US Pause: Betting on Diplomacy?

 

President Trump could smartly find a way out of the Iran war, albeit temporarily. After bombing Iran jointly with Israel for 26 days and killing around 1,443 Iranian civilians besides their high ranking leaders, Trump declared a pause: He postponed attacks on Iran’s power plants—36 hours after issuing a 48-hour warning to Iran to open Strait of Hormuz, and after Iran’s foreign minister, Abbas Araghchi said that the Strait is open for all the vessels other than those of the US and its allies—for five days for Iran to negotiate a deal.

A week before that, Trump declared victory, stating that the US and Israeli strikes obliterated Iran’s defence capabilities. Yet, Iran continued to fire missiles at Israel and Gulf countries while exercising its full control over Hormuz as a bargaining chip. Indeed, since the beginning of the war, Iran has ignored the US threats: It responded to the US escalation with its counter-escalation.

When the US bombed Kharg Island, Iran fired missiles at American bases in the Gulf region. When Israel targeted Iran’s South Pars gas field, Iran soon after hit energy facilities across the Gulf region, including Qatar’s Ras Laffan plant. Immediately after Israel targeted Iran’s Natanz nuclear facility, Iran fired ballistic missiles on its two southern towns close to its nuclear facility, causing extensive damage. According to the Israeli Ministry, 116 people were injured in Arad and 64 in Dimona—some seriously.

Targeting Iran’s missile production, navy and nuclear facilities to degrade their capabilities by intense bombing, US thought that it could obliterate Iran’s might without resorting to a long-drawn ground war. Along with the intense combat stance, the US appears to have kept the door open to negotiations—aides like Jared Kushner and Steve Witkoff appear to be negotiating through back channels such as Pakistan to make a deal. Reports indicate that a 15-point action plan was sent to Iran through Pakistan/Egypt/Turkey to end the war. The current ‘pause’ declared by Trump signals such a possibility. Reports indicate that thousands of Marines are already on the way to the Gulf, indicating the probability of ground operations, if necessary. Through such coercion tactics US is perhaps hoping to get a diplomatic deal to dismantle Iran’s nuclear capabilities and hand over the enriched uranium to the IAEA.

But, Iran is denying the US claims that negotiations are underway. Its President, Masoud Pezeshkian, however, indicated a few conditions for ending the war: Guarantees against future aggression, reparations for infrastructure damage and recognition of Iran’s ‘legitimate rights’, which perhaps might mean relief from sanctions (?). Interestingly, US has already eased sanctions on Iran’s oil: Its treasury department issued a 30-day sanctions waiver for the sale and delivery of Iranian crude oil and petroleum products that were already loaded onto ships as of March 20, 2026, but not against fresh orders, essentially to stabilise global oil prices.

Intriguingly, all these developments plus the domestic compulsions of warring parties indicate that the time has ripen for both the US and Iran to move away from combat and embrace diplomacy to settle the conflict. The US President has his own compulsions: the mounting cost of war and its impact on growth: S&P global reported that business activity in March slowed to an 11-month low after the war, effect on treasury and bond-yields, effect on stock market, rise in domestic gasoline prices, and importantly, the forthcoming elections to Congress will all call for no further escalations in war. His approval rates, too, are low. Opening up of the Strait of Hormuz is still posing a challenge—closure of which triggered global economic mayhem— more so when the allies are unwilling to put their own troops in danger to reopen it.

In a similar vein, Iran has already suffered a lot by virtue of sanctions and on top of that, the present war has caused enough damage for its people to turn sour about its consequences. The regime may not be able to suppress the people’s anger at the war-inflicted suffering forever. The ill-will generated by its missile attack on neighbouring Gulf countries may isolate it forever. There is thus a need for Iran to find alternatives to war to rebuild its nation.

Amidst these developments, Israel remains a sore point, for it currently does not appear to be fully aligned with the US objectives, as is revealed by its continued raids on Tehran and Lebanon. It cannot treat Lebanon as Gaza Strip and continue with its raids on Southern Lebanon to eliminate Hezbollah from its neighbourhood—rather, it may have to work for its goal through Lebanon government.

Once the US and Iran come to the negotiating table, the whole scenario may change. Israel, though unhappy about not accomplishing its twin objectives of eliminating Hezbollah from its neighbourhood and regime change in Iran, cannot but toe its line, for it is heavily dependent on the US for weapons and intelligence. Similarly, Saudi Arabia, which is presently reported to be pressing the US to go the whole hog to put Iran in its place, but once the US arrives at a deal, it may also remain silent. But the big question is: Trust—trust between the US and Iran. Iran accuses that twice in the past the US has attacked it while negotiations were in progress. Everything is thus fluid, but one thing is certain: both have incurred enough losses, and this alone shall push them to a deal!

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India-EU FTA: A Challenging Opportunity!

 

After nearly two decades of intermittent negotiations, India and the European Union have finally signed the much-awaited Free Trade Agreement (FTA) – hailed by both sides as the “Mother of All Deeds” – on January 27. This deal is more than a trade agreement: It heralds that India has come of age, for it has shown the courage to enter into a trade agreement with 27 countries that are far ahead of India technologically and economically.

This agreement also showcases India’s confidence, maturity and negotiating skills in dealing with a powerful counterparty. Piyush Goyal, Commerce minister, nicely reflects this while describing the scale and intent of the agreement, thus: “This mother is neither going to be very strict nor lenient. This mother is going to be compassionate … going to be loving, …going to make sure that … the 27 nations of Europe and India, all 28 … will enjoy the fruits of this free trade agreement.”

This deal is pretty ambitious. The EU is India’s third-largest trading partner. During 2024-25, India exported goods worth $75.85 billion to the EU and imported goods worth $60.68 bn. Under the deal, the EU will drop tariffs on 99.5 % of goods imported in terms of value from India. Similarly, India has agreed to liberalise duties on over 92 per cent of tariff lines. India has agreed to bring down tariffs to zero on 30% of trade by value as soon as the agreement comes into force. Thus, Europe will get access to a vast Indian market of 1.4 bn consumers. Similarly, Indian manufacturers in the textiles, leather, engineering goods, and gems and jewellery sectors can now compete on an equal footing with countries like Turkiye, Vietnam, etc.

