📰 New cryptocurrency bill seeks to ban private players
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is yet to get Cabinet nod.
•The Union Government will introduce a Bill to regulate cryptocurrency and ostensibly ban all private cryptocurrencies, along with 25 other pieces of legislation, in the winter session of Parliament that begins on November 29.
•The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which is yet to be officially approved by the Cabinet, seeks to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.
Pilot project
•The central bank is looking at launching a pilot project for an official digital currency soon.
•“The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to the stated purport of the Bill in a Lok Sabha bulletin and the tentative list of the government’s legislative business for Rajya Sabha.
•So far, the precise contours of the Bill are not in the public domain and no public consultations have been held.
•The Finance Ministry has been tight-lipped on the Bill, which had been readied for the Cabinet’s approval as early as August.
No details
•Media queries about who would be held responsible if investors betting on crypto assets that are liberally advertised, were to make heavy losses, have been met with silence.
•When Prime Minister Narendra Modi chaired a meeting on November 13, to assess the regulatory prospects for cryptocurrencies with the top brass of the central bank and the Ministries of Home Affairs and Finance, a consensus was reached to stop ‘attempts to mislead the youth through over-promising and non-transparent advertising’
•It was also resolved that unregulated crypto markets cannot be allowed to become avenues for money laundering and terror financing. A close watch and pro-active steps are necessary for the sector, the government had determined.
•Last Monday, when the Standing Committee on Finance met cryptocurrency stakeholders, industry representatives agreed with the need for regulation of the crypto market but were unable to answer several questions raised by parliamentarians.
•Apart from the proposed cryptocurrency law, the government has also listed a Bill to repeal the three contentious farm laws of 2020, as promised by Prime Minister Modi last Friday, after they had triggered an year-long protest from a section of farmers.
•The three bills are the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, the Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Act, 2020, and the Essential Commodities (Amendment) Act, 2020.
•The government has also listed the Electricity (Amendment) Bill, 2021, which seeks to remove all cross-subsidies and make all consumers pay the actual cost of supply. This could make farmers and rural consumers pay the highest price for electricity, as the cost of supply to rural areas is significantly higher than to urban consumers.
•Several non-BJP state governments have raised objections to the Bill, which was listed in the Monsoon session of Parliament but was not introduced to avoid further confrontation with the Opposition at a time they were raising objections over the Pegasus Project revelations.
•Three Bills issued as ordinances by the government will also be tabled for consideration and passing, including changes to the Central Vigilance Commission Act of 2003, the Narcotic Drugs and Psychotropic Substances Act of 1985, and the law governing the Central Bureau of Investigation.
Inter-Governmental Agreement was signed in 2019; a JV was set up in U.P. for manufacturing the rifles
•The Defence Acquisition Council (DAC) which met under the Chairmanship of Defence Minister Rajnath Singh on Tuesday approved the long-pending deal for the manufacture of 6.71 lakh AK-203 assault rifles in India, according to a defence source.
•This comes ahead of Russian President Vladimir Putin’s visit to India early next month for the India-Russia annual summit. Mr. Putin is scheduled in India for the summit on December 6, when the two sides will also hold their inaugural 2+2 ministerial dialogue.
•The two countries had signed an Inter-Governmental Agreement (IGA) in February 2019 following which a Joint Venture, Indo-Russian Rifles Private Limited (IRRPL), was set up at Korwa in Uttar Pradesh for manufacturing the rifles.
•The JV is between Ordnance Factory Board (OFB) from the Indian side and Rosoboron Export and Kalashnikov on the Russian side. The Army had also appointed a Major General as the Chief Executive Officer (CEO) of IRRPL to ensure timely execution and deliveries.
•The Ministry of Defence has already floated a Request For Proposal (RFP) to the JV for the supply of 6.71 lakh rifles, but the final deal has been held up over the high cost for each rifle.
•As reported by The Hindu earlier, with repeated delays in the deals for procurement of AK-203 assault rifles, India had signed a deal in August for 70,000 AK-103 assault tickets to be procured off the shelf. The deliveries would begin within three months once the first payment is made and would be completed in six months.
