The HINDU Notes – 29th July 2019 - VISION

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Monday, July 29, 2019

The HINDU Notes – 29th July 2019






📰 India must convince industry of RCEP’s benefits: Australia

India must convince industry of RCEP’s benefits: Australia
Australian High Commissioner to India Harinder Sidhu bats for agreement after India Inc. raised concerns.

•Australia is leading diplomats from various countries involved in the negotiations for the 16-member Regional Comprehensive Economic Partnership (RCEP) free trade agreement to convince India to commit to the deal by the end of the year. According to High Commissioner to India Harinder Sidhu, while there is “political will” that goes “right to the top” within the Indian government to go ahead with the FTA, the government’s task is to ensure Indian industry will support the decision.

•“The task at hand, which I am sure the Indian government is doing, is to explain that what the RCEP will do for them is to open the door to multiple markets in one fell swoop,” Ms. Sidhu said in an interview to The Hindu, ahead of the RCEP ministerial talks in Beijing on August 2-3. Union Commerce and Industries Minister Piyush Goyal will attend the talks. 

•A team of Indian trade negotiators are in Zhengzhou, capital of central China’s Henan Province, until July 31 for talks on concluding “substantial outcomes” by November 1, when the RCEP summit will be held. 

•Over the past week, Mr. Goyal has held a series of consultations with various industry members, most of whom are ranged heavily against the deal. They expressed serious concerns, including worries over the flooding of the market with Chinese goods, and the lack of access for Indian services in the RCEP countries, which include the 10-nation ASEAN grouping and its five FTA partners — India, China, Japan, Australia, and New Zealand.

Industry cautious on RCEP deal

•Ahead of the 16-member Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement ministerial talks in Beijing on August 2 and 3, Union Commerce and Industries Minister Piyush Goyal met with representatives from various Export Promotion Councils in the engineering, auto, chemical, pharmaceutical, leather, agriculture, marine & food processing, dairy, copper, zinc, aluminium, textiles and gems sectors in separate meetings in Mumbai and Delhi.

‘Detrimental impact’

•However, far from building consensus on the issue, industry sources at the meetings said they remain worried about the “detrimental” consequences of the RCEP agreement.

•“From our past experience we have seen that whenever India has rushed into an FTA negotiation, trade deficits have always widened with nations after signing free-trade-agreements with them. The industry is apprehensive that the RCEP negotiations are also being hurried into without practising any caution which may be suicidal for India,” a member of the delegation explained.

•Responding to the criticism of RCEP, the Australian High Commissioner to India Harinder Sidhu said it was the industry’s responsibility to use the FTAs well. Australia is leading diplomats from various countries to convince India to commit to the deal by the end of the year.

•“Indian negotiators like any good negotiators can get the best deal in their own country’s interests. But the second part is that industry has to use the access that they gain from the agreement to extend their reach,” Ms. Sidhu said, adding that at the last round of RCEP trade negotiations in Melbourne, the Australian government was “reasonably optimistic that a conclusion on RCEP is achievable by the end of the year”.

Joining later

•Managing industry concerns is one challenge for the Centre in the month leading up to the RCEP summit in Bangkok in November, which Prime Minister Narendra Modi will attend.

•The other challenge would be if RCEP countries decide to go ahead without countries like India, and leave the door open for India to join at a later date, something Ms. Sidhu said would be a “deeply disappointing” outcome.

📰 Naga register will shield State from outsiders, says Nagaland Deputy Chief Minister

“We are consulting civil groups and NSCN(IM),” Yanthungo Patton says.

•Nagaland’s Deputy Chief Minister Yanthungo Patton has defended the government’s decision to compile a register of indigenous Naga inhabitants, arguing that it will help to safeguard the State from outsiders.

•Mr. Patton, who also holds the Home portfolio, told The Hindu, “The Register of Indigenous Inhabitants of Nagaland (RIIN) may take more time; we are consulting all civil society groups, including the National Socialist Council of Nagaland (Isak-Muivah). It can be delayed by a few months.”

•In June, the State decided to compile a register to prevent issuance of indigenous inhabitant certificates to ineligible persons. The June 29 notification set December 1, 1963 — the day Nagaland gained Statehood — as the cut-off date.

•Mr. Patton said there is a rethink on the cut-off date too: there has been a demand from a section that the date be April 28, 1977.

