Biden ought to tell Netanyahu that enough is enough in Gaza
The US should stop arming Israel in honour of the UN’s resolution
If ever there was a case for the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to present a straight bat, and not attempt any theatrics, Friday, 5 April 2024, was the day. With the economy doing well, inflation down, if not out, and general elections looming ahead, it made no sense to rock the boat. Not after the central bank had come in for lavish praise from both Prime Minister Narendra Modi (“RBI, with its success in managing inflation and growth, despite the pandemic and two wars, can be a role model for other central banks”) and finance minister Nirmala Sitharaman (“RBI stands tall among its peers on several counts”) at the celebrations held on 1 April to mark the 90th anniversary of RBI’s commencement of operations on 1 April 1935.
So, in the last MPC meeting before the elections and the first in this fiscal year, the rate-setting committee did exactly what was expected—it kept rates on hold (for the seventh consecutive time) and said it remained focused (as before) on the withdrawal of liquidity. It cannot be faulted for inconsistency. If it felt growth was doing quite well and the inflation-growth dynamics did not warrant any change in policy rates at its meeting in February 2024, when National Statistical Office (NSO) estimates placed 2023-24 gross domestic product (GDP) growth at 7.3%, there was even less of a case for any rate action to support growth now that the economy is doing better (the latest official estimates place GDP growth higher at 7.6%).
Clearly, the MPC, like the US Federal Reserve, has a problem on its hands. Its ‘higher for longer’ policy doesn’t seem to have impacted growth adversely. On the contrary, not only is growth, according to governor Shaktikanta Das’s own admission, likely to touch 8% in 2023-24 but is likely to remain robust in 2024-25.
Prima facie, it might seem as if nothing has changed and the latest MPC resolution is merely a ‘cut and paste’ of its earlier one. Except that monetary policy statements are not only about what is stated in black and white, but also about what is left unsaid. And so it is with the latest one.
The biggest omission is the absence of any explanation of how or why the MPC and RBI misjudged the strength of the economic recovery in the year gone by. Remember, RBI had not raised its growth estimate in February, the governor contenting himself with saying the NSO estimate for growth in 2023-24 is 7.3% (RBI’s own estimate then was 7%).
However, Friday’s statement was completely silent on the slip-up, preferring instead to dwell on growth in the current fiscal (7%). Considering that the NSO’s latest estimate for 2023-24 is 7.6%, considerably higher than RBI’s estimate of 7%, one would have expected some explanation, if not a mea culpa. But no. For whatever reason, neither the MPC nor RBI seems to have thought it necessary to offer any explanation.
Yet, their reading about the underlying strength of the economy is crucial to the future course of policy. Can we assume that what worked in the past will work in the future as well. Economics 101 would say that a scenario where growth is looking up but inflation is not yet beaten is tailor-made for a rate hike.
Remember, monetary policy acts with a long lag. As Governor Das admitted, “The last mile of disinflation is turning out to be challenging,” adding that monetary policy transmission is ‘”still a work in progress,” a full 23 months after the first rate hike in May 2022. Logically, the slow pace of monetary transmission in India combined with a stronger-than-expected growth should have warranted some change—a more hawkish tone perhaps, if not the symmetric policy response of a (contrarian) rate hike.
Remember also that what started in April 2023 as a “tactical pause” in the words of Governor Das and not “a pivot or a change in policy direction,” has continued now for a full 12 months. But conditions in April 2023 were vastly different from today. Back then, real GDP growth was estimated at only 6.5%, and though inflation had “softened from its elevated levels a year ago,” it “still remained above the upper tolerance band.”
In contrast, today, growth seems to be robust. And while inflation, according to RBI’s estimates, is expected to be just 4.5% in 2024-25 (and lower still at 3.8% in the July- September quarter, traditionally a bad quarter, given the tendency for prices to rise in the summer months), the upside risks to inflation—higher commodity prices, geopolitical conflict, strong foreign exchange inflows— seem higher than the downside risks to growth. In such a scenario, one can perhaps be pardoned for wondering if the monetary policy is “actively disinflationary,” as the statement claims.