•Another deal likely to make progress is for Igla-S Very Short Range Air Defence (VSHORAD) systems. The Ka-226T utility helicopter deal is unlikely to be cleared, according to official sources.
Air Force satellite
•The DAC approved a proposal for the procurement of GSAT-7C communication satellite for the Indian Air Force (IAF) at a cost of ₹2,236 crore, a Defence Ministry statement said.
•Induction of GSAT-7C Satellite and ground hubs for Software Defined Radios (SDRs) will enhance the ability of the armed forces to communicate beyond Line of Sight (LoS) among one another in all circumstances in a secure mode, the Ministry statement said.
•“The project envisages complete design, development and launching of satellite in India,” it added.
•A dedicated satellite for the IAF has been a long pending proposal. The Navy already has a dedicated communication satellite of its own, Rukmini.
📰 India, U.S. commit to linking economies across sectors
Indian grapes, U.S. cherries could be early winners as Trade Forum revives.
•The United States and India committed to integrating their economies across sectors to harness the untapped potential of the bilateral relationship, at the Trade Policy Forum convened after a gap of four years on Tuesday.
•Co-chaired by Commerce and Industry, Textiles, Consumer Affairs and Food & Public Distribution Minister Piyush Goyal and U.S. Trade Representative, Ambassador Katherine Tai, the Forum resolved to take economic ties between the two countries to the ‘next high level’ and exchanged views on ‘potential targeted tariff reductions’.
•The two sides decided to activate working groups of the Trade Policy Forum (TPF) on agriculture, non-agriculture goods, services, investment, and intellectual property to meet frequently and address issues of mutual concern in a mutually beneficial manner. The idea is to deliver tangible benefits to farmers and businesses of both countries by resolving outstanding market access issues.
Mutual market access
•Specifically, the Forum has decided to forge an agreement to facilitate U.S. market access for mangoes, grapes, and pomegranates, pomegranate arils from India, and reciprocate with similar access in the Indian market to cherries, pork/pork products and alfalfa hay for animal feed from the United States.
•Discussions will also be held on enhancing market access for products such as distillers’ dried grains with solubles from the U.S. and resolving market access concerns for water buffalo meat and wild caught shrimp from India.
•The Indian side has sought restoration of the GSP (Generalized System of Preferences) benefits by the U.S. and said this would help industries from both sides in integrating their supply chain efficiently. The United States noted it ‘for suitable consideration’, an official statement said.
Totalisation Agreement
•The Forum also agreed on the significance of negotiating a Social Security Totalization Agreement in the interest of workers from both sides, and pursuing further engagements for reaching such an agreement.
•The totalisation agreement, being pursued for over a decade, would allow workers from both countries to move their retirement savings, the lack of which particularly affects Indian IT workers in the U.S. who lose billions of dollars in statutory U.S. social security contributions that they cannot repatriate home.
•With the WTO ministerial meeting coming up next week, India and the U.S. also discussed collaboration and constructive engagement in various multilateral trade bodies including the WTO and the G20 for achieving a shared vision of a transparent, rules-based global trading system among market economies and democracies. The Forum also decided to find mutually agreed solutions on outstanding WTO disputes between the two countries.
•Ms. Tai and Mr. Goyal directed the TPF working groups to develop plans of action for making substantive progress by March 2022, which would include identifying specific trade outcomes that could be finalised for an inter-sessional TPF meeting to be held by mid-2022.
Ethanol supply
•The U.S. indicated an interest in supplying ethanol to India for its goal of 20% ethanol blending with petrol by 2025, while the two sides decided to partner with allies in developing a secure pharmaceutical manufacturing base and de-risk global supply chains in such critical sectors like health.
•On the services front, the Forum discussed ways in which legal, nursing and accountancy services can facilitate growth in trade and investment, and sought to work together on electronic payment services and the digital economy.