Credit goes to both parties for accommodating each other’s sensitive issues that seemed intractable previously. India could manage to ensure that its strategic agricultural sectors and dairy were excluded from the deal. Similarly, the EU managed to exclude several of its sensitive agricultural sectors from the deal. That aside, the workable solution to tackle automobile exports to India stands out. The quota-based system, limited to higher-end vehicles, designed to protect the interests of India’s domestic manufacturers at the lower-end of the price band, will offer a big opportunity for European luxury carmakers to export to India. Similarly, quota-based wine tariffs open the Indian market for French wine-makers while offering a semblance of protection to domestic producers.

This FTA is not just about tariffs. It also aims at rebalancing geopolitical interests. India, by deepening its ties with Europe, can hedge against the US trade unpredictability. In a similar vein, for the EU, the deal is a hedge against authoritarian supply chains. Indeed, several other agreements covering mobility, technology and defence and security were also signed to increase cooperation and strengthen relations between India and the EU. This newfound understanding shall lay the foundation for a broader India-EU strategic realignment.

Of course, in any such agreements, there is bound to be dissatisfaction among some quarters. The Samyukta Kisan Morcha (SKM) – an umbrella body of farmers’ organisations – fears that opening the processed food market to the EU will have a disastrous impact on domestic agriculture production and small farmers. But what one must bear in mind here is that while negotiating, one cannot expect all the benefits to be one-sided—there has to be a give-and-take approach. It is only when negotiations result in a win-win outcome that execution of a deal becomes smooth. Now that we understand our FTA-related challenges, we need to strengthen our competitiveness with targeted policy support to overcome the challenges.

That said, there are some real concerns: India could not obtain any concessions under the Carbon Border Adjustment Mechanism (CABM). Though as of date tariffs apply to only six carbon-intensive products, the deal is designed to include all industrial goods in the coming years. This is a big challenge. The only saving grace is that this tariff is applicable to all countries equally. India has, of course, succeeded in making the EU agree that any concession granted to any other country will be extended to India as well. Nonetheless, this is an opportunity for Indian firms to modernise quickly and enhance their credibility across global markets.

Similarly, the calibrated automobile liberalisation is likely to challenge India’s market dynamics. Unless policy measures to strengthen the domestic component ecosystem, MSME suppliers and R&D capabilities are implemented soon, we risk becoming a high-value import market. Similarly, despite tariff liberalisation, agri-exports will face a formidable challenge due to the EU’s stringent sanitary and phytosanitary standards, residue limits, carbon footprint compliance, and sustainability certifications. Secondly, the EU’s agricultural sector is highly subsidised and unless our farmers produce at scale and competitive costs, exports may not gain momentum.  

This FTA is a great opportunity. It offers India unprecedented access to European markets— one of the world’s most demanding regulatory blocs. To capitalise on the deal, domestic manufacturers, particularly MSMEs, which are the backbone of employment, need policy and financial support to upgrade their skills and technology. Thus, success rests on the execution of the deal. That is the big challenge!

America’s $100 000 H-1B Fee: Yet, Another Challenge!

On September 19, United States President Donald Trump signed an executive order to impose a one-time application fee of $100 000 for H-1B visas, stating that “We need great workers, and this pretty much ensures that that’s what’s going to happen”, while the administration claimed that it would curb overuse of the program. 

Obviously, this move triggered a heated debate, for it has a huge financial impact on Indian tech firms such as TCS, Infosys, HCL, and others. Of course, it equally affects global tech firms, such as Amazon, Google, Microsoft, Meta, etc., which heavily rely on foreign workers for the cost-effective execution of projects. No wonder it rattled the Indian tech community more, for Indians have been the largest recipients of H-1B visas with an over 70% share of total H-1B visas issued in the fiscal 2025. Indian student community enrolled in the US universities will be the worst hit by this move: Having gone to the US by taking huge educational loans with a hope to secure a job in one of the tech firms soon after completion of graduation program, they may no longer be able to find sponsoring companies to get employed once they finish their studies. 

This move exerts tremendous pressure on Indian IT companies, which are already struggling with weak revenue growth, by way of increased costs and erosion of profit margins. Over it, the Halting International Relocation of Employment (HIRE) bill, introduced by Senator Bernie Moreno, proposes a 25% tax on payments made by US entities for outsourced work. The bill also proposes to make such payments non-deductible for tax purposes. If this move takes the form of an act, it would drastically alter the cost structure of US companies. This will, in turn, impact the operations of the Indian tech industry, which is currently pegged at around $260 bn, for it derives 50-60% of its total revenue from the US. 

Here, it is pertinent to note that our IT firms have been operating to a significant extent on a cost-arbitrage model. With the HIRE bill coming into effect, cost-arbitrage will disappear, making it expensive for clients to avail tech services from India. It means that if the HIRE bill becomes law, it may affect the employment of 40-60% of the 2.5 million IT service workforce. There is, however, a hope that this bill is less likely to turn into an act, for the big tech companies of the US may resist it. Nevertheless, considering the entire narrative surrounding the US tariffs, visa fee hikes, and other factors, IT companies must make a concerted effort to transition from a cost-arbitrage model to a capability-led model to ensure sustainability. This obviously calls for repositioning themselves as innovation hubs or product developers by increasing their R&D investments.  

At this juncture, it is necessary to take note of the comments made by the veteran US foreign policy expert Ashley Tellis, who earlier played a crucial role in shaping the US-India nuclear deal. Reacting to the rise in visa fee, he said that the move reflects a deeper strategic shift in how the US and Trump in particular view India now: “In Trump’s view, India is no longer a strategic priority—it has become a ‘problem’ like many others”. He further said, “Trump thinks of the entire world as economic rivals of the US”. He also commented that Trump’s approach to China is less geopolitical and more economic. Against this backdrop, he opines that India’s value as a counterweight to China dissipates.  

Intriguingly, warning that the H-1B “program as India once knew is no more”, he drew  attention to America’s “growing discomfort with foreigners, especially from the Global South, becoming part of the America of the future.” Observing that the US is moving toward a model of outsourcing talent through employing Indians in Global Capability Centers, he, of course, appreciated India’s muted diplomatic response. 

