GDPI-WAT Current Affairs Compen PDF

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GDPI-WAT Current Affairs Compendium
1. INDIA - BUSINESS / Ambassador drives into oblivion

2. INDIA - BUSINESS / Maruti Suzuki goes electric
3. INDIA - BUSINESS / The wallet which became a bank
4. INDIA - BUSINESS / Paytm punts on gold
5. INDIA - BUSINESS / Making the PSUs pay
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6. INDIA - BUSINESS / UDAN takes off, but how
7. INDIA - BUSINESS / Steel / India must steel the show
8. INDIA - BUSINESS / Telecom / War is coming to Indian telecom
9. INDIA - BUSINESS / Telecom / Reliance Jio is winning the 4G war
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10. INDIA - BUSINESS / Telecom / The great Indian telecom
consolidation
11. INDIA - BUSINESS / Telecom / The last telcos standing
12. INDIA - BUSINESS / Telecom / India aims at 5G
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13. INDIA - BUSINESS / Infosys / Buying back confidence
14. INDIA - BUSINESS / Infosys / The outsider Infosys needs
15. INDIA - BUSINESS / Tata / Tata Corus: the match that was not
16. INDIA - BUSINESS / Tata / Meet the chairman
17. INDIA - BUSINESS / Tata / Tata Nano hits end of the road
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18. INDIA - BUSINESS / Ecommerce / Indian Ecommerce: The

Evolution
19. INDIA - BUSINESS / Ecommerce / Indian Ecommerce: The needle
above the bubble
20. INDIA - BUSINESS / Ecommerce / Indian Ecommerce: To go, or not
to go public
21. INDIA - BUSINESS / Ecommerce / Myntra’s app-only experiment
fails
22. INDIA - BUSINESS / Ecommerce / The Big Fat Indian festive sales
23. INDIA - BUSINESS / Ecommerce / Indian ecommerce gets a festive

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24. INDIA - BUSINESS / Ecommerce / Amazon buys Whole Foods
25. INDIA - BUSINESS / Ecommerce / Snap, no deal!
26. INDIA - BUSINESS / Ecommerce / Ola digests Foodpanda
27. INDIAN ECONOMY / Iranian oil for Indian economy
28. INDIAN ECONOMY / Can India reclaim Low Skill Manufacturing?
29. INDIAN ECONOMY / The Convergence-Divergence conundrum
30. INDIAN ECONOMY / A gifted democracy, a fractured society, a
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poor economy
31. INDIAN ECONOMY / PPP seeks Profits, the fourth P
32. INDIAN ECONOMY / India hikes import duty on electronic items
33. INDIAN ECONOMY / RBI waits and watches
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34.
35.
36.
37.
INDIAN ECONOMY / The return of the golden love affair
INDIAN ECONOMY / The rise and rise of FDI in India
INDIAN ECONOMY / 100 and improving
INDIAN ECONOMY / Modi gets Moody’s boost
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38. INDIAN ECONOMY / Government goes big on big data
39. INDIAN ECONOMY / Bye Bye Debit Cards?
40. INDIAN ECONOMY / The JAM India needs
41. INDIAN ECONOMY / Growth / 2017: GST, IBC and other things
42. INDIAN ECONOMY / Growth / Between a rock and a hard place
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43. INDIAN ECONOMY / Growth / Growth returns to India

44. INDIAN ECONOMY / GST: Day One
45. INDIAN ECONOMY / GST suffering from backbone pain
46. INDIAN ECONOMY / Electrifying GST
47. INDIAN ECONOMY / GST may acquire Real Estate
48. INDIAN ECONOMY / Demonetisation / Chaos in India’s cash
economy
49. INDIAN ECONOMY / Demonetisation / Death by demonetisation
50. INDIAN ECONOMY / Demonetisation / Of Nano Chips and
Currency Notes

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51. INDIAN ECONOMY / Demonetisation / Poor farmers vs. Paytm

52. INDIAN ECONOMY / Demonetisation / Modi’s Benami target
53. INDIAN ECONOMY / Demonetisation / Demonetization: a demon
or a deity?
54. INDIAN ECONOMY / Demonetisation / Numbers don’t lie:
Demonetisation failed
55. INDIAN ECONOMY / Demonetisation / November 8, 2016: India
demonetizes currency notes
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56. INDIAN ECONOMY / Breaking the shell
57. WORLD – BUSINESS / Disney about to tame Fox
58. WORLD – BUSINESS / Netflix vs. Hollywood
59. WORLD – BUSINESS / Business is in the air
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60. WORLD – BUSINESS / Monetize it like Facebook
61. WORLD – BUSINESS / Facebook moves to monetize WhatsApp
62. WORLD – BUSINESS / Facebook goes after original videos
63. WORLD – BUSINESS / The curious case of Snap IPO
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64. WORLD – BUSINESS / Snap numbers disappoint investors
65. WORLD – BUSINESS / Playboy goes nude again
66. WORLD – BUSINESS / Well played, Hugh Hefner
67. WORLD – BUSINESS / Google adds muscle to its hardware
68. WORLD – BUSINESS / Google moves fast in India
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69. WORLD – BUSINESS / Google forays into food delivery

70. WORLD – BUSINESS / Ocean in a Dropbox
71. WORLD – BUSINESS / The exploding phone returns
72. WORLD – BUSINESS / UberLOSS but UberHOPE
73. WORLD – BUSINESS / Uber drives out its CEO
74. WORLD – BUSINESS / The end of the end of Yahoo
75. WORLD – BUSINESS / The 100 billion dollar IPO
76. WORLD – BUSINESS / The future that is taking forever
77. WORLD – BUSINESS / Apple’s Siri takes on Amazon’s Alexa
78. WORLD – BUSINESS / Cryptocurrency / The return of Bitcoin

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79. WORLD – BUSINESS / Cryptocurrency / Ether takes on Bitcoin

80. WORLD – BUSINESS / Cryptocurrency / The video game of our
times
81. WORLD – BUSINESS / Cryptocurrency / Bitcoin: the fall is here
82. WORLD – BUSINESS / Electric Vehicles / Electric cars: the
revolution that’s always coming, but never comes
83. WORLD – BUSINESS / Electric Vehicles / In Musk they trust
84. WORLD – BUSINESS / Electric Vehicles / The ridiculously
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ambitious Musk Master Plan 2.0
85. WORLD – BUSINESS / Electric Vehicles / One huge order, one big
leap
86. WORLD – BUSINESS / Electric Vehicles / Electrifying Volvo
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87. WORLD – BUSINESS / Electric Vehicles / The Lithium problem
88. WORLD – BUSINESS / Electric Vehicles / Cobalt is the new
Lithium
89. WORLD – BUSINESS / Electric Vehicles / Tesla turns on world’s
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biggest battery
90. WORLD – BUSINESS / Electric Vehicles / Asphalt boost to Li-ion
batteries
91. WORLD – BUSINESS / Privacy / Apple and all things secret
92. WORLD – BUSINESS / Privacy / Google vs. Privacy
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93. WORLD – BUSINESS / Privacy / Phishing me softly

94. WORLD – BUSINESS / Privacy / The Great Firewall strikes again
95. WORLD – BUSINESS / Privacy / Google takes on online terror
propaganda
96. WORLD – BUSINESS / Privacy / Freedom vs Security
97. WORLD – BUSINESS / Privacy / Alexa, we may have a problem
98. WORLD – BUSINESS / Smartphone Industry / Only innovation can
save the smartphone
99. WORLD – BUSINESS / Smartphone Industry / iPhone X, but whY?
100. WORLD – BUSINESS / Smartphone Industry / India, the driver of

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smartphone sales
101. SCIENCE & TECHNOLOGY / 2017: The best of India’s science
102. SCIENCE & TECHNOLOGY / India’s contribution to the world:
ZERO
103. SCIENCE & TECHNOLOGY / 2017: the Biggest of Science
104. SCIENCE & TECHNOLOGY / Artificial Intelligence / Marvin
Minsky – the father of Artificial Intelligence
105. SCIENCE & TECHNOLOGY / Artificial Intelligence / The
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machine’s own language
106. SCIENCE & TECHNOLOGY / Artificial Intelligence / The Big Red
Button for AI
107. SCIENCE & TECHNOLOGY / Artificial Intelligence / AI without
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108. SCIENCE & TECHNOLOGY / Artificial Intelligence / Are bots the
new apps?
109. SCIENCE & TECHNOLOGY / Artificial Intelligence / China’s real
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plan for Artificial Intelligence
110. SCIENCE & TECHNOLOGY / Artificial Intelligence / It is AI First
for Google
111. SCIENCE & TECHNOLOGY / Artificial Intelligence / Machine - 4,
Humans - 1
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112. SCIENCE & TECHNOLOGY / Medicine / Examining the Angelina

Jolie Effect
113. SCIENCE & TECHNOLOGY / Medicine / Breakthrough in diabetes
treatment?
114. SCIENCE & TECHNOLOGY / Medicine / Cancer vs. Chemotherapy
115. SCIENCE & TECHNOLOGY / Medicine / Kymriah: a breakthrough
cancer drug
116. SCIENCE & TECHNOLOGY / Medicine / The pricelessness of life
117. SCIENCE & TECHNOLOGY / Medicine / The art of overpricing
life-saving drugs

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118. SCIENCE & TECHNOLOGY / Medicine / Transformative treatment

for prostate cancer
119. SCIENCE & TECHNOLOGY / Medicine / Beating the most complex
disease ever
120. SCIENCE & TECHNOLOGY / Medicine / Eliminating Hepatitis
121. SCIENCE & TECHNOLOGY / Medicine / UNAIDS report: A mix
of progresses and challenges
122. SPORTS / Litmus test for Kohli’s men
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123. SPORTS / 2017 – Indian football awakens
124. SPORTS / When boys became men
125. SPORTS / Because women will be women
126. SPORTS / 2017: Roger, Rafa and nobody else
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127.
128.
129.
130.
SPORTS / Burning England to Ashes
SPORTS / IPL retains its commercial appeal
WORLD ECONOMY, FREE TRADE / Economic race to the bottom
WORLD ECONOMY, FREE TRADE / Trump kills TPP
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131. WORLD ECONOMY, FREE TRADE / Renegotiating NAFTA
132. WORLD ECONOMY, FREE TRADE / Trump 1, Free trade 0
133. WORLD ECONOMY, FREE TRADE / Brexit / India, EU and Brexit
134. WORLD ECONOMY, FREE TRADE / Brexit / The carnival against
capital
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135. WORLD ECONOMY, FREE TRADE / Brexit / EU offers a painful

divorce to Britain
136. WORLD ECONOMY, FREE TRADE / Brexit / The age of
Referendums
137. WORLD ECONOMY, FREE TRADE / Brexit / Scottish re-
Referendum
138. WORLD ECONOMY, FREE TRADE / Brexit / The mess that is
Brexit
139. CLIMATE CHANGE / 200,000 years of climactic history
140. CLIMATE CHANGE / The heat is on

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141. CLIMATE CHANGE / The inevitability of an Antarctic implosion

142. CLIMATE CHANGE / The Dying River
143. CLIMATE CHANGE / US reaffirms exit from Paris Climate Accord
144. CLIMATE CHANGE / It’s not aid, stupid
145. CLIMATE CHANGE / Above and beyond Paris
146. CLIMATE CHANGE / China’s challenges in the face of climate
change
147. RELIGION & SOCIETY / Mothers without benefits
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148. RELIGION & SOCIETY / Saudi women get the driver’s seat
149. RELIGION & SOCIETY / Five years and many more rapes later
150. RELIGION & SOCIETY / Delhi: still unsafe for women
151. RELIGION & SOCIETY / #WeToo
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152.
153.
154.
RELIGION & SOCIETY / Triple Talaq, Multiple Issues
RELIGION & SOCIETY / Of strengths, weaknesses and honest
feedbacks
RELIGION & SOCIETY / What’s in a game?
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155. RELIGION & SOCIETY / Sport Biopics: Bollywood’s latest fad?
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INDIA - BUSINESS / Ambassador drives into

oblivion
14-Feb-2017
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pi One of India’s most iconic car brands was recently sold by Hindustan
Motors to the French manufacturer Peugeot for a nominal Rs. 80 crore.
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A truly made-in-India car, the Ambassador until recently was the first
choice of transport for India’s bureaucrats and ministers – which made
it a status symbol. The rise of Maruti 800 triggered the steady fall of
Ambassador that resulted in the production being shut in 2014.
What is the fate of the Ambassador?

