a) Capital crisis — on U.S. recognising Jerusalem as Israel’s capital

U.S. President Donald Trump’s decision to recognise Jerusalem as the capital of Israel, despite warnings at home and abroad, will worsen the Israel-Palestine conflict. Jerusalem, which houses holy places of all three Abrahamic religions and is claimed by both Israelis and Palestinians, is at the very heart of the dispute. Israel built its seat of power in West Jerusalem decades ago and occupied the East during the 1967 war, and later annexed it. Palestinians insist that East Jerusalem should be the capital of their future state. Even though there is a Congressional resolution in the U.S. urging Washington to relocate its embassy from Tel Aviv to Jerusalem, previous American Presidents avoided doing so given the legal, ethical and political implications of the issue, besides their commitment to a negotiated two-state settlement. By breaking with this consensus, Mr. Trump has in effect endorsed the Israeli claims to East Jerusalem. The decision will likely help him bolster his image among the Jewish lobby in Washington as well as American evangelical groups, his social base. Israel is obviously happy. Though Arab countries have voiced protest, they are unlikely to challenge an American decision. Mr. Trump’s move raises vital questions about U.S. diplomacy in the region besides putting new roadblocks in the peace process. It could be viewed as illegal as the Israeli claim that Jerusalem “complete and united” is its capital has been declared “null and void” by UN Security Council Resolution 478, which also asks member-countries to “withdraw diplomatic missions from the Holy City”. The U.S. is now acting against the spirit of this resolution. The Jerusalem gambit risks triggering another cycle of protests and repression in the Occupied Territories. In 2000, Ariel Sharon’s visit to the al-Aqsa compound in the Old City sparked the second intifada. Palestinians are expressing similar distress today. The peace process is not going anywhere, while Israel has gradually been tightening its occupation and building new settlements. Hamas has already called for a third intifada. In the longer term, Mr. Trump has just made the two-state solution more complicated. The Israeli-Palestine conflict can be settled only after an agreement is reached on the status of Jerusalem. The city was not part of Israel in the original 1947 UN plan to partition Palestine. Jerusalem, which was supposed to be ruled by an international trusteeship, was conquered by Israel. This is why the UN has not recognised it as Israel’s capital. With his latest announcement, Mr. Trump has endorsed the occupation. And in doing so, he has undermined the U.S.’s position as a neutral broker in Israeli-Palestinian talks. In short, he has dealt a blow to the peace process.

b) Getting back on track

The national income numbers for the second quarter of 2017-18 has come as a relief. Gross Domestic Product (GDP) has grown at 6.3% year-on-year compared to 5.7% in the first quarter. The trend of declining growth rate quarter after quarter, which was seen in the last one year, has been reversed. This is a welcome sign. However, doubts and concerns persist for some.

Signs of revival?

Is this a flash in the pan or is it a sign of a revival? Can we expect a further rise in the growth rate in the rest of the year? Some people are disturbed by the excessive focus on GDP and its growth rate. It is true that development has many dimensions and for a balanced view, one must look at all of them. Nevertheless, GDP is an important indicator of the performance of the economy, and a faster rate of growth is most often a prerequisite for rapid social development. What are the encouraging signs flowing out of the data on GDP for the July-September quarter? For this, we need to look at sectoral growth rates. The most encouraging sign is the performance of the manufacturing sector which grew at 7% against 1.2% in the previous quarter. This is really a turnaround, if we don’t dispute the number. In the corresponding quarter in the previous year, the growth rate was 7.7%. It appears that the manufacturing sector has come out of the disruptions caused by demonetisation and more particularly, the implementation of the goods and services tax (GST). Three other sectors which have grown strongly are the two subsectors under services — trade, hotels, etc., and public administration — besides electricity and other utility services. The trade sector grew by 9.9% and there is some indication by the Chief Statistician, T.C.A. Anant, that there could be some underestimation here. Public administration grew at 6%, much lower than the previous quarters but still reasonably high. In fact, it is a good sign that despite a lower growth of government expenditure, overall growth rate picked up. Some calculations show that excluding agriculture and public administration, the GDP growth rate in Q2 was 6.8% compared to 3.8% in Q1. The electricity sector has done well with a growth rate of 7.6% compared to 7.0% in Q1. The growth rate in agriculture was low at 1.7%. This was to be expected because the growth rate in agriculture was very strong the previous year. Even though the monsoon has been good, one should not expect a much stronger growth over a good year. The construction sector grew at 2.6% only. It is yet to recover from the impact of demonetisation. But that should not come as a surprise as demonetisation was directly meant to hurt the way business was being done in this sector.