Given this reality, our reaction to the visa fee changes should not be confined to simply mirroring our widespread anxieties; instead, the government and the corporations must focus on the long-term interests of the country. This shall include not only skills development, process reforms, but also the creation of a deep innovation ecosystem in the country, duly supported by adequate capital investment in R&D. We must create a platform that could engage the returning talent more productively. There is no choice—if we have to reduce our dependence on external job markets, we must invest all our resources to become a digital powerhouse.   

But we have been slow adapters all along. Nevertheless, in times of uncertainty, leaders, be they from the government or corporate world, as Ranjay Gulati said in his article in the latest HBR, are supposed to be courageous and to size up the complex and ambiguous situations step by step and steer through the crisis, adjusting the course as their understanding improves. The call of the hour is: Leaders have to be simply brave. 

US Tariffs: A Wake-Up Call for India?

On August 27, the United States Department of Homeland Security released a notification imposing additional 25% tariffs on Indian imports, which will raise the total levy to 50%. This move is viewed by many in India as a form of tariff weaponization to penalize India for continuing to import oil from Russia. 

This sharp escalation in tariffs, which made India one of the worst-affected countries in Donald Trump’s tariff war, has rattled Indian exporters, particularly exporters from small and medium sectors such as textile exporters, auto parts manufacturers, gems and jewellery exporters, seafood exporters, etc., who now expect a steep decline in shipments, rushed to the government for immediate support to overcome the threat to their businesses. 

The stock market, too, reflected this anxiety. On the day of the announcement, the BSE Sensex plummeted 849.37 points to close at 80,786.54, while the NSE Nifty 50 dropped by 255.70 points to end at 24,712.05—the biggest loss in the last three months. 

Economists opine that if the 50% tariff persists, India’s gross domestic product (GDP) growth during the current fiscal could slip to or even below 6%. This elevated tariff is feared to hurt India’s relative competitiveness, dampen export momentum, erode investor sentiment, and potentially slow foreign direct investments. Cumulatively, these factors could impact the current account deficit, and eventually, build pressure for a sharper depreciation of the rupee. The rupee has already dropped to an all-time low of 88.31 to the US dollar. 

That aside, companies from several key export sectors that have become victims of high tariffs vis-à-vis exporters from countries like Vietnam, South Korea, Taiwan, etc., fear falling capacity utilization and job losses. Indeed, Crisil has already projected a 50% drop in the revenue growth of readymade garment makers, suggesting significant job losses in the sector.  

Yet, not all is bleak. Some analysts, including government agencies, believe that rising domestic demand, aided by the recent GST rationalization, low inflation, and falling interest rates, could soften the impact. Moreover, as India’s overall export dependence on the US is relatively limited—$86.5 bn during FY 2025—the broader economy might still avoid a deep shock. Rick Rossow of Center for Strategic and International Studies, Washington, also opined that as the tariffs targeted goods and manufacturing remained a relatively small share of India’s economy—around 14%—the impact on the “real economy will be limited”. 

Interestingly, in a recent public address, Prime Minister Narendra Modi said, “I appeal to the citizens of our country to prioritize purchasing goods that are made in India. Whether it is decorative items or gifts, let us choose products manufactured within our own nation.” Such a spirit, if it prevails among all citizens, could not only enable us to absorb the threat of tariffs but also keep India’s growth ambitions intact. 

Nonetheless, these high tariffs, which the government observed as “unfair, unjustified and unreasonable”, are not in the interest of the nation. Deteriorating access to the largest export market of the world at this critical juncture, when we are actively prioritizing manufacturing under “Make in India” policies, and also working towards placing ourselves as the alternative manufacturing hub for what is currently being made in China, may stifle our economy.  

That being the reality, India, as it has handled the issue of tariffs and the rhetoric surrounding it so far with maturity and pragmatism, may have to keep pushing the negotiations for a favorable accommodation with the US. Intriguingly, there is also an argument that Russian oil is not that cheap today compared to the prevailing global prices, and the benefits so accrued are not that encouraging even vis-à-vis the costs that it has to absorb by losing the US exports. So, keeping these facts in view, India has to play its cards deftly and navigate through the impasse with diplomatic finesse for a win-win outcome. 

Simultaneously, affected exporters must be helped to explore alternative markets by providing liquidity support in the meantime to sustain their operations. Indeed, it is a wake-up call for India not to rely on a single market to keep export business intact. 

Over and above all this, there is an urgent need to launch reforms to radically improve the ease of doing business in India. A fully functional single-window clearance system must be created to speedily clear investment proposals. Also, lower levies to make exports globally competitive. The immense potential offered by tourism must be exploited by launching necessary reforms that encourage tourist flows.  

Now is the time for Indians to act rationally, and as R C Bhargava, Chairman, MSIL, observed, to do their best and stand by the government in overcoming the hurdles and keep growing.

 

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Businesses and Geopolitical Risks

All along, companies have been managing geopolitical risks reactively—responding only when something goes wrong. However, the 20th edition of the World Economic Forum’s Global Risks Report 2025 has ranked State-based armed conflict as number one in the global risk list. The wars in Ukraine, the Middle East, and Sudan, which have introduced unprecedented instability, simply propelled the armed conflict that was ranked ninth last year to the number one spot in the current edition by nearly a quarter of the surveyed experts. 

Unlike financial risks, which are well understood and routinely managed by businesses, geopolitical risks are ambiguous, deeply asymmetric, and fast-changing. Their unpredictable nature can quickly snowball into a crisis. A single tweet from a global leader can wipe out billions of market capitalization of companies. A sudden change in immigration or visa rules can halt all the plans for expansion midway. These risks harm a company’s balance sheet through increased costs, trade restrictions, or the loss of entire markets—causing panic among stakeholders. Over time, they can even impact innovation in corporations, undermining the long-term sustainability of businesses. 

The unprecedented economic volatility, uncertainty, complexity, and ambiguity pervading the global economic landscape owing to the threat of punitive tariffs, supply chain disruptions, weaponization of sanctions, Red Sea disruptions, the menace of rising crude-oil prices, and data localization mandates has brought geopolitical risks to the central stage of corporate business strategy. No company, whether a multinational or a homegrown company, is insulated from these risks. And Indian businesses are no exception to this phenomenon. In fact, with India’s growing global footprint and increasing integration into global supply chains, Indian corporations are becoming increasingly vulnerable to geopolitical risks. 

