has a high recovery rate of 85% with active cases below 1 million, according to the Health Ministry.

Health officials have warned about the potential for the virus to spread during the upcoming religious festival season, which is marked by huge gatherings in temples and shopping districts.

A crucial factor will be people wearing masks and maintaining a safe distance.

Dr. S.P. Kalantri, a hospital director in the village of Sevagram in India’s worst-hit western Maharashtra state, said that people in his village had stopped wearing masks, maintaining distance or washing their hands regularly. He added that the sick were still being brought in to his hospital.

India’s meager health resources are poorly divided across the country. Nearly 600 million Indians live in rural areas, and with the virus hitting India’s vast hinterlands, experts worry that hospitals could be overwhelmed.

“If we are able to have good behavior in terms of physical distancing and masks, maybe by early next year we should be able to come to a new normal. COVID-19 will not finish but it will be under reasonable control with travel and other things becoming much more easier and people relatively safer,” said Guleria.

Retired virologist Dr. T. Jacob John said there was increasing tendency among Indians not to wear masks or maintain distancing.

Social media have compounded the problem by propagating misinformation and fake cures. “And the result of this is that people have gotten fed up and have started making their own conclusions,” John said.

Nationwide, India is testing more than 1 million samples per day, exceeding the World Health Organization’s benchmark of 140 tests per 1 million people. But many of these are antigen tests, which look for virus proteins and are faster but less accurate than RT-PCR, which confirm the coronavirus by its genetic code.

With the economy contracting by a record 23.9% in the April-June quarter, leaving millions jobless, the Indian government is continuing to relax lockdown restrictions that were imposed in late March. The government in May announced a $266 billion stimulus package, but consumer demand and manufacturing are yet to recover.

A large number of offices, shops, businesses, liquor stores, bars and restaurants have reopened. Restricted domestic and international evacuation flights are being operated along with train services.

___

AP Science Writer Aniruddha Ghosal contributed to this report.

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Markets

India’s Sensex Advances Ahead of Central Bank’s Rate Decision

India stocks rose ahead of the central bank’s interest rate decision.

The S&P BSE Sensex gained 0.3% to 40,297.99 as of 9:28 a.m. in Mumbai, while the NSE Nifty 50 Index advanced by the same magnitude. Both measures are set for their best week since early June and close to erasing year-to-date losses.

The rate decision scheduled at 10 a.m. local time is expected to see borrowing costs held at a record low as inflation remains elevated.

Click here to follow the TOPLive blog for commentary and market reaction to the decision.

“An accommodative stance remains positive for sentiment,” said Kranthi Bathini, an investment adviser at WealthMills Securities Pvt. in Mumbai.

Read: India’s ‘Dovish’ RBI Faces Stubborn Inflation: Decision Guide

Signs of recovery in the economy may get a boost this month with an expected pick up in consumer spending as India heads into its annual festive season. With earnings season underway, Wipro Ltd. and Infosys Ltd. may give some guidance when they report results next week.

The Numbers

  • Sixteen of 19 sector indexes compiled by BSE Ltd. rose, led by a gauge of metal companies.
  • Infosys Ltd. contributed the most to the Sensex advance, increasing 1.1%, while Tata Steel Ltd. had the largest gain, rising 2.2%.

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Markets

India’s ‘Dovish’ RBI Faces Stubborn Inflation: Decision Guide

The Reserve Bank of India’s new set of growth-focused policy makers will need to grapple with stubbornly high inflation in their first meeting this week, preventing them from cutting interest rates.

The Monetary Policy Committee is set to maintain the benchmark repurchase rate at 4% Friday, according to all 24 economists surveyed by Bloomberg. The government appointed three new external members to the six-person MPC this week, academics who have favored monetary and fiscal stimulus in the past to fire up the economy.

While Governor Shaktikanta Das has led the previous MPC in cutting rates by 115 basis points this year, he’s taken a more cautious approach recently as consumer prices spiked. Das is keen to preserve policy space in case economic growth prospects sour further as India becomes a global hotspot for the coronavirus pandemic.

“The upcoming policy will be a damp squib on conventional policy action front,” said Madhavi Arora, economist at Edelweiss Securities Ltd. in Mumbai. The new MPC members will likely provide a more dovish tilt to policy over time and allow the committee to continue its accommodative stance, she said.

The rate decision was originally scheduled for Oct. 1, but was pushed back after the government delayed appointing the new members in time. The posts have been filled by Ashima Goyal, Jayanth Varma and Shashanka Bhide.

