Will RBI Trade Independent Monetary Policy To Stabilise The Rupee :- Impossible Trilemma Analysis

INR representation 

Introduction -

Recently, the Indian Rupee traded at 90.58 to the US$, which has weakened the Indian rupee significantly in the global forex markets. In fact, in the last 5 years itself, since the pandemic times, the Indian rupee has significantly depriciated against the US$ from 72 INR to 90 INR, which is a massive 20% in the last few years. Optimists, may point it as a trend that the Indian rupee has observed only against the USA, as USA's inflation has been imported into its currency and particularly, that the American economy has struggled since the pandemic, recording growth rates below its expectations. While, the current Trump tariffs on India, high interest rates in the asset markets are credited for such a weak performance of the Indian rupee against the US$, however, there are some macroeconomic fundamentals, which India is getting it wrong, which is reflected in the currency markets.

For starters, the value of a country's currency in forex markets is determined by factors like - inflation rate, interest rate, trade, net capital inflows amongst others, factors which are heavily linked with the monetary policy that the country takes. Here is where the Trilemma theory comes into play in international macroeconomics.

USD to INR

The Impossible Trilemma Theory -

The trilemma theory is central towards the working of macroeconomics in global markets. The trilemma theory basically says, that, at no point of time, a country can maintain - fixed exchange rates, independent monetary policy and free capital flows. In the ideal situation, a country can maintain only 2 of the 3  conditions, for example - during the gold standard era from 1880s to 1920s, countries maintained free capital flows and fixed exchange rates, but the monetary policies were not strong at all. Similarly, the Bretton Woods system, envisaged a system of independent monetary policies and fixed exchange rates, while curbing capital flows. Now these systems have been impacted massively, by host of factors one of them being geopolitical shocks.

This theory has also applied massively to the Indian context, for example, in the pre 1991 era, India exercised a policy of fixed exchange rates and independent monetary policy, while convinently missing out of international capital flows, while in the post 1991 reforms, India prioritized capital flows and independent monetary policies, despite facing massive economic shocks, which has resulted in India, not keeping a committment towards a peg and has virtually adopted a flexible or a floating exchange rates. This pattern can be seen, more pronounced since the 2000s, which has allowed India to gain massive access to global capital markets and keep inflation in check.

Now, economics 101, suggests that, a devalued currency, should lead to rise in trade markets which should be reflected in the currency markets of the country, however, the rising trade gaps, precisely due to higher import bills due to higher depriciation of INR,has resulted in increasing trade gaps, which is actually a worrying sign for the Indian economy.

INR performance with respect to other currencies -

This trend is worrysome, when compared even to the other currencies namely - the Euro, Swiss Franc, Japanese Yen, Russian Rouble, Britian Pound and Chinese Remnenbi, which are traded massively in the forex markets. The attached graph shows how the rupee has traded against these currencies, over the past 5 years.

A comparative graph of 6 non US$ currencies

As it can be seen from the above graph, almost all the currencies, barring the Japanese Yen have appreciated against the Indian rupee, which means that there is more to the eye than what is being predicted by "experts". The growth rates, average interest rate, inflation rates and trade deficits of all the countries has been given in the next table, to understand a better picture of what's happening with the Indian Rupee at the international market. Even the Russian rouble, has appreciated by a small margin in the last 5 years, despite the India - Russia petroleum trade going to an all time high. The same can be said, even with the currency markets of Switzerland, with whom India has signed an EFTA this year or with EU where, India has progressed ahead with the FTA or with the British Pound Sterling where India has concluded the long pending FTA this year. These factors again point to reasons apart from trade, which is resulting in the continued and to an extent the worrying trend of rupee weakening in the forex markets.

RBI's Powerplay -

The table below, shows the average interest rate in India, the average inflation rate in India, trade deficit as percentage of GDP, the net investments as percentage of GDP and average GDP growth sourced from the International Monetary Fund's World Economic Outlook report. The average data is taken from 2020 onwards. The last 5 years has been taken into account, as, the world economy has experienced significant economic shocks like - the cornavirus pandemic, the parallel expansion of BRICS, Russia Ukraine war, tariff  wars, Taliban's takeover of Afghanistan and the Middle East geopolitical crisis. In this context, it becomes important to see what kind of role did the central banks of these countries played, as majority of these countries, saw the political power of the incumbents being reduced massively.

For example:- In India, the highly popular PM Narendra Modi though is serving his third term, but had to depend on allies to form the central government post 2024 election, which has been separately analysed electorally by me, USA saw 2 different election results in 2 presidential elections in this term, Japan - EU - UK have become absolute symbols of how political instability actually looks like where dramatic events like the assasination of Shinzo Abe or the return of labor party happened in the UK after years or the different corruption scandals that hurt EU during this phase, Brazil has also seen the return of Lula da Silva and Switzerland, has had multiple referendums passed during these 5 years. In this background, it can be safely said, that the central banks of these countries have somehow managed to become the key drivers of economic growth in their countries.

Country	Avg Interest Rate (%)	Avg Inflation (%)	Current Account (% of GDP)	Net investment  (% of GDP)	Average GDP growth
India	5.2	5.4	-1.6	4.2	6.2
USA	3.6	4.2	-3.2	7.8	2.2
China	3.1	2.1	+1.4	2.5	4.8
Japan	0.1	1.2	+2.9	3.6	1.1
EU	1.5	3.1	+2.2	4.5	1.4
UK	2.8	3.7	-4.0	9.2	1.3
Brazil	9.3	6.0	-1.3	5.1	2.4
Switzerland	0.4	1.4	+4.6	6.0	1.6

As it can be seen from the above table, the average central bank interest rate in India has been at 5.2% which is almost 1.6% percentage points higher than the Fed. The average inflation rate in India over the past 5 years has been at 5.4%, which means the RBI's policy has transmitted quite successfully to the Indian economy over the past 5 years. From, the first 2 columns, it can be very safely concluded, that the RBI pursued a committment based monetary policy, towards inflation control, which proved to be successful, as reflected in the average GDP growth that the country has recorded which is almost 2% points higher than China and has stabilised inflation well, which was critical during the above mentioned period as the country could have rapidly spiralled into a zone of hyperinflation, which is not good for the Indian economy.