Thus, the age of treating geopolitical risk as a distant, once-in-a-while disruption is over. So, the way forward is: Corporations have to give it the urgency and attention it deserves. Boards have to institutionalize and prioritize treating it as a core part of the enterprise risk management. Much like management of financial risk through sophisticated mechanisms, corporates, moving away from a reactive to a proactive state, must create a mechanism to build early warning systems, scenario planning, and embed them into their core decision-making process. 

In this context, the recent round of the Israel-Iran war has something to teach corporates. In just 12 days, Israel eliminated the military leadership of Iran, bombed the country’s nuclear sites, and decimated dozens of their missiles and launchers on the ground. Iran, by contrast, failed to take down even a single jet of Israel. All these achievements of Israel underscore the decisive advantage of Israel’s superior intelligence—ability to anticipate and penetrate Iranian regime’s highest ranks—and pre-empting threats using the so gathered intelligence strategically. 

Taking a cue from this, companies must gather robust external intelligence—not just on market trends, but on political, regulatory, and security developments in key geographies. They may have to set up geo-political advisory councils with economists, diplomats, and military experts to advise boards on geopolitical developments. As John Chipman, once said in his HBR article, companies have to, in effect, “privatize” foreign policy—that is, they must internalize many of the elements traditionally employed in statecraft. Companies must define their interests and accordingly collect and analyze external intelligence about the countries where their interests lie. In short, they should draft a foreign policy by adopting elements of traditional statecraft. Prima facie, such a corporate foreign policy must take shape, essentially driven by two elements: corporate due diligence and corporate diplomacy. The former must address issues such as assessment of ‘transnational risk’, ‘local in-country risk’, ‘home and near-abroad risk’, and assessment of the company’s sensitivity to regional political developments. Guided by these risk-assessment studies, a company should draft its diplomatic stance. This shall enable its global business to run successfully on a well-defined strategy framework. 

It is said that to be effective, a corporate diplomacy strategy must operate on four principles: one, it must define its approach to foreign governments, rather than being manipulated by the home country policies; two, it must cultivate a transnational character by publicly pronouncing its global character, by maintaining its reputation both in words and spirit; three, diversifying political relationships by building dynamic relationship with governments, business elite, and civil society; and four, not to sabotage its interests by remaining inept to the political and foreign policy interests of the host country. 

To sum up, corporations must be vigilant of the growing global uncertainties and be resilient to the geopolitical shocks with an institutionalized strategy. It may initially sound strange, but once expertise in international diplomacy is cultivated internally, it is sure to prove a competitive advantage.

image courtesy: https://today.usc.edu

US Tariffs: The Unintended Consequences

 

'Protectionism’, once considered an extreme idea in United States politics, has now become a guiding principle for the new regime. As promised, on April 2, Trump announced sweeping “reciprocal tariffs” against all trading partners. These included a basic tariff of 10% across the board, which came into effect on April 5, while individual reciprocal tariffs were set to begin on April 9. 

This move sparked a tariff war between the US and China. In retaliation, China imposed a 34% tariff on US imports. It also imposed sanctions on select US companies, along with a ban on certain rare earth exports critical to the US electronics industry. Angered by this, the US in turn imposed an additional 50% tariff on Chinese imports, raising the tariffs on Chinese goods to an unprecedented 125%. 

The apologists of Trump tariffs argue that there is logic behind imposing such abnormally high tariffs. One key argument is that the significant uncertainty created by these high tariffs may cause panic, leading to a “risk-off” scenario, in which investors may exit stocks and flock to US Treasuries. This automatically lowers yields on the Treasuries. This could make it easier for the US to refinance its debt of $9.2 tn maturing in 2025, potentially with lower interest payments. Furthermore, if the Fed cuts interest rates, the path to roll-over of debt becomes smoother, and hence the call for a rate cut from Fed Chair Jerome Powell.

Secondly, tariffs are considered powerful revenue generators—expected to bring in $600 bn to $700 bn annually. The next argument is that tariffs could be used as strategic tools by the US to force negotiations with allies like Europe, Japan, Australia, South Korea and Taiwan—countries that depend on the US for their security, in such a way that the outcome benefits US trade and investment. Their final argument in favor of tariffs is their potential to reshore manufacturing activities to the US, though no estimates are available about the likely investment, the number of jobs that such a move would create, and how long it would take for them to materialize.

While these arguments remain largely aspirational, the severe volley of tariffs unleashed by Trump on “Liberation Day” set global markets on fire: Stocks plummeted, portfolios evaporated, and panic swept across global trading floors. The US stock market suffered the worst of it: the S&P 500 was down by 3.3%, the Dow Jones Industrial Average lost 1160 points, down by 2.7%, and the Nasdaq composite was down by 4.5%.

After the meltdown in financial markets, Trump announced a 90-day pause on reciprocal tariffs on all countries except China, which faces a tariff of 125%. However, the baseline tariff of 10% and the tariff of 25% on aluminum and steel imports and the automobile sector remain as it is. With this policy reversal, stock markets rebounded on April 9: The S&P 500 jumped by 9.5%—its largest one-day gain in over a decade, and the tech-heavy Nasdaq Composite also soared. Markets in Europe and Asia followed suit, with the pan-continental STOXX 600 rising 5.3%. Major indices in London, Paris, and Frankfurt surged by 4.1% to 5.6%.

Intriguingly, during this fall and rise of the US and global stock markets, a puzzling phenomenon is noticed. Modern financial history tells that there is a reliable relationship between US equities, Treasury yields, and the value of the dollar. Traditionally, during market panics, investors are known to flock to US Treasuries and the dollar as safe havens. As a result, Treasury yields are driven down, causing the dollar to appreciate.

Surprisingly, after the tariff announcement, US bond yields went up—the 10-year yield jumped from 3.99% to 4.5% within just a week, despite turbulence in the equity market. At the same time, the ICE US dollar index, which measures the greenback against a basket of foreign currencies, fell as low as 97.92, the lowest since March 2022. All this could mean that investors are using less of the US Treasury as a “risk-free” asset.