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Hindustan Motors’ parent company,

the CK Birla Group, on 10 February
finalized a Rs 80 crore deal to sell the
iconic Ambassador car brand to the
French automobile conglomerate PSA
Peugeot Citroën (also known as the PSA Group).
The Ambassador, which once bore the nickname ‘King of Indian
Roads’, is arguably the most iconic car of India. Hindustan Motors
began manufacturing the Ambassador, modeled after the British

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car Morris Oxford III, at its Uttarpara plant near Kolkata in 1958.
Although not renowned for its good looks, the car did win plaudits
for its spacious interior and sound suspension, which was ideally
suited to Indian roads. It was also one of the first diesel cars to
appear in India and one of the first to have air conditioning.
The car dominated the under populated automobile market in India
for decades, selling around 24,000 units a year in the mid-1980s.
Once the de-facto car of use for bureaucrats and politicians, the
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Ambassador faced a steady decline over the last couple of decades.
The idea of the Ambassador’ potentially holds allure today because
it tells us that it is possible to completely disregard the era the car
ruled Indian roads. It exposes the fuss that cars make about moving
pi from point A to point B as being unnecessary. The Ambassador did

its job of transportation, providing reasonable comfort, and only
that.
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Why is Peugeot interested in a near-dead
brand?
Peugeot has long been keen to get a
foothold in India and was one of the first
foreign carmakers to enter the country in
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the mid-1990s when the economy first was

liberalized.
The PSA Group — which owns the Peugeot, Citroën, and DS
Automobile marques — established a partnership with the CK
Birla Group last month to enter the Indian automobile market. The
joint venture, with a reported initial investment of Rs 700 crore,
will see the French company set up a factory in Tamil Nadu to
manufacture around 1,00,000 vehicles each year.
This venture is not the PSA Group’s first foray into the Indian market.

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The brand first entered India in 1993 with the Peugeot 309,
which was assembled and sold under a joint venture with Premier
Automobiles India (manufacturers of the Premier Padmini).
Despite recording high demands initially, labour problems and
poor dealer service (compounded by PAL’s partnership with Fiat)
forced Peugeot to exit India in 1997. The PSA Group then
attempted a re-entry in 2011 — a ground-breaking event was held
at the site of a proposed manufacturing plant in Sanand, Gujarat —
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but a revamp of the French carmaker’s global plans resulted in the
shelving of the project.
This time, however, PSA Peugeot Citroën is dedicated to make its
pi presence in India more than a fleeting affair. Having announced its

desire to establish a strong presence in the Indian automobile sector by
2018, the PSA Group’s partnership with the CK Birla Group will
reportedly see continued future investments in order to sustain the
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long-term partnership.
When did the Ambassador hit the end of
the road?
On 25 May 2014, Hindustan Motors
announced that they would be suspending
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the production of Ambassador cars in

India.In the fiscal year ending March
2014, the company sold only 2,200 cars out of the 1.8 million cars
sold in India that year. From a high of 70%, this market share of
0.12% was a clear call to the company to exit the road. It also incurred
a loss of Rs. 42 crore in its last year of production.
From 1958, when they started their production in India to the early
1980s when Maruti entered the country with their flagship
800cc model, the Ambassador car enjoyed a monopoly. There was

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a time when people had to wait for over a year from the date of
booking to the delivery of the new car. However, the increasing
popularity of Maruti 800 hatchback was a warning about the
impending future.
Soon after, in the 1990s after liberalization took over the country
and markets opened up to new players, people started buying
different car models. The waning popularity of the Ambassador
should have been a signal for the management to innovate, which
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they chose to ignore.
As more cars came to the Indian market, the Ambassador didn’t
find a category to fit in, it was too big for a Hatchback and too
small to be called an SUV.
pi The vehicle’s image was only compatible with potential buyers of a

certain age, while the new generations moved on to modern
looking cars.
Moreover, high maintenance costs and low fuel efficiency added to
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their problems.
Due to weak demand, mounting losses, paucity of funds, growing
worker indiscipline and low productivity, Hindustan Motors suspended
the production of the Ambassador in 2014. The car that once
symbolized the state, and was ridden by Prime Ministers, Presidents,
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Chief Ministers, collectors and police chiefs, now finds use chiefly as a
noisy taxicab. The cult brand has been reduced to a cab which you do
not want to take.
Where is the possibility of Ambassador
2.0?
The iconic Ambassador is likely to be
relaunched from the Peugeot SA (PSA)
stable in a new avatar and at a new price
point. Peugeot wanted to acquire the

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Ambassador brand and launch it as a state-of-the-art car targeted at the

mid-market segment.
The price point could be Rs. 5.5-6 lakh and go up to Rs 9 lakh. The
BS IV-compliant Ambassador Encore, launched in 2013, was
priced at around Rs 4.98 lakh.
The Ambassador, if and when re-launched will find the road
crowded. In the Rs 6-9 lakh category, there is a whole gamut of
cars in the Indian market, namely the Hyundai Xcent, Honda
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Amaze, Honda City, Volkswagen Vento, and Maruti Suzuki Swift
Dzire.
The deal made sense for Peugeot because building a brand in
pi India, which is already cluttered, would cost many times over

the deal size for the Ambassador. For Peugeot, the Ambassador
brand will give it a toehold in the Indian market.
Who are suffering from the demise of the
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Ambassador?
The factory where the car used to be
manufactured, at Uttarpara, just outside
Kolkata in West Bengal, is still home to
more than 1,000 workers who were laid
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off.
Most of these workers - and a few of them were working in
Hindustan Motors since 1958 - still live in the factory premises, in
inhumane conditions with no basic facilities such as water and
electricity.
The breadwinners have been left with no job. They were fired
without being paid the salary dues.
Sima Rai who lives on the factory premises with her 4 children and
her 40-year-old husband said “We don’t have money to do

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anything. I can’t afford to cook on gas anymore so I use a wooden

stove now. My husband used to work in the factory and is looking
for jobs. No one is giving him any work”.
Short of cash, the company had brought in a Voluntary Retirement
Scheme (VRS) which was unattractive (some would say insulting).A
lump sum of just Rs 100,000 was offered under the package,
besides statutory payments such as provident fund and gratuity.
Most workers rejected it. Electric and water connection to workers’
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quarters have been discontinued, yet many people continue to stay.
The workers have not received their salaries and other dues at the
time of suspension of work at Hindustan Motors in 2014.
pi An attempt was made by Hindustan Motors to monetize its prime

land back in 2006; however it ran into legal troubles. The company
had claimed it will get Rs 85 crore while the state auditor claimed
the deal was worth Rs 285 crore.
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Hindustan Motors has now said it will use part of the Rs. 80 crore it
has received from Peugeot to clear old dues.
How does the Ambassador’s legacy
stand?
It hardly seems feasible that a car with
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bullock-cart-like leaf-spring rear

suspension, drum brakes and virtually
Second World War-era styling could be
sold as a “new” vehicle until as recently as 2014, but the ruggedness
and simplicity of its components was partly what made the
Ambassador such a universal sight on Indian roads.
There are other contemporary nameplates that have survived for 50
years or more (such as the Porsche 911, Chevrolet Corvette,
Volkswagen Beetle and Mini), but the modern versions of these

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vehicles have virtually nothing in common with their yesteryear

counterparts.In contrast, the 2014 Ambassador was largely the
same vehicle that was sold in 1957.
One of the attributes that helped the Ambassador’s cause was that
it was tough enough to absorb the bumps, thumps and knocks that
are an inevitable part of driving on Indian roads. Not only does the
surface of said roads range from passable to destructive, the cut-
throat traffic means a bit of biff and barge are common –
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seemingly, the only traffic rule is that there are no rules.
The Ambassador was so simple that it lent itself well to Do-It-
Yourself repairs by anyone with even an ounce of mechanical
aptitude. There were no complicated electronics or anything
pi remotely complex about the car. The only tools you really needed
were a spanner, screwdriver and maybe a hammer on occasion.
“With that goes a part of everyone who has born in the last century,”
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wrote someone on the social media.
—– | —–
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INDIA - BUSINESS / Maruti Suzuki goes electric
17-Sep-2017
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pi Maruti Suzuki, which makes one of every two cars sold in India, has
announced its plan to manufacture Electric Vehicles in India. The
decision gains significance in light of the government's ambitious
ap
target to sell only electric vehicles starting 2030, even though the
technology for commercially developing electric vehicles is still at a
nascent stage globally. For 35 years, Maruti Suzuki has remained the
grandest example of the benefits of ‘Make in India’.
What has Maruti Suzuki committed to?

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Maruti Suzuki, India’s largest carmaker

by market share, has announced that it
would be manufacturing and rolling out
Electric Vehicles (EVs) for the Indian
as well as global markets soon.
This would be even parent company Suzuki’s first commercially
available EV across the globe.
As part of the initiative, the Japanese firm is also looking to infuse
$600 million (INR 3,900 Cr) for the construction of a new plant at

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Hansalpur. The proposed factory will boast a manufacturing

capacity of over 250,000 units.
The latest announcement takes the total investment figure of
Maruti Suzuki in the state of Gujarat to $ 2.1 billion (INR
13,400 Cr).
The announcement was made by Suzuki Chairman, Osamu
Suzuki, in a meeting held in Gujarat between the dignitaries of
India and Japan, including the Prime Ministers of the two nations.
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Osamu Suzuki while making the announcement stated, “For the
last 35 years, we have been working towards ‘Make in India’ with
you all.”
Suzuki had showcased an all-electric version of Swift (called Swift
pi REEV, or Range Extender) in 2010. However, this was never

produced commercially.
Why are Indian carmakers
ap
suddenly going electric?
Tata Motors is looking to revamp
Nano as an EV, in a bid to boost
sales. Mahindra Group, on the
other hand, is preparing to enter
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the cab aggregator sector with electric cars (the group owns Reva, the
makers of India’s highest selling EVs), and now Maruti Suzuki
prepares to launch its first EV.
The rush towards developing and launching EVs comes after the
government of India set a stiff and ambitious goal of allowing
the sales of only electric cars by 2030.
The target looks very daunting, especially when compared to those
set by the other advanced nations. For instance, Britain has
declared that it would ban the sale of new petrol and diesel cars by
2040, ten years after India.