Sure, “balancing the economic see-saw,” as Mervyn King, former governor, Bank of England, put it, is always a challenge. “Our ambition at the Bank of England is to be boring,” he had famously added. Well, on Friday, RBI, which entered its 90th year on 1 April 2024, possibly took a leaf out of the book of its counterpart with a 240-year advantage. It tried to be boring!
The White House described the recent phone call between US President Joe Biden and Israeli Prime Minister Benjamin Netanyahu as “tense and challenging.” And what else could it have been? For the first time since Hamas attacked Israel on 7 October and Israel began retaliating massively against the whole Gaza Strip, Biden demanded an immediate ceasefire. He apparently added an or-else: “If there are no changes in their policy,” said a spokesperson, “there will have to be changes in ours.”
That still seems too little too late to lots of people, even and especially in Biden’s own government. While Biden was on the phone with Netanyahu, I was talking to Annelle Sheline, who last week resigned very publicly from her mid-level job in the State Department in protest over what she regards as American failures to observe international and US laws in supplying Israel with weapons even as it commits humanitarian crimes in Gaza.
Take the ceasefire Biden has demanded. Wasn’t that already the gist of a resolution by the United Nations Security Council? The US had let it pass by abstaining rather than exercising its veto. But then the White House went out of its way to emphasize that the resolution was “non-binding.” Why, wonders Sheline, who has a PhD on political Islam and helped write humanrights reports on the Middle East before resigning. Security Council resolutions are meant to be binding; that’s the whole point.
At the exact same time, moreover, the Biden administration was also readying previously agreed shipments to Israel of huge bombs—the kind that have been flattening much of the Gaza Strip—and even preparing future sales of fighter jets, missiles and other weapons. By mixing his signals, Biden is sending no signal at all.
To Sheline, these US arms sales are illegal. She points to two laws. One prohibits the US from arming foreign military units which “credible information” implicates in human-rights violations. The other bars support for governments that restrict humanitarian aid. By now, evidence of Israeli violations on both counts seems overwhelming—from blanket rather than precision bombing to blocking aid and causing starvation. Just this week, Israel struck well-marked trucks in an international aid convoy, killing seven.
Sheline represents a larger shift in US public opinion. Whereas about half of Americans still approved of Israel’s Gazan campaign in November, when the shock of7 October was fresh and the worst of
Israel’s bombing yet to come, a majority now disapproves. Opinions are polarized, of course, with many older people and Republicans backing the Israeli government to the hilt while younger and leftleaning demographics turn against Israel. Among the electorate, as in Congress, the mood is in flux, and not in Israel’s favour.
That turn is even further along within the government. Sheline is the third diplomat to resign over the Israel-Gaza conflict, and one of many who have signed onto cables in the internal dissent channel. Since she quit, many colleagues have shown support. Resistance is also building in other departments, and apparently even inside the White House: First Lady Jill Biden is said to be horrified by the suffering in Gaza and to have urged her husband to “stop it, stop it now.”
Another tragedy, Sheline told me, is that Biden was supposed to be the good guy, and the US a good country. A Biden America, unlike the alternative version peddled by Donald Trump, was meant to stand up for democracy, law and human rights at home as abroad. That claim is looking more hollow by the day, and the US less credible and more hypocritical abroad to many people. The conflict in the Middle East is threatening to take hostage Biden’s entire foreign policy .
Whenever the world calms down to think clearly, it must apportion blame for the immense misery of the past six months. Hamas deserves the most, but Netanyahu and his right-wing coalition partners are due their share, as are other parties in the Middle East. By contrast, Biden, I believe, genuinely tried to empathize with all sides and to find a balance between justified Israeli self-defence and humanitarian restraint. But in that attempt he has failed, as Netanyahu repeatedly and brazenly snubbed and ignored him.
UN resolutions and tense phone calls to Netanyahu are no longer enough. One of Biden’s predecessors, Bill Clinton, allegedly emerged from a meeting with Netanyahu in 1996, venting in frustration: “Who’s the... superpower here?”
If Netanyahu now ignores Biden and the Security Council and fails to cease fire, the US must vote to condemn Israel at the UN and immediately halt all shipments of arms to the country.