However, too much independent autonomy for the RBI has ended up hurting the net investment, as India trails economies like - USA, UK, Brazil and Switzerland, in attracting capital inflows (both FDI & FII), which is majorly because of the high interest rates. Monetary tightening usually, has an inverse impact on net investments as, investing in the country becomes expensive with low yields which acts as a point of negative perception for the global capital markets. In this regard, from the above table, it can be interpreted that, those countries who have had lower interest rates have ended up benefitting in terms of net capital inflows which is even more critical in today's era of open macroeconomics, where concepts like global supply chains have picked up steam.

The higher growth rates of Indian economy can be explained due to the other factors like - good management of economy during the pandemic, good diplomatic practices, high capital expenditure and an uptick in domestic consumption, which has led to the 6.2% points figure which can be seen in the economy. However, to maintain the consistent economic growth, its extremely critical that, India, exceeds the output gap, which can be possible only through increased capital flows and the widening trade gap with high import bills due to a depriciated rupee(partly due to high interest rates) is not helping the cause of the Indian economy.

Hence, the carefully thought policy of Indian government and more specifically the RBI, to keep independent monetary policy and high capital flows, while not really bothering about the fixed exchange rates is ending hurting up even the high capital flows due to a super powerful central bank which can be seen via the 2 columns of average interest rates and average investment flows.

This can end up creating a mess like, what happened during the collapse of Bretton Woods, where the capital eventually flowed into countries despite a strong affection of countries towards the peg & an independent monteary policy, this resulted in the rapid emergence of emerging economies in the world with a fledgling downfall of the advanced economies, since 1970s which accelerated even more in 2000s. To avoid, losing the current economic edge that India, has, its extremely critical, that the external sector policies are changed. The first change can be perhaps, to give back importance to fiscal policy, so that, the RBI can focus on stabilising the rupee.

Plausible Steps -

Now, Indian policymakers over the years, has avoided taking knee jerk reactions and have instead always looked for a delicate balance between the monetary policy mechanisms and fiscal policy mechanisms. Furthermore, also because the RBI, is answerable to the parliament, the government system in our country, has always stuck a good balance between fiscal and monetary policy. This was primarily seen during the pandemic, where the government adopted a classical economics approach and the RBI also responded with monetary tightening, which is a textbook example of coordination between monetary and fiscal policy interactions.

Additionally, given, how the government system, behaves in India, sacrificing the independent monetary policy may seem to be a very big ask from the RBI. Even during the 1991 LPG reforms or during the response in pandemic, the government improves fiscal policy over the monetary policy, which results in different results. 

The only possible change that can happen, is changing the budgetary outlook, something which is still considered sacred in our country. The government of India, should perhaps consider, again increasing the capital expenditure to around 11 lakh crores (something that helped during the pandemic) and again starting the process of divestment of sick PSUs like Container Corporation of India, restarting the SEZs to boost exports something that I advocated in this blog long back and concluding the trade deals as quickly as possible for which the now out of favour idea of Indian Trade Service must be reintroduced in a massive scale by the UPSC and finally, the government, must allow 75% FDI into sectors like civil aviation, telecom, steel and maybe one or two, manufacturing based industries, which can really increase the job creation capacity of the economy. Moreover, the government should really speed up the 2 proposed projects of the INSTC route and Chennai Vladivostok logistics deal, which should also provide significant impetus to the economy and to the rupee in general.

The government, can take these steps, because of 2 factors - (1) The humungous scale of victories of the BJP in Bihar, Maharashtra, Delhi  & Haryana, which has again increased the political power of Narendra Modi, who is  the most reform oriented prime minister in Indian history and (2) The government has been cutting its fiscal deficits in a big manner since the last 2 budgets, which gives a fantastic legroom for the finance ministry to again increase capital expenditures, which can give massive boost to the economy. 

Finally, the RBI, should really considering steps like, cutting down the interest rates and maybe, selling of forex reserves which are at an all time high right now, to stabilise the rupee in international markets, adopting the dirty float by not allowing the rupee to depriciate below 85, as prolonged weakness of any currency ends up hurting factors like - investors confidence, export competitiveness which cumulatively, dents, the perception of the Indian economy. 

Conclusion -

While a tradeoff for independent monetary policy for the fixed exchange rate, seems very unlikely in India, the least we can do, is to maybe, empower the fiscal policy more and maybe, adopt a dirty float for like 2-3 years, to just stabilise the rupee from taking further geopolitical risk hits, while continuing on the path of reforms.

India Vs South Africa, G20 declarations — Geoeconomic Repeat Or Reset ?

G20 nations list

Introduction -

Over the past month, in the world of cricket, India vs South Africa games have dominated the headlines. Let it be the finals of the ICC women's world cup or the ongoing India - South Africa test series in India, cricket has been the major talking point between the 2 fastest growing economies of the world's most populous continents. Adding to the talking points between the 2 economies, is also the fact that, the G20 summit of year 2025 is being conduted in South Africa.

For starters India had conducted the G20 summit in 2023 which saw the adoption of the New Delhi declaration which saw a rare consensus in a body which has multiple complex geopolitical rivalries shaping the group. South Africa conducted the G20 summit in 2025 which was overwhelmed by the news of the USAs peace deal to end the Russia - Ukraine war, additionally, the group adopted the Johannesburg declaration, sans consensus as the Trump administration had virtually boycotted the event.

Before analysing the 2 reports, its critical to understand the geopolitical contexts behind the 2 meetings, which have shaped this group.

