1. Pause could prove costly, said Das; growth fragile, argued MPC’s Varma
Economic growth not robust enough to withstand excessive monetary tightening, held Varma in voting against the 35 basis points repo rate increase at the Reserve Bank of India’s Monetary Policy Committee’s December meeting, the minutes show
The Reserve Bank of India could ill afford to opt for a “premature pause in monetary policy action” as it would prove costly at a time when there was ‘stickiness in core inflation’, Governor Shaktikanta Das stressed at the Monetary Policy Committee’s meeting earlier this month, the minutes show. On the other hand, fellow MPC member Jayanth Varma, who opposed raising interest rates yet again, asserted that “economic growth is now extremely fragile and definitely not robust enough to withstand excessive monetary tightening”.
“A premature pause in monetary policy action would be a costly policy error at this juncture,” Mr. Das had said in voting to raise the repo rate, the minutes released on Wednesday show. “Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward-off accentuated inflationary pressures,” he added.
Arguing that the balance of risks had shifted decisively away from inflation to growth both globally and domestically, Mr. Varma, however, said, “I believe that the 35 basis point rate hike… is not warranted in this context of reduced inflationary pressures and heightened growth concerns”.
Also, opposing the policy stance, he contended that given monetary policy impacts with a lag’, front loading monetary policy action posed an unwarranted risk to growth.
“It may take 3-4 quarters for the policy rate to be transmitted to the real economy,” Mr. Varma said, adding the MPC had raised the repo rate by 225 basis points in about eight months. “I believe that 6.25% itself very likely overshoots the repo rate needed to achieve price stability, and poses an unwarranted risk to economic growth,” he added.
Monetary Policy Committee
The Monetary Policy Committee (MPC) is a committee constituted by the Central Government and led by the Governor of RBI. Monetary Policy Committee was formed with the mission of fixing the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level. The RBI governor controls the monetary policy decisions with the support and advice of the internal team and the technical advisory committee.
Initially, the main decisions related to interest rates were taken by the Governor of RBI alone before the establishment of the committee. MPC was constituted under the Reserve Bank of India Act, 1934 as an initiative to bring more transparency and accountability in fixing the Monetary Policy of India. MPC conducts meetings at least 4 times a year and the monetary policy is published after every meeting with each member explaining his opinions.
Use of Monetary Policy
- Monetary Policy is the process of regulating the supply of money in an economy by the monetary authority of the country.
- The Monetary Policy, generally, adjusts the inflation rates or interest rates to sustain the price stability and to maintain the predictable exchange rates with foreign currencies.
- The Reserve Bank of India is the central banking authority of India, which controls the monetary policy in conjunction with the central government’s developmental agenda.
- The Reserve Bank of India is authorized to make monetary policy under the Reserve Bank of India Act, 1934.
- Monetary policy is either contractionary or expansionary and is often seen separate from the fiscal policy which deals with taxation, spending by government, and borrowing.
- When the total money supply is increased rapidly than normal, it is called an expansionary policy, while a slower increase or even a decrease of the same refers to a contractionary policy.
Instruments of Monetary Policy
There are both direct and indirect instruments used for implementing monetary policy. Few include:
- Repo rate
- Reverse Repo rate
- Liquidity Adjustment Facility (LAF)
- Marginal Standing Facility (MSF)
- Bank Rate
- Cash Reserve Ratio (CRR)
- Statutory Liquidity Ratio (SLR)
- Open Market Operations (OMOs)
- Market Stabilisation Scheme (MSS)
Objectives of Monetary Policy
Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment, and a faster economic growth rate. The major four objectives of the Monetary Policy are mentioned below:
- To stabilize the business cycle.
- To provide reasonable price stability.
- To provide faster economic growth.
- Exchange Rate Stability.
How was the Monetary Policy Committee formed?
Urijit Patel Committee first proposed the idea for the formation of a five-member Monetary Policy Committee. Later, the government proposed the setting up of a seven-member committee. MPC is assisted by the Monetary Policy Department (MPD) of the Reserve Bank in the formulation of the policy. The monetary Policy Committee came into force on 27th June 2016. The Financial Markets Operations Department (FMOD) operationalizes the monetary policy, mainly through day-to-day liquidity management operations.