•While India welcomed the recent decision by the U.S. to permit fully vaccinated Indians to travel there, the two sides decided to continue engaging on visa issues to facilitate the movement of professionals, skilled workers, experts, and scientific personnel.
📰 Wanted: an Indian Charlesworth
India has a habit of nominating retired government officials to international forums but this seems to be changing
•The recent election of India’s candidate, Bimal Patel, to the United Nation’s International Law Commission (ILC) is noteworthy because this is the first time that India has nominated a professor of international law to the ILC, a body responsible for the codification and progressive development of international law. Mr. Patel’s predecessor, Aniruddha Rajput, was a practitioner. Before Mr. Rajput’s election, for several decades India routinely nominated retired officials from the Legal and Treaties Division (L&T) of the Ministry of External Affairs (MEA), ignoring the talent that existed in international law in academia. According to Syed Akbaruddin, India’s former permanent representative to the UN, the L&T Division treated the ILC membership “as its preserve”. Before Mr. Patel, the only instance of an Indian academic elected to the ILC was that of Radhabinod Pal in 1958, an iconic judge.
The trend in India
•India’s habit of nominating retired government officials to international forums is not restricted to the ILC; it is evident in other international judicial bodies too. For instance, besides the former Supreme Court judge, Dalveer Bhandari, who is currently on the bench of the International Court of Justice, three other Indians have been appointed to the world court — Nagendra Singh, B.N. Rau, and R.S. Pathak. Singh and Rau were members of the Indian Civil Services in British India. Pathak, the 18th Chief Justice of India, was an unfamiliar name in the world of international law. Mr. Bhandari is an honourable judge, but his scholarly contributions to the field of international law, before joining the ICJ, are largely unknown.
•Two Indians who have served on the Appellate Body, the highest judicial organ of the World Trade Organization — Ujal Singh Bhatia and A.V. Ganesan — were generalist bureaucrats. Likewise, the two Indians who have been appointed to the International Tribunal for the Law of the Sea — P.C. Rao and Neeru Chadha — served in the L&T Division. The point here is not the competence of the candidates mentioned, but how international law proficiency outside the government and judiciary has been ignored. India has produced outstanding international law professors like B.S. Chimni, R.P. Anand, and V.S. Mani. Their body of scholarly work in international law is read, cited and critiqued all over the world. Yet, none of them made it to any of these international law institutions.
•This is unlike the practice in other liberal democracies where leading academicians of international law are routinely nominated to these bodies. For instance, Australian nominee, Hilary Charlesworth, recently elected to the ICJ, is a professor of international law and is globally known for her path-breaking work on feminist approaches to international law. She replaces the late J.R. Crawford, another illustrious Australian professor of international law. Georg Nolte, from Germany, who now serves on the ICJ and was previously a member of the ILC, is a globally renowned international law professor. Likewise, the U.K. has routinely nominated accomplished international law academicians such as Hersch Lauterpacht, Ian Brownlie, and Dapo Akande to these bodies.
No transparency in nominations
•Moreover, no one knows how the Indian government selects candidates for nominations to these international law bodies. The lack of transparency in the selection process gives rise to speculations of favouritism and nepotism. For instance, when Mr. Rajput, a young practitioner, was nominated to the ILC, it was alleged that India backed his candidacy due to his ideological proximity to the ruling establishment. Such accusations not only undermine the candidate’s legitimacy but also generate misgivings about the fairness of the system.
•There is an urgent need to establish a transparent mechanism in making these nominations, such as setting up an independent search-cum-selection committee to recommend meritorious candidates. The committee should invite applications from qualified candidates, screen them based on their noticeable expertise and professional reputation in international law, and then make recommendations publicly. Capability in domestic law should not be mistaken as expertise in international law. The MEA could anchor this process. Since India devotes considerable diplomatic energy in getting its candidate elected to these bodies, it is in its national interest to nominate the brightest available talent in international law, rather than letting these bodies be used as post-retirement parking slots for bureaucrats and judges. The appointment of Mr. Patel to the ILC heralds a new era in which the government does not overlook expertise in international law outside the corridors of power.