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That the ambitious target is here to stay was clear when recently at
the annual convention of the Society of Indian Automobile
Manufactures (SIAM), the Union road transport and highways
minister Nitin Gadkari spoke of bulldozing his way to the target.
“We should move towards alternative fuel… I am going to do
this, whether you like it or not. And I am not going to ask you. I
will bulldoze it,” Gadkari said.
Although the intention is noble, the bigger question is whether Indian
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automobile industry and the car owners are ready for such reforms.
The car makers, meanwhile, are not whiling away their time.
With its latest initiative in Gujarat, Maruti Suzuki joins the ranks of
pi Tata Motors, Hyundai, Mahindra & Mahindra, and Nissan as an

electric vehicle manufacturer operating in India. They are not going to
be caught dozing off when the bulldozer visits them.
When else did Maruti Suzuki attract
ap
attention recently?
Maruti Suzuki was in headlines
recently for its stock’s spectacular
performance.
Maruti shares have jumped
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53.32% so far this year, falling behind only Tesla Inc.’s 70.20%
gains in the same period, in the global auto market.
Among Sensex (Bombay Stock Exchange’s benchmark index)
stocks, Maruti is the second-best performing stock so far this
year, after steel maker Tata Steel Ltd which has gained 74.67%
(data as on Sep 13, 2017).
Maruti is now the 11th largest auto maker in the world with a
market capitalization of $38.49 billion, racing ahead of peers
such as Audi AG, Renault SA, Subaru Corp. and Hyundai Motor

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Co., which have a market cap of $35.23 billion, $27.31 billion,

$26.7 billion and $26.46 billion, respectively, data from
_Bloomberg _showed.
As per the experts, the long term prospects of Maruti Suzuki look
good. “Long waiting periods for key products, a structured
launch program, superior franchise and solid financials are
likely to enable MSIL sustain premium valuations,”Edelweiss
securities recently said in a note.
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Maruti’s stock price could rise another 18 per cent on the bourses,
says research and brokerage firm CLSA. The Hong Kong-based
brokerage has given a target price of Rs 9,230 (it is at Rs 8100 on
September 17) on the stock with a ‘buy’ rating.
pi Note: Market capitalization refers to the total market value of a

company's outstanding shares. It is the value of a company that is
traded on the stock market, calculated by multiplying the total number
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of shares by the present share price.
Where does India’s EV policy
appear hazy?
Currently, there is no coherent
policy and the auto industry has
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complained of inconsistent policy

decisions and statements. The
government had been incentivising hybrid cars so far. Now it has
hiked tax on these cars. To meet the 2030 target, the government will
have to frame a consistent policy that does not change frequently.
India has nearly 56,000 fuel stations. Compare them with the
number of community charging stations across the country —
206. For an-all-electric-car target, India needs to ramp up
infrastructure in a big way. Since the operating range of electric

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vehicles is low, India would need a humongous charging

infrastructure.
A disruptive shift in technology will also cause loss of jobs for
many. Manufacturing of electric cars will be more automated
than petrol/diesel cars. A combustion-engine car has 1,400
components to build the motor, exhaust system and transmission.
An electric vehicle’s battery and electric motor has only 200
components.
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German Auto Industry association says the proposed ban on
combustion-engine vehicles in 2030 would threaten more than
600,000 German industrial jobs, of which 436,000 are at car
companies and suppliers. Although no such statistics are available
pi for India, it is easier to imagine that a less productive Indian

automobile sector would have to suffer many more job losses.
Who else will be helping Maruti
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Suzuki in the new venture?
Suzuki will set up a lithium-ion
battery factory that will charge
electric, hybrid and other vehicles
from the company's stable.
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Denso, a Toyota company, will provide the technology, while

Toshiba will chip in with cell modules.
Together, the three companies will invest $180 million (Rs 1,151
crore) for the EV plant, which will be operational by 2020.
It is expected that the batteries will be used to power Maruti and
Suzuki's electric vehicles, some of which could be all-new ones,
while others will be clean-fuel variants of existing petrol/diesel
models.
The JV's new plant will rollout locally made batteries for use in
hybrid and all-electric cars by 2020. The lithium-ion batteries will

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primarily be used by Suzuki for its own car models, however the
JV would be open to supplying batteries to other manufacturers as
well.
Maruti Suzuki chairman RC Bhargava told ET in an interview
last week that the agreement between Suzuki and Toyota could
help the Indian unit — the largest contributor to sales and profit at
the parent — gain access to technology.
“Maruti Suzuki will be the biggest user … and (if) those
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components for these technologies are made in India and then
exported — as we would like to grow the economies of scale and
bring down the cost — then Make in India becomes a reality,” he
said.
pi Venturing into battery manufacturing is another move by

Suzuki to prepare itself to meet increasing demand for green
mobility. Suzuki in February forged an alliance with Toyota Motor
that will enable both sides to explore possibility of cooperation in
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areas including alternate fuel technology, safety, IT and mutual
supply of products and components.
The move provides a boost to Suzuki's stated ‘Make In India’ objective
of using India as a major base for supply of its cars worldwide. Suzuki
owns 50 per cent in the JV while Toshiba holds 40 per cent and Denso
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the remaining 10.

How did the journey of Maruti
begin?
Long, really long, ago when ‘Make In
India’ was not a slogan that even
school children recited, began the most
successful indigenous manufacturing
project of India. The rest is Maruti.

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The beginning of Maruti’s journey in India can be attributed to Indira

Gandhi’s son, Sanjay Gandhi, whose dream was to replicate the
success of the Beetle car of Volkswagen Germany, in India. This car
had to be cheap, affordable, efficient and more importantly,
indigenous. Remember the last word.
Straight away, a company by the name of Maruti Motors Limited
was incorporated on June 04, 1971 with Sanjay Gandhi as its first
managing Director.
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Reports suggest that the company or the man himself had no
prior experience of building a car, had a working prototype, or
even a tie-up with a car maker. They did not even forward any
pi design proposals, yet, under the leadership of his mother, the

Congress government awarded Maruti the contract and an
exclusive production license to manufacture India’s first
indigenously built people’s car.
ap
Widespread criticism of the Indira government’s decision to award
the car contract to Sanjay’s company was swept under the sheets,
when in 1971, the Bangladesh Liberation War and India’s victory
over Pakistan made the issue take a back seat. Indira had won the
war for India. She was beyond reproach.
In 1974, an opposition led uprising against the government caused
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widespread disturbance in the country, affecting the economy

badly. Sanjay’s mother then declared a National Emergency,
enforced martial law, censored the freedom of press and suspended
many such privileges in the name of national security. The
situation demanded all of Sanjay’s attention and his Maruti
project was eventually put on the backburner.
The Congress party eventually fell flat on its face during the 1977
general elections and Maruti was liquidated in 1977 by the new
Janata Dal government. It could have been resurrected after Congress

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came back to power in 1980, however, whilst flying a two-seater

aircraft near Delhi’s Safdarjung Airport, Sanjay lost control and died in
the crash.
Maruti could not produce any car during the lifetime of Sanjay
Gandhi. Perhaps to take her son’s grand dream to some conclusion,
Indira Gandhi herself took the responsibility of helping Maruti build
India’s first homegrown car. She was wise enough to understand that
India needed professional help. A team of experts went scouting and
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Suzuki was found and – more importantly – Suzuki agreed to come to
India to make in India.
A new company Maruti Udyog Limited was incorporated.
pi Maruti Udyog entered into a joint venture with Suzuki of

Japan in 1982. Originally, 74% of the company was owned by the
Indian government, and 26% by Suzuki of Japan. Currently,
Suzuki owns around 56% stake in Maruti Suzuki Ltd.
ap
The actual production of the cars commenced in 1983. It started
with Maruti 800, based on the Suzuki Alto Kei car which at the
time was the only modern car available in India.
The emergence of Maruti resulted in the streamlining of auto
ancillary units and the company’s policies of outsourcing were
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revolutionary in integrating the supplier-manufacturer

relationship in the auto industry.
In just two years after MUL starting making cars, the passenger car
segment more than doubled in volume, growing from about 40,000
units to over 1 lakh cars a year.
Today, Maruti Suzuki alone makes 1.5 million Maruti Suzuki cars
every year with multiple super hit variants and models.
Maruti Suzuki was built on a solid foundation, a strong product and
exceptional customer service, delivered by a company with a very

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unique and disciplined Indo-Japanese culture.

Maruti was – and is - a real “Make in India” story that started thirty-
five years ago.
—– | —–
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pi
ap
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INDIA - BUSINESS / The wallet which became a

bank
19-May-2017
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pi Paytm is set to kickstart its much-awaited payments bank operations
next week. On Thursday, Softbank announced a $1.4 billion
ap
investment for a 20 percent stake in One97 Communications. With the
fresh infusion of funds, Paytm is primed to capture India’s imagination
in the personal banking and wallets space. In 2009, it would have been
easy to write off Paytm as yet another ‘recharge service’. In 2017, it is
a well-funded bank.
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What has PayTM announced?

Payment bank
Paytm Payments Bank Limited will
begin its banking operations from
May 23, 2017. As per Reserve Bank
of India’s guidelines, the company
will transfer its wallet business to the newly incorporated payments
bank entity under a payments bank licence awarded to Founder
and CEO Vijay Shekhar Sharma.

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In January, Paytm had said it received the final approvals from the
RBI and was planning to start payments bank in one or two
months, but the launch was delayed. In the same month, Bharti
Airtel Ltd started operations for Airtel Payments Banks, a joint
venture between Bharti Airtel Ltd and Kotak Mahindra Bank Ltd.
Fresh round of funding
Softbank has made its biggest investment in an Indian digital
enterprise by sealing a funding round of Rs 9,000 crore ($1.4
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billion) in One 97 Communications which owns mobile payments
provider Paytm. The Japanese internet and telecom conglomerate
will now own about a fifth of the Noida-based company estimated
pi to be worth $7 billion, making it the country’s second most

valuable startup.
Softbank is expected to buy shares in a secondary transaction of
about $400 million to gain a full 20% stake in the company,
ap
according to a person directly aware of the transaction. These
secondary shares will be purchased primarily from Paytm’s early
investor SAIF Partners besides founder Vijay Shekhar Sharma, and
is part of the $1.4 billion raise.
Masayoshi Son-led Softbank will also get a board position in One
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97, in which China’s Alibaba along with its payments affiliate

Alipay owned a 45% stake before this transaction.
Note: A payments bank is essentially a scaled down version of a bank.
It can accept deposits up to Rs 1 lakh and pay interest on them, but
cannot offer loans. While these banks will offer debit cards and ATM
cards usable on ATM networks of all banks, their aim is to reach
customers mainly through their mobile phones rather than physical
branches.
Why has Paytm raised so much money?

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The deal values the company at about

$7 billion post-money (including the
investment).
In August 2016, Paytm’s owner
One97 Communications Ltd was
valued at about $5 billion when the
company raised $60 million from MediaTek Inc. Its valuation
soared to $6 billion in March when three existing investors —
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Reliance Capital, SVB (Saama Capital) and SAP Ventures — sold
their combined stake of about 4.3% to Alibaba Group Holdings Ltd
and Ant Financial Services Group.
pi SoftBank, which has not seen too many successful investments in

its India portfolio, is now banking on Paytm’s financial services
business to replicate Alipay’s (Alibaba Group’s financial
business) success in China.
ap
It has also been stated that the money raised will be utilised to
launch a slew of financial products involving wealth management,
deposits, and money lending. With the capital, the company will be
taking steps to build distribution, reach and customer base.
“We are at an inflection point in our journey with Paytm. We are
looking to acquire 500 million customers and we plan to invest
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Rs10,000 crore over the next three to five years towards enabling
half a billion Indians to join the mainstream economy. This
requires a lot of investment,” Paytm founder Vijay Shekhar
Sharma told Mint.
“With regard to SoftBank…they are a long-term investor. And with
long-term capital you can do a lot of things without worrying about
the pressure of exits. We now have three long term investors with
SoftBank, Alibaba (Group Holding Ltd) and SAIF (Partners). I
don’t think we will require more capital after this round till we turn

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profitable”.
“Also, SoftBank and Masa Son (Softbank founder Masayoshi Son)
have a longstanding relationship with financial institutions and
funds across the globe. They also bring credibility to the table.
Japanese capital is very well respected in India.”
While the investment has gone into the parent company One97
Communications, which owns around a 40 percent stake in
Paytm’s Payment Bank, both Alibaba and Softbank are believed to
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be keener on the payments bank business than on Paytm’s e-
commerce endeavour.
According to the Reserve Bank of India, the foreign shareholding
in the payments bank would be as per the Foreign Direct
pi Investment (FDI) policy for private sector banks. It states, “As per
the current FDI policy, the aggregate foreign investment in a
private sector bank from all sources will be allowed up to a
maximum of 74 percent of the paid-up capital of the bank
ap
(automatic up to 49 percent and approval route beyond 49 percent
to 74 percent).”
When did things change for Paytm?
Much has changed over the last seven
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and half years. 2009 was a year when

the independent payments industry was
more or less written off: just a year
prior to the launch of Paytm, the
Reserve Bank of India had pulled the rug from under payments
companies like M-chek, Obopay, NGPay and Paymate (as well as the
one-that-never-relaunched: Times of India’s Wallet365), by issuing
Mobile Banking guidelines, which made payment companies
dependent on whims of the industry that the RBI protects: the banks.
However, policy change is often incremental. The opportunity