Analysts suggest that this shift in global investor behavior is a fallout of aggressive tariffs, which have raised concerns about long-term US economic stability. Neel Kashkari, Minneapolis Fed President, observed that the dollar’s decline, alongside the tariffs, offers “credible evidence of investor preferences shifting”.

This divergence from the historical relationship between US equities, Treasury yields, and the dollar points to investors’ reduced confidence in the dollar’s reserve currency status; reassessment of Treasuries as “risk-free” assets given fiscal/policy risks; and potential long-term higher funding costs for the US government. The cycle of large deficits necessitating more borrowing, which in turn drives up interest rates and burdens debt servicing, could have significant economic implications. And that, in itself, is the irony!

 

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The Crypto Reserve: What Next?

On March 6, United States President Donald Trump issued an executive order to establish a Strategic Bitcoin Reserve and a US Digital Asset Stockpile. The reserve would be built with Bitcoins forfeited as part of criminal or civil asset forfeiture proceedings and currently owned by the Department of Treasury. The order also clarifies that other government agencies, if any, holding such currencies, would evaluate their legal authority and accordingly, transfer them to the reserve.  

The order also states that the US will not sell Bitcoins deposited into this strategic reserve, and it will be maintained as a store of reserve assets. It also authorizes the Secretaries of the Treasury and Commerce to develop budget-neutral strategies for acquiring additional Bitcoins, provided that those strategies impose no incremental costs to American taxpayers. It means the government will not acquire additional assets for the US Digital Asset Stockpile bnd those obtained through forfeiture proceedings. 

This reserve shall function much like the Strategic Petroleum Reserve that countries, including India, maintain as a hedge against unexpected problems with the supply and demand of the fuel, causing disruption. However, it is hard to visualize a situation where a cryptocurrency reserve can be used to meet such challenges emerging in financial markets. This reserve, indeed, raises several uncomfortable questions. 

Currently, the US is said to hold around $17 bn equivalent of cryptocurrencies seized from criminals, while China is said to hold around $19 bn. As of the date, many governments are in general, not comfortable with cryptocurrencies. Now the question is: Would this US announcement about creating a reserve spark more interest from Central Banks across the world? If that happens, a kind of de facto recognition may be afforded to the importance of these digital assets, which could spark a long-term rally. 

Here, it should be remembered that the supply of Bitcoins is fixed, and there are only 21 million in circulation. Similarly, for Ethereum and others, though they have different algorithms, their creation through computerized calculations is again limited. So, a big spike in demand could send prices skyrocketing. In a similar vein, any attempt to sell a large quantity would probably result in a price crash, since supply would overwhelm demand. No wonder, in such a rally, the US, with its huge reserves, would of course, become the dominant player in the market.   

In additon, while Bitcoin is decentralized with no owner of the blockchain, others like Ripple, Sol and Ada are run on blockchain controlled by private entities. This phenomenon creates further complications. With Gray Gensler resigning as Chairman of the Securities and Exchange Commission, it is anticipated that there is going to be a shift from an antagonistic stance to a pro-crypto stance.

This emerging “combination of greater legitimacy and light regulation is what I really worry about”, said Eswar Prasad, Senior Fellow at the Brookings Institution. Adding, “The broader adoption of crypto at both the retail and institutional level certainly could pose some risks”.

The risks are indeed evident already: After Trump’s statement, Bitcoin price has slumped about 20%, while Solana, XRP and ADA have slumped by about 50%, 30% and 22%, respectively. The apparent reason for such slide is: the crypto industry is not happy with Trump administration not buying Bitcoins but only capitalizing on the value of Bitcoins forfeited by criminals, which are already in the possession of government agencies.

That aside, as Hilary Allen, Law Professor at American University, said, “the crypto industry is built on a foundation of regulatory non-compliance”, and this lack of response has led to spectacular frauds in the past. Still luckily, their consequences—price crash in 2022—were contained because the volatile and fraud-prone cryptocurrency market was then not so integrated with the traditional financial markets, which factor worked as a firewall limiting its damage to actual investors in the crypto asset alone. But with the kind of easing of the regulatory regime in the offing, there is going to be a much broader adoption of cryptocurrency, which is more likely to pose systemic financial risks. If there is a run on coins, it could, this time round, “set off a chain of events that end up destabilizing various parts of the traditional financial system”, said Prasad.

Risks aside, according to some economists, there appears to be little or no economic justification for creating such a strategic reserve. More so by the US, for its dollar is the world’s reserve currency, because of which, it could easily settle its overseas liabilities by printing dollars. Indeed, creation of a cryptocurrency reserve may, as feared by a section of economists, undermine faith in the dollar. For now, that is the irony!

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Indian Economy: An Approach to the Trump Era ...

 

Intriguingly, European Central Bank Chief Christine Lagarde, in her first interview since Donald Trump won his second term to enter the Oval Office as the 47th President of the US, advised Europe’s political leaders “not to retaliate, but to negotiate” with the President-elect who asserted that he would impose tariffs between 10% to 20% on all non-Chinese imports into his country. 

She also warned that a “trade war at large” is “in nobody’s interest” for it would lead to “a global reduction of GDP”. Indeed deviating from her earlier stance, Lagarde advised European leaders to navigate through Trump’s second term by adopting a “cheque-book strategy”, they may “buy certain things from the US” such as liquefied natural gas, defense equipment, etc. For, it would signal a willingness to cooperate with the US, which in turn could aid both sides to de-escalate the conflict further. 

This advice given by Lagarde to EU nations perhaps merits consideration by India, for the country’s economy too is unlikely to remain unaffected by Trump’s vow to hike tariffs. Although many opine that for now India has been spared, one cannot afford to ignore what Trump said during his first term: “India has high tariffs”, citing its 100% tariff on Harley-Davidson motorcycles and 150% on American whisky, even labeled India the “tariff king”. 

So, it wouldn’t be surprising if Trump this time round pressurizes India for reduction in tariffs on American goods, particularly on agricultural produce, dairy, and animal products, despite the fact they are well within the WTO norms. Indeed, he aired similar comments in his recent press meet in Florida. Besides, US being the top trading partner with more than $190 bn in trade, and 80% of IT sector exports relying on US, India cannot afford to ignore these probabilities. 