•According to the 1977 notification, the indigenous inhabitant certificate should be issued to only those who had settled in Nagaland or had bought a property before 1963. “Some are saying that the cut-off date should be 1963 or 1977, we have not decided anything but are contemplating on the date too. There is nothing wrong in compiling the list,” said Mr. Patton.

•The RIIN is often called a variant of Assam’s National Register of Citizens (NRC). The only difference is the exclusion from the list will not make the people “illegal or Stateless.”

•The NSCN(IM), which signed a framework agreement with the Centre for finding a solution to the decades-old Naga problem, has opposed the RIIN. It has called the list “a bid to divide and undermine the inherent rights of the Nagas, besides diluting the peace process approaching a final settlement.”

•The NSCN(IM) has been fighting for Nagalim or ‘Greater Nagaland’ by bringing the Naga-dominated areas in Assam, Manipur and Arunachal Pradesh under Nagaland, thus uniting 1.2 million Nagas. It has also demanded a separate flag and a constitution for the Nagas. The Centre has ruled out any division of Assam, Arunachal Pradesh and Manipur.

📰 It’s time for India and Pakistan to walk the talk

Given the various breaches, the Simla Agreement could do with a makeover

•The Simla Agreement may be somewhat overrated. It could even be dead though we keep referring to it as a guiding light and take shelter behind it. Signed on July 2, 1972, by Prime Minister Indira Gandhi and Pakistan President Zulfikar Ali Bhutto, the Agreement has been observed mainly in its breach. It commits the two countries to “put an end to the conflict and confrontation that have hitherto marred their relations and work for the promotion of a friendly and harmonious relationship and the establishment of durable peace in the sub-continent”. Pending “the final settlement of any of the problems between the two countries”, it stipulates that “neither side shall unilaterally alter the situation and both shall prevent the organization, assistance or encouragement of any acts detrimental to the maintenance of peaceful and harmonious relations”. This is followed by a list of admirable, if ineffectual, exhortations. If these had been implemented effectively by New Delhi and Islamabad, Hafiz Saeed and Masood Azhar could well have been tourists in India rather than terrorists. Given the various breaches, the Simla Agreement could do with a makeover.

•It took more than 10 years after Simla to group the subjects that India and Pakistan would sporadically talk about, and even then the two countries have been going around in circles. It is reasonable to assume that nowadays Pakistan talks more about India and Kashmir to the U.S. than to India. Terrorism was one of the subjects that the two nations emphasised they would bilaterally discuss, but the 2011 Mumbai blasts shattered that premise. Since then India has been talking about Pakistani terrorism not so much with Pakistan as with any country willing to listen. This is probably why U.S President Donald Trump revealed at the Oval Office on July 22 that he and Pakistan Prime Minister Imran Khan would be “talking about India”. “I think maybe if we can help intercede and do whatever we have to do,” he said. “But I think it’s something that can be brought back together.”

Clinton’s role during Kargil

•President Trump may have been overstating it, but when the Simla Agreement was violated in Kargil, it was an American President who helped push the Pakistani troops back into Pakistan. As the Kargil War began to get bigger, a worried President Bill Clinton, who called the region “the most dangerous place in the world”, reached out to both Pakistan Prime Minister Nawaz Sharif and Prime Minister Atal Bihari Vajpayee, urging Mr. Sharif to pull back from the Line of Control (LoC) and Vajpayee not to widen the war front.




•On July 2, 1999, the 27th anniversary of the Simla Agreement, when the Indian Army launched a three-pronged attack in Kargil, Mr. Sharif called up Mr. Clinton. He wanted the Americans to intervene. To make it happen, he was even ready to fly to Washington with his family in case he became a Prime Minister in exile. Two American diplomats in the Clinton administration, Bruce Riedel and Strobe Talbott, detail the developments in fascinating detail. They write that the Americans told Mr. Sharif not to come unless he was willing to agree to an unconditional withdrawal. Mr. Sharif told the Americans that he was coming anyway. President Clinton, who had been briefing Vajpayee every little step of the way, called him. Vajpayee was by then a sceptic of peace. He had made a high-risk bus trip to Lahore and the Pakistanis had rewarded him by violating the Simla Agreement in Kargil to seek to alter the LoC. Vajpayee did not tell Mr. Clinton that this was a bilateral affair and he should stay out of it. Instead, he warned the President that Mr. Sharif would take him on a merry ride, and he was afraid that Mr. Clinton would get co-opted. Mr. Riedel, who was present at all the meetings, writes in “American Diplomacy and the 1999 Kargil Summit at Blair House”: “Sharif handed the President a document which he said was a non-paper provided to him early in the crisis by Vajpayee in which the two would agree to restore the sanctity of the LoC (a formula for Pakistani withdrawal) and resume the Lahore process. Sharif said at first India had agreed to this non-paper but then changed its mind”.