📰 The road to a Himalayan blunder
In its current form, the Char Dham road project goes against all environmental safeguards
•The Char Dham road project, inaugurated by Prime Minister Narendra Modi in 2016, is an ambitious attempt to widen nearly 900 kilometres of hill roads at the cost of ₹12,000 crore. The project, which will be executed by the Ministry of Road Transport and Highways (MoRTH), aims to provide all-weather connectivity to the four major shrines of Yamunotri, Gangotri, Kedarnath and Badrinath. In the enthusiasm for an infrastructural project that will increase pilgrimage tourism from the Indian plains and provide attendant local economic dividends, the government has ignored the facts proven by the many tragic incidents in the hills of Uttarakhand over decades. Rampant construction and its complex interaction with climate change has led to massive landslides and floods in the fragile Himalayan range.
Timeline of the case
•The project began as a road connectivity project for pilgrim tourists. Now the government argues that it is essential to back up troop and arms movement towards the India-China border. The case is in the Supreme Court. The Attorney General argues that wide roads are necessary for the sake of national security in the Garhwal region. The petitioners, residents of the valleys in the Garhwal region, stress on the need for a regulated and narrower intermediate road width with a walking footpath.
•Let’s look at the timeline of the case. In 2018, the road-expansion project was challenged by an NGO for its potential impact on the Himalayan ecology. The Supreme Court constituted a high-powered committee (HPC) to examine the issues. In an order in September 2020, the Court said that the carriageway width of the roads cannot exceed 5.5 metres. The Court went by March 2018 guidelines issued by the MoRTH for mountain highways, which set a standard specification of a carriageway width of 5.5m with two-lane structures (7m). In doing so, the Court upheld the minority recommendation of the HPC. In November 2020, the Ministry of Defence (MoD) filed an appeal in which, quoting the MoRTH Affidavit, it asked for “a double-lane road having a carriageway width of 7m (or 7.5m in case there is a raised kerb) with 8-10m formation width” to “meet the requirement of the Army”. On December 15, the MoRTH amended its 2018 circular and raised the 5.5m width limit to 10m. The new circular read: “For roads in hilly and mountainous terrain which act as feeder roads to the Indo-China border or are of strategic importance for national security, the carriageway width should be 7m with 1.5m paved shoulder on either side.” Why did MoRTH amend the circular way beyond the requirement placed by the MoD?
•These wide roads are being sought to be built in Uttarakhand, which has been a victim of several disasters in the last two decades. It is crucial to note that the terrain of the Himalayas in Uttarakhand is different from the terrain in Ladakh. Valleys in Uttarakhand are narrow and close-ended with steep slopes of 60-70 degrees. On the other hand, the valleys in Ladakh have a slope elevation of 30 degrees. Just this year, we saw how the floods in the Dhauli Ganga, Rishi Ganga and Alaknanda rivers claimed over 200 lives. During the monsoons, owing to the massive hill-cutting for the Char Dham road project, several landslides have occurred in the region. Such is the condition of the State that the national highways of the Char Dham project, including ones leading to the border, were closed repeatedly and sometimes for months this monsoon season.
•And so, the question is, why did the MoRTH enter such a fragile terrain with this massive, ambitious project without even doing a basic environment impact assessment, as is mandated? Violations of the intermediate road width of 5.5m were said to be happening even after the Supreme Court reprimanded the MoRTH. Then, the MoD was brought in to justify the demand for double-lane paved shoulder roads.
•When reprimanded, the MoRTH informed the Supreme Court that the project had been taken up under a different category which is why the 2018 circular was not being followed. Such a bizarre submission should be — and was — rejected by many. However, some toed the line of the government and agreed to the double-lane paved shoulder road width. Later, it was revealed that the project proponents intend to install toll booths along the Char Dham roads, and that is feasible only with the double-lane paved shoulder road width. Is it the intent of the government to levy a tax on Char Dham yatris?