That aside, as the BCG India Chairman Janmejaya Sinha observed, it is no guarantee that the pain, if any, inflicted by the proposed tariffs by Trump on China will automatically leads to a gain for India. For, to compete with China in production what a country needs to offer to the global corporates’ investment is not merely the reduction in cost but stability—stability in policy framework, the persistence of which China continues to offer till date, in many ways. 

Another big challenge is scale. Even though large industrial houses have of late started investing heavily in sectors such as electronics and semiconductors duly supported by the government scheme to offer tens of billions of dollars in the form of production-linked incentives, it is no match for what China did. There is a fear that unlike in China, there is a great problem relating to not only scale but also procurement of raw materials in India. 

Over and above all this, to realize the ambition of India becoming the electronics manufacturing hub, the country has to penetrate deeper into the supply chain by increasing the domestic value addition from the current 18%-20% to 40% in the immediate future. In view of all these hurdles, one wonders if the proposed hike in tariffs on Chinese goods by the Trump regime may not necessarily divert massive investments away from China. In fact, there are already reports indicating that US companies have put a pause on making further investments in India. Analysts even say that today from an investing perspective, America has zero interest in international markets. 

Speaking at the Global Economic Policy Forum 2024, World Bank Chief Economist Indermit Gill made two very important observations which demand India’s attention: one, global economic growth has been decelerating, with the potential growth rate in advanced economies halving over the past two decades; and two, even emerging markets and developing economies are seeing a decline in potential growth rates due to ongoing geopolitical tensions, trade fragmentation, policy uncertainty, and persistent inflation. Further, observing that the “changes needed are not happening quickly enough” in India, he urged policymakers to leverage the economy’s strength by accelerating structural reforms. 

Amidst all these hurdles coupled with consistently high inflation for the past two years, if India has to pursue its Viksit Bharat objective, it must continue to grow at least above 7-8% annually. Here, it is pertinent to remember that India ranks 153 against South Korea’s 44 and Taiwan’s 35 in the per capita export data generated by the World Bank and UNCTAD for about 200 countries. Even in service exports, India ranks 89 out of 114 countries trailing behind Malaysia, Turkey, Thailand, etc. Secondly, according to best-selling authors Gary W Keller and Jay Papasan, the one thing that could drive economic success is climbing the global value chain and thereby accomplishing sustained double-digit export performance. And, if this has to happen, we may have to follow the advice given by Lagarde: Adopt a cheque-book strategy while navigating through the Trump era and strengthen the ties with the US by leveraging on the friendly chord already struck as a participant of QUAD dialogue. 

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Trump 2.0: The Threat of Uncertainty

Donald Trump’s decisive victory in the US presidential elections accompanied by Republicans seizing control of the Senate and the chair in the House of Representatives affords him far-reaching political power to pursue his economic agenda and foreign policy vision. 

Trump’s return as 47th President of the world’s largest economy alerted global leaders, investors and diplomats to wait and see what the unpredictable President will do. But the appointments that he has already made to the key positions make it amply clear that he is in a tearing hurry to implement his campaign promises—tariffs, tax cuts and deportation of migrants—which are bound to create economic uncertainty. 

The first thing among his planned actions would perhaps be imposing tariffs of up to 60% on imports from China and 10 -20% on imports from the rest of the world. For, he believes that any country that has a large trade surplus with America is ‘cheating’ Americans. This imposition is likely to get transmitted to consumers triggering a return to inflation build up domestically. This price rise in the US will in turn seep through globally as the US commands a large export share of technology and agricultural products. 

The next in line is perhaps, tax cuts. Trump intends to extend the tax cuts offered earlier for individuals that are due to expire in 2025, and to even lower the corporate taxes from the current 21% to 15% for companies that manufacture their goods in the US. This is certain to further worsen the fiscal deficit that has already touched 6.4% of GDP for FY24, which is around 3 percentage points higher than the average of the past 50 years. Any further expansion will only lead to sucking of global savings by the US, which is more likely to tighten the global financial conditions. This, coupled with higher inflation and relatively higher policy rates, will automatically increase the cost of money. Over it, as the US Treasury bills are considered as the safest investment in the world, money will flow to US, strengthening the dollar. This would trigger volatility in global currencies. 

The third agenda is mass deportation of illegal immigrants from the US. This is also likely to have an economic impact of triggering inflation, for some economists believe that the influx of illegal immigrants into the US labor force kept wage-inflation under check. So, to summarize, Trump’s economic agenda, though apparently appealing, might as well lead to unintended consequences. The slump in the bond market witnessed immediately after the election results is perhaps a pointer to this phenomenon. 

It is China that runs the biggest trade surplus with the US, followed by Mexico and Vietnam, and these countries will be hit hard by the uncertainties. Even India is in the hit list, though not to that extent. China may, however, cut its prices and even devalue its currency to circumvent the tariffs. Simultaneously, it will also redouble its efforts to penetrate further in the global South to protect its manufacturing base. Amidst these uncertainties, it is India with its inefficient manufacturing base and weak rupee that is likely to face more economic stress. For, with a strong dollar, our imports will cost dearer. The management of resulting trade imbalances is sure to pose a challenge for India. 

Trump has also promised to raise oil and natural gas drilling, which means he is not that serious to abide by climate goals. Therefore, the fear among the climate policy advocates that Trump may once again withdraw from Paris Agreement and may even take tougher steps, as he did in his first term as President, and hinder the global decarbonization efforts, is perhaps all set to turn true. The fall out of the world’s biggest historic carbon emitter watching from the margins would be: emboldened leaders of other countries may also slowdown their efforts, and all this cumulatively might impact global energy transition for decades to come. 

Next is his foreign policy initiatives: He may not outrightly abandon the protection of Europe, but may let NATO go dormant. It means Europe has to fix itself any military threat that it faces. The two military powers of Europe—UK and France—are passing through their worst Budget crisis. Germany’s economic outlook is equally scary. No wonder, Trump may come up with a peace proposal for Ukraine that involves Ukraine ceasing its right on the chunk of land already occupied by Russia. In this gloomy scenario, Putin may emerge as Europe’s problem. 