Discouraging signals

The most discouraging sign is the behaviour of the Gross Fixed Capital Formation (GFCF). It is true that GFCF at current prices grew at 6.3% in Q2 against 2.9% in the corresponding period last fiscal. This shows an improvement in terms of sentiment. However, as the growth rate of GFCF fell below the growth rate of GDP, the ratio of GFCF to GDP has fallen from 27.1% to 26.4%. This is truly disturbing. The fall must be due to a decline in private investment, as public investment during this period has done reasonably well. Without a rise in the private investment rate, sustained high growth cannot be maintained. There are some doubts about the high growth in manufacturing. In this context, analysts draw attention to the disparities between the rate of growth in the index of industrial production (IIP) and national income statistics. For example, in Q2 of 2017-18, manufacturing under IIP grew at 2.2%. There is, of course, a difference between the national income and IIP figures, the former dealing with value added and the latter with total production. Nevertheless, such sharp differences raise some concerns. In the new methodology in estimating value added in the manufacturing sector, corporate data play a major role. This approach is not incorrect. Though many committees, including the one headed by me, on savings have recommended the use of corporate sector data, some cross-checking is needed. The government has set up the National Statistical Commission to give credibility to the Indian Statistical System. It must make effective use of it. Perhaps a clear statement from the National Statistical Commission will help to put the doubts at rest.

The road ahead

What do the numbers say about the future? After staying at the same level for two quarters, gross value added (GVA) has moved up. This may be broadly taken to mean that the decline in growth rate has bottomed out. Perhaps the glitches caused by GST have been overcome. That only amounts to the removal of a negative factor. Therefore, the immediate prospect is some improvement in the growth rate in the next two quarters. In the next two quarters, there is not much space for public administration to push the economy. Last year, a reasonable rate of growth was achieved because of the strong growth of government expenditure in all quarters. This year, at the end of the third quarter, fiscal deficit has almost reached the budgeted level. Even after allowing for some slippage, it is unlikely that government expenditure can act as a driver of growth. Thus, while one can expect the growth rate to pick up in the second half, any substantial increase depends on the behaviour of private investment which remains intractable. Yet another factor influencing growth is exports. India’s export performance has picked up in the current year. In terms of growth rate, it was doing reasonably well. During April-September, exports grew by 11.52%. But there was a setback in October with the export growth rate turning negative. However, the world economy is generally looking better this year. World trade in 2017 is expected to grow at 1.7% compared to 0.8% in 2016. Improvement in the external environment may help to raise our exports. This may be another positive factor influencing growth, even though it is difficult to say how strong it will be. All in all, it appears that the GDP growth for the year as a whole may be around 6.5%. For growth to pick up in a strong way, policymakers need to address the issue of declining investment rate. As pointed out already, the GFCF ratio has fallen to 26.4%. As late as 2014-15, the GFCF rate was 30.8%. Only when the reversal of this trend happens can we be assured of a sustained high growth of 7% plus. The excess capacity built up during the boom period must have been used up by now. A complex set of factors is keeping down the private investment rate. These factors need to be addressed in order to push up private investment, even as the pace of public capital expenditures, which have shown a pick up recently, is maintained.


1) Conflict

Meaning: A prolonged armed struggle.

Example: “regional conflicts”

Synonyms: Campaign, Encounter

Antonyms: Peace

2) Annexed

Meaning: Add or attach as a condition or consequence.

Example: “extreme anointing hath neither ordinance of God to be grounded on, nor promise of grace annexed”

Synonyms: Add, Append

3) Insist

Meaning: State positively and assertively.

Example: “the chairman insisted that all was not doom and gloom”

Synonyms: Maintain, Assert

4) Relocate

Meaning: Move to a new place and establish one’s home or business there.

Example: “sixty workers could face redundancy because the firm is relocating”

Synonyms: Move, Change

Antonyms: Stay, Stagnate

5) Embassy

Meaning: The official residence or offices of an ambassador.

Example: “the Chilean embassy in Moscow”

Synonyms: Consulate, Legation

6) Implications

Meaning: The conclusion that can be drawn from something although it is not explicitly stated.

Example: “the implication is that no one person at the bank is responsible”

Synonyms: Suggestion, Inference

Antonyms: Explicit

7) Negotiated

Meaning: Try to reach an agreement or compromise by discussion.

Example: “they refused to negotiate with the rebels”

Synonyms: Debate, Confer

8) Consensus

Meaning: A general agreement.

Example: “there is a growing consensus that the current regime has failed”

Synonyms: Agreement, Accord

Antonyms: Disagreement

9) Endorsed

Meaning: Recommend (a product) in an advertisement.

Example: “he earns more money endorsing sports clothes than playing football”

Synonyms: Support, Back

Antonyms: Oppose

10) Bolster

Meaning: Support or strengthen.

Example: “the fall in interest rates is starting to bolster confidence”

Synonyms: Strengthen, Support

Antonyms: Undermine

11) Jewish

Meaning: Relating to, associated with, or denoting Jews or Judaism.

Example: “the Jewish people”

12) Lobby

Meaning: A group of people seeking to influence legislators on a particular issue.

Example: “members of the anti-abortion lobby”

Synonyms: Interest group, Movement

13) Evangelical

Meaning: Of or denoting a tradition within Protestant Christianity emphasizing the authority of the Bible, personal conversion, and the doctrine of salvation by faith in the Atonement.