Geopolitical background -

The G20 events have always been historically influenced by geopolitical events. The G20 is an organisation that was formed in 1999, post the aftermath of the brutal Asian Financial crisis which had rocked the economic boat of many emerging economies. To put in brief, the prime objectives of G20 are - Promoting international economic and financial stability, enhance policy and dialogue coordination, making global governance more inclusive & over time it has covered agendas like trade,climate, health, development amongst others.

The initial meeting of G20 was conducted in Berlin. Given agendas like economic & financial stability, global governance and trade are heavily influenced by geopolitics, hence every major G20 meet is always held in the background of geopolitical shocks which affect these factors in a massive manner. With this context, its important to just revise some geopolitical factors that were starkly different in 2023 & 2025. For starters, G20 is undoubtedly the biggest economic grouping of the world, which directly controls almost 80% of the world's economy and has many powerful countries as the members of the grouping.

In 2023,major geopolitical events were the prolonged Russia Ukraine war, the non availability of Russia & China in the G20 event, sluggish economic growth, recent BRICS expansion along with the positioning of global south were the major geopolitical factors that impacted the world's geoeconomics in a major manner.

Whereas,in 2025,major geopolitical events have been:- Prolonged russia ukraine war, Israel - Hamas war and its spillovers, tensions related to democratic values in emerging countries like Nepal & Bangladesh, Trump tariffs, political changes in European union, increasing tensions between USA & China along with the reformation of RIC grouping have impacted geopolitical events of the past 2 years which have given a very different shape to the Johannesburg G20 declaration. Though the growth rate of the world's GDP has remained stable around 3.2% of the GDP, but the rising AI disruption, along with the renewed debate on critical minerals may lead to a massive change in output gaps. 

While, the geopolitical uncertainities have been tense during the time of both the events, it can be confidently said, the uncertainities prevailing in 2025 are much more than what existed in 2023. Additionally, it can be said that the nature of geopolitical uncertainities have become directly more focused into economic aspect in 2025 prior to the  Johannesburg declaration.

New Delhi Declaration Economic Outcomes -

The New Delhi declaration had a salient economic outcome plan, which pushed for the creation of the India Middle East Economic Coridoor, which was announced in the presence of all the G20 nations. This was also historic as, it literally meant providing a new route from the world's fastest growing economy to one of the world's most advanced economic regions, though in the last couple of years due to the Israel - Hamas war , the 3 day war between Israel and Iran, along with multiple economic factors in the middle east have casted doubts over the viability of the IMEEC. Nevertheless, IMEEC was an attempt by the G20 to actually push for greater financial and economic linkages between the global north and global south, which can still be a gamechanger in today's day and age. 

The biggest highlight was the expansion of the group to G21, with the inclusion of African Union as a permanent member, which marked the G20 as one of the world's biggest grouping in terms of the number of nations covered. The New Delhi declaration worked on a full consensus basis, which meant that every point made in the G20 declaration was fully supported by each and every member country, with little opposition.

Sustainable economic transformation was undoubtedly one of the biggest promises of the New Delhi G20 leaders declaration. A detailed roadmap on including private sector to create accessible & inclusive global supply chains, urging for the safe transportation of grains in the ports of Russia & Ukraine, announcing the formation of the International Big Cats Alliance (IBCA) and establishment of the Startup 20 engagement group were the salient features under this important agenda in 2023. Accelerating progress on the sustainable development goals was a separate section in the declaration, which included the vision of implementation of G20 2023 Action plan to progress on SDGs. The LiFE program was also heavily focused upon during the New delhi meet of G20.Furthermore, G20 sustainable finance roadmap was also put into motion during New Delhi which included noting that developing countries needed almost 6 trillion$ in the pre 2030 period to fulfill emission targets to reach net zero by 2050. The organisation further recomitted itself to implementing the global biodiversity fund within the Global Environmental Facility.

The other critical talking point in the New Delhi declaration were the provisions related to debt frameworks and sustainability. The 2023 declaration called for urgently and effectively addressing debt vulnerabilities in developing countries and committed to pursue reforms for better, bigger and more effective systems for MDBs.  Though the meet had taken note of the need of regulating crypto assets, no major steps were announced in that direction, additionally, CBDCs were also given a special mention in emerging fintech solutions. Similarly, digital inclusion of MSMEs, female digital litreacy etc. were also included in bits and pieces in the declaration.

Furthermore, the 2023 declaration made significant strides in digital public infrastructure(DPI), which endorsed the toolkit for financial inclusion and G20 policy recommendations for advancing financial inclusion and productivity gains through digital public infrastructure. In this meeting, India had promised to buld and maintain a global digital public infrastructure, which would be shared voluntarily by G20 members. G20 toolkit on cyber education and awareness on youth was also passed during the meeting.

In hindsight, it can be safely concluded that the New Delhi declaration, actually ended up operating on 1 world and 1 financial system agenda, as it lacked plans for any particular geographical region in particuar which became a key highlight in the immediate next meeting, The second bigger change, was that, the New delhi declaration gave more priority towards sustainable development over macroeconomic issues which marked a significant change of public opinion for the G20, which has long been pointed out as an organisation focusing only on the hardcore economics. These steps, while will increase public participation in G20, but it may end up diluting the core agenda of "financial stability" for which the G20 was formed in the first place 26 years ago.

Comparision Of Johannesburg Declaration Economic Outcomes

In contrast the Johannesburg declaration was different, but it showed a continuity in the G20 agenda that was the main feature of this particular declaration held in Africa this time. The G20 meeting in South Africa was all the more historic as it was the first meeting that was held in Africa.

Disaster resilience was one of the most discussed aspects in the Johannesburg declaration especially in the small island developing countries & the LDCs. This is one point that was in continuation with the New Delhi declaration which institutionalized the G20 Disaster Risk working group as part of the G20 architecture, by arguing that DPR is a permanent G20 priority. The New Delhi version of the meet, also prioritized the support for institutions like CDRI and financing frameworks for DPR, in addition to support for SIDS and LDCs. This is one sub agenda where it can be said that, Johannesburg & New Delhi declarations synced almost perfectly.