These are some of the probabilities, though there are others as well. Nonetheless, one thing is certain: the threat of uncertainty.

Israel, a Country in ‘Survival Mode’, redefines procreation!

The other day I read an article, “The promise of revival”, in the weekend magazine of FT authored by Jenny Kleeman, a British journalist, author and broadcaster. It discusses the increased use of Postmortem Sperm Retrieval (PMSR) by parents who have lost their sons in the ongoing Gaza war, hoping to create grandchildren. The article is quite revealing: it shows how communities facing existential threat innovate to redefine their survival and continuity on Earth.

As is well known, Israel was founded with the premise of providing a homeland for the Jewish people, many of whom had survived the Holocaust. Since the time of the Book of Genesis, Jews have been told that it is their duty to “be fruitful and multiply”. Over it, since the establishment of Israel, it has faced ongoing challenges from its neighbours and war has, in many ways, become a recurring feature of its existence. As a result, the death of young soldiers in armed forces has become a pervasive phenomenon. The result is: tragic consequences of bereaved families, orphaned children, and children who have never known their fathers.

Amidst such a threatening scenario, it is no wonder, today, Israel has the highest number of IVF cycles per capita in the world, duly aided by its advanced medical techniques. Perhaps, it is the only country in the world that fully covers the cost of IVF treatment up to the birth of two babies. In the same vein, the State is even covering the cost of PMSR, sperm storage, IVF, parental care and delivery – all in the anxiety of maintaining the Jewish race.

PMSR is relatively a simple medical procedure performed by a surgeon, usually an urologist. It involves opening the testis and taking a biopsy. As these are usually fertile men, a small biopsy is said to be enough to isolate sperm cells from the collected tissue. Then checking their motility and other signs of viability under a microscope, doctors pick up the promising sperms and freeze them for future use in assisted reproductive technology. As the sperms can remain alive for days after death, doctors usually freeze sperm collected up to 80 hours after death that are found viable. Nonetheless, the sooner the sperm is retrieved, the more likely it is to lead to successful conception.

It was Dr Cappy Rothman who, for the first time in the year 1980, successfully retrieved sperm from a 32-year-old dead person in Los Angeles and frozen it at the request of the deceased’s father. This was of course never used. Later it is reported that he performed PMSR 180 times but preserved sperm was used hardly in 10 cases for conception. Those PMSRs were said to have been carried out more to enable people to pass “through the grieving period”. 

Today, PMSR, perhaps of the ethical and legal issues involved, is banned in Germany, Sweden, France, Hungary and Slovenia. It is however legal subject to certain conditions in the UK, Canada, Netherlands, Greece, Estonia, Japan and the Czech Republic. There is no legislation covering PMSR in the US but it has become increasingly acceptable. Conceiving children from the dead partner’s sperm is however not that remarkable around the world.

But asking for grandchildren in the PSMR way has today become an almost exclusively Israeli phenomenon. It is the grieving parents, who, in their anxiety to have something to hold on, are opting for PSMR route to at least have a grandchild of their own. Maybe, with the motto, “why not cause happiness for those who lost their precious sons in war?” the State has removed restrictions on permissions required for retrieving sperm from the dead: As a result, today, in addition to partners, even parents of the dead can request a retrieval.

Today, Israel maintains a sperm bank at a Tel Aviv’s Medical Center, in which are stored more than 50000 sperm samples in numbered vails, frozen at -196⁰C. It contains sperm collected from young cancer patients well before the commencement of chemotherapy and from trans people before their gender reassignment for future use. It also contains the sperm collected from the bodies of soldiers who were killed during or after the recent Hamas attack on October 7, 2023. Every care is taken to maintain the right temperature all the times by constant monitoring by the staff, who believe that what they are caring for is priceless.

The medical profession of Israel is indeed offering a scope not only for a kind of biological continuity for the families who lost their precious sons/ life partners in the war but also offering a solace to the grieving families employing sophisticated medical procedures. Despite all these technological advancements and the outcomes thereof, one cannot deny the fact that such fathering a child by a dead soldier is no replacement to the lost son/partner.

That aside, immaterial of the fact of conceiving children either during or after their father’s death, Israel is set to have a lot of new orphans who have never seen their father. As a social activist commented, “A whole generation is going to be dealing with such difficult beginnings”.

But the tragic irony of the ongoing conflict is that not only do Israelis face a painful and uncertain future, but Palestinians also share the same fate. Particularly, people of Gaza under the Hamas rule may face a far more dire situation, for the blockade, ongoing confrontations and limited international aid leave many without access to even basic services. Contrarily, Israel, despite the conflict can provide its citizens substantial medical and financial assistance.

These tragic events posit a battery of questions: Why this mad killing of each other? Which religion could justify such orphaning of children? What for this mutual destruction? Why do so many countries aid this devastation to happen? …What is the Goal of all this? What disastrous illusion whirling one race after another, all equally fanatical, devouring finally themselves?

O Nations! "Awake and Will". 

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US Presidential Debate: Who outsmarted Whom?

 

ABC News hosted the first presidential debate between Democratic candidate Ms Kamala Harris, sitting Vice-President, and her rival from the Republican Party Donald Trump, the former President. It ran for about 90 minutes, hovering around key issues such as immigration, abortion rights, foreign policy, etc. 

The split screen view of the candidates on TV—Donald Trump on the left with his lips pursed and gesticulating, with Kamala Harris on the right, leaning slightly back with her hand on her chin, and watching Trump in amusement— was pretty impressive to watch besides being highly communicative. For, the contrast between the two tells viewers so much: Kamala Harris’s facial expression—in-between a grimace and a half-incredulous smile—resembles that of an exasperated audience of a political speech, while Trump, being repeatedly provoked by Harris and succumbing to them again and again, wallowing in his delusions. 

Unlike Trump, she was never furious, rather aired her arguments freely, confidently, and mostly with a smile. She triggered Trump Psychologically by repeatedly calling him weak, mocking him, acting bemused by him, and merrily laughing at him all through. For instance, she said, “I have travelled the world as Vice President of the United States, and world leaders are laughing at Donald Trump”. She didn’t stop there. She even said, “I have talked with military leaders, some of whom worked with you, and they say you’re a disgrace”. 

