Strange bedfellows in West Asia

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Tel Aviv believes that improved relations with Riyadh will serve many major strategic goals

Increasing intimacy between S tion of Islamic orthodoxy, and audi Arabia, the so­called basIsrael, the Jewish state carved out by the colonial powers in Arab Palestine, appears astonishing at first sight. The growing relationship, even if surreptitious, between the two states can be explained in large part with reference to the old adage, “my enemy’s enemy is my friend”. Complex reasons The enemy is Iran, which both countries perceive as the primary threat to their strategic interests in West Asia. Saudi Arabia is engaged in a fierce competition with Iran for influence in the Persian Gulf and wider West Asia. Riyadh seems to be losing this competition as demonstrated by recent events in Syria, Lebanon and Iraq as well as tiny Qatar’s defiant attitude. The reasons for Israel’s overtures towards Saudi Arabia are more complex. A common front against Iran is, of course, a major factor determining Israeli policy. Iran is a potential challenger to Israel’s nuclear monopoly in West Asia and uses its influence in the Levant to impede Israeli dominance of the region. But equally important, the Israeli government believes that improved relations with Riyadh will serve other major goals. First, Saudi Arabia’s lead in establishing relations with Israel, even if covert, is likely to induce other Arab states, especially the oil rich monarchies of the Gulf, to open their economies to Israeli investment and technical expertise, thus bringing Israel substantial economic benefits. Israel’s success in achieving this objective is critically dependent upon developing a significant, even if unacknowledged, relationship with Saudi Arabia. Second, the Israeli government estimates that improved relations with the Saudi regime, the “guardian” of Islam’s two holiest sites, will help resolve the Israeli­Palestinian conflict to Tel Aviv’s satisfaction. This means Israel continuing to control the entire territory between the River Jordan and the Mediterranean Sea without giving the Palestinians any civil or political rights. Israel feels that with Saudi help, the status quo could be made acceptable to other Arab and Muslim countries as well since several of them, such as Egypt and Pakistan, are heavily dependent upon Saudi largesse. Furthermore, Israel and Saudi Arabia have a common interest in preventing the democratisation of Arab countries. Authoritarian governments in the Arab world allow Israel to parade itself as the only democracy in West Asia. Saudi Arabia is mortally afraid of a democratic wave in the Arab world since it would further highlight the despotic nature of its regime. This apprehension drove its opposition to the democracy movements, especially in Egypt and Bahrain, during the short­lived Arab Spring. U.S. nod The Saudi­Israeli rapprochementhas been actively supported by the Trump administration. The United States is extremely interested in the formation of a joint front between Saudi Arabia and Israel against Iran, America’s principal adversary in West Asia. Jared Kushner, the U.S. President’s sonin­law and the administration’s point man on West Asia, has developed a special relationship with Saudi Crown Prince Muhammad Bin Salman (MBS) in order to achieve this and other ends. He had used his leverage with MBS to prod the latter to accept Israel’s point of view on the Palestine issue before the Jamal Khashoggi murder stalled the expansion of the Saudi­Israeli relationship. The rapprochement between Riyadh and Tel Aviv was moving apace until October 2, 2018, when Khashoggi, a Saudi dissident journalist, was murdered at the behest of the Saudi regime in the Saudi Consulate in Istanbul, Turkey. Senior officials of the two governments, including Mossad head Yossi Cohen, had clandestinely met several times. On the Saudi side, former senior aide to the Crown Prince, Saud al­Qahtani, and former deputy intelligence chief, Major General Ahmed al­Assiri, had played important roles in the secret negotiations with Israel. Khashoggi murder However, the Khashoggi murder has thrown a spanner in the works for several reasons. First, the two principal Saudi interlocutors havebeen dismissed from their crucial positions in order to demonstrate to the international community that the Saudi regime is genuinely interested in bringing Khashoggi’s murderers to justice. Second, MBS, who many believe ordered the killing, has been the focus of intense criticism, including by leading Senators and Congressmen in the U.S., following the brutal murder and dismemberment of Khashoggi’s body. He is also held responsible for the Yemeni misadventure, which has left thousands of civilians dead and millions on the verge of starvation. He cannot, therefore, afford to take greater political risks at this moment by continuing the parleys with Israel. This does not mean that the Saudi­Israeli relationship will return to the level of hostility that had once existed between the two states. Rapprochement has been an ongoing process for close to two decades. It was dramatically expedited with the appointment of MBS as Crown Prince and the de facto ruler of Saudi Arabia. One can, therefore, conclude that their common hostility towards Iran and their close security relationship with the U.S. will eventually prompt Saudi Arabia and Israel to resume their covert relationship and eventually make it public. However, their contacts are likely to remain frozen for some time until the Khashoggi murder recedes from public memory. Yet the Saudi­Israeli rapprochement could be accelerated if MBS, who has been the driving force behind the Saudi policy of engagement with Israel, ascends to the Saudi throne in the near future

Strange bedfellows in West Asia 1

GST shortfall

As the tax collections remain below target, it may be time to recalibrate expectations Revenue collections from the Goods and Services T fort. Inflows declined for the second consecutive ax (GST) are going too far off the mark for commonth in December to ₹94,726 crore from ₹97,637 crore in November and ₹1,00,710 crore in the month before. Between April and December, GST collections have averaged about ₹96,800 crore, and have not even once met the monthly target of ₹1,06,300 crore, going by the Union Budget math for 2018­19. Now in order to achieve the year­end target, GST collections over the next three months will have to reach an average of 1,34,900 crore. But given the spate of tax rate cuts announced by the GST Council in December that kick in this month and Prime Minister Narendra Modi hinting at further rationalisation of rates for construction materials soon, the pressure on revenues is likely to persist. Separately, as the government looks to woo traders and small businesses back to its electoral fold, the Council is considering a relaxation in the GST norms for micro, small and medium enterprises by raising the annual sales threshold for compulsory GST registration from 20 lakh to over ₹50 lakh. Such a relaxation, along with regulatory steps like greater forbearance for small business loans, will boost sentiment among such firms, but it will further dent the tax kitty. Other revenue heads, including direct tax or disinvestment receipts (even via innovatively structured intra­public­sector deals), are unlikely to be adequate to plug the GST shortfall. This poses a challenge for the Centre at a time when it would have been hoping to announce some populist measures ahead of elections, while retaining its macroeconomic management credentials. States’ revenue collections under the GST regime have been uneven and a GST Council panel is examining inter­State variations. But the Centre is bound to compensate States for revenue shortfalls for the first five years of the GST regime. Unless the Centre decides to drop its fiscal deficit goals, a squeeze on spending, including planned capital expenditure, may be the only option. There is a more problematic aspect to the dip in GST collections, based on economic activity and compliance trends in November. The total number of returns filed that month hit a high of 72 lakh from 55 lakh at the beginning of the fiscal, yet revenues fell. November also marked the onset of India’s festive season, with a late Deepavali. Yet, the higher compliance and the festive fervour translated into collections lower than the average monthly receipts for the year till date. Though India’s growth fell to 7.1% in the second quarter of this fiscal, an uptick in private investment over the same period was considered a sign of revival. But if consumers are not confident enough to spend, a consumption­led investment revival to take the economy to an 8% growth path seems elusive again.

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