A few additions on issues related to disaster management were notable in Johannesburg, which were - G20 Voluntary Principles for Investing in Disaster Risk Reduction, Recovery Readiness Assesment Framework, pushing for universal coverage of UN warning systems by 2027, synergising SFDRR -2030 SDG goals and Paris Agreement, are definitely some of the innovations that have been bought in the Johannesburg decalaraion.

Debt is another topic where the 2, G20 meets showed remarkable continuity, if the 2023 declaration gave the Debt Sustainability Initiative framework, the Johannesburg declaration went a step further by endorsing the G20 Ministerial declaration and supporting the IMF Debt Sustainability Analysis (DSA) for LICs and understanding debt vulnerabilities more effectively. This is a significant addition as the 2023 version had very little mention of the IMF. This maybe possible, due to,the historically amicable relations with the USA. The inclusion of private sector in debt related conversations is also a topic, which has generated significant interest in the Johannesburg declaration this year. The tradition of continuing the conversation on debt is also critical, because, over the past 4-5 years, global debt has increased massively. The more worrying aspect is that the top 5 world economies have significant debt exposure, which can impact global supply chains and financial integration in the longer run. Since, this is a good start, it must be noted that, in the future G20 must also focus a lot more on the kind of debts that the countries are picking up and maybe creating a dedicated taskforce can help in the longer run. The other innovations in finance related stuff in the Johannesburg declaration is the support to FATF in relation with money laundering is a big differentiator from the New Delhi version, which surprisingly did not speak a lot about it during the meet, though terror financing remains a security achilees heel for the Indian government.

Source - Reuters

The third biggest talking point in both the events was definitely about the issues related to sustainable development, which we have covered in the previous section. However, the Johannesburg declaration actually showed more than continuity towards this issue. The issue of critical minerals has gained rapid currency over the past few years now. The recent meeting between Xi Jinping and Donald Trump, Afghanistan allowing Indian access to mine critical minerals in Afghanistan, Balochistan's renewed importance in the critical minerals chessboard, Artic minerals race amongst others can become a very critical reason in the future global supply chains. The critical minerals race, may last longer, as it is a newer commodity that is being used in the economic chains which can play a crucial role for any 1 country to lead a breakthrough and there maybe other countries which can follow suit later on, as suggested in the Schumpeterian trade cycle. The G20 critical minerals framework is a massive step in this direction, though the framework in itself doesn't provide any unique solutions, but its the adoption may pave way for other multilaterals of understanding the importance of critical minerals especially in emerging economies. 

Other points related to sustainable development like - Industrialization labs, G20 food security task force and the addition of recognition of Africa's agricultural potential are some intriguing points that can be great assets towards expansion over this topic. The point to combat land degradation is a very salient & unique feature of the Johannesburg declaration which was not covered in the New Delhi declaration.

Notable Differences

The largest difference between the New Delhi & Johannesburg declarations are the focus areas, while the New Delhi declaration touched on topics that affected the whole of globe, the Johannesburg declaration has focused a little bit disproportionately over African Union related issues, which is understandable as its the first meet conducted in African soil. However, this can give rise to multiple countries starting to raise various sub regional issues in the future G20 meetings, this may end up being unjust towards countries of groupings like BIMSTEC, SCO & ASEAN which have very little representation in the organisation, this would also dilute the "global" image of G20.  

The second difference between the 2 meets, is also, the focus given to job creation, while the New Delhi declaration gave a lot of importance to issues like - skilling & job creation, this is 1 area, which has seen very little mention in the Johannesburg declaration, which maybe slightly disappointing for the academicians. Additionally, in both the declarations, there have been very rare discussions on improving scientific temper, which is becoming a major problem in majority societies today.

Thirdly, the New Delhi declaration had laid  the vision of IMEEC, which has not even found a mention in Johannesburg declaration and neither has the Johannesburg declaration has seen any concrete announcement towards integrating advanced & emerging economies, which should be a massive point of concern for countries of African union, who could have proposed different trade routes in this edition of G20. However, it does seem that, geopolitical issues like Trump tariffs, pushed the African Union leadership to adopt a safer path by not announcing mega deals. Now all eyes, would be towards the USA meet of G20 which would be held sometime in 2027, under the temparamental Trump administration, which may find it hard to get all the 21 partners of G20 on board for a consensus statement, which was done successfully by India and done on a smaller scale by South Africa as a host. 

Overall, the India vs South Africa - G20 declarations were neither a geoeconomic repeat or reset, but was a good example of rare geoeconomic continuity on certain points while have discontinuity on some critical aspects. Now, all eyes of the geoeconomic hawks would shift over to the next round of G20 in the USA. The G20 needs to revisit, recontinue and refurbish some of the critical agendas that are impactful in today's day & world, to make sure that the idea of economic integration is not lost in the forever chaos of geoeconomics & geopolitics, which is the only constant in economics.

Contenders For The Post Of BJP National President

Over the past 1 and a half year, one news item has dominated the headlines of newspapers, post every major assembly election in India, which is related to the post of the national president of India's ruling party, the BJP.

Introduction -

The reason why, the election of national president of a political party matters is because, a new national president brings his/her own working style, his ideas to the table, all which can have a significant bearing on the national and state level politics of India. For example - In the case of BJP, when Amit Shah was the national president of the party, the party toook a pragmatic approach towards startegic expansion in North East India, where it had struggled in the past due to allegations of apathy towards Christians, alienation  of the tribals, non understanding of the local dynamics amongst others.

Amit Shah during his tenure, formed the NEDA (North Eastern Democratic Alliance) consisting of various regional & sub regional parties, which gave BJP a major edge in such a manner, that now, BJP has its MLAs in all the states of North east and has been able to form the state government consequently in states like Assam, Tripura, Manipur & Arunachal Pradesh on its own strength, something which was unthinkable about in the past. The similar examples can be said about the other presidents like JP Nadda, Rajnath Singh, Nitin Gadkari etc. The post of a party president is also critical because, it decides on the candidates to contest elections in every state, which can have a significant effecr on the electoral as well as economic outcomes of a state or even a district for that matter.