•Mr. Sharif wanted a withdrawal in return for a time-specific resolution of the Kashmir issue. President Clinton exploded saying he wouldn’t be blackmailed. The meeting broke to take stock of the matter. During the break, President Clinton called a worried Vajpayee to brief him again. “What do you want me to say,” Vajpayee asked when informed of what had gone on. President Clinton responded that he was holding firm. When they met again, Mr. Clinton told Mr. Sharif that if Pakistan didn’t withdraw, he would issue a statement naming Pakistan as a sponsor of terrorism as it had already readied nuclear missiles. Mr. Sharif said he feared for his life, but he reluctantly agreed to pull back troops. President Clinton called Vajpayee to give him the news. “That guy’s from Missouri big-time,” he said later. “He wants to see those boys get off that mountain before he’s going to believe any of this” (Engaging India, Strobe Talbott). The U.S. helped boot out the Pakistanis from Kargil for India.

Trump’s hint

•Was what President Clinton did mediation? Or was it intervention? Or meddling? Or was this all a shining example of bilateralism envisaged in the Simla Agreement? President Trump gave India a preview on February 28, before Wing Commander Abhinandan Varthaman was freed by Pakistan, of what was coming when he said: “We have some reasonably decent news. I think hopefully that’s going to be coming to an end. It’s been going on for a long time, decades and decades. There’s a lot of dislike, unfortunately. So we’ve been in the middle trying to help them both out, see if we can get some organization and some peace, and I think probably that’s going to be happening.” Was that mediation or the Simla Agreement at work? Nobody pointed out to President Trump that only the Ministry of External Affairs or the Pakistani Foreign Office or the Director General of the Inter-Services Public Relations were allowed to make such announcements.

•We have to recognise that the world has changed since the Simla Agreement was signed. After the 1971 war, India returned land taken in battle on the western border, to create lasting peace. The LoC is now more firmly established than ever before. There is no talk any more of United Nations resolutions. Most of the subjects in the ‘composite dialogue format’ like Siachen, Sir Creek and Wullar Barrage have been discussed threadbare. Some of them have been ready for political signatures for years. If the way forward is bilateral, then surely it is time to prove it?

📰 Respecting reproductive choice

Regulation of commercial surrogacy rather than a blanket ban may be the way forward

•It is unfortunate that the Surrogacy (Regulation) Bill, 2019, approved by the Cabinet, bans and criminalises commercial surrogacy and only allows altruistic surrogacy. The Bill stipulates that a surrogate mother has to be a ‘close relative’ of the intending couple.

Imposing morality

•The legislation shows that the government is eager to impose a certain morality on others as the Bill excludes gay couples, single men and women, and unmarried couples who want a child. In doing so, the government overlooks the needs of many same sex couples and single parents.

•In its earlier form, the Surrogacy Bill was cleared by the Lok Sabha on December 19, 2018. It was passed after a short debate of just two hours among only nine members of Parliament. It could not be introduced in the Rajya Sabha, however. At that time, the Health Minister, J.P. Nadda, said various political parties supported the Bill which was drafted “keeping the Indian ethos in mind”. He said the “intention is to save the family” and if the family is not able to bear children, to help them bear children through facilities offered by modern science. A family, according to the Minister, consists of “a registered husband and wife.” The 228th Law Commission India Report on Commercial Surrogacy too strongly recommended prohibiting commercial surrogacy. However, it said that “prohibition on vague moral grounds without a proper assessment of social ends and purposes which surrogacy can serve would be irrational.”

•How did the the Health Ministry conclude that that all forms of commercial surrogacy are suspicious? If it relied on or conducted studies on commercial surrogacy, it would be helpful if it shared these with the public, especially since this Bill, if it becomes law, could affect the chances of many couples in India who are desperate for children and whose only ray of hope is often commercial surrogacy. Is there an inventory of clinics offering commercial surrogacy services? If yes, did the health inspectors carry out inspections? Should there be a charter of regulations that these clinics must follow? Many questions remain unanswered.