•In its November 2020 appeal, the MoD had requested a 7m carriageway width with 8-10m formation width. This was supported by the MoRTH in its affidavit. The petitioners and the small minority within the Supreme Court-appointed committee recommended an intermediate road width of 5.5m tarred surface which facilitates easy bilateral movement, with a 1.5m walking footpath, which pilgrims and residents of the valley need. The formation width of this design is the same as that proposed by the MoD (8-10 m) with the only difference being a walking footpath. What then is the difficulty? When the judges raised this question, the government had no answer. Several violations of the MoRTH came tumbling out and the fact that the MoD was being used to justify the new road width became clear.
•It is often argued that landslides are a natural consequence of the construction of roads and can be mitigated. Similar arguments were made in court about this project too. However, the rainfall this year showed that the mitigation measures are no match to nature’s fury. Prevention and regulation of activities seem to be the only effective way of mitigation in these fragile mountains.
Desecrating the Himalayas
•Disaster-resilient, safe and stable infrastructure is the only solution for commuting by road in the hills. But double-lane paved shoulder roads are excessively wide and render the slopes vulnerable. The unique Himalayan landscape with steep slopes and sharp gradients is not amenable to human engineering. Any human-induced change beyond the Himalayas’ carrying capacity will have an impact on stream run-offs and erosional or depositional processes. Considering such vulnerabilities, we need to keep the scale of human-induced disturbances to the minimum level possible. The Char Dham project in its current form goes against all environmental safeguards.
•If the government does not desist from widening the roads under this project, it will be a Himalayan blunder. It will significantly reinforce mass wasting processes and erosion rates given the steepness of the slopes, earthquake activity and erosivity of increased monsoonal precipitation. The Himalayas need to be preserved as a nature reserve for future generations. That is why they are known as the ‘abode of Gods’. So, why desecrate them?
📰 Over-valued unicorns in a distressed economy
Euphoria over the ‘beacons’ in India’s unicorn gale may be misplaced as their valuations are linked to future earnings
•Early this month, the biggest-ever initial public offering (IPO) in India fell flat on its face on the first day of its listing in the stock exchange, with shares being traded at prices less than 27% of the IPO price. The timing of this IPO is blameless as investors have responded enthusiastically in recent times reaping massive gains in the range of 60% to 100% at the end of the first day’s trade.
•Naturally then, questions arise on the valuation of the firm and the IPO. This firm, along with an educational technology start-up, is viewed as one of the ‘shining beacons’ among a growing list of unicorns in India. But the muted response towards the giant IPO casts doubts about the valuation of unicorns in India. Are they really worth the expectations? Or are they overhyped?
Diverse sectors
•There has been a unicorn gale in India in recent years, covering diverse sectors from fintech to cloud kitchen. By the end of 2021, India is expected to have produced 40 more unicorns, more than three a month on average. An ecosystem which combines thriving digital payments, a growing smartphone user base and digital-first business models adopted by many start-ups has driven expectations of investors, resulting in large-scale fund flows into new business ventures. Expectations are high as the country has around 640 million Internet users, of which 550 million are smartphone users. Digital payment has seen a growth of 30.19% as of March 31, 2021 and by the end of September 30, the unified payments interface (UPI) registered 3.5 billion transactions amounting to ₹6.54 trillion.
Fintech leads
•This growth in digital payment is reflected in the fintech sector that has contributed the most to the unicorn list. For the period 2011, when the first fintech unicorn in India was reported, to 2020, the economy had six fintech unicorns. However, this year has already seen seven fintech firms joining the unicorn list. American investment firms Tiger Global and Sequoia Capital have been the major investors, providing very quick follow-up rounds of funds across all stages and sectors. The bulk of these deals are on the basis of potential market opportunity and the expectation that these firms have the ability to sustain an initial level of hyper growth. Fundamental financial performance of the business is not factored in these decisions which could lead to biased valuations.