Now, just like, any other party, the BJP has usually followed a pattern in appointing the national presidents. It must be kept in mind, that BJP is the ruling party in the country today, which makes the selection criterion very different than when, it was in opposition. For example, when BJP was in opposition during UPA era, popular faces like Rajnath Singh, Nitin Gadkari  & LK Advani functioned as the national president of the BJP. Whereas, when Atal Bihari Vajpayee was the prime minister, experiments were conducted by making grassroots leaders like, Jana Krishnamurthi as the national president of BJP. The tenure of BJP president is 3 years and it can be extended to 6 years, based on approval from the BJP Parliamentary board which includes tall leaders of the party, this extension has already been given to JP Nadda. The other point to note is that, organisational elections should be conducted in 2/3rd of the state units, which the BJP has already done so far. 

Geography:- A Key Criterion

Today, the selection criterion has also changed massively, when BJP is in power. The BJP when in power has usually prioritised giving adequate geographic representation to the 4 different regions of India, which are:- North, South, East & West. When, Atal Bihari Vajpayee was the prime minister, he belonged from North India or to be more precise from Central India, the national president was the legend Dr. APJ Abdul Kalam who was from Rameshwaram, the party presidents from 1999-2004 were:- Bangaru Laxman, Jana Krishnamurthi and Venkaiah Naidu, all belonging to Southern India. The Vice President, Bhairon Singh Shekhawat belonged from West Indian state of Rajasthan, even during the Vajpayee era it can be seen that BJP tried its best to maintain regional balance in India, since BJP was not an influential player in East indian states of Odisha, West Bengal etc. hence that region never got enough representation in any of  the 4 posts.

The Modi era of BJP has been starkly different, as BJPs geographic spread has included even East India and barring a few south Indian states, the BJP is seen as a key contender in 3/5 south Indian states today, while in AP & TN,it depends on its allies which include parties like TDP, AIADMK etc. 

The result is that, the 2 presidents (Ram Nath Kovind & Droupadi Murmu) have belonged from East India, Vice Presidents (Venkaiah Naidu, Jagdeep Dhankar & CP Radhakrishnan), 2/3 have belonged from South India, Prime Minister Narendra Modi is from West India and the BJP National Presidents (Amit Shah & JP Nadda)  have belonged from West & North India respectively. Now, 1 thing is clear that geographical representation and proportion is a key component in determining the national president in BJP. Given, the party has its representation, East, South & West India in the positions of President, Vice President & Prime Minister, it should not be a surprise that the next president is from North India only. 

Another aspect is that, BJP has never repeated a party president from the same state as it can run into the risk of having state based factions in the national leadership, hence even in North India, the probability of a BJP president from Himachal Pradesh looks bleak as of now. I dont think that, being a member of Rajya Sabha or Lok Sabha would be a major criterion for selection.

Caste & Ties with Sangh Parivar

The second key component in determining the national president of BJP is definitely, the ties of the national president with Sangh Parivar. This criterion is fairly straightforward and consistent, as all the BJP National presidents in the past, have had a very strong background in the Rashtriya Swayamsevak Sangh. Given this and the loss of seats in 2024 Lok Sabha in the Hindi hinterland areas where the presence of Sangh Parivar is strong, also makes it more probable that, the next president of BJP maybe someone who can maintain cordial ties between BJPs organisation and that of its parent organisation, the RSS.

The final component is caste balance, while keeping Uttar Pradesh as the key focus area, there are 2 trends that can be seen in the appointment of all BJP presidents, is that they must be able to influence the politics of UP which in many ways is dependent on the endogenous variables of national politics in general. The second, trend is that, BJP has rarely repeated the national presidents from the same caste group for example, the last 4 presidents, namely Amit Shah, Rajnath Singh, Nitin Gadkari and JP Nadda, have belonged from different castes which have a critical say in the politics of Uttar Pradesh & other states of India. 

Therefore, the probability of BJP going ahead with a Brahmin face as the next national president is also less probable, additionally the probability of BJP going ahead with leaders from communities who only belong to a specific state also looks less probable. Even  3 south Indian presidents of the party belonged to Dalit groups or from the OBC community which has a significant presence in UP. The BJP has also gone ahead with faces who are active in the national politics scenario which again bleaks the chances of state level leaders in the country.

 

Possible Contenders

Keeping the above factors in mind and the unique conclusions we have drawn, here are the possible contenders, who can become the national president of BJP  in the upcoming time. 

1.Satish Poonia:- Satish Poonia is currently serving as the general secretary of BJP. He hails from Marwar region of Rajasthan and has served as the state president of Rajasthan BJP in the early 2020s. He hails from the Jat community, which has a significant presence in the lok sabha segments of:- Kairana, Muzzafarnagar, Saharanpur, Rampur, Moradabad, Agra, Fathepur Sikri, Nagina, Bijnor, Baghpat, Meerut, Gautam Buddha Nagar, Hathras amongst others in UP. Additionally, Jats are seen as a critical voting bloc in Haryana and Rajasthan, which makes them an influential vote bank which any party would like to seek in the longer run.

Satish Poonia served as the election incharge in Haryana vidhan sabha elections, post which the national political mood changed in the favour of BJP, giving him the post will allow BJP to recapture some of the Jat votes which it lost in good numbers during the 2024 Lok sabha elections, due to various factors like - Agrarian distress, farmers protests amongst others. 

Given, BJP has a strong organisation in these states, making a Jat face as the national president may help BJP consolidate its position. He has been a politician who is associated with the ABVP & RSS from his younger days, which make him a very strong candidate. Making a Jat as party president would also reduce dependency on parties like RLD whose vote shift was very weak in the 2024 Lok sabha election results, which can be seen by the fact that, BJP won in Jat heartland seats like Muzzafarnagar in 2019, when RLD was with UPA.