•The legislation allows surrogacy only through a close relative. However, the Bill doesn’t define ‘close relative’. Moreover, the surrogate, the Bill says, should be married, aged 25 to 35, and should have at least one child. This further brings down the number of eligible surrogate mothers.

•Votaries of the ban have argued that commercial surrogacy is used for trafficking, and foreigners abandon children born through surrogates. Such violations should be addressed with an iron fist. However, has there been a comparison between the number of cases of misuse and those cases where families have benefited from surrogacy? Other practices are misused too, but they are all not banned.

Tightening regulations

•The focus should be on the well-being of the surrogate. The intending couple should ensure financial enumeration, a sound insurance cover and regular health check-ups for the surrogate. The relevant parts of the process should be legally documented. To impose a ban where better regulation may have sufficed will only take the entire process underground. Tightening regulations would respect the interests of infertile couples who might have a chance to have a child through surrogacy. That would also respect the woman’s choice about how she wants to bear a child.

📰 Army’s first Integrated Battle Groups to be structured by end of next month

Capable of mobilising within 12-48 hours based on the location

•The new concept of Integrated Battle Groups (IBGs) which the Army plans to create as part of overall force transformation is close to implementation, a senior Army source said. IBGs are brigade-sized, agile, self-sufficient combat formations, which can swiftly launch strikes against adversary in case of hostilities.

•“The concept of IBGs has already been test-bedded by 9 Corps. They are reorganising, based on the feedback and will complete restructuring by end-August. The Army will approach the Government for sanction after that,” the source said. The number of IBGs has not been decided yet, the source added.

•Each IBG would be tailor-made based on Threat, Terrain and Task and resources will be allotted based on the three Ts. They need to be light so they will be low on logistics, the source stated and added, “They will be able to mobilise within 12-48 hrs based on the location.”

•While a command is the largest static formation of the Army spread across a defined geography, a corps is the largest mobile formation. Typically each corps has about three brigades. The idea is to reorganise them into IBGs which are brigade-sized units but have all the essential elements like infantry, armoured, artillery and air defence embedded together based on the three Ts. An IBG operating in a desert needs to be constituted differently from an IBG operating in the mountains, the source explained.

•The key corps of the Army are likely to be reorganised into 1-3 IBGs. “Government sanction for each will be taken separately once they are constituted,” the source observed.

•The IBGs will also be defensive and offensive. While the offensive IBGs would quickly mobilise and make thrust into enemy territory for strikes, defensive IBGs would hold ground at vulnerable points or where enemy action is expected. The composition of the IBGs would also depend on this.

•Army Chief Gen Bipin Rawat has initiated four major studies to undertake overall transformation of the force. These include restructuring of Army Headquarters; force restructuring which includes creation of Integrated Battle Groups (IBG); the cadre review of officers; and review of the terms and conditions of Junior Commissioned Officers and Other Ranks. The aim is holistic integration to enhance the operational and functional efficiency, optimise budget expenditure, facilitate force modernisation and address aspirations.

•The overall transformation will also see a reduction in the size of the 1.3 million Army. “We are looking to reduce by about a lakh over 4-5 years,” the source stated, while adding that actual reduction will be lesser as some numbers will be added for some new risings under way.

•After the terrorist attack on the Parliament, the Indian military undertook massive mobilisation but the Army’s formations which were deep inside took weeks to mobilise loosing the element of surprise. Following this, the Army formulated a proactive doctrine known as ‘Cold Start’ to launch swift offensive but its existence was consistently denied in the past. Its existence was acknowledged for the first time by Gen Rawat in January 2017.

📰 Cybercrime officials suspect Agent Smith targets Indians

Investigations show 59% of those affected are from country

•Indian cybercrime officials, tracking the recently detected Agent Smith malware, believe it is targeted at Indians, who constitute the highest number of victims so far.

•The Hindu had on Sunday reported how the malware has raised concerns in the cybersecurity fraternity. According to a report by Checkpoint, a private cyber security firm, Agent Smith is believed to have infected over 25 million devices so far.

•First noticed early this year, the malware can replace apps on android phones with malicious versions without the user’s knowledge.

