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By:

Abhijit Mulye

21 August 2024 at 11:29:11 am

RBI forced to rethink inflation, growth

Mumbai: The undeniable reality of climate change is rapidly transitioning from an ecological warning to a severe economic crisis in India. Global warming is no longer just altering natural ecosystems; it is fundamentally rewriting the rules of the nation's macroeconomic stability. A stark illustration of this shift comes from the HSBC report published on Monday, which highlights how rising surface temperatures and the looming threat of El Niño are directly forcing the Reserve Bank of India to...

RBI forced to rethink inflation, growth

Mumbai: The undeniable reality of climate change is rapidly transitioning from an ecological warning to a severe economic crisis in India. Global warming is no longer just altering natural ecosystems; it is fundamentally rewriting the rules of the nation's macroeconomic stability. A stark illustration of this shift comes from the HSBC report published on Monday, which highlights how rising surface temperatures and the looming threat of El Niño are directly forcing the Reserve Bank of India to reconsider its monetary policy, proving that climate shocks are now dictating everyday financial realities. ​ For decades, economists and policymakers have anxiously tracked the Indian monsoon, relying on rain gauges and reservoir levels to forecast agricultural output and inflation. However, HSBC’s analysis reveals a startling paradigm shift: tracking rising temperatures has now become a far more accurate method for predicting food inflation than observing traditional rainfall patterns. As average surface temperatures breach historical thresholds, the sensitivity of food prices to extreme heat has increased dramatically. During El Niño years, the probability of severe temperature spikes is now significantly higher than the chances of a rainfall deficit. These intensifying spikes mean the thermometer has become a far more vital forecasting tool for the central bank than the rain gauge. ​ The effects of this warming planet are cascading through various walks of life, starting at the very roots of the agricultural sector. Intense and frequent heatwaves are no longer just wilting delicate, perishable crops like fruits and vegetables, which have traditionally been highly vulnerable to sudden temperature fluctuations. The soaring mercury is now directly threatening the resilience of durable staple crops, including cereals, pulses, oilseeds, and sugar. When these crucial crops fail to withstand the intensifying heat, the immediate fallout is a sharp surge in food prices. While robust granaries might offer a temporary buffer, the overarching trend points to persistent agricultural distress, threatening food security and pushing the financial burden directly onto the plates of ordinary citizens. Complex Web ​This climate-induced disruption is creating a complex web of challenges for the national economy. The HSBC report predicts that the combination of El Niño-driven temperature shocks and global energy pressures could push headline inflation to an average of 5.6 percent in the 2026-27 financial year. This overlapping environmental and economic crisis leaves the Reserve Bank of India in a precarious position. To combat the inflationary heat, the central bank is projected to deliver two interest rate hikes between late 2026 and early 2027, ultimately pushing the repo rate to 5.75 percent. However, the central bank must tread carefully, as these relentless climate shocks are simultaneously dragging down the nation's economic momentum, with GDP growth projections downgraded from a robust 7.4 percent to a sluggish 6 percent. ​ Ultimately, the heaviest toll of this shifting climate is borne by the most vulnerable segments of society. The intersection of severe weather events, rising food costs, and tightening economic policies strikes hardest at the informal sector. Rural households, small agricultural businesses, and daily wage earners find their livelihoods increasingly squeezed by extreme weather forces entirely out of their control. The warming climate is fundamentally changing the drivers of India’s economic growth, turning environmental predictability into a luxury of the past. As policymakers grapple with these twin shocks of heat and inflation, it is evident that climate change has firmly rooted itself in every facet of Indian life.

India’s Endless Reservation Debate

 What began as a corrective for historical wrongs has ossified into a political crutch that we cannot seem to discard.

Few issues stir as much political fervour in India as caste. Over the past months, Maharashtra has witnessed noisy agitations by Maratha groups demanding a share of reservations. Not long ago, Patidars in Gujarat, Jats in Haryana and Kapus in Andhra Pradesh made similar claims. Karnataka has embarked on its own caste survey, while Bihar, with an election looming, has castes and sub-castes dissected on nightly television debates, replete with colourful charts predicting who will vote for whom. Every political party insists it seeks an India beyond caste. Yet every politician calculates electoral arithmetic on its basis.