Also given, BJPs preference for "younger 'politicians which is evident from their CM picks in critical states, Satish Poonia who is 60 years old may fit the bill well. Given, the influence of Jats on national politics, the BJP can also look at other leaders from the community, as the community has very little national representation currently post the resignation of Jagdeep Dhankar. Possible leaders from the community who may fit this bill are - Om Prakash Dhankar, Rajkumar Chahar & Captain Abhimanyu, both who also hail from Haryana.

2. Gajendra Singh Shekhawat:- The second darkhorse in the race is Gajendra Singh Shhekhawat. He is currently the minister of tourism & culture and has been a minister in the Modi government since last 6 years. He also hails from Marwar region of Rajasthan and has twice defeated political heavyweights in the Jodhpur Lok sabha constituency. He is around 58 years of age, which again is consistent with BJPs narrative of young blood infusion into politics. He has been the incharge of Punjab BJP in the 2022 election where BJP performed poorly primarily due to the farmer's protest, however, he was credited with revining the party fortunes later on in the year.

He has had prior work experience in the RSS scheme of things and additionally, is considered to be a close confidant of Union Home Minister Amit Shah. His hailing from Rajput community, where the anger of the community costed BJP seats like Pratapgarh, Prayagraj, Dhaurahara, Sitapur, Kheri, Kannauj, Etah, Arrah, Buxar, Aurangabad, Sasaram, Karakat, Jehanabad, Churu etc. may help BJP to recover the lost base in the community. Additionally, his elevation would make him only the second Rajput president in BJPs history after Rajnath Singh. Possible leaders from the community who may fit this bill are:- Trivendra Singh Rawat, Rajiv Pratap Rudy and Radha Mohan Singh amongst others.

However, the appointment of a Rajput president is also slightly difficult given, that, BJP already has representation in the form of Uttarakhand CM Pushkar Singh Dhami, Uttar Pradesh CM Yogi Adityanath whose pre sant samaj life was of a Rajput and Rajasthan DCM Diya Kumari who is a rising star in Rajasthan politics.

3. Ganesh Singh:- Ganesh Singh is currently serving as a fifth term MP from the Satna lok sabha segment located in the state of Madhya Pradesh. He is a leader who hails from Kurmi community, another community which has a range of influence starting from Awadh region of UP upto Mayurbhanj district of UP. This also includes regions like Purvanchal & states like Jharkhand & Bihar, where the NDA lost seats in good numbers due to not having enough Kurmi leadership in its ranks.

Seats such as Ayodhya, Ambedkar Nagar in UP and some seats in West Bengal like Bankura were lost as this community's support base has been slipping consistently. In this case, making a Kurmi as its national president who also has a strong background in RSS & ABVP, may help BJP to re-energize its cadre  in these areas. This would also allow BJP to startegically eat into the base of parties like Apna Dal & JDU, who have seemed to struggle a bit since the past 5-6 years. Other faces from Kurmi community who may fit this bill are:- Jyotirmoy Singh Mahato, Pankaj Chaudhary and Swatantra Dev Singh.

 

However, the appointment of Ganesh Singh is a little bit difficult given, that BJP already has 3 OBC leaders, namely, Mohan Yadav who is current MP CM, Shivraj Singh Chouhan & Jyotiraditya Scindia who are union ministers, making a fourth leader from the similar Malwa or Bundelkhand region, may end up creating parallel power centers which the party may wish to avoid.

4. Brijmohan Agarwal:- The other face in the race, can be current MP from Raipur, Brijmohan Agarwal. Brijmohan Agarwal is a 7 time MLA from Raipur city and is the first MP from Raipur. He belongs to the bania community which has consistently supported BJP since its formation. His background in ABVP  & RSS may help him to bag the top post. The bania community is influential across all the states of North India and it would mean a full support from RSSs top brass in the longer run as well. Given Chattissgarh is a BJP stronghold state, an appointment from the state, may send out a good signal to the BJP leaders from the smaller states in the country. His appointment would also help in to bring Chattissgarh into national focus given the state's push to go onto a path of development after facing the brunt of naxalism for decades. Other faces from the bania community can be:- Radha Mohan Das Agarwal amongst others. Him being close to 67 years, would also not post a parallel leadership challenge to existing trioka of Arun Sao, Vishnu Deo Sai and Vijay Sharma. Other faces from Chattisgarh can be:- Lata Usendi, Renuka Singh Saruta, Tokhan Sahu and Santosh Pandey.

5. Virendra Kumar Khatik:- The other face in the race can be current MP from Tikamgarh, Virendra Kumar Khatik.Khatik is a multiple time MP from Tikamgarh and has been serving as a union minister in various ministries since the past few years. He belongs from the Dalit community and from the Bundelkhand region, where BJP saw substantial losses in the 2024 lok sabha elections. In fact, the BJP lost a lot of dalit reserved seats in 2024, primarily because of the opposition's campaign on reservation and constitution change. With BJP also conducting the caste census in 2026, having a dalit president of the party who has a very strong RSS background, may help, BJP to not only set the optics right but also regain some of the Non Jatav Dalit votes which it lost in Uttar Pradesh in 2024 elections. Given, BJP doesnt have a single Dalit CM, though it does have, multiple dalit deputy CMs like Jagdish Devda & Prem Chand Bairwa. Him being a low profile and a 70 year old leader, will prevent formation of power centers within the party which is also ideal in a party like BJP, where every leader has a replacement ready. Other faces from the Dalit community can be:- Baby Rani Maurya, Dushyant Kumar Gautam and Shantanu Thakur amongst others.