•According to investigations conducted by several agencies so far, around 59% of those affected by Agent Smith are Indians. Other countries where significant infection was recorded include the United States, the United Kingdom, Saudi Arabia, Australia, Bangladesh and Pakistan.

•“Agent Smith is embedded in apps available on Google Playstore, mostly connected to gaming, image editing or adult entertainment. Once a user downloads the app, the malware gets active, looking for other apps that it can take over. Its ability to impersonate apps, as well as the fact that its icon is not visible on the user’s screen, makes it next to impossible to detect,” a source, who is part of the investigation, said.

•The structure of the malware, too, indicates that it is an advanced one. Unlike most malware, the creators of Agent Smith seem to have made the effort to identify all the latest vulnerabilities in the Android operating system and designed it specifically to exploit them, the source said.

•One such vulnerability is called the Janus, which was discovered in 2017 by cybersecurity researchers. It allows hackers to modify an app without affecting its own signature, which makes the hack impossible to detect.

•“Agent Smith relies heavily on the Janus vulnerability in replacing apps with their contaminated versions while leaving the hash value, which is like a unique signature for any app, intact,” the source said.

•Cybercrime officials are closely tracking Agent Smith’s activities which, for the moment, seem to be limited to throwing up targeted advertisements. However, with the kind of abilities that the malware displays, it can be used for anything that its creators want it to do.

•“With 25 million devices being reportedly infected, the makers of Agent Smith already have a huge botnet at their disposal, and the possibilities are almost literally endless,” an officer said.

📰 Centre to launch Deep Ocean Mission in October

Polymetallic nodules will help meet the energy requirement

•A five-year, ₹8,000-crore plan to explore the deepest recesses of the ocean has finally got the green signal from the government.

•The ‘Deep Ocean Mission (DOM)’ to be led by the Union Earth Sciences Ministry will commence from October 31, Madhavan Rajeevan, Secretary, said at a public function. “We finally have the in-principle approval to go ahead with the mission. Now expenditure plans will be drawn and circulated [to various institutions affiliated to the Ministry] for executing programmes and we hope to launch by October 31,” he said.

•The Ministry had unveiled a blueprint of the programme last July. Among the key deliverables are an offshore desalination plant that will work with tidal energy and developing a submersible vehicle that can go to a depth of at least 6,000 metres with three people on board.

•“The mission proposes to explore the deep ocean similar to the space exploration started by ISRO about 35 years ago,” a report explaining the objectives of the programme notes.

•A major thrust of the mission will be looking for metals and minerals.

•India has been allotted a site of 75,000 sq. km. in the Central Indian Ocean Basin (CIOB) by the UN International Sea Bed Authority for exploitation of polymetallic nodules (PMN). These are rocks scattered on the seabed containing iron, manganese, nickel and cobalt. Being able to lay hands on even 10% of that reserve can meet the energy requirement for the next 100 years. It has been estimated that 380 million metric tonnes of polymetallic nodules are available at the bottom of the seas in the Central Indian Ocean. India’s Exclusive Economic Zone spreads over 2.2 million sq. km. and in the deep sea, lies “unexplored and unutilised”.



📰 Governing India through fiscal math

A focus on fiscal deficit reduction alone is not sound economic management. The revenue deficit must be in the picture

•While it is important for a government to pursue a sound economic policy, including management of the public finances, it is yet another matter to make a fetish of any one aspect of it. The latter appears to govern this government’s approach to policy when the fiscal deficit is given pride of place in its self-assessment. Not only is this unlikely to yield results on its own, it is not even necessarily prudent.

Thread of fiscal discipline

•Soon after the Budget for 2019-20 was presented, one of the Finance Minister’s predecessors remarked that “fiscal prudence rewards economies”. This was perhaps issued both as praise for the Budget itself and as a justification of the approach taken during his own tenure. Though a concern for the size of the fiscal deficit would have been inevitable since the enactment of the Fiscal Responsibility and Budget Management Bill in 2003, and has therefore been on the radar of political parties of all persuasions at the Centre, it has been raised to special significance since 2014. It figured in the most recent Economic Survey, and its anticipated magnitude for 2019-20 was the final statement in the Budget speech that had followed. The Finance Minister had commenced the speech saying how the government was committed to fiscal discipline.

