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Indus Water Treaty & its Current Challenges
What is the Indus Water Treaty between India and Pakistan?
- The Indus Water Treaty is a water-distribution agreement between India and Pakistan, brokered by the World Bank and signed in 1960. Key aspects of the treaty include:
- Allocates the waters of six rivers in the Indus system between the two countries
- Gives India control over the eastern rivers (Ravi, Beas, and Sutlej)
- Grants Pakistan rights over the western rivers (Indus, Chenab, and Jhelum)
- Allows India limited use of western rivers for irrigation, transport, and power generation
- Establishes the Permanent Indus Commission for conflict resolution where both the countries meets atleast once annually.
- Considered a rare example of successful water-sharing cooperation between the two nations and it has survived multiple wars and conflicts between India and Pakistan
What is the current challenges of the Indus Waters Treaty (IWT)?
- India has issued its fourth notice to Pakistan since January 2023, demanding renegotiation of the 1960 treaty
- India has called off all meetings of the Permanent Indus Commission (PIC) until Pakistan agrees to talks.
- The dispute resolution process for the Kishenganga and Ratle projects has been at an impasse since 2016
- Kishenganga and Ratle projects are hydroelectric power plants being developed by India
- Kishenganga project is on the Kishenganga River, a tributary of the Jhelum River. It is located in Jammu and Kashmir, with a capacity of 330 MW
- Ratle project is on the Chenab River in Jammu and Kashmir and designed to generate 850 MW of power
- Pakistan claims these projects violate the Indus Water Treaty (Remember Pakistan rights over the western rivers (Indus, Chenab, and Jhelum))
- India maintains the projects are within the treaty’s parameters (Remember the treaty allows India limited use of western rivers for power generation & irrigation)
- World Bank allowed two parallel dispute resolution processes, complicating matters
- Pakistan escalated disputes over Kishenganga and Ratle projects to both a neutral expert and Permanent Court of Arbitration (PCA).
- However, India has boycotted PCA hearings at The Hague
- On the other hand, Pakistan has boycotted neutral expert proceedings
- Political rhetoric has intensified, with leaders using water issues for partisan politics
How does the IWT dispute reflect broader India-Pakistan relations?
- The deterioration of the IWT process mirrors the unravelling of bilateral relationships
- There is no political engagement or trade between the two countries
- The 2021 LoC ceasefire agreement is in danger due to terror attacks and deaths of Indian Army personnel
- Concluding any new agreement on the IWT will be more difficult in the current climate
What are the potential ways forward for the IWT?
- Pakistan’s invitation for the SCO Heads of Government meeting (October 15-16) could present an opportunity for talks
- New issues like climate change and renewable energy needs necessitate a re-opening of the 64-year-old Treaty
- Resolving current disputes while addressing new challenges will be crucial for saving the treaty
- The way forward will determine if the two countries can preserve what was once called “one bright spot” in international relations
Can you answer the following question?
Analyze the current challenges facing the Indus Waters Treaty between India and Pakistan.
Pivot to watch: US Fed Rate Cut
What is the recent decision by the U.S. Federal Reserve?
- Cut interest rates for the first time in more than four years
- Lowered benchmark interest rate by half a percentage point
- Signaled expectation of at least another quarter point reduction in 2024
- Decision made with a 17 to 2 majority in the Federal Open Market Committee (FOMC)
Why did the Fed make this decision?
- To maintain strength in the labor market while achieving moderate growth
- Lower interest rates make borrowing cheaper for businesses, encouraging investment and expansion. This can lead to job creation and help maintain a strong labor market
- Lower rates signal confidence that inflation is under control. It allows for a more balanced approach to economic management after a period of aggressive inflation fighting
- By carefully managing the rate, the Fed aims to achieve a “Goldilocks” economy – not too hot (high inflation) or too cold (deflation)
- Balance the Fed’s dual mandate of maximum employment and price stability
- Lower rates can boost economic activity, supporting employment • At the same time, careful rate management helps maintain price stability by avoiding excessive inflation or deflation
How might this decision impact emerging market economies (EMEs)?
- Bring relief from the effects of previous rate increases and strong U.S. dollar
- Lower U.S. interest rates typically lead to a weaker dollar, making EME currencies relatively stronger. A weaker dollar can also boost the competitiveness of EME exports in global markets
- Potentially decrease debt service burdens and inflationary pressures for EMEs
- Many EMEs have dollar-denominated debts; a weaker dollar reduces the local currency cost of servicing these debts
- Lower U.S. rates can lead to lower global interest rates, potentially reducing borrowing costs for EMEs in international markets
- May support a broader revival of capital flows to emerging and developing economies
- India likely to see an increase in foreign portfolio investor inflows, especially in debt markets
- More significant relief expected for economies in Africa and Latin America
What are the potential implications and risks of this rate cut?
- Limited impact on India’s economy, according to the Chief Economic Adviser
- May improve EMEs’ ability to invest in vital public infrastructure and services
- Could be interpreted as a cautionary signal of troubled times ahead
- Global economic uncertainties, including conflicts in Europe and West Asia, add complexity to the decision’s impact
Can you answer the following question?
Analyze the potential impact of the U.S. Federal Reserve’s recent interest rate cut on emerging market economies, particularly India.
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