6. Pratima Bhowmik:- The other face in the race can be former West Tripura MP, Pratima Bhowmik. She was a strong contender to become the CM of tripura post the 2023 election results as is called as Tripura didi in the party circles. Pratima Bhowmik belongs from the North East region of the country and having its first woman president from the North east which still has matriarchial society, today, would help BJP to enter into a new age of inclusion politics. This would also give a chance to the party to corner the congress, who has never made any person from the Northeast as its national president. Pratima Bhowmik is also from the Bengali speaking group, which has a massive presence in states of West Bengal, Tripura, Meghalaya amongst others. Her being a former MoS in the Modi cabinet along with being a long term RSS member can count as brownie points for her. Being from North east would also help BJP to neutralize, the caste equations that are massively prevalent in the country and actually make politics development oriented.Other faces from Bengali community and from North east who can be:- Biplab Kumar Deb, union minister Sarbnanda Sonowal amongst others.

7. Virendra Sachdeva:- Virendra Sachdeva is the current BJP state president of Delhi. He belongs from the state unit of a state which is very much national and whose issues disproportionately dominate the national headlines, policy issues amongst others. The delhi unit of BJP is known to be a divided house in the past, but Sachdeva was able to handle all these differences well. Him being from the Khatri community which has solidly & ideologically backed BJP since the days of Bharatiya Jana Sangh can be a gamechanger in party politics of India. Being from Delhi, he can also understand national politics better than most other leaders of the country. The Khatri community is also seen as a caste neutral community, which may help BJP to develop leaders rationally across societies in the whole of India. Sachdeva is also a lifelong RSS member and is also a part of the Archery Association of India, which can make him a useful asset in controlling sport bodies of India who have been long accused of being involved in intra body politics.Other leaders from the Khatri community who can become the national president are Harsh Malhotra, Sunil Bansal & Manohar Lal Khattar amongst others. 

Now, all the above names have been given, keeping in mind 3 factors, namely, geographical representation, caste equations and connect with the Sangh Parivar. However, politics is the most dynamic subject of the world, which can change anytime and any leader can hit the lottery. The other possible darkhorses in the race can be - Gangapuram Kishan Reddy, Ram Madhav, CR Patil, Dharmendra Pradhan, Basavaraj Bommai, Bhupendra Yadav, Smriti Irani and Om Prakash Dhurve amongst the cadres of BJP. At the end of the day, the country will have a new national president for the BJP and it would be interesting to see on who becomes the party president of India's largest political party.

Can The Elephant & Dragon Dance In Unison - An International Open Economy Perspective

Source - Economic Times

India and China are the 2 largest economies of Asia today. While China is the largest economy of the world in terms of PPP terms, whereas India has consistently remained the world's fastest growing economy over the past half a decade, this is huge in the context as both of the countries have also been impacted by various geopolitical shocks namely - Galwan clash of 2020, political instability in South Asia, return of pre Abrahamic accord conflicts in West Asia, Russia - Ukraine war and the biggest economic disruptor the coronavirus pandemic. Despite these shocks, both India & China have recorded decent growth rates, except for 1 financial year where China's growth rate  plumetted it has otherwise, maintained a very steady annual growth figures.

The same can be said even about India, which has recorded impressive growth rates by following a different mix of supply side economics in 2021 & 2022, where government's capital expenditure helped the economy in a massive manner. Since, 2023 Q3, its a well known factor that, India has grown on the back of consumption expenditure, which is also seen in the fourth graph.

GDP annual growth (% of GDP) - Graph 1 (WDI, World Bank)

The 2 countries have achieved these consistent economic numbers despite not having anywhere near to normal political relations from the past half a decade, which shows that there are some inherent structural strengths in the economies of both the countries. The 2 countries, over the past few months have also shown signs of re-starting & normalizing the relations between them with steps like - resuming direct flight services  and the much publicized RIC meeting. While on the outset, it may seem as a political realignment, due to the pressure of Donald Trump via his tariffs or is this realignment a case built due to international open economics is what this article tries to explore.

The FDI conundrum-

While trade is undoubtedly the most critical factor that single handedly determines the direction of open economy & monetary policy, another important factor that determines the direction is the financial & capital accounts of the countries. One of the most important components of the financial account for emerging economies like India is the Foreign Direct Investment. Now, foreign direct investment is categorized as a long term control with greater than 10% ownership, while FDIs are shown in the debits section of a central bank's balance sheet, but its a known fact, that it translates into economic benefits like - higher investments, higher growth and access to foreign capital. Both India and China, have also reported higher growth rates since their post reforms era which has primarily been due to the foreign capital influence in these 2 countries.

This makes, FDI inflows as a critical component for the GDP of these 2 countries, the graph below shows the FDI inflows as a net% of GDP, it can be seen, that, since 2022 onwards due to sluggish economic growth across the globe, the net inflows as a % of GDP has fallen to less than 1% GDP in FY 2024 in India & China. This trend is not healthy for either of the countries, which has a good number of established foreign firms in their respective countries, stagnation of FDI in these countries can stagnate long term FDI inflows in both the countries, which is not a good sign as it leads to something called as consumption smoothing and possibly stagflation, if this trend continues. It may be possible, that to arrest the decline of FDI inflows as net% of GDP was a major reason, why India & China are pushing for a normalization of ties.

Furthermore, it is interesting to see from which countries do both the Asian giants recieve their FDIs. The second infographic provides interesting insights, now while China is a big investor in different countries courtesy the CPEC & OBOR initiative, it still needs access to global capital markets. In case of India, the countries making the FDI investments are diversified, which are mainly coming from Singapore (27%), Mauritius (17%), USA (10%), Netherlands(8%), UK(6%), UAE (7%) & Japan (5%).

On the other hand, China recieves its FDI investments, mainly from the financial center countries. For the unintiated, financial center countries are defined as those, which serve as critical hubs for international banking, investment and other allied fiscal sectors. China has its, FDI majorly coming in from these countries namely - Hong Kong & Virgina Islands, contributing to 75% of total FDI inflows.