•In the context, “fiscal discipline” is understood as taking the economy towards the 3% of the gross domestic product. The basis for this figure can be queried but that is beside the point. Actually, the point is two fold: whether the fiscal deficit should be the sole index of fiscal management and what a reduction in the deficit would achieve. To suggest that fiscal prudence rewards economies is to suggest both that the fiscal deficit is the right indicator of fiscal soundness and that reducing it is bountiful.

Not always a perfect measure

•While a sound fiscal policy is highly desirable, the magnitude of the fiscal deficit is not always and everywhere — think here of the state of the economy — a good measure of soundness. First, the fiscal deficit reflects the overall imbalance in the Budget. Embedded in the accounts of the government is the revenue account which is a statement of current receipts and expenditure. A fiscal deficit may or may not contain within it a deficit on the revenue account, termed the “revenue deficit”. The possible embeddedness of a revenue deficit within a fiscal deficit muddies the waters somewhat. For movements in the overall, or fiscal, deficit by itself tell us nothing about what is happening to the revenue deficit. Why should we worry, one might ask. We worry because it is the balance on the revenue deficit that indicates whether the government is saving out of its income or spending more than it receives as current revenue. A revenue deficit implies that the government is dissaving.

•A fiscal deficit co-terminus with a revenue deficit is to be frowned upon as it implies that at least some part of the borrowing is to finance current consumption, something a government ought prudently to avoid, at least for long. Therefore, unless the revenue deficit is kept explicitly in the picture, we cannot deduce the soundness of economic management from a mere reduction in the fiscal deficit. In fact, in the Budget for 2019-20, while the fiscal deficit projected is marginally lower than earlier, the revenue deficit is projected to rise. Even though the magnitude of the changes is minuscule, their direction calls into question the Finance Minister’s claim that the government is committed to fiscal discipline. It is yet another instance when the fiscal deficit can end up being no more than window dressing. While a pathological adherence to a revenue account balance is itself avoidable, a steady revenue deficit as the fiscal deficit shrinks makes a mockery of fiscal consolidation. Worse still it is open to the interpretation that the exercise is ideological in that it aims only to shrink the size of government, fiscal prudence be damned.

Rewards yet to be seen

•A detour through history would help bring some perspective here. A revenue deficit of the Central government is relatively recent, having been virtually non-existent till the 1980s. After that a rampant populism has taken over all political parties, reflected in revenue deficits accounting for over two thirds of the fiscal deficit such as the case today. Revenue deficits have become structural in India by now. This has three implications: that the public debt is only bound to rise; we are permanently borrowing to consume, and leaving it to future generations to inherit the debt. While the populism referred to is not the monopoly of any one political party, it is particularly stark in the case of the present one which relentlessly flags its virtue in lowering the fiscal deficit.

•We can see the hollowness of the claim that fiscal consolidation or the shrinking of the fiscal deficit is always and everywhere prudent, for the issue is what is happening to the revenue deficit. Now onto the former Finance Minister’s claim that “it rewards” economies. This government has lowered the fiscal deficit alright, though not as much as the United Progressive Alliance government, but the rewards are yet to be seen. Export growth has slowed and the unemployment rate has risen. Even private investment has not soared, an outcome predicted following the claim that government borrowing “crowds out” private investment.

International borrowing

•Of late an entirely new dimension has been added to fiscal management, but here again the appropriateness of conducting economic policy by reference to the magnitude of the fiscal deficit remains the issue. In the last Budget the government has signalled its intention to borrow in foreign currency from the international market. This is an innovation alright as the Government of India has so far never borrowed in the international markets, leaving it to public sector organisations and the private corporate sector to do so.

•In the Budget speech of the 17th Lok Sabha, the Finance Minister justified the move in terms of the very low share of foreign debt to GDP. The proposal has received criticism, some of it focussing on the consequences of exchange rate volatility. Benefits have been flagged too, such as that Indian sovereign bonds will attract a lower risk premium because the price of the foreign-currency-denominated sovereign bond will now be discoverable. This though ignores the biggest lesson from the global financial crisis of 2007, that the market cannot be relied upon to price risk correctly. And, both arguments overlook the foreign exchange constraint.

•Dollar-denominated debt has to be repaid in dollars. Right now our reserves are fairly high but this could change. Oil prices could go back to where they were, the trade war initiated by U.S. President Donald Trump holds little prospect for faster export growth, and portfolio investment may flow out. While these are only possibilities, they point to the need to ultimately base your borrowing plan on expected dollar earnings. The opportunity offered by low global interest rates right now is not matched by the likelihood of robust export growth.