 

The paradox is glaring. On one hand, there are voices denying the relevance of caste in a modernising, urbanising India; on the other, there are groups clamouring for preferential treatment grounded in it. To acknowledge the persistence of caste is not to endorse hierarchy, but to recognise difference. Nature itself offers a parallel. Carolus Linnaeus, the Swedish botanist, classified plants and animals into countless categories, each with distinctive traits. Diversity does not imply superiority. Yet, in India, difference has too often been distorted into hierarchy, relegating some to centuries of disadvantage.

 

The Constitution-makers hoped that independence would render caste irrelevant. Reservations were conceived as a temporary remedy, to be reviewed after a decade. Seventy-five years later, the remedy has become a permanent fixture, with demands for expansion rather than rollback. If caste-based discrimination has indeed persisted all these decades, then governments bear responsibility for failing to eradicate it. If, however, the basis of exclusion has shifted from caste to affordability, then reservations are a misplaced cure for an altered malady. Poverty, not caste alone, has become the greater barrier in today’s India.

 

False comfort

This muddle explains why the policy provokes both passion and fatigue. For decades, reservations did provide opportunities once denied. They enabled Dalits, Adivasis and backward classes to access education, jobs and political representation. But the law of diminishing returns is catching up. Extending reservations endlessly to ever-new groups risks diluting the very objective of the policy. Like a fixed deposit perpetually rolled over, the scheme offers the false comfort of continuity while inflation erodes its real worth.

 

Social realities, too, have changed. Urban India’s restaurants do not inquire into the caste of the cook. Employers in competitive industries care about skills, not surnames. Inter-caste friendships and marriages, though far from ubiquitous, are no longer the taboo they once were. In many respects, mobility and opportunity are determined less by birth than by wealth, location and access to networks. In this context, expanding caste quotas seems less a measure of social justice and more an exercise in political patronage.

 

The hypocrisy of political parties is plain. They lament caste divisions while exploiting them ruthlessly in a first-past-the-post system that rewards micro-fragmentation. To cobble together a winning coalition, they slice electorates into ever narrower blocs. Securing a minority of votes suffices for victory if the opposition is splintered. This perverse incentive fuels the endless clamour for quotas. The more groups can be promised reservations, the more securely politicians can bank on their loyalties.

 

A more honest politics would acknowledge both the persistence and the transformation of caste. Discrimination has not vanished, but nor does caste define every opportunity or exclusion as it once did. Leaders serious about creating a society beyond caste would reform the electoral system itself. Alternatives such as ranked-choice voting, which compel candidates to seek majority support, would encourage unifying appeals rather than divisive arithmetic. True mass leaders would harness diversity not to pit groups against one another, but to complement strengths and overcome weaknesses.

 

Historical scars

None of this is to deny the scars of history. Caste hierarchies inflicted grievous damage over centuries, depriving millions of dignity and opportunity. Addressing those wrongs was both just and necessary. But policies must adapt to the present. To continue treating caste as the singular determinant of deprivation is intellectually lazy and politically cynical. India’s young population faces challenges of unemployment, skills mismatch, and inequality that transcend caste boundaries.

But an outdated framework of reservations risks missing the target altogether.

 

The question, then, is not whether to abandon affirmative action, but how to redefine it. Quotas based solely on caste risk becoming ever more contentious and ineffective. Targeted measures based on economic need, combined with better public education, skill-building, and healthcare, would serve the disadvantaged more directly. This requires courage and imagination—qualities too often absent in India’s political class.

 

Ultimately, the responsibility does not lie with politicians alone. Ordinary citizens, too, must resist the lure of caste-based identity politics. Voters must recognise that their interests are not best served by electing someone from their caste, but by supporting candidates who are competent and honest. The selfish calculation of “one of our own” in office has perpetuated mediocrity and corruption as much as any other factor.

 

India’s obsession with caste quotas is a symptom of a larger malaise: the reluctance to update institutions and ideas with changing times. Clinging to the comfort zones of yesteryear will not carry the country forward. Reservations once helped level the field. Today, without clarity of purpose and courage of reform, they risk becoming a dead weight. The sooner India confronts this uncomfortable truth, the better its chances of creating a society where difference no longer dictates destiny.

 

(The writer works in the Information Technology sector. Views personal.) 


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