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really was created when the RBI began looking at regulating cash
cards in 2008; it eventually issued licenses in 2010, and in 2012,
allowed 100% FDI in wallets, before issuing guidelines for
Payments Banks in 2014.
Changes in company strategy were also incremental. What began
as an enterprise payment service (more of a payment gateway) for
telecom operators in 2009 became a commerce service, then a
largely recharge service (copying what RechargeItNow was doing),
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then a recharge service with a wallet license (2013), then added an
ecommerce marketplace (2014), hived it off (2016) after getting the
Payments Bank license (2015), before getting the approval.
pi Once it got the wallet license from the RBI, the easiest way of
retaining customers was to give cashbacks: it ensured that at least
some of the users, for whom wallets were created, came back and used
the money.
ap
Cashbacks plus wallet solved a problem that ecommerce
companies failed to: people bought from the ecommerce company
where they got maximum discount and they often went back only
when the discount on their next purchase was right.
Cashbacks to a wallet ensured that the money was used on the
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same site, so at least Paytm got the promise of two transactions

out of each transaction. This allowed it to build GMV (even if
largely for recharges).
Cashbacks on recharges – with millions recharging their mobile
balance because of a simple interface and great product – ensured
that millions of wallets would have been created.
Fast forward to seven and a half years after it was first launched as a
payment platform, Paytm will now be a Payments Bank.
Note:

mba.knappily.com
Gross Merchandise Value (GMV) of a retail company is equivalent to

its gross revenue. i.e., GMV = Sale price charged to the customer X
Number of items sold. GMV doesn’t factor in discounts, shipping and
other internal costs. So if a product with a Maximum Retail Price
(MRP) of Rs 100 is sold at Rs 90, its Rs 90 is what is accounted for in
the GMV. GMV is used mainly in the context of marketplaces to
distinguish between company’s sales for accounting from the
consumer purchases. In a market-place model, the company’s income
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is calculated as a certain percentage of its GMV as its revenue is via
commissions. GMV is considered to be a good indicator of the growth
of the company, as this measures the volume and value of merchandise
sold or the number of transactions handled. Investors in ecommerce
pi keep track of the Net GMV and its growth to estimate commission
income and measure the profit potential in future.
Where will this benefit SoftBank?
ap
If the proposed plan to sell a troubled
Snapdeal to India’s largest online
retailer Flipkart proves successful,
Softbank will own significant stakes in
India’s two most valuable internet
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businesses - Paytm and Flipkart, which was estimated to be worth

about $ 11.6 billion during its last fund raise announced in April.
So far, the biggest investors in Indian ecommerce businesses have
been the Alibaba group -which owns a majority stake along with
Alipay in Paytm Ecommerce, the digital commerce platform spun
out off One 97 last year — and New York-based investment firm
Tiger Global, the largest shareholder in Flipkart.
Softbank is best known in global internet circles for its near
28% stake in Alibaba worth about $90 billion, and the two
founders Son and Alibaba’s Jack Ma are believed to share a close

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rapport.
Experts are of the view that bringing Softbank on board helps
payments provider Paytm counter the perception of it being a
company majority owned by Chinese investors. The combined
holding of Chinese e-commerce giant Alibaba and its payments
affiliate Ant Financial will now be down to 40% while Paytm’s
early backer SAIF Partners will own over 20%.
This is one of the biggest funding rounds from an individual
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investor - Japan’s richest man Masayoshi Son. Speaking on the
fundraise, Son, Chairman and CEO, SoftBank Group Corp., said,
“In line with the Indian government’s vision to promote digital
inclusion, we are committed to transforming the lives of hundreds
pi of millions of Indian consumers and merchants by providing them

digital access to a broad array of financial services, including
mobile payments. We are excited to partner with Paytm in this
journey, and will provide them with all our support.”
ap
Who will be in charge of Payments
Bank?
Renu Satti, vice-president of business
at Paytm, will take over as the chief
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executive officer (CEO) of Paytm

Payments Bank, the company said.
Shinjini Kumar, who was hired in February last year by Paytm to
lead the payments bank, is on her way out, according to people
directly involved in the matter. Kumar was a former senior
executive at the Reserve bank of India.
Satti has been with Paytm for nearly a decade now and started out
as manager of human resources at One97 Communications.
Since then she has worked on several projects, including Paytm
marketplace and the wallet business. Most recently, she was

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heading the movie ticketing business as vice president.

Before Paytm, she has worked with Mother Dairy and Manpower
group.
How will PayTM bank work?
Paytm’s plan to start a payments bank
left users of its wallet confused about
the terms of usage. Here’s how it will
work:
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Migration of the wallets to the bank
will happen automatically, and mobile wallet customers will
continue to enjoy all the benefits associated with their existing
pi wallet, said Madhur Deora, chief financial officer, Paytm.

“Only wallets that have been inactive for six months will not be
transferred to the payments bank, unless users give specific consent
for the same,’’ he added. Such users should send an e-mail to
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care@paytm.com, or log into the website to notify the company if
they want to opt out or transfer their money.
To transfer their money, users should provide details such as name,
bank account number and IFSC code. The money will be
transferred to their accounts within 15 days of Paytm getting the e-
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mail, according to a notice issued by Paytm. This transfer would

be free.
“If you fail to send the e-mail, your wallet money will be kept in a
special designated account with Paytm Payments Bank, but you
will not be able to transact the money in it till you submit bank
details and transfer it to your own bank account,’’ the notice said.
Migration of wallets to the payments bank does not mean the
wallet users will become account holders of the payments bank
automatically. That option will be given once the bank launches
full-fledged operations. For now, the wallets will continue in their

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existing state, that is, either as a full Know Your Customer

(KYC) wallet or minimum KYC wallet. Full KYC users can
store up to Rs 1 lakh, while minimum KYC users can store up to
Rs 20,000.
Opening an account with the Paytm Payments Bank can have its
benefits. “It would mean access to a range of financial services,
including savings and current bank accounts, and debit card
facilities. Customers would also earn interest on the money
ly
available in their account,’’ said Deora.
If you have a Paytm payments bank account and a wallet, you
would be able to transfer funds seamlessly between the two. Now,
wallet users have to transfer funds from their other bank accounts
pi through net banking, debit or credit card.

But, you cannot have a balance in the payments bank account
of more than Rs 1 lakh, according to Reserve Bank of India
(RBI) guidelines, said V N Kulkarni, a former official of the Bank
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of India and debt counseller with Abhay. Also, if all banking
operations are to be carried out using only mobiles, customers must
be careful about security, he added.
According to RBI guidelines, a payments bank can offer only
savings bank accounts and transaction services. Airtel, the first
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payments bank to launch operations in November 2016, is

offering 7.25 per cent interest for the savings bank accounts.
—– | —–

mba.knappily.com
INDIA - BUSINESS / Paytm punts on gold
30-Apr-2017
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pi As a latest addition to the rising giant in the app ecosystem, Paytm has
partnered with MMTC-PAMP to launch ‘Digital Gold’ which allows
users to buy, sell and even store gold – all of it at no additional cost or
ap
transaction fee, barring a small amount that buyers pay as making and
delivery charge. The app-based platform will allow customers to invest
as low as Re 1 to buy the yellow metal.
What is Paytm offering?

Paytm wants to build a Gold Bank
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account, which will allow users not

only to buy gold, and store it in
digital form, but also to use the gold
to buy other services on Paytm –
from recharging to pay utility bills, or book movie tickets to buy
shoes and clothes from Paytm Mall.
“This is the beginning of wealth management at Paytm,” said Vijay
Shekhar Sharma, its founder and CEO. All that sounds simple, but
Sharma has a bigger plan behind launching Digital Gold.

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That will increase the liquidity of gold that usually lies in the
locker or staked away in form of jewellery, rarely taken out, except
for some occasion. Paytm wants gold lovers to use gold as digital
cash, use it for transactions even if it is for very small
denominations.
For now, Paytm allows users to buy gold for as little as Rs 1. “Gold is
the preferred form of investment for Indians, and we are making it
easier for our users to invest in gold digitally… and making it
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affordable for a wider set of customers,” Sharma said.
Once the user buys the gold, the amount and quantity of gold will
reflect in the account. If a person buys two grams of gold, the
pi account will show the value of two grams. This gold, or worth of
gold can be used to make other purchases.
For example, if a user has worth Rs 50,000 of gold, and wants to
purchase a television for Rs 25,000, an equivalent value of gold
ap
will be deducted from the gold account.
Enthused by the strong uptake of digital payments in the country,
Paytm expects its platform to facilitate 4 billion transactions this
financial year.
Why do Indians love gold?
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Although tradition explains part of

gold’s allure, such vast purchases are a
modern phenomenon. India consumed
only 65 tonnes in 1982. Until 1990
imports were all but banned.
The typical buyer was a poor farmer in south India, for whom gold was
an ancient currency and collateral to borrow against in bad times. But
deregulation has seen an explosion in gold purchases. Today bullion is
bought by rich people, serious investors and speculators. Once crooks

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imported gold and pawnbrokers made loans against it. Now most gold
coming into India enters legally through banks. Many loans made
against gold collateral are not from shifty moneylenders but registered
financial firms.
It is true that a vast majority of the Indian population survives on
meagre resources, but despite this they find ways to buy gold and make
it an integral part of their lives, irrespective of gold rates in their
city/town. Gold has takers across the length and breadth of our nation,
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right from Delhi to Chennai and Ahmedabad to Kolkata. There are a
few reasons, which have propelled gold to a pedestal in India, a spot
which it is likely to hold on to for a long time:
pi Religious Connotations:
Gold is an integral part of religious ceremonies in India, regardless of
religion. Be it Hinduism, Sikhism, Jainism or Christianity, gold is a
prominent asset across all major religions in the country.
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Family heirloom:
Gold is part of every Indian household and is considered a family
heirloom by most Indians. Gold jewellery and ornaments are passed on
from generation to generation, in a bid to keep family legacy alive.
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Golden Gifts:
Gifting gold is considered auspicious in India, with gold gifts forming
an integral part of all ceremonies. Gifting gold enables recipients to use
it fruitfully, as it is not only a key source of money but is also
considered lucky.
Status Symbol:
There is no bigger status symbol than gold in India, and Indians are not
shy to flaunt it. In a social setting with billions of people, gold is one
element that can help people stand out, literally shine in the crowd.

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Investment:
Gold has been considered the safest investment, a sentiment that
Indians live by. It is this property of gold as a protector against bad
times, which have pushed Indians to buy it as investments.
Bypassing red tape:
Opening a bank account in India is bureaucratic hell. Gold, on the
other hand, is widely accepted without any documentation. It is also a
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fine way to store wealth without paying tax—along with property, it is
the asset class that the authorities struggle to track.
When did Paytm build its warchest?
pi One97 Communications, owner of

online payments provider Paytm, is
set to raise over Rs 12,000 crore
($1.9 billion) from Japanese media
ap
and telecom conglomerate
SoftBank in what will be the single-largest round of funding for an
Indian digital commerce company.
Paytm last raised funding from Taiwanese semiconductor
maker MediaTek about eight months ago, when it was valued at
$4.8 billion. Founded by Vijay Shekhar Sharma who also owns a
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licence for the payment bank, One97 plans to earmark nearly $1

billion to expand its payments business into high growth areas like
lending and insurance.
The company recently established a new subsidiary called
Paytm Financial Services. The company will also invest in
expansion of its offline payment network. The payment bank
operations are awaiting final regulatory approval, said one person
aware of the developments.
The Masayoshi Son-led group has so far deployed close to $2

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billion in a clutch of Indian companies including online

marketplace Snapdeal, ride hailing app Ola, hotel room aggregator
OYO, and hyperlocal delivery service Grofers. The Japanese
major, which has set up a $100-billion investment fund, is also in
talks to sell Snapdeal, its largest investment in India, to Flipkart
and further invest in the combined entity. Separately, SoftBank is
also looking to sell payments unit FreeCharge, Flipkart and Paytm
are both vying to snap up this business.
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The new funding comes as Paytm is building a war chest for its
payment operations which faces heightened competition from
players like WhatsApp and Flipkart’s Phonepe,which is
working with Chinese internet conglomerate Tencent after raising
pi the latest round. Other players like Reliance Jio and Truecaller
have also entered the space, besides incumbent banks.
Where is the catch in the scheme?
ap
Buying digital gold online can benefit
the users in a number of ways. In a
country where people usually purchase
non-standard gold coins from jewellery
stores or standard gold coins retailed
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by SBI and other outlets in denominations of 4 gram and above, the

digital gold offer makes a long-term investment in physical gold
convenient for Indian consumers. But there are caveats.
Paytm website in its FAQ about digital gold says, “The duty to
verify the parcel for any damages or tampering is of the customer
and if the customer accepts the parcel and later comes to know of
any damage or tampering, MMTC-PAMP shall not be liable for
any loss or damage to customer.”
Also if some think they can use this platform as a trading platform
to make a quick buck - think again, customers are not allowed to

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buy and redeem gold on the same day.