•In the final analysis though, it is not the risk of exchange rate depreciation or stagnant exports or even capital flight that is the issue; it is the rationale for borrowing. With revenue deficits the overwhelming part of the fiscal deficit, we would be borrowing to finance consumption. Dollar denominated sovereign debt is just a matter of shifting this borrowing overseas. That is the real issue.

📰 Ban or regulate? — On India's policy on cryptocurrencies

There are issues with cryptocurrencies, but a ban might not be the best answer

•The recommendation of an inter-ministerial committee that India should ban all private cryptocurrencies, that is, Bitcoin and others like it, hardly comes as a surprise. Indian policymakers and administrators have time and again made clear their distaste for them, their existence owed almost entirely to advanced encryption technologies. In his Budget speech in 2018, Finance Minister Arun Jaitley said the government doesn’t consider them legal tender. The Reserve Bank of India has repeatedly warned the public of the risks associated with dealing with cryptocurrencies. Bitcoin, the most prominent among them, has yo-yoed wildly in value, even over short periods of time. A May 2019 article by Bloomberg, citing data from blockchain analysis firm Chainalysis, said “speculation remains Bitcoin’s primary use case”. Its use in illegal online marketplaces that deal with drugs and child pornography is well-documented. There have been cases of consumers being defrauded, including in India. Given all this, it is understandable that the committee, under the chairmanship of Subhash Chandra Garg, the former Economic Affairs Secretary, has come across as being wary of private cryptocurrencies even while advocating a central bank-issued cryptocurrency.

•Governments and economic regulators across the world are wary of private cryptocurrencies. As they need neither a central issuing authority nor a central validating agency for transactions, these currencies can exist and thrive outside the realm of authority and regulation. They are even deemed a threat to the official currency and monetary system. The question then is whether banning cryptocurrencies is the most effective way to respond. The inter-ministerial committee believes it is, going so far as to draft a law that mandates a fine and imprisonment of up to 10 years for the offences of mining, generating, holding, selling, dealing in, transferring, disposing of, or issuing cryptocurrencies. But six of the seven jurisdictions that its report cites have not banned cryptocurrencies outright. Many of them, including Canada, Thailand, Russia and Japan, seem to be moving on the path of regulation, so that transactions are within the purview of anti-money laundering and prevention of terror laws. China, which India has taken a cue from, has gone for an outright ban. Even there, the report says, “owing to the network-based nature of cryptocurrencies, after banning domestic crypto exchanges, many traders turned to overseas platforms to continue participating in crypto transactions.” Trading in China is now low but not non-existent. But why would an outright ban be a superior choice to regulation, especially in a field driven by fast-paced technological innovations? The report, unfortunately, doesn’t clarify that point.

📰 History and the 5G dilemma

As India looks to developing 5G technology, its quest in the 1980s for an American supercomputer offers lessons

•New technologies have a curious history of finding their way into the crosshairs of international politics. ‘5G’ is no different. In many respects, the dilemma facing Prime Minister Narendra Modi — to embrace Huawei and other Chinese purveyors of 5G-enabled telecommunications infrastructure, or to salvage the political relationship with the United States — is similar to the one faced by Rajiv Gandhi in the 1980s. Then, India had sought for itself a “supercomputer” from, among others, Japan. Instead, it was dealt a bad hand by the U.S., and made to settle eventually for an American machine that belonged to an older, slower generation of computers. The lessons from that moment in history are instructive, and Indian policymakers would do well to heed them.

•The late 1980s saw the waning of Cold War tensions on account of the Soviet Union’s inability to stand toe-to-toe with the military might of the U.S. But U.S. President Ronald Reagan’s administration had already set its sights on a small nation making rapid advancements in computing: Japan. Their technological rivalry spawned a trade war between Washington DC and Tokyo, each trying to outpace the other in penetrating newer markets. It reached a crescendo in 1987 when Reagan himself blocked the acquisition of Fairchild Semiconductors by Fujitsu Corporation. Fairchild was responsible for giving “Silicon Valley” its name — the audacious Japanese attempt to buy off an American crown jewel was the straw that broke the camel’s back.