Here is what to watch out for in the MPC statement:

Growth Outlook

The central bank will publish growth forecasts for the current fiscal year, providing the first official estimate of an economy that’s being hit harder than most major nations in this pandemic. Gross domestic product shrunk by a record 23.9% in the June quarter from a year ago, and economists surveyed by Bloomberg predict an 8% contraction for the year through March 2021.

Latest high-frequency indicators show activity is stabilizing as lockdowns to stem the pandemic are lifted, though the risk of a surge in virus cases across the country remains a risk.

Inflation Forecast

The RBI’s consumer price projections will be closely watched given that inflation is sitting well above the 4% midpoint of the bank’s 2%-6% target band. Economists surveyed by Bloomberg are forecasting inflation of 5.5% in the year to March.

While food prices may ease and a stronger rupee could help curb import costs, local supply chains are yet to be restored following one of the strictest lockdowns in the world.

Unconventional Tools

Policy makers could turn to more unconventional steps like open market bond purchases and the RBI’s own version of yield curve control to keep borrowing costs in check and ensure better transmission of policy rate cuts to the banking system.

That’s an important goal for the RBI, since it also manages the government’s bond sales. The government is planning record borrowing this year as revenue slumps, and with states also likely to rack up additional debt, India could see its combined fiscal deficit surge to more than 10% of GDP.

“We expect the RBI to remain active with a host of unconventional measures which will likely include more proactive bond purchases to ensure that market interest rates do not rise significantly higher due to fiscal and market borrowing related concerns,” said Kaushik Das, India chief economist at Deutsche Bank AG in Mumbai.

— With assistance by Tomoko Sato

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Markets

Billionaire hedge fund manager Ray Dalio shares his China strategy

  • China's interest rates are attractive, and the development of its capital markets has helped to make the exchange rate for the yuan stronger, said Ray Dalio.
  • Dalio said many investors have pulled money out of the world's second-largest economy.
  • Analysts have said the yuan's strength was attributed to both a weakness in the greenback and China's economic recovery from the coronavirus pandemic. 

SINGAPORE — Many investors have cut their exposure to China in 2020. But one billionaire hedge fund manager has a strategy that begins with "balance."

Ray Dalio told CNBC's "Street Signs Asia" on Wednesday that the way to play the Chinese market is to first build a diversified portfolio. 

"That means to achieve the right kind of balance of assets in China," he said. "Our approach is, we call it all-weather approach, it's a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves."

Dalio said that the Chinese yuan could see greater usage outside China as the U.S. dollar and other major reserve currencies are hit by a weak economy. China's interest rates are attractive, he said, and the development of its capital markets has helped make the exchange rate for the yuan stronger. 

"You'll see more of the internalization of the [yuan], and it's a natural consequence because as the dollar and the major reserve currencies are having the challenges that we are talking about, some element of void will be there," the co-chairman and co-chief investment officer of Bridgewater Associates said. 

The onshore yuan strengthened against the U.S. dollar over the last six months, moving from levels above 7.00 to near 6.80 in recent weeks. Analysts have said the yuan's strength was attributed to both a weakness in the greenback and China's economic recovery from the coronavirus pandemic. 

Dalio warned that the "tactical moves" he cited will shift over time.

"And of course those change, depending on the relative pricing of assets, classes and so on. But first … get the exposure, I believe to those markets and the currency too," he said. 

Major indexes in China are up year to date on the back of improving economic data and a slowdown in coronavirus cases. 

India's potential

Like China, Dalio said he believed India also has tremendous potential but it lags behind in the development of its capital markets. 

"There's much less liquidity in those markets, much less developed," he said. Dalio explained that there are investment opportunities in the country in terms of many cutting edge technologies and entrepreneurship. But it is "tougher to invest in." 

"If there was a much greater development of the capital markets, more liquidity, more opening up of those markets, that would revitalize entrepreneurship," he said, adding, "Being able to raise money in that way and circulate money in a more efficient way would revitalize the Indian economy."

Unlike China, where the pandemic appears to be under control, India is struggling to reduce its number of infections and related deaths. At the moment, India is only behind the United States in terms of infection level, with more than 6.6 million people infected and over 103,000 deaths. 

A nationwide lockdown between late-March to May crippled India's growth trajectory and economists have said the road to sustainable recovery remains difficult. Still, the stock market has recovered from its March lows and remains relatively flat year-to-date. The rupee has also strengthened from levels near 77 to around the 73 mark against the dollar. 

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