Example: “an evangelical preacher”

Synonyms: Missionary, Evangelistic

14) Vital

Meaning: Absolutely necessary; essential.

Example: “secrecy is of vital importance”

Synonyms: Essential, Important

Antonyms: Unnecessary, Secondary

15) Roadblocks

Meaning: A hindrance or obstruction.

Example: “the biggest roadblock to solar power is its price tag”

Synonyms: Obstruction, Disturbance

16) Null and void

Meaning: Having no legal force.

Example: The change in the law makes the previous agreement null and void.

Synonyms: Bail, Actionable

17) Spirit

Meaning: The prevailing or typical quality, mood, or attitude of a person, group, or period of time.

Example: “I hope the team will build on this spirit of confidence”

Synonyms: Ethos, Essence

18) Gambit

Meaning: An act or remark that is calculated to gain an advantage, especially at the outset of a situation.

Example: “his resignation was a tactical gambit”

Synonyms: Scheme, Move

19) Repression

Meaning: The action of subduing someone or something by force.

Example: “students sparked off events that ended in brutal repression”

Synonyms: Suppression, Restraint

Antonyms: Freedom, Liberty

20) Sparked

Meaning: Provide the stimulus for (an event or process).

Example: “the trial sparked a furious row”

Synonyms: Start, Cause

21) Intifada

Meaning: The Palestinian uprising against Israeli occupation of the West Bank and Gaza Strip. The first intifada lasted from 1987 to 1993, and the second began in 2000 (or) a violent act of oppostion by the Palestinian people to the Israeli occupation of the West Bank and Gaza Strip.

22) Tightening

Meaning: Make or become tight or tighter.

Example: “he tightened up the clips”

Synonyms: Secure, Strengthen

Antonyms: Loosen, Relax

23) Trusteeship

Meaning: The position or responsibility of a trustee.

Synonyms: Support, Fund

24) Conquered

Meaning: Overcome and take control of (a place or people) by military force.

Example: “he conquered Cyprus”

Synonyms: Defeat, Overcome

Antonyms: Liberate, Lose

25) Undermined

Meaning: Lessen the effectiveness, power, or ability of, especially gradually or insidiously.

Example: “this could undermine years of hard work”

Synonyms: Subvert, Weaken

Antonyms: Enhance, Improve

26) Dealt

Meaning: Be concerned with.

Example: “journalism that deals in small-town chit-chat”

Synonyms: Concern, Consider

27) Trend

Meaning: A general direction in which something is developing or changing.

Example: “an upward trend in sales and profit margins”

Synonyms: Tendency, Movement

28) Persist

Meaning: Continue in an opinion or course of action in spite of difficulty or opposition.

Example: “the minority of drivers who persist in drinking”

Synonyms: Persevere, Continue

Antonyms: Abandon, Stop

29) Prerequisite

Meaning: Required as a prior condition.

Example: “the student must have the prerequisite skills”

Synonyms: Necessary, Required

Antonyms: Unnecessary, Non-essential

30) Disruptions

Meaning: Disturbance or problems which interrupt an event, activity, or process.

Example: “the scheme was planned to minimize disruption”

Synonyms: Disturbance, Confusion

31) Underestimation

Meaning: A judgement or rough calculation that is unfavourable or too low.

Example: “there was an underestimation of what it would cost”

Synonyms: Low, Unfavourable

32) Decline

Meaning: (typically of something regarded as good) become smaller, fewer, or less; decrease.

Example: “the birth rate continued to decline”

Synonyms: Decrease, Reduce

Antonyms: Increase

33) Disparities

Meaning: A great difference.

Example: “economic disparities between different regions of the country”

Synonyms: Discrepancy, Inconsistency

Antonyms: Parity, Similarity

34) Nevertheless

Meaning: In spite of that; notwithstanding; all the same.

Example: “statements which, although literally true, are nevertheless misleading”

Synonyms: Nonetheless, Notwithstanding

35) Bottomed out

Meaning: To have reached the lowest point in a continuously changing situation and to be about to improve.

Example: Economists think that the recession is bottoming out.

Synonyms: Fail

36) Glitches

Meaning: An unexpected setback.

Example: “the only glitch in his year is failing to qualify for the Masters”

Synonyms: Failure, Fault

37) Slippage

Meaning: The action or process of slipping or subsiding.

Example: “£16 million has been spent on cracks and slippage”

Synonyms: Decline, Decrease

38) Substantial

Meaning: Of considerable importance, size, or worth.

Example: “a substantial amount of cash”

Synonyms: Considerable, Real

Antonyms: Insubstantial, Worthless

39) Built up

Meaning: (of a feeling) increasing in intensity over a period of time.

Example: “built-up frustration”

Synonyms: Increase, Frustrate

40) Boom

Meaning: A period of great prosperity or rapid economic growth.

Example: “the London property boom”

Synonyms: High Growth, High Value