The supercomputer saga

•But long before this rivalry reached a head, India had become its unfortunate casualty. Geopolitics induced by technology coincided with Rajiv Gandhi’s winning the 1984 general election by a landslide. His early initiatives included the New Computer Policy (NCP) of 1984 and the Software (Exports) Policy of 1986, which resulted in a steep drop in the price of computers, and heralded a remarkable shift in the government’s attitude towards them. However, to keep up with rapid, generational leaps in computing, India needed the assistance of nations that had made big strides in the sector. The U.S. made it known early that it called the shots.

•Months after the NCP was passed, Reagan put India in a list of destinations that needed special “review” before exports of American technology could be cleared. Rajiv Gandhi made a much publicised visit to Washington DC in the summer of 1985 to break the impasse. It resulted in the Technology Cooperation Agreement (TCA), a genuine, diplomatic success forged by the personal chemistry the young Prime Minister shared with the septuagenarian Reagan. The TCA eased regulations on technology exports, and it was during this visit that Rajiv Gandhi broached the possible purchase of a supercomputer.

•Publicly, India sought a supercomputer to forecast its monsoons better. Negotiations with the U.S. were however long and cumbersome, and an entire year passed by without any progress. Meanwhile, Rajiv Gandhi himself had staked political capital in promising to bring home a supercomputer, lending urgency to the matter. India eventually approached Japan, whose NEC Corporation was the only company outside the U.S. that could offer a supercomputer. The Wall Street Journal at the time made the stunning revelation that Japan had promised India it would “sign a supercomputer agreement within 30 days if the US deal fell through”.

Instrument of politics

•The availability of advanced technology from a competitor undermined the U.S. objective of wielding it as a blunt instrument of politics. Reagan wanted to wean India away from its partnership with the Soviet Union on high technology, and rein in New Delhi’s progress on its nascent guided missile programme. Therefore, the U.S. attached riders to the sale, placing intrusive safeguards and certification requirements that the supercomputer would be used by India only for civilian purposes. Ironically, American technology companies such as Honeywell and Unisys were supplying advanced electronics to Saddam Hussein around the same time, augmenting Iraq’s missile system. When Japan stepped into the picture, the U.S. immediately began negotiations to reach a “common understanding” with Tokyo for the sale of supercomputers.

•The Japanese too believed the safeguards were “too broad and too stringent” but simply did not have the diplomatic firepower to resist Reagan’s overtures. With Japan making its reluctance known, India was held captive at the negotiating table by the U.S. The agreement finally inked was for the sale of a Cray XMP supercomputer a generation older to its latest variant.

•The deal did little for Rajiv Gandhi domestically. After all, the Indian disaffection with IBM had begun, leading to its eventual exit in 1978, on account of its selling of obsolete machines to customers. If India has made modest forays into supercomputing today, it is thanks to the Centre for Development of Advanced Computing (C-DAC), which stepped up its efforts to create an indigenous machine in the wake of this episode.

•The Cray supercomputer sale is well-documented, but less storied is the American effort to dissuade Japan’s technology giants from the Indian market. By investing heavily in his political relationship with the U.S., Rajiv Gandhi unwittingly waded into Reagan’s technology trade war with Tokyo. It diminished his ability to negotiate autonomously with NEC.

Fast forward to the present

•The 5G saga is no different. At the recently concluded G20 summit in Osaka, Mr. Modi suggested he was talking to his U.S. counterpart to “collaborate and develop 5G technology for mutual benefit”. Few American vendors have the ability today to compete with a Huawei, Nokia or Ericsson — the statement was a concession on Mr. Modi’s part, allowing the U.S. to shoot off India’s shoulders against Chinese technology giants. With the Principal Scientific Adviser, K. VijayRaghavan, also the head of the high-level panel on 5G, openly calling for the exclusion of Chinese players from national trials, the government has unwisely put all its cards on the table.

•The U.S.-China technology rivalry is eminently political, one in which India should not take sides. If anything, New Delhi should take care to see history does not repeat itself. Much like the U.S.-Japan understanding on supercomputers, Osaka also saw the beginning of a U.S. rapprochement with China on technology trade: India must ensure whatever bilateral configuration that emerges from such talks does not restrict the sale of 5G equipment to others. There are no winners for India to pick in this battle: just decisions to be made coldly from the prism of economic self-interest.



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