•Ever since Clayton M. Christensen popularised the idea of disruptive technologies in his 1997 book, The Innovator’s Dilemma, it has become a buzzword for characterising start-ups. The idea was that start-ups with limited resources can aim at technology disruption by inventing an entirely new way of getting something done. The firm which came out with the giant IPO was considered by many as a technology disruptor and game changer — which created hype and overvaluation.
•However, in reality, the firm does nothing that other big players do not do. In fact the spread of UPI has made the firm’s core business of wallets redundant, and it is losing market share as more and more people are opting for UPI-based payments to directly transfer money from their bank accounts.
•A report says, “Its business model is no different than that of several other fintech and ecommerce businesses”. Still, the firm’s IPO was valued at an outlandish 26 times its estimated price-to-sales ratio for 2022-23, which assumes significance as the global benchmark is 0.3-0.5 times the price-to-sales growth ratio for fintech firms. These valuations have to be seen in light of the shrinking of consolidated revenues by 11% for fiscal year 2020 -2021 and losses of ₹1,701 crore.
The EdTech parallel
•To make matters worse, the structure of the group has an inherent weakness emanating from the fact that there are 39 subsidiaries and over half of these put together contribute to a mere 5% of its revenues. These were clear warning signals for the brokerage firm, Macquarie Capital Securities (India) Pvt. Ltd, which calls the firm a “cash guzzler” having funding losses, burning 70% of the money it has raised since its launch. Further, valuation expert Aswath Damodaran, in his own valuation of the firm called the company “India’s premier cash burning machine”.
•The story is similar in educational technologies (EdTech) as well. In fact the novel coronavirus pandemic has been a blessing in disguise for EdTech firms, as it is this external environment that is pushing the industry, giving it an acceleration by four to five years.
•Rising Internet penetration is also shaping the fortunes of the sector. Here we have the case of an EdTech firm touted as a shining example of entrepreneurship in the new economy, having 30% rise in valuations every six to nine months without a change in its fundamentals. This firm acquired nine other firms in one year. Too many acquisitions with big ambitions to grow inorganically puts pressure on the balance sheet in the years to come as some of the new acquisitions are likely to fail. Even, EdTech firms with reasonably good business models are highly overvalued due to abundant liquidity.
•Almost every second advertisement on primetime television is either of a digital payment firm or EdTech platform. This is because one of the things that technology companies typically attempt first is to induce a behavioural change to customers who have lived in a particular style. New firms in services will have to indulge in this process for a longer period than firms in other industries such as transportation as these firms have to bring about a particular kind of change that customers are significantly comfortable using the service. It is only when this journey of behavioural change starts that more and more consumers utilise such services. But inducing such behavioural changes are costly to new firms as they have to incentivise customers. “Firms burn cash to give massive discounts to customers in the hope that people will get so habituated to these platforms that they will remain active even when the prices are hiked”.
•To some extent this worked in the context of mobile telephone services as Indians have got hooked to mobile phones and reoriented spending to buy more sophisticated smartphones and data. But in other services this does not seem to work so easily.
The projections flaw
•A mistake that firms and valuation experts seem to make is that they overestimate the Indian economy’s ability to consume services as they assume exponential demand growth for longer time horizons. Data by the Centre for Monitoring Indian Economy (CMIE) points to this flaw of over-optimistic demand projections as there are just about 23 million households which earn more than ₹5 lakh per year i.e., less than ₹42,000 a month, which is about 7% of all Indian families. It is only this class which can be coaxed to behavioural changes — i.e. people who can afford various kinds of goods and services. If firms want to go beyond this 7% of households they have to offer bigger discounts, burning more cash, with the possibility that once the discounts are reduced, customers drop off.
•Given the current state of the economy and employment situation, we have “a scenario of consumer-facing tech companies already reaching the saturation point of their real customer-base; people who can afford to consume without discounts”. It is in this milieu that we are witnessing new unicorns emerging every month, which are products of inflated valuations to tap more funds to burn more cash. These valuations are solely on the basis of future earnings, with virtually no profits to show in the present. Ecstasy and euphoria over these unicorns then has to be based on illusions rather than on reality.