This is not a collective investment scheme or a systematic
investment plan – customers will not earn any interest on y
investment.
Once MMTC-PAMP has accepted your offer to buy, cancellations
or refunds are not allowed. The live price, at which you choose to
buy gold, will be valid only for 6 minutes from the time of you
clicking on the option to buy.
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It will definitely make it easy to buy, sell and redeem gold for millions
of users - that too gold of international quality, and at a market-linked
price. The seller is a reputable entity as well. The ease with which you
pi can buy and sell gold via Paytm is commendable, but

unfortunately there are just too many conditions and details. This
is simply taking the sheen off the initiative some feel.
Who is Paytm partnering with?
ap
Paytm has partnered with gold
refiner MMTC-PAMP to launch
‘Digital Gold’.
MMTC-PAMP is a joint venture
between Metals and Minerals
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Trading Corporation of India (MMTC) and PAMP of

Switzerland set up in 2008 and recognised by the London Bullion
Market Association.
Using their Paytm mobile wallets, consumers can purchase 24K
999.9 purity gold online and store it in MMTC-PAMP’s secure
vaults free of charge. The company operates a precious metals
refinery and mint in Mewat, in the state of Haryana. With an
investment of over Rs 2,200 million, MMTC PAMP has an annual
refining capacity of 100 tons of gold, 600 tons of silver and mints
2.75 million pieces.

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MMTC-PAMP Chairman Mehdi Barkhordar said consumers face

challenges related to purity of gold and security of storing the
metal. “This partnership will ensure that masses can have access to
high quality gold and they can invest in an affordable manner,” he
added.
How supportive is the Government?
Indian government is encouraging
people to buy digital/paper gold,
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instead of the physical form to curb
large-scale hoarding.
In a move to reduce the demand for
pi physical gold, Prime Minister Narendra Modi in 2015 launched three

gold related schemes, including ‘India gold coin’ bearing Ashok
Chakra, gold monetization and sovereign gold bond schemes:
Gold coins:
ap
The coins will be available in denominations of 5 and 10 grams. A
20 gram bar or bullion is also available. About 15,000 coins of 5
gm, 20,000 coins of 10 gm and 3,750 gold bullions are made
available through MMTC outlets.
The Indian Gold coin is unique in many aspects and will carry
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advanced anti-counterfeit features and tamper proof packaging that

will aid easy recycling. These coins will be distributed through
designated and recognised MMTC outlets.
Gold Monetisation Scheme:
Resident Indians (individuals, HUF, trusts, including mutual
funds/exchange traded funds registered under Sebi norms) can
make deposits under the scheme. The minimum deposit at any one
time will be raw gold (bars, coins, jewellery excluding stones and
other metals) equivalent to 30 grams of the precious metal of 995

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fineness.
There is no maximum limit for deposit under the scheme and the
metal will be accepted at the Collection and Purity Testing Centres
(CPTC) certified by the Bureau of Indian Standards. Gold
Monetization Scheme can earn up to 2.50 per cent interest rate on
their idle gold.
Interest rate on Medium and Long Term Government Deposit
(MLTGD) are 2.25 per cent and 2.20 per cent, respectively. The
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tenor of medium term would be between 5-7 years while long term
would for 12-15 years tenure.
The deposit under MLTGD category will be accepted by the
designated banks on behalf of the central government. Interest on
pi deposits under the scheme will start accruing from the date of
conversion of gold deposited into tradable gold bars after
refinement or 30 days after the receipt of gold at the Collection and
Purity Testing Centres (CPTC) or the bank’s designated branch, as
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the case may be and whichever is earlier.
The principal and interest of the deposit under the scheme are
denominated in gold. The gold received under MLTGD is
auctioned by the agencies notified by the government and the sale
proceeds is credited to government’s account held with RBI.
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Reserve Bank of India will maintain the Gold Deposit Accounts

denominated in gold in the name of the designated banks in turn
hold sub-accounts of individual depositors
Sovereign Gold Bond:
Instead of buying gold in physical form investors can park their
money in bonds, which are backed by gold. The bonds are
available both in demat and paper form.
Sovereign Gold Bond has more or equal advantage against the
physical gold. RBI on behalf of the Government of India issues the

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bond. The bond is restricted for sale to resident Indian entities and
the maximum allowable limit is 500 grams per person per year.
The RBI has fixed the public issue price of sovereign gold bonds at
Rs 2,684 per gram. These bonds are issued in denominations of 5,
10, 50 and 100 grams of gold or other denominations.
The Bonds will be sold through banks and designated post offices
as may be notified. The borrowing through issuance of Bond will
form part of market borrowing programme of Government. Bonds
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can be used as collateral for loans.
The loan-to-value (LTV) ratio is to be set equal to ordinary gold
loan mandated by the Reserve Bank from time to time.
pi —– | —–
ap
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INDIA - BUSINESS / Making the PSUs pay
14-Nov-2017
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pi Reuters has reported that Indian government is demanding “millions of
dollars” in dividends from 12 reluctant Public Sector Enterprises to
make up for an expected tax revenue shortfall this fiscal year, as a
ap
slump in economic growth puts the fiscal deficit target at risk. The
government has budgeted $21.86 billion in payouts from all state
companies, and has the right to demand dividends from the companies
it owns. But coercing the companies may be counterproductive.
What is the government demanding?

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12 reluctant state companies will now

have to shell out millions of dollars in
dividends to help the government of
India meet its fiscal deficit target for this
fiscal year (2017-18).
The demand has been made following a finance ministry
assessment on Oct. 25 of the financial health of 14 state companies,
including top miner NMDC Ltd and trading firm MMTC Ltd, as
reported by Reuters.

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The ministry asked 12 of the companies to pay between 30

percent and as much as 100 percent of their 2016/17 or 2017/18
net profit in dividends, share buybacks or bonus shares. The
other two companies were exempted. All state companies
evaluated by the government sought exemptions.
The assessment by the finance ministry did not specify the combined
amount of payouts expected of the 12 companies.
But New Delhi has budgeted $21.86 billion in payouts from all
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state companies this fiscal year, slightly down on the previous
fiscal year. Indian businesses have been disrupted by last year’s
shock ban on high-value notes and the roll-out of the goods and
pi services tax (GST).

Indian state firms will only finalise their full dividend payouts
for the current 2017/18 fiscal year in September next year.
NMDC has told the finance ministry it would only be able to pay
ap
less than half of the 25 billion (2500 crore) rupees in dividend
payouts that the government is demanding for the current fiscal
year of 2017/18, a senior company executive said. Three senior
government officials said NMDC is reluctant to comply with the
government’s demands because it already has to pay a 30-billion-
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rupee penalty to the eastern state of Odisha for illegal mining

and needs cash for capital investments.
The government has asked MMTC to pay 30 crore rupees in
dividends and issue bonus shares for 2016/17. The firm is seeking
exemptions from both. “The committee noted that MMTC’s defined
reserves and surplus is more than 10 times of its paid-up equity
share capital,” Reuters reported.
Three unlisted companies from defence and railways were asked to
pay a maximum 100 percent of their net profit as dividend.
A. Prasanna, an economist with ICICI Securities Primary Dealership in

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Mumbai, said the government had the right to seek higher dividends
from cash-rich companies as long as the money was sitting idle. “But
asking all public sector units to step up investments and dividends at
the same time may become counterproductive,” he said.
Why is the situation so
desperate?
India’s federal budget is under
pressure this year following an
ly
unexpected slump in economic
growth, which slipped to its lowest
level in three years in the three-months ending June, the first
pi quarter of the 2017/18 fiscal year.

Recently, after the rate revision for almost 200 items at the GST
Council meeting in Guwahati last week, a big concern is what impact
will the move have on the fiscal situation. Several state finance
ap
ministers had said that the rate cut will lead to a loss of Rs 20,000
crore to the centre and the states.
The alarm bells are ringing loud
India’s fiscal deficit at the end of the first half of the current fiscal
touched 91.3% of the budget estimate, mainly due to rise in
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expenditure. In absolute terms, the fiscal deficit—difference

between expenditure and revenue — was Rs4.99 trillion during the
April-September period of 2017-18, according to the data of
controller general of accounts (CGA).
During the same period of last financial year, the deficit was at
83.9% of the target. For 2017-18, the government aims to bring
down the fiscal deficit to 3.2% of the gross domestic product
(GDP). Last fiscal, it had met the 3.5% target.
The CGA data showed that the government’s revenue receipts were

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at Rs6.23 trillion in the first six month of the current fiscal, which
works out to be 41.1% of the budget estimate (BE) of Rs15.15
trillion for the entire year. The receipts, comprising taxes and other
items, were at 41.2% of the target in the year-ago period.
As per the CGA data, the government’s total expenditure had been
increasing on sequential basis and totalled Rs11.49 lakh crore at
September-end or 53.5% of the budget estimates. It was 52% of the
budget estimate a year ago.
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Capital expenditure – the expenditure which creates
productive assets - during April-September 2017-18 was only
47.3% of BE as compared to 54.7% in the same period of last
fiscal. The revenue expenditure, including interest payment, was
pi 54.6% of the BE during April-Septemer 2017-18. This compares

with 51.6% in the corresponding period of 2016-17.
Finance Minister Arun Jaitley recently announced a Rs 2.11 lakh
ap
crore recapitalisation plan for state-owned banks, which will enable
them to lend freely again. The government says this plan will not
increase the fiscal deficit much as bulk of that capital will be raised by
issuing bonds. The rest of the money will come from market
borrowings and budgetary support. If the markets fail to fund this plan,
the government will have to bear the burden and that may breach the
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fiscal deficit.
When is the last time the
government took similar action?
Just about last fiscal year-end
The Modi government in January
2017 at central public sector
enterprises (CPSEs) to help it tide
through a difficult financial situation. The Finance Ministry at the

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time spelt out a fresh policy for dividend payments by CPSEs,

directing them to pay 30 per cent of the profit after tax or 30
per cent of the Government of India equity, whichever is
higher.
This was 10 percentage points higher than what the CPSEs
were paying earlier. The 2004 guidelines prescribe an annual
dividend payment of 20 per cent of PAT or 20 per cent of
equity, whichever is higher. However, for PSUs in the oil,
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petroleum, chemical and infrastructure sectors, the dividend payout
was kept higher, at 30 per cent.
Noting that the Fourteenth Finance Commission had said that
dividends should cater to the requirements of the government,
pi the latest guidelines stated that “this is especially true in times of

the current fiscal crunch when the government has to cater to other
public interests, too”.
The new policy also asked PSUs with large cash or free reserves
ap
and sustainable profit to issue bonus shares. PSUs can also pay a
special dividend to the government as a return for its equity
investments.
“The capital investment requirements of CPSEs may be kept in view
but it needs to be specifically assessed whether those investment
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requirements can be fully or partly met out of market borrowing, to

leverage the favourable debt-equity ratios in the CPSEs,” said the
policy note, pointing out that reliance on market borrowings would
also bring more professionalism into these firms.
As part of the medium term fiscal consolidation policy, the Centre
planned to lower its fiscal deficit from 3.9 per cent in 2015-16 to
3.5 per cent in 2016-17. For the 2016-17 fiscal year, the Centre
had targeted ₹36,174 crore as dividend from PSUs, a 27 per
cent increase from the Revised Estimate of ₹28,423 crore in