Structure of the Monetary Policy Committee
- Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government. The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
- The committee determines the policy interest rate required to achieve the inflation target.
- The MPC is required to meet at least four times in a year.
- The quorum for the meeting of the MPC is four members.
- Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
- Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain the sources of inflation and the forecasts of inflation for 6-18 months ahead.
2. Maritime Anti-Piracy Bill passed in Rajya Sabha
The Rajya Sabha on Wednesday passed the Maritime Anti-Piracy Bill on Wednesday, two days after the Lok Sabha cleared it.
External Affairs Minister S. Jaishankar said the Bill would fulfil all the expectations of the United Nations Convention on the Law of the Sea (UNCLOS), which India is a signatory to, for cooperation and repression of piracy in high seas.
Addressing the concerns raised by the Standing Committee on Transport and Shipping, the Centre has dropped the provision for trial in absentia through amendments brought in the Lok Sabha. The Bill also addresses the issue of death penalty “as an exceptional case”. The quantum of punishments envisaged are in line with the gravity of offences.
Mr. Jaishankar, replying to a brief debate, said that between 2008 and 2011, there were 27 maritime incidents where 288 Indian nationals were involved. “Between 2014 and 2022, there were 19 piracy cases in which 155 Indian crew members were involved and the numbers show why the country needs this Bill so badly,” he added.
“It will strengthen our maritime security, including the safety of our maritime trade routes and the well-being of Indian seafarers in international waters,” Mr. Jaishankar said.
3. The INS Mormugao and its capabilities
What are the features of the Visakhapatnam-class destroyers? How is the latest addition to the Indian Navy’s fleet a shot in the arm for the nation’s self-reliance efforts? How will the warship be a strategic advantage for the country in the Indian Ocean region where China is rapidly expanding its influence?
In a boost to the country’s maritime capabilities, INS Mormugao has officially joined the Indian Navy’s fleet, marking a significant milestone for indigenous military expedition. The warship ‘Yard 12705’, named after the Goan port city of Mormugao, is the second of the four Visakhapatnam-class destroyers being built under the Indian Navy Project 15B, or P15B. The destroyer has multi-dimensional combat capabilities which include surface-to-surface missiles, surface-to-air missiles and modern surveillance radar.
What is Project 15B?
Project 15 was launched in the 1990s to add guided missile destroyers to the inventory of the Indian Navy. The project was named ‘Delhi class’. It was followed by Project 15A or Kolkata class which primarily focused on advanced technology and equipment in surface ships. Project 15B or the Visakhapatnam class is a follow-on class of weapon-intensive Project 15A destroyers. The project was launched in January 2011 to incorporate advanced design concepts such as state-of-the-art weapons and sensors, advanced stealth features and a high degree of automation for “improved survivability, sea keeping, stealth and manoeuvrability”. The lead ship of Project 15B, INS Visakhapatnam, was the first of the class to be commissioned. Besides INS Mormugao, the other two destroyers are expected to be commissioned between 2023 and 2025.
What are the capabilities of INS Mormugao?
Regarded as “one of the most potent warships to have been constructed in the country”, the destroyer is 163 metres long, 17 metres wide and displaces 7,400 tonnes when fully loaded. The ship is propelled by four gas turbines in a combined gas and gas (COGAG) configuration. The propulsion system allows the ship to achieve a speed of more than 30 knots (50km/h) and a maximum range of 4,000 nautical miles. It can accommodate a crew of about 300 personnel.
INS Mormugao’s firepower comprises BrahMos surface-to-surface missiles (SSM), Barak-8 surface-to-air (SAM) missiles for a long range of shore and sea-based targets and a 76mm super rapid gun mount. The ship is armed with RBU-6000 anti-submarine rocket launchers and 533mm torpedo launchers. It is also equipped to carry and operate multi-role helicopters. Its enhanced stealth features ensure a reduced Radar Cross Section or radar signature.