Obviously, enraged by such needling, his face turning orange, Trump roared incoherently. His ability to adopt to new issues emerging in the debate with suitable vocabulary, and verbal and logical coherence appears to have been clouded by Harris’s repeated provocations. The result is: “he lost his cool over and over” said, David Frum in The Atlantic. And, his repetitive speech was more on the known patterns. 

During the course of debate, Trump yelled that immigrants are eating people’s pets. While Harris was laughing on the other side of the screen, one of the ABC moderators said that there had been no “credible reports” of immigrants harming pets in Springfield. Caught off the guard, Trump’s response was: “I have seen people on television”. 

Watching the debate, Richard A. Friedman, professor of clinical psychiatry and the director of the psychopharmacology clinic at Weill Cornell Medical College, said: “If the debate was a cognitive test, the former president failed”.   

As against this, Kamala Harris, though portrayed some rigidity and repetition, she, like most of the politicians, mostly harped on her favourite topics but coherently and with a smiling face. Intriguingly, she didn’t talk much about her performance as Vice-President or about her policies. Instead she focussed more on needling Trump on his record, his vanity, etc., and thus she put Trump on the defensive. Watching her style of articulation and her facial expressions on the split-screen, reporters have termed it as her psychological win over the former President. 

Immediately after debate, CNN conducted a flash poll among debate viewers and it revealed that 63% of registered voters who watched the event declared Kamala Harris as the winner. 

Of course, it is too early to say whether a lead in the debate will have any impact on the neutral voters and on her prospects. But one thing is certain: Trump appeared to have sensed the outcome of debate rightly, for he wrote on Truth Social, “I thought that was my best Debate, EVER, especially since it was THREE ON ONE!” — By three he meant the two ABC moderators and Kamala Harris. He even said, that he is “not inclined to do any more debates”. Let’s wait and see what’s going to unfurl!

 

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India-EFTA Trade Deal: Will It Serve India’s Interests?

It is after 21 rounds of negotiations spreading over 16 long years that India and the European Free Trade Association (EFTA) comprising Switzerland, Norway, Iceland, and Liechtenstein could at last sign the Trade and Economic Partnership Agreement (TEPA) on March 10. EFTA terms it a significant milestone in the relationship between EFTA and India and also claims that it reflects a deeper economic partnership. This agreement however comes into effect only after the member countries ratify the accord. 

The EFTA block is India’s fifth largest trading partner after the EU, China, US, and UK. Its member countries are not part of the EU. It is an intergovernmental organization meant to promote and intensify trade. It is neither a politically integrated bloc nor a customs union. They have one of the largest networks of free trade agreements (FTAs) spanning over 60 countries and territories. That reveals the growing importance of trade agreements for growth in international trade in a globalized world. 

The present agreement between these four small countries of EFTA and India is likely to open the doors of economic cooperation, knowledge sharing and job creation both in India and EFTA countries provided they work collaboratively and resolve every obstacle that pops up in the way strategically and move forward with faith in each other to implement the accord effectively. 

Theoretically speaking, a free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under an FTA, goods and services can be bought and sold across international borders with little or no governmental tariffs, quotas, or subsidies. Free trade has indeed allowed many countries to attain rapid economic growth. It enables countries to capitalize on the principle of Ricardo’s ‘comparative advantage’ —focusing on producing such goods that a country can produce with cheap labour, and sell in the global market at a lower price and thereby garner the market. 

For the first time ever in the history of FTAs, the EFTA member nations have committed to invest $100 bn excluding foreign portfolio investment and help create a million jobs in India over the coming 15 years. The investment flow is however predicated on India’s GDP growing at a nominal rate of 9.5% over 15 years. There is, of course, an option in the agreement that enables India to revoke its trade concessions if there is any shortfall in the proposed investment but only in proportion to the extent of the shortfall in the said investment. This again could be undertaken only after a review which could take about three years, which means such revocation is possible only after 18-20 years of the agreement coming into force. It has also offered 92.2% of its tariff which covers 99.6% of India’s exports. The EFTA’s market access offer covers 100% of non-agri products and tariff concession on processed agricultural products. 

Now the question is: Whether India stand to gain market access, particularly to Switzerland? According to the Global Trade Research Initiative, 98% of India’s exports to Switzerland are industrial products and the duties on these products are now brought down to zero from the existing 1.3%. Thus, there appears to be no real gain. But the government hopes that the TEPA would stimulate our service exports in sectors where we are considered strong globally such as IT services, business services, personal, cultural, sporting and recreational services, audio-visual services, etc. Our IT companies such as TCS, Infosys and HCL already have their offices in EFTA countries but the free movement of IT professionals across these nations could only result in gains for India. Norway has, of course, said that there would be ‘no capping’ on the entry of Indian IT professionals, but there are no such explicit concessions in the agreement. In light of these realities, one has to wait and watch how the EFTA countries handle the entry of Indian professionals. 

In return, India offered to lift or partially remove very high customs duties on 95.3% of industrial imports, of course, excluding gold, in a phased manner over varying periods. Sectors such as dairy, soya, coal and sensitive agricultural products are excluded from the said list. Nevertheless, the reduction in tariffs is likely to expand the trade deficit that stood at $18.6 with EFTA countries. That aside, there are already more than 300 Swiss companies such as Nestlé, Holcim, Novartis, Sulzer and banks such as UBS operating in India. Switzerland, which already has a trade surplus of over $12 bn with India could now increase its export of electrical machinery, engineering products, wine, watches, medical devices and pharmaceuticals to India. 

Over it, Switzerland, the largest partner in the EFTA, has a thriving FTA with China. Recently, they have even upgraded their trade relationship. This posits a challenge: Will Chinese goods find an easy way into India via Switzerland? Of course, there are rules of origin in the agreement but one is not sure if they cannot be circumvented as it happened under the ASEAN FTA route. Incidentally, Switzerland is currently working towards resetting its ties with the EU. In case it enters the EU by adopting the ‘Carbon Border Adjustment Mechanism’ and other related conditions imposed by the EU, it may pose a new challenge to India. A vigil over these challenges is likely to keep gains in good stead.

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