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2015-16.
Welcoming a clear and permanent policy on dividend payments by
PSUs, UD Choubey, Director-General of the Standing Conference of
Public Enterprises, had said: “Ad hoc policies on dividend payments
affect plans for capex and mobilisation of funds for research and
development. PSUs, being state-owned entities, will provide dividends
based on government directions and help reduce the deficit.”
The government’s aim to achieve its revenue target has put pressure on
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PSUs to increase their dividend, which has led to a steady depletion of
their cash reserves in the past three years.
And now, the government wants some more.
pi The PSU dividend target for 2017-18 is Rs 67,529 crore, down from
the 2016-17 revised estimate of Rs 77,051 crore. Listed non-oil PSUs
together made equity dividend payments of around Rs 35,000 crore in
FY17, up from Rs 28,000 crore a year before. Nearly two-thirds of this
ap
accrued to the central exchequer last fiscal.
Where are the PSUs constrained in
funding the government?
A state company is expected to pay the
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maximum dividend possible until it can

justify that the funds retained were being
optimally leveraged to ensure higher
investment, according to the government guidelines.
Some of the top state firms, including a few oil firms, have been
seeking exemption from this. Their argument is that they have
always paid a handsome dividend. While they would still pay out a
good amount, they can’t pay as much as has been demanded by the
government this year without hurting their investment plans.
The government received about Rs 34,000 crore out of the total

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dividend of about Rs 58,000 crore declared by 112 state firms

in 2014-15. The dividend was about 44% of the net profit of
state firms.
A large dividend outgo means companies are left with less cash
to fund their investment plans, inducing them to borrow more.
Increased borrowing can affect their credit ratings and make funds
costlier.
Finance chiefs at state firms have been intensely negotiating with
ly
government officials to reduce the demand for dividend from their
companies. Some of these companies, in fact, have succeeded in
this.
A quarter of the total dividend comes from oil sector
pi companies that are also among the most profitable. Along with
coal and power, the oil sector contributed nearly two-thirds of state
firms’ total profit in 2014-15. Nearly half the state firms’ profits
comes from Oil & Natural Gas Corp, Coal India, NTPC, NMDC,
ap
Power Finance Corp, Indian Oil, Rural Electrification Corp and
Bharat Petroleum.
The government’s demand for a higher dividend payout makes sense
only when state-owned companies are sitting on a pile of cash at a time
when the economy badly needs investments to grow. This is especially
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true for companies in sectors such as gas, power and even coal where
the capex needs are large. If these companies fail to spend their cash
pile it is unfair to the dominant shareholder (the government) and
makes the case for surrendering unused funds compelling.
But this logic obviously does not hold if PSUs are cash-starved. The
recent directive – to make the 12 PSU’s pay extra dividend – is a step
in this wrong direction.
Meanwhile, who is consuming government’s cash?

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The promised recapitalisation of Rs2.1

trillion (2.1 lakh crore) takes care of not
only the provisioning requirements of
public sector banks, but also provides
them with growth capital. All
requirements of public sector banks have
been addressed at one stroke. Though the government says this won’t
increase the fiscal deficit as no cash outflow is involved, the deficit is
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in the details.
There are three things that will happen:
Through budgetary allocations, the government will buy Rs.18,000
pi crore worth shares of public sector banks

And then, public sector banks will need to go raise Rs. 58,000
crore from the market
The government will issue a vaguely worded instrument called
ap
“Bank Recapitalization Bonds” for Rs. 1,35,000 crore which will
be used to buy more shares in public sector banks.
The time frame to do this is two years. The government will buy Rs
1,53,000 crore worth shares in banks. They will raise 58,000 cr.
themselves, so there’s a 75-25 government-private infusion of new
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money into banks. If this is pulled off, that is. This adds up to Rs
2,11,000 crore, which is a lot of money. It’s even more than Reliance
Jio’s debt, and that’s a fine target to beat.
Financial engineering at its best
Already, the deficit is more than Rs 5,00,000 crore. How will the
government get Rs. 1,35,000 crore more? They’ll issue bonds.
These bonds might have to be bought by banks.
The banks will give money to the government which will turn
around and buys shares in these banks. The banks get to keep

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the money; they get bonds and they issue shares in exchange.
This is interesting, because effectively the banks are giving their
promoter (the government) money to buy their own shares. But
that’s how it works because the government calls the shots.
Former RBI governor Venugopal Reddy told that if banks hold
government securities in lieu of equity capital, then the Centre
can justify this in future if the dividends received by it from
banks exceed the interest it pays on the bonds. In short, the
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banks must generate enough profits and pay dividends to the
Centre to justify recapitalisation through government bonds.
Overall, the story is one of the taxpayer bailing out the banks and
pi defaulting corporate groups whose promoters will still end up laughing

all the way to the bank.
Note: The PSU bank’s gross Non-Performing Assets (NPAs) have
doubled in 3 years – from about 4% of net bank credit to nearly 9%
ap
today.
How achievable is the fiscal deficit
target?
The government is likely to achieve the
fiscal deficit target of 3.2% of GDP for
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the first time in about seven years, but

may cut its capital expenses by Rs
70,000 crore to meet the goal, says a recent report by SBI Research.
“There are doomsday predictions currently that government is
going to have a big revenue slippage in 2017-18 which may impact
the headline fiscal deficit numbers. However, such projections
flunk the test of logical reasoning and are grossly misconstrued,”
the report claims.
According to estimates by SBI’s economic research department,

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while there could be a shortfall of Rs 1.1 lakh crore in the

revenue receipts, disinvestments receipts worth Rs 72,500 crore
and expenditure cuts are likely to offset the impact. “We
estimate that the government may cut about Rs 70,000 crore from
the capital expenditure,” the report says.
“At current trends, it is likely that for the first time after fiscal
2009-10 that disinvestment target is likely to be achieved,” it notes,
adding that even if the nominal growth declines significantly in
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2017-18, fiscal deficit would be impacted by at most 10 basis
points (0.1%) in upward direction.
Further, the report observes that the government has
accumulated a total of Rs 40,491 crore in the National Small
pi Savings Fund during the first five months of this fiscal. “It
could thus receive Rs 1 lakh crore in small savings in FY18, and
would be able to do a buyback of Rs 75,000 crore which was
contingent upon that. This, in turn, implies that the government
ap
would be able to meet its net borrowing target of Rs 3.48 lakh
crore,” it adds.
Out of the total estimated shortfall of Rs 1.1 lakh crore in the
revenue receipts, around Rs 77,000 crore shortfall may be from tax
revenue on account of reduction in excise duty in petroleum
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products, tax refunds under GST and revenue compensation to

states for GST implementation. The non-tax revenue may decline
by Rs 38,000 crore because of lower spectrum proceeds among
others.
It is important to add here that if the fiscal deficit target is achieved by
reducing capital expenditure, it implies that the country didn’t invest in
asset-building as much as it should have. The best way to achieve the
deficit target is to increase the revenue and reduce only the non-
essential expenditure. This, clearly, isn’t happening in FY 2017-18.

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pi
ap
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INDIA - BUSINESS / UDAN takes off, but how
28-Apr-2017
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pi Prime Minister Narendra Modi today launched UDAN, a scheme to
help ‘common people’ fly cheap. UDAN is a first-of-its-kind ‘Regional
Connectivity Scheme’ to stimulate regional connectivity through a
ap
market-based mechanism. Air fares on routes between towns and cities
currently poorly connected will be capped at 2,500 rupees for every
500 km of travel. To get more Indians in the skies, airlines have been
offered incentives to take the routes less travelled.
What is the scheme about?

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“I want to see people who wear

hawai chappal (flip flops) in a
hawai jahaz (airplane),” the PM
said in Shimla as he inaugurated
the first UDAN flight under the
Regional Connectivity Scheme on the Shimla-Delhi sector. PM Modi
also inaugurated the flights on the Kadapa-Hyderabad and the
Nanded-Hyderabad sectors.
He said that the aviation sector in India was full of opportunities

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and UDAN would help transform the lives of the middle class and
increase their aspirations. Stating that aviation will no longer
remain the preserve of the few he said, “We had the opportunity to
frame a civil aviation policy, which caters to aspirations of the
people of India”.
He expressed disappointment that in the 70 years after
independence hardly “70-75” airports have been built.
The Prime Minister also delved into some history as he reminded
ly
the people that the British had built many airports in critical Indian
cities and border areas during World War II. Most of them were
never used. It was not clear what point he wanted to drive through
this example. Perhaps he wanted to emphasize that India has under-
pi utilized the existing infrastructure and schemes like UDAN can

help use it.
UDAN, which unimaginatively expands to Ude Desh Ka Aam
Naagrik (May the common citizen fly), is an innovative scheme to
ap
develop the regional aviation market. It is a market-based
mechanism in which airlines bid for seat subsidies. This first-of-
its-kind scheme will create affordable yet economically viable
and profitable flights on regional routes so that flying becomes
affordable to the common man even in small towns.
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Other salient features

The airline companies chosen are Airline Allied Services
(Alliance Air), SpiceJet, Turbo Megha Airways, Air Deccan
and Air Odisha. According to an official statement, 24 airports in
the western region, 17 in northern region, 11 in southern region, 12
in east and 6 in northeastern parts of the country are proposed to be
connected under this scheme.
Airfare for a 1-hour journey of approximately 500 km on a
fixed wing aircraft or for 30-minute journey on a helicopter

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would be capped at Rs. 2,500. This will come with proportionate

pricing for routes of different stage lengths and flight duration.
This (low price) would be achieved through (1) a financial
stimulus in the form of concessions from Central and State
governments and airport operators and (2) a Viability Gap
Funding to the interested airlines to kick-off operations from such
airports so that the passenger fares are kept affordable.
The selected airline operator would have to provide 50 per cent of
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the flight capacity with a cap of Rs 2500 per hour on fixed wing
aircraft and a minimum of 5 and a maximum of 13 seats on
helicopters with the same price cap. A single person can buy 9 to
40 seats in a flight.
pi Under the scheme, five airlines will operate on 128 routes

connecting 70 airports, including 31 unserved and 12 under-
served ones.
Under UDAN, the operators would be extended viability gap
ap
funding (VGF) - for which money is partly raised through a levy of
up to Rs 8,500 on flights operating in major routes like Delhi
and Mumbai. The viability gap-funding amount is estimated to be
around Rs 205 crore per annum for the operators chosen in the first
round of bidding. The viability gap funding would be in place
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for three years for the airlines concerned from the date of
starting operations in a particular UDAN route.
The central government will fund 80% of the losses incurred by the
airlines by flying on regional routes. The rest of the loss will be
covered by the states. The states will also incentivize the airlines in
the form of lower excise duty at 2% and VAT at 1% on aviation
turbine fuel. This scheme will be implemented only in those
states which reduce VAT on Air Turbine Fuel to 1% or less
and offer other support services and 20% of VGF.
The scheme also provides for various benefits including no airport

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charges and three-year exclusivity on the routes.

The States have a key role under the scheme.
The selection of airports where UDAN operations would start
would be done in consultation with State Government and after
confirmation of their concessions.
Revival of dysfunctional airports and starting operations on un-
served airports has been a long standing demand of most States and
this will be addressed through UDAN to a large extent.
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Note: Viability Gap Funding (VGF)is a grant one-time or deferred,
provided to support infrastructure projects that are economically
justified but fall short of financial viability. The lack of financial
pi viability usually arises from long gestation periods and the inability to
increase user charges to commercial levels. Through the provision of a
catalytic grant assistance of the capital costs, several projects may
become bankable and help mobilise private investment in
ap
infrastructure.
Why is it a good concept?
It would provide a win-win situation
for all stakeholders:
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Citizens would get the benefit of

affordability, connectivity and more
jobs.
The Centre would be able to expand the regional air connectivity
and market. The state governments would reap the benefit of
development of remote areas; UDAN will also enhance trade and
commerce and bring more tourists.
For incumbent airlines there is the promise of new routes and
more passengers while for the start-up airlines there is the
opportunity of new, scalable and assured business.