Now on the outset, investments from financial centers is what many countries desire for, as they work with little to no legal regulation, but these investments also have their own drawbacks such as - high capital mobility which is volatile in nature. Using simple, IS-LM-BP model, what technically happens from investments from the financial centers is that, it causes short term output fluctuations and it ends up making capital flows dominate the exchange rate market dynamics, which is very risky for an emerging economy.

Furthermore, since the financial centers work with almost little to no regulation from the monetary policy banks of their respective countries, it makes them suspectible to interest hikes from the central banks of other economies. This also can have profound impacts on the emerging economies like China - a hike in interest rates from USA's fed, increases the cost of capital outflow from the financial center (say Hong Kong), which in turn pushes the Chinese central bank to rise the interest rates in order to keep inflation under check, as the financial center ends up investing more in a country which has lower interest rates as compared to that of a bigger economy.

This can lead to exchange rate appreciation in the short run, but it ends up impacting the competitiveness of a country's exports. Furthermore, since financial centers dont have a strong regulatory authority, the reactions of capital management in these countries are highly procyclical meaning, that during global downturns these countries struggle in making/recieving investments. This phenomenon at least explains as to why the net FDI inflows of both countries have fallen massively post pandemic.

This overdependence by China more specifically on the financial centers for FDIs can also be considered as a amjor reason, of why China and India are pushing for some degree of normalisation in the bilateral relations, as both India & China have relatively strong central banks.

Hence, when said from the perspective of FDI & financial account flows, it can be said that, in the face of the latest tariffs, the dance between elephant & dragon is imperative, at least for some years. Now, since FDI is also a part of investment component for the country, it is even more imperative that the foreign capital flows are more or less stable, which can keep the production linked economy stable.

The FDI sources for India - Diagram 1 (PHDCCI)

FDI sources for China - Diagram 2

FDI Inflows (net % of GDP) - Graph 2 (WDI Indicators, World Bank)

Trade & Consumption Smoothing Dynamics -

The second big international open economy concept that may influence the behaviour of both the countries can actually be the trade related consumption smoothing, which is very normal in international open macroeconomic settings. 

Now in both countries, trade is a very critical component of GDP in the past 5 years, India's trade stats as percentage of GDP has remained around 40%, while India is an import dependent nation courtesy petroleum imports amongst others, whereas for China it has remained around 37% which is also super impressive.

Contrary to popular belief, Indian exports & Chinese exports contribute roughly the equal amount as relative to the GDP, though in terms of absolute value, China trumps India by a large margin. Now from graph 3 and graph 4, it can be seen that, for both India & China is exceptionally important while contributing to its economy.

However, its the graph 5 which may have nudged India & China to relook the hardened economic stances against one another, as that graph pertains to consumption which is one of the most critical components of GDP growth. While for India, final consumption expenditure growth has remained constant around 70% over past 4 years, mainly driven by government investment, China's FCE has taken a hit due to the pandemic.

China's FCE has remained constant at around 50% and has shown signs of recovery only since the FY 2023, which means that China intends to continue to push its people to consume more so that using simple basic Keynesian economics, the growth rates can be kept intact. 

For India, consumption expenditure tends to be historically high in terms of open macroeconomics as its a majorly import dependent country having a very young population, whereas China is sort of a old country with more importance over exports.

This can be a prime reason, why, China has restarted direct flights to India which can have a positive impact on the final consumption expenditure. This is even more important now, as due to the Trump tariffs and the constant interest rate cuts by different countries in order to prevent consumption smoothing which can push the growth rates down.

For the unstarted, consumption smoothing is a process opted by countries to maintain stable consumption patterns in the macroeconomic structure, so that the living standards in the country dont drop drastically during the depression phases or dont rise exponentially during . Now, on the backdrop of Trump tariffs and other geopolitical shocks as covered in the first paragraph, it is quite possible, that the recent reforms in India like the IT rate cuts, GST slab rate changes are done in order to keep the consumption patterns stable, which otherwise can run the risk of getting volatile, which is not a good news for any emerging economies. Not managing consumption properly can also have devastating affects on the exchange rates, which both India & China wont like to risk at a time when they can actually ending up as winners due to the various trade regulations coming up.

Also given, that both countries are highly tariffed at this time by the USA, which has an impact on the exchange rates & the resulting consumption smoothing phenomenon, it is very important for both of them to increase their trade with BRICS+ nations and with the ASEAN bloc, which can help them smooth the consumption dynamics till a new equilibrium is found with the Trumpian tariffs and the upcoming CBAM regulations. 

Trade as % of  GDP - Graph 3 (WDI Indicators, World Bank)

Exports of goods & services(as % of GDP) - Graph 4 (WDI indicators, World Bank)

Final Consumption Expenditure (as % of GDP) - Graph 5 (WDI indicators, World Bank)

Way Forward -

This is a new & sort of a unfamiliar geoeconomic territory for both the countries. Both India & China, had  huge trade & FDI relations, from 2000-2017 years which was primarily due to multiple reasons like no border clashes, India's MSME sector was very weak in this timeframe which made India a net importer of cheap manufactured goods and the geoeconomic scenario of the world was much more stable with the only major events in this decade being of the 2008 financial crisis which both countries were able to manage well.

But, now, the scenarios are very different, Indian economy is more stronger which can be seen in various indicators like the innovation index, trade volumes & a much stronger MSME, heavy & sunrise sectors which makes the ball game very different. India & China are also now major competitors in various sectors, while are also collaborating in various other areas. Also, geopolitically India is much stronger in today's time and the world is a more unstable place due to the various factors as listed in the first paragraph.

Since, the timeframes are drastically different now, it makes sense for both India & China to start economically cooperating in certain areas which can be of great help to the Asian continent. But, it is imperative for India to make sure that the reforms related to economy dont stop and that this time the cooperation with China doesnt end up compromising India's national economic interest which happened due to RCEP for many years. The way is not certainly easy but it can change the power dynamics if both of these asian giants collaborate and  take the other smaller countries of the world together in a non-confrontational manner.