It is automated with sophisticated digital networks such as the Gigabyte Ethernet-based Ship Data Network (GESDN), the Combat Management System (CMS), Automatic Power Management System (APMS), Integrated Platform Management System (IPMS) and Ship Data Network (SDN). While the CMS performs threat evaluation and resource allocation based on the tactical picture compiled and ammunition available onboard, APMS controls power management. IPMS is used to control and monitor machinery and auxiliaries and the SDN is the ‘information highway for data’ from sensors and weapons. The ship has multiple fire zones, battle damage control systems, distributional power systems to enhance survivability in emergencies and a total atmospheric control system to protect the crew against nuclear, biological and chemical threats.
Built with over 75% indigenous content, the commissioning of INS Mormugao is a shot in the arm for India’s self-reliance efforts and crucial for the 15-year Indian Naval Indigenisation Plan (INIP) 2015-2030 implemented in 2014 for indigenous development of its resources, equipment and to make the nation self-reliant in defence technology.
What is the strategic importance?
While India’s interests are closely tied to the Indian Ocean, China has been rapidly expanding its naval footprint in the region.
Amid growing Chinese strategic interests, India renewed its focus on bolstering its maritime capabilities in the region to counter the threat.
During the commissioning ceremony of INS Mormugao, Defence Minister Rajnath Singh reiterated the government’s resolve to prepare the nation to deal with any situation arising due to the changing global scenario. “Economic, political and trade relations between countries are constantly evolving. The COVID-19 pandemic, the situation in the Middle East, Afghanistan and now Ukraine. It directly or indirectly impacts every country in one way or another. In this era of globalisation, almost all nations are dependent on each other in the field of trade. Hence, rule-based freedom of navigation, security of sea lanes etc. have become more important than ever for stability and economic progress of the world,” he said.
The addition of a technologically advanced stealth warship to the naval inventory provides a strategic advantage to India and adds to the combat capabilities of the armed forces. Besides surface operations, guided missile destroyers are capable of engaging in anti-aircraft and anti-submarine warfare.
4. Editorial-1: The need to make cancer drugs affordable
The subject of the spiralling costs of cancer medicines and their implications that have frequently been highlighted the world over were dwelled on in a recent report (“Cancer Care Plan and Management”) by the Rajya Sabha’s Standing Committee on Health (bit.ly/3jfmxLG). Alluding to the implications of the high cost of cancer care, the Committee noted that “about 40% of cancer hospitalization cases are financed mainly through borrowings, sale of assets and contributions from friends and relatives”. This situation has arisen, according to the Committee, because “even average out of pocket spending on cancer care is too high” and that “spending for cancer care in private facilities is about three times that of public facilities”. The Committee has, thus, highlighted the seriousness of problems concerning the treatment of cancer, the estimated incidence of which in India was nearly 1.4 million in 2020.
Impact on survival rates
The catastrophic treatment cost has seriously impacted survival rates in developing countries. In breast cancer, while the five-year survival rates in India and South Africa are estimated to be 65% and 45%, respectively, in contrast, in high-income countries, it is nearly 90%. In its explanation of this dismal situation, a World Health Organization (WHO) report on pricing of cancer medicines and its impacts had stated that the cost of a course of standard treatment for early stage HER2 (human epidermal growth factor receptor) positive breast cancer would be equivalent to about 10 years of average annual wages in India and South Africa and 1.7 years in the United States (bit.ly/3v0iRQm).
According to WHO, the costs associated with other medical care and interventions (such as surgical interventions and radiotherapy) and supportive care would make overall care even more unaffordable.
In the treatment protocol for breast cancer, CDK (cyclin-dependent kinase) inhibitors constitute a major therapeutic tool, especially for metastatic breast cancer. Three drugs, Ribociclib, Palbociclib and Abemaciclib, belong to this therapeutic class, which help in slowing the spread of cancer cells in the body. A month’s treatment using these drugs could range between ₹48,000 and ₹95,000 and the patient is expected to take one of these medicines for the rest of her life.
