Afghan conflicts hit India with fears of security, high prices
August 17, 2021
The stability of the present Afghan regime is critical for New Delhi not only to save its Afghan investments as also it might hit the supposed better GDP growth at 7 plus percentage. — Shivaji Sarkar
The new session of Parliament may have more to decide than the set agenda of 30 bills as the Afghan situation is turning murkier with a hasty US withdrawal. The house may have to chart out time to discuss the developing situation that sees Taliban, Pakistan and gradually China growing their influence and mostly at the cost of India. The stability of the present Afghan regime is critical for New Delhi not only to save its Afghan investments as also it might hit the supposed better GDP growth at 7 plus percentage. The situation is becoming complex as apart from extra budgetary burden on the covid19 health issues, depressing activities, and high inflation, India’s security related expenses may surge to check the fall-out of increased violence in the western part of the subcontinent.
India and Afghanistan share deepened economic and trade links despite uncertainties about achieving a political settlement to the lingering conflict. India has invested over $3 billion in reconstruction and relief work since 2001 when the US-led troops drove the Taliban out of Kabul. Delhi still firmly supports President Ashraf Ghani’s government. Four months back in March, during a three-day visit to New Delhi, Afghan foreign minister Haneef Atmar desired that the two countries deepen economic and trade links.
But the recent flash battles with Taliban, tactically supported by Pakistan army, and capture of many strategic areas; are making it difficult. The recent statement of Pak army spokesman Maj Gen Baba Iftikhar, “Pakistan is a facilitator of the peace process but not a guarantor” speaks volumes of Pakistan’s complicity. Islamabad had always been against India’s humanitarian and developmental work that made India immensely popular in Afghanistan. The recent killing of an Indian photo journalist Danish Siddiqui, embedded with Afghan army reveals the weakening of control by Ashraf Ghani regime.
India has last week withdrew its diplomatic personnel from Kandahar consulate general and closed down consul offices in Herat and Jalalabad amid growing threats to Indian employees in these regions not far from Pak border and operational areas of Taliban. The strategy is to weaken the Afghan hold, strengthen Taliban so that it could have renewed vigour at the negotiating table for power sharing. Afghanistan remained a key issue at foreign ministers’ discussion at the Shanghai Cooperation Organisation (SCO) meet on July 14 in Tajikistan. Minister of External Affairs S Jaishankar participated with the foreign ministers of China, Russia, Pakistan and West Asian countries. The SCO joint statement merely stated that international terrorist organisations are destabilizing the country and peace be restored with talks between Taliban and Afghan government.
It does not give any succour to India. The wishy-washy deals of SCO will not solve the issue. As it appears India is on the back foot. The Taliban’s historic linkages with Lahkar-e-Taiba and jaish-e-Mohammed are the sore points. Taliban will always stand by these organisations and shelter them even if it gives an assurance to India. This virtually pushes India to the brink of direct or indirect conflicts and increases its security paraphernalia and expenses.
The issue of Iran virtually reneging on Chabahar port and access to central Asia, Taliban has already created problems. India’s $ 3 billion investments are virtually at stake. It is likely to impact its external trade as well. The additional burden on India is not easy to fathom but would be substantial.
The Afghan failure of the US is reflecting also on dollar. This is adding to global inflation and it would create further troubles for India. The inflation has virtually crossed the newly-set up tolerance level of RBI at 6 percent up from 5 percent. During the last one year CPI has been rising continuously. The government has announced for its staff 11 percent rise in DA and it may add another 3 percent to adjust to the rising inflation.
The wholesale price index is also galloping and has reached 12.94 percent as per May figures due to rise in commodity prices in the international market. The sharper rise means the consumer prices would further firm up. The government expenses would go beyond the revised estimates of 7 percent. This would constrain the government on one hand and the other would cause market prices to zoom.
The National Statistical Organisation figures say food, fruit, edible oil prices and daily rise of petrol prices are impacting consumption. (A SBI report on its card uses reveal that high petrol and commodity prices have led people to cut expenses on other items to pay for fuel). In the rural areas, the share of bulk or high value purchases fell 22 percent and low value by 10 percent. People are opting for less than Rs 10 purchases, a sign of severe cash and income crunch. Even for FMCG electronics and apparel, buyers are settling for lower priced products. Overall share of high value products drops- packaged goods by minus 21.6 percent; home care and personal care by minus 2.7 percent, and TV sales fall by 4 percent since end December, 2020.
The lockdown has impacted IIP, which grew at 29.3 percent against a drop of 57.3 percent a year back. It is a positive indicator but not exactly a booster for the economy. The poorer sales and production also mean that the industry would take time to recruit people and employment scenario might take time to brighten up.
International commodity prices are expected to harden, says Bloomberg, because of the volatile Afghan situation. Despite the U.S. having spent an estimated $900 billion on the Afghan conflict, the Taliban are at their strongest controlling more than half the country. The Afghan military, which receives training and advice from the U.S. and its allies, has been hampered by insufficient air power and heavy combat losses and desertions.
India may not have direct involvement in the conflict but it is expected to pay a heavy price for it even in the domestic market. A HSBC Capital Market study warns that upside risks to inflation could re-emerge in the second half of the fiscal as conflict deepens. Corporate are likely to pass on higher prices to consumers and there would be demand side pressure further hardening the prices.
The recovery remains dicey and more so as the Afghan situations gets murkier. The country would have to gird up its loin.