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Airport operators will also see their business expanding, as would

original equipment manufacturers.
It will offer affordable yet economically viable air travel.
Modi’s vision
The Prime Minister foresees tier-II and tier-III cities as “growth
engines” with the country’s aviation sector filled with
opportunities.
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“I want to see poor people fly,” Modi said, addressing a gathering
here. “If the middle class of our country gets a chance they would
change the image as well as the destination of the nation. The lives
of the middle class will transform and their aspirations are
pi increasing,” he said, adding the scheme is going to help tourism

sector.
UDAN is perfect on paper. It remains to be seen how it would unfold in
the skies.
ap
When did India adopt a civil aviation
policy?
The UDAN Scheme is a key component of
the National Civil Aviation Policy
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(NCAP), which was released on June 15

last year.
The policy aims to take flying to the masses by making it
affordable and convenient, establish an integrated eco-system
which will lead to significant growth of the civil aviation sector
to promote tourism, employment and balanced regional
growth, enhance regional connectivity through fiscal support
and infrastructure development and enhance ease of doing
business through deregulation, simplified procedures and e-
governance.

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The cornerstones of the new policy are competition, consumers,

connectivity and investment (both domestic and foreign).
Its vision is to make flying affordable and convenient and pave for
significant growth in the civil aviation sector.
Quantitatively, the policy intends
To achieve 30 crore domestic ticketing by 2022 and 50 crore by
2027
To increase international ticketing to 20 crore by 2027 and cargo
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volumes to 10 million tons (MT) by 2027
To increase the domestic passenger traffic by four-fold to 300
million by 2022.
pi Where are the challenges?

Certification: An air operator’s
certificate (AOC) is the approval
granted by a national aviation authority
ap
(NAA) to an aircraft operator to allow it
to use aircraft for commercial purposes.
Of the 5 UDAN awardees, only 3 have AOCs. While the
government indicates that they will fast-track AOC in a period of
as little as 4 months, the AOC approval process is detailed and
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cumbersome. As such this target seems to be highly optimistic.

Slots: Routes have been awarded out of Mumbai and Delhi where
peak slots are not to be had (Mumbai indicates they are completely
out of slots). One wonders how these new slots will be awarded
and on what basis they would be taken away from existing
operators. Additionally, slower airplanes will impact the already
constrained runway capacity due to higher separation requirements
and slower runway exits. Since majority of RCS (Regional
connectivity scheme) routes are VFR (Visual Flight Routes) the

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slots would have to be daytime slots. Bangalore Aviation’s

assessment is that the slots will most likely be afternoon slots.
Airfare caps and Viability Gap Funding: The scheme puts a cap
on airfares on the RCS seats (which are 50% of the aircraft
capacity to a maximum of 40). The cap is INR 2500/ hour but no
process of determining RCS seats has been confirmed. For
instance, how does the airline determine whether to sell an RCS
seat or not? Further, in travel distribution seats can be bought
ly
upfront and sold later at a much higher premium what
mechanism does the government have to ensure this does not
happen? What about last minute bookings this will almost always
be non-RCS but given the nature of travel last-minute seats see a
pi fair share of “urgent” travel most importantly medical travel which

will likely bring up complaints and is against the very intent of the
scheme (connectivity).
Operational strength: While the government is providing
ap
viability gap funding to the carriers to address the financial
viability, operational viability is another matter. Operational
viability includes talent, technology and contracts and with the
growth forecast in the domestic market the demand for pilots,
engineers and management personnel remains very high. If the
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regional carriers bring in foreign talent it further drives up the cost

making the operations unviable. Defense airfields pose additional
challenges as they have very specific requirements and foreign
pilots may not be allowed to operate to such airfields.
Levy and collections: Subsidy to airlines is provided via the
Viability Gap Fund, which in turn is funded via a surcharge to
existing airline passengers flying non-RCS routes. This charge
dependent on sector length. On the longer metro sectors it is to be
INR 8000 per flight. This will likely be passed on by the airlines.
Assuming a 160 seat aircraft and an industry load factor of 82% (as

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of March 2017), the charge works out to INR 60 INR65 per

passenger. However, no mechanism exists to ensure passengers
are not overcharged (it is likely that airlines will collect in
excess of the levy). Mechanism and timelines for disbursement of
funds is also yet to be ascertained.
Goods and Services Tax: The passage of the GST will lead to an
18% rise in airfares (if passed on entirely by airlines). This
coupled with rising fuel costs and airport charges (10% increase)
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may hamper demand. Add to that the RCS levy, and it is almost
certain that the airlines will cry foul.
States (non)cooperation: Significantly, the success of RCS
depends on the state lowering tax rates and providing security at
pi airports. Each state has to agree to this and it may not be as simple
as the center has envisioned it to be. Additionally, several of the
airports need rehabilitation and this is at best a multi-year process
(given the nature of airport development in India).
ap
Who may not like UDAN?
Economists have a distinct distaste for the
idea of government price fixing. For the
only form of it that actually works is if the
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price is fixed at the market clearing price.

But then that market clearing price is the
same price that will be achieved without having any price fixing - so
why is anyone bothering to price fix?
India’s aviation sector has been doing well.
India is the ninth-largest civil aviation market in the world, with a
market size of around US$ 16 billion. The civil aviation industry is on
a high-growth trajectory. India aims to become the third-largest
aviation market by 2020 and the largest by 2030.

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The Civil Aviation industry has ushered in a new era of expansion,

driven by factors such as low-cost carriers (LCCs), modern
airports, Foreign Direct Investment (FDI) in domestic airlines,
advanced information technology (IT) interventions and
growing emphasis on regional connectivity.
India is among the five fastest-growing aviation markets globally
with 275 million new passengers. The airlines operating in India
were projected to record a collective operating profit of Rs 8,100
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crore (US$ 1.29 billion) in fiscal year 2016.
India’s aviation industry is largely untapped with huge growth
opportunities, considering that air transport is still expensive for
pi majority of the country’s population, of which nearly 40 per cent is the

upwardly mobile middle class. UDAN is a step towards bridging this
gap.
Or so it seems.
ap
The fallacy of keeping the price low to boost demand has been
brilliantly attacked in a Forbes article:
“If we fix the price nice and low then demand rises and willing
supply falls. Thus we have a shortage - more people want than is
produced. If we fix the price nice and high to benefit the producers
Kn
- as governments tend to like to with food to please farmers for

example–then we get a surplus. More supply than there is demand
at that price. There is only the one price at which this does not
happen, the market clearing price. And by definition that market
clearing price is the one we’ll get by not having any price fixing at
all”.
The right way to make air travel more affordable would be to
deregulate the aviation sector. With greater competition, prices
would fall.

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How has the Indian Civil Aviation

evolved over the century?
The first international flight to and
from India commenced in December
1912, when the Indian State Air
Services in collaboration with UK
based Imperial Airways introduced the London-Karachi- Delhi
flight.
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In 1915 Tata Sons started regular airmail services between
Karachi and Madras and on January 24, 1920 the Royal Air Force
started regular airmail services between Karachi and Bombay.
pi 1924 saw the commencement of construction of civil airports in

India in Calcutta at Dum Dum, in Allahabad at Bamrauli and in
Bombay at Gilbert Hill.
April 1927 saw the setting up of a separate Department of Civil
ap
Aviation to look after all civil aviation matters and also the
establishment of Aero Club of India.
In February 1929, Federation Aeronautique International on behalf
of the Aero Club of India and Burma awarded JRD Tata the first
pilot license.
Between 1933 and 1934 a number of private Indian airlines Indian
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Trans Continental Airways, Madras Air Taxi Services, Indian

National Airways - commenced operations.
The Indian Aircraft Act was promulgated in 1934 and was
formulated in 1937.
In July 1945 the Deccan Airways, jointly owned by the Nizam of
Hyderabad and Tatas, was founded.
On 29 July 29, 1946 Tata Airlines became a public limited
company under the name Air India. Post-independence, in 1948,
49% of the airline was acquired by the Government of India, with

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an option to purchase an additional 2%.

On June 8, 1948, the airline operated its first long-haul
international flight from Bombay to London via Cairo and Geneva,
using a Lockheed Constellation L-749A named Malabar Princess.
In March 1953, the Indian parliament passed the Air Corporations
Act, which forced nationalization of the entire airline industry.
On August 25, 1953, the Government of India exercised its option
to purchase a majority stake in Air India International. At the same
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time, seven former freedom domestic airlines, Deccan Airways,
Airways India, Bharat Airways, Himalayan Aviation, Kalinga
Airlines, Indian National Airways and Air Services of India,
were merged to form the new domestic national carrier Indian
pi Airlines Corporation. Indian Airlines inherited a fleet of 99

aircraft including 74 Douglas DC-3 Dakotas, 12 Vickers Vikings, 3
Douglas DC-4s and various smaller types from the seven airlines
that made it up. 1953 also saw the introduction of India’s Civil
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Helicopter Services.
In 1972 the International Airports Authority of India (IAAI)
was constituted to operate the international airports in India.
In 1986, the National Airports Authority was established to
operate purely domestic airports.
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In 1987, the Bureau of Civil Aviation Security was established

following the mid-air bombing over the Irish sea of Air India
Boeing 747 Emperor Kanishka performing flight AI-182 between
Montreal and New Delhi in 1985.
1990 saw Air India entering the Guinness Book of World
Records when it conducted the largest evacuation effort by a single
civilian airline flying over 111,000 people from Amman, Jordan to
Mumbai over 59 days operating 488 flights, just prior to the first
Gulf war.
In 1994, following the repeal of the Air Corporation Act, private

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airlines were permitted to operate scheduled services and a number

of private players including Air Sahara, Damania Airways, East
West Airlines, Jet Airways, Modiluft, and NEPC Airlines and
commenced domestic operations. Most airlines closed before the
end of the decade, with the exception of Jet Airways. Air Sahara
was bought by Jet and re-branded JetLite. Modiluft, which closed
in 1996, was re-incarnated as SpiceJet in 2005.
In 1995 the private airlines accounted for about 10% of
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domestic traffic, today they account for almost 85%.
Also, in 1995, the Airports Authority of India (AAI) was
constituted after the merging of the International Airport Authority
of India with National Airports Authority.
pi 2003 saw the introduction of the ‘Low Cost Carrier’ (LCC)

business model in the country with Capt. G.R. Gopinath
launching Air Deccan, which was ultimately purchased by
Kingfisher Airlines and re-branded Kingfisher Red. Today the
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LCC segment accounts for half the domestic air travel in the
country.
In 2004 the government approved the setting up of private
Greenfield airports at Hyderabad and Bangalore, which
subsequently commenced operations in 2008.
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In December 2004 private airlines with a minimum of 5 years of

continuous operations and a minimum fleet size of 20 aircraft (the
5/20 rule), were permitted to operate scheduled services to
international destinations.
On December 7, 2005, Indian Airlines was re-branded as Indian
for advertising purposes as a part of a program to revamp its image
in preparation for an initial public offering.
In 2008 the Parliament passed the Airports Economic Regulatory
Authority (AERA) Bill but the authority was set up only in 2009.

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Note: The Civil Aviation Policy has decided to scrap the requirement
that mandated arlines to have five years of domestic oeprations to be
eligible to fly overseas. However, an airline will have to allocate 20
aircraft or 20% of their total fleet of aircraft, whichever is higher, to
the domestic sector if they wish to fly overseas. This effectively means
a carrier must have a minimum 20 aircraft in its domestic fleet. In
essence, the 5/20 rule has been replaced by 0/20 rule.
—– | —–
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pi
ap
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INDIA - BUSINESS / Steel / India must steel the

show
22-Feb-2017
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pi In 2016, India was the third largest crude steel producer in the world
and the production is only expected to increase in 2017. However,
ap
focus at the same time should be on increasing consumption of steel
and reducing cheap imports. A massive increase in infrastructure
allocation in the Union Budget will boost the pace of construction in
the country. The draft National Steel Policy 2017 offers hope but
action must follow the policy.
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What are the latest data on steel

production in India?
India produced 88.97 million tons and
89.79 million tons of crude steel during
2014-15 and 2015-16, respectively.
In 2014-15, India had surpassed USA to
become the third largest steel producer in the world behind
only China and Japan. India continued with this position in 2015-
16 as well.

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Though this growth - of just 0.9% - appears smaller on an absolute

basis, the context is important as well. All other countries among
the Top Five producers experience a fall in their production
numbers, ranging between 1.9 and 5.1%.
During April-December 2016, crude steel production in India rose
by an impressive 8.8% to 72.35 million tons during this period.
This was on account of higher output by the major Indian steel
companies. The imposition of Minimum Import Price (MIP)
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encouraged the producers to increase their output.
A NITI Aayog report says that there was a decline in steel
consumption globally and in the major steel producing nations like
China, Japan, United States, Russia in 2015, whereas India saw a
pi consumption growth of 4.5% in comparison with the previous

year.
Steel production in the world is dominated by China followed by
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Japan.
During 2015-16, crude steel output in China stood at 789.04
million tons and that in Japan stood at 104.23 million tons.
Note: Minimum Import Price (MIP) is the minimum price per ton that
Indian firms have to pay while importing products into India. The
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government of India on February 5, 2016 had imposed MIP on steel

ranging from $341 to $752 per ton on 173 steel products (which was
revised to a shorter list of 66 products in August). This was done to
protect the steel industry in India from the competition from cheap
imported steel. This is a temporary intervention for the growth of
domestic steel manufacturing industry and to reduce dependence on
externally manufactured steel products.
Why does India need a new Steel Policy?
A number of developments have taken place in the global and

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domestic steel space which calls for a new

policy framework.
Overcapacity is clubbed with subdued
demand: The world is facing a huge
overcapacity of steel production whereas
the demand has not kept pace with
capacity addition. For example, the world crude steel production in
2014 was 1665 MT against a demand of 1648 MT while the
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capacity was 2241 MT, leaving an excess capacity of 576 MT. The
subdued demand is often attributed to slowdown in the world
economy as it is often said that the markets adjust to lower levels
pi of Chinese growth – the ‘new normal’. This obviously means the

prices will remain subdued, discouraging Indian producers from
ramping up production.
Dumping by China: China accounts for half of the global steel
ap
production. The demand for steel globally has been low, so is the
case in China, due to this, the Chinese companies have been
dumping steel at low prices (inventory costs) into global markets,
including India aggressively. Moreover, the devaluation in Chinese
Yuan has resulted in increase of steel imports in India from China.
Chinese imports of 3.68 MT in 2014-15 increased to 4 MT in
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2015-16 which accounted for around one third of the total steel
imports in India in 2015-16.
CEPAs with Japan and South Korea: India had signed Free
Trade Agreements (FTAs) with South Korea and Japan under
CEPA (Comprehensive Economic Partnership Agreement) in
January, 2010 and August, 2012 respectively under which the
duties on most of the products, traded between the countries, are
either eliminated or reduced sharply. Due to this, the import duty
on steel for Japan and Korea was 0.8% and 1.25% in June, 2015

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respectively, whereas the import duty on flat steel and long steel
products was 12.5% and 10% respectively for other countries. Due
to CEPA, steel imports from South Korea and Japan increased by
52% and 25% respectively in 2015-16 over the previous year.
Intermittent Supply of Raw Material: The supply of two crucial
raw materials namely iron ore and coal have not been continuous
to the steel sector. There have been various mine closures over the
past five years as a result of Shah Commission investigation and
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Supreme Court verdicts. Bans on iron ore mining had been
imposed through Supreme Court (SC) rulings in the states like
Karnataka and Goa in July, 2011 and September, 2012
respectively due to illegal mining, and in Odisha due to the lack of
pi requisite clearances pending from the state Government in May

2014. Moreover, the steel industry was also affected by the
cancellation of 214 coal blocks by SC in September 2014,
though the industry can now procure the coal by participating in
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the coal auctions.
Declining Competitiveness of Indian Steel Manufacturers: The
Indian Steel companies enjoy some inherent advantages in terms of
abundant availability of raw materials at cheap prices and
workforce at low costs apart from the presence of a strong
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domestic steel market. The cost of steel production in India is

around $320 - $340 per ton in comparison with $400 per ton in
China and Japan, whereas the global average is around $390 per
ton.In spite of the low cost of production, Indian steel has still
become uncompetitive in global markets. Why? The
manufacturers have to add up a multitude of taxes and transactional
costs to the production cost. These include import duty of 2.5% on
coking coal, a coal cess INR 400/ton, a world-highest royalty on
iron ore at 15%, really high cost of transportation and high rate of
lending (of around 12%, compared to 6% in China and just 1.5% in

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Japan).
Deteriorating Financial Health of Steel Companies: The steel
companies have been in huge debts over the past couple of years
due to the combined effects of supply and demand sides. The
situation is quite critical as they are not even able to service their
interest costs. There was an aggregate debt of INR 45,160 Cr on
the iron & steel industry in 2014 according to the Corporate Debt
Restructuring (CDR) Cell progress report, which has increased to
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INR 53580 Cr in March, 2016.
Sustainable Development: With regards to increased constraints
over Green House Gas (GHG) emissions all over the World post
Paris Agreement of 2015, the expansion in the steel sector will
pi have to cater to the environmental aspects. Though the developed

world might be struggling with the retrofitting of older steel plants,
India has an opportunity to leapfrog to the latest technology.
ap
Seeing the current situation of the steel sector, India cannot achieve the
targets envisaged in the National Steel Policy 2012 i.e. a capacity of
300 MT and production of 275 MT by 2025. To bring the steel sector
back on track, mere tinkering in the present policy would not bring out
a transformational change that is required.
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When does the draft National Policy

2017 offer hope?
The Ministry of Steel has prepared the
draft policy named “The National
Steel Policy (NSP), 2017” to ensure
that the steel sector follows a
sustainable path of development in respect of augmenting capacity to
300 MT by 2030-31 in environment friendly manner, mineral
conservation, quality of steel products, use of technology and
indigenous R&D efforts, so that the country can, over time, reach the

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global efficiency benchmarks.

The policy, which envisages to an investment of Rs. 10 lakh crore
to meet the goal of 300 MT capacity and expects at least 11 lakh
new jobs being created in the process. The targets are realistic,
considering that the steel sector presently employs about 25 lakh
people and has a capacity of little over 120 million tons.
While it focuses on impediments like high input costs, availability
of raw materials, import dependency and financial stress plaguing
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the sector, projections made under the policy for a couple of factors
are all still under discussion, such as the demand and production
of sponge iron.
pi The National Steel Policy aims at achieving the following objectives:

Build a globally competitive industry with a crude steel capacity of
300 MT by 2030-31
Increase per Capita Steel Consumption to 160 kg by 2030-31
ap
To domestically meet entire demand of high grade automotive
steel, electrical steel, special steels and alloys for strategic
applications by 2030-31
Increase domestic availability of washed coking coal so as to
reduce import dependence on coking coal to 50% by 2030-31
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To be net exporter of steel by 2025-26

Encourage industry to be a world leader on energy and raw
material efficient steel production by 2030-31, in a safe and
sustainable manner
Develop and implement quality standards for domestic steel
products
Where will the consumption side boost come from?
So what if the global markets are depressed - India is a big market in
itself. The biggest problem of Indian economy is (lack of)

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infrastructure and, regardless of

who solves it and how is it
solved, the structures will need
steel.
Though the Union Budget
presented on the first day of
February failed to address demands for withdrawal of import duty and
clean power cess on coking coal, steel sector in general remained
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optimistic about the budget proposals as some announcements by
Finance Minister Arun Jaitley will have indirect impact on the
industry.
pi India will invest as much as Rs. 3,96,135 crore in creating and

upgrading infrastructure in the next financial year, finance minister
Arun Jaitley announced in his fourth budget speech. This was a
25% increase in allocations for infrastructure over the last year.
ap
As part of the new integrated infrastructure planning paradigm
comprising roads, railways, waterways and civil aviation, the
National Democratic Alliance government unveiled the largest-
ever rail budget of Rs. 1,31,000 crore, an 8.26% increase over the
previous year.
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The overall focus on housing, rural economy, infrastructure

spending and railway and defence capex is expected to boost
economic growth and revive domestic steel demand.
The focus on rural sector is especially important as many of the
Steel Sector’s principal client industries, like two-wheelers and
tractors, are very dependent on the rural economy.
Steel is set to get a domestic demand boost this year.
Who will coordinate the efforts for sustainability of India’s steel
sector?

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India has recently signed Paris

Declaration (COP 21) under
which the country has committed
to reducing the emission intensity
of its GDP (emissions per unit of
GDP) by 33-35% by 2030 from
the 2005 level.
Towards this end, Ministry of Steel has submitted the Intended
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Nationally Determined Contributions (INDC) for reducing GHG
emissions in iron & steel sector which inter-alia projects CO2
emission of 2.2 – 2.4 tons per ton of crude steel in BF-BOF
pi route and 2.6 – 2.7 tons per ton of crude steel in DRI route by
the terminal year of 2030.
Currently the steel companies are themselves addressing the energy
and environment issues in the plants through technological
ap
upgradation/ modernisation, and/or diffusion of energy efficient and
environment friendly technologies in the plants, Ministry will facilitate
improvement in the energy and environment scenario of steel plants
through various forums/ mechanisms.
The draft National Steel Policy asserts that all waste materials will
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be considered as an economic asset. The Ministry will encourage

the steel companies to develop a Waste Management Plan for
additional impetus on zero-waste or complete waste recycling.
Concrete efforts will further be made by Ministry to promote use of
iron & steel slag in alternate uses like road making, rail ballast,
construction material, soil conditioner etc.
Ministry of Steel will also facilitate the formulation and adoption
of standards at par with global best practices with regard to
particulate matter emissions, SOx & NOx, (sulpur and nitrogen
oxides) water consumption and zero or near zero liquid discharge.

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Note: The blast furnace (BF) to basic oxygen furnace (BOF) is the
dominant steel production route in the steel industry. Direct Reduced
Iron (DRI), also known as Sponge Iron, offers an alternative steel
production route to BF-BOF.
How is steel produced?
Methods for manufacturing steel
have evolved significantly since
industrial production began in the
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late 19th century. Modern methods,
however, are still based the same
premise as the Bessemer Process, namely, how to most efficiently
pi use oxygen to lower the carbon content in iron.

Today, steel production makes use of both recycled materials, as well
as the traditional raw materials, such as iron ore, coal, and limestone.
Two processes; basic oxygen steelmaking (BOS) and electric arc
ap
furnaces (EAF) account for virtually all steel production.
The entire process can be broken down into six steps:
Ironmaking: In the first step, the raw inputs iron ore, coke and
lime are melted in a blast furnace. The resulting molten iron - also
referred to as ‘hot metal’ - still contains 4-4.5% carbon and other
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impurities that make it brittle.

Primary Steelmaking: Primary steelmaking methods differ
between BOS and EAF methods. BOS methods add recycled scrap
steel to the molten iron in a converter. At high temperatures,
oxygen is blown through the metal, which reduces the carbon
content to between 0-1.5%. EAF methods, alternatively, feed
recycled steel scrap through use high power electric arcs
(temperatures up to 1650 °C) to melt the metal and convert it to
high-quality steel.

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Secondary Steelmaking: Secondary steelmaking involves treating

the molten steel produced from both BOS and EAF routes to adjust
the steel composition. This is done by adding or removing certain
elements and/or manipulating the temperature and production
environment.
Continuous Casting: In this step, the molten steel is cast into a
cooled mold causing a thin steel shell to solidify. The shell strand
is withdrawn using guided rolls and fully cooled and solidified.
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The strand is cut into desired lengths depending on application;
slabs for flat products (plate and strip), blooms for sections
(beams), billets for long products (wires) or thin strips.
Primary Forming: The steel that is cast is then formed into
pi various shapes, often by hot rolling, a process that eliminates cast

defects and achieves the required shape and surface quality. Hot
rolled products are divided into flat products, long products,
seamless tubes, and specialty products.
ap
Manufacturing, Fabrication, and Finishing: Finally, secondary
forming techniques give the steel its final shape and properties.
These techniques include: shaping (e.g. cold rolling), machining
(e.g. drilling), joining (e.g. welding), coating (e.g. galvanizing),
heat treatment (e.g. tempering) and surface treatment
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(e.g. carburizing).
—– | —–

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INDIA - BUSINESS / Telecom / War is coming to

Indian telecom
10-Aug-2016
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pi Reliance Industries is set to launch its fourth generation (4G) wireless
broadband service under the brand name Jio. This 4G LTE service will
ap
offer significantly faster data speeds at much cheaper