If one can tabulate the use of cancer drugs and the approximate price for a month’s treatment one has: Ribociclib (Novartis) ₹64,455; Palbociclib (Pfizer) ₹87,000; Abemaciclib (Elli Lilly) between ₹47,752 and ₹95,000 (Sources: www.1mg.com; pharmeasy.in/).
The justifications by pharma companies
Excessive costs of breast cancer medicines can be explained by the interplay of two related factors. The first is the argument advanced by the large pharmaceutical companies — that they spend over $3 billion in bringing a new molecule to the market, which they must recoup in order to remain in the market for innovation. However, the WHO report mentioned above observed that spending on research and development may bear little or no relationship to how pharmaceutical companies set cancer medicine prices. Companies set prices with an eye to maximise profits, thus denying patients from taking advantage of medical breakthroughs.
A second factor that allows the companies to sustain their high profit margins is intellectual property protection. Over the past three decades, pharma companies in the developed world have successfully persuaded their governments to strengthen the rights that they derive from patents and other forms of intellectual property rights by which they can exercise monopoly control over their products. Moreover, the scope and the power of these monopolies can become nearly absolute due to several factors, of which two are as follows.
Ordinarily, patent rights over a medicine last until the expiry of its patent term, after which generic competition leads to a reduction in its price. However, in the case of several non-communicable diseases, including cancer, the situation could be quite different. Even before the generic producers enter the market, newer therapies could be introduced as standard care for treatment, replacing drugs of an earlier generation. Additionally, in the case of pharmaceutical patents, the leading firms in the industry often obtain patents on incremental innovations involving older medicines (“evergreening” of patents), thus extending their monopoly rights over the medicines.
The three breast cancer medicines mentioned above are currently under patent protection — implying that Indian companies cannot manufacture these medicines without the consent of the right holders. Pfizer’s patent rights on Palbociclib will expire in 2023, while Novartis’ rights on Ribociclib and Elly Lilly’s rights on Abemaciclib would expire between 2027 and 2029, respectively. Therefore, high prices on these medicines will continue at least until 2029, and possibly beyond, if these drugs are subjected to “evergreening”.
The lack of access to these critical medicines has not only pushed the life of patients and their families into deep financial stress but it has also jeopardised their right to live with dignity, a fundamental right guaranteed under Article 21 of the Indian Constitution. The Supreme Court of India has interpreted right to life as the most precious human right, which forms the “ark of all other rights must therefore be interpreted in a broad and expansive spirit so as to invest it with significance and vitality which may endure for years to come and enhance the dignity of the individual and the worth of the human person” (bit.ly/3BKL6Gx). In this spirit, the Court has, in several judgments interpreted right to health as an extension of right to life under Article 21. Further, it must be mentioned that according to the WHO Constitution, “enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being” (bit.ly/3WpSvDg).
A way out
Thus, when all aforementioned considerations demand that cancer medicines must be provided to the suffering at affordable prices, what are the options before the Government? The most obvious option is to authorise Indian companies to domestically produce high-priced cancer medicines, including those mentioned above, by granting compulsory licences (CLs) in keeping with Sections 84 and 92 of the Patents Act. The CLs override patent rights, enabling domestic companies to manufacture generic alternatives when prices of patented medicines are high. Alternatively, the Government can invoke provisions of Section 100, which empowers it to authorise any entity to use a patented invention without the authorisation of the patent holder. Section 100 can be useful if no domestic company shows interest in obtaining a CL for any of the cancer medicines mentioned above. In view of the concerns expressed by the Rajya Sabha’s Standing Committee on Health regarding the high prices of cancer medicines, invoking the provisions of Section 100 seems to be the best way forward.
In the recently concluded WTO Ministerial conference, there was an agreement that the CLs can be used for increasing domestic production of COVID-19 vaccines and medicines by developing countries. When the present situation looks propitious for the granting of CLs, why is the Indian government stepping aside from using this instrument to promote the domestic production of cancer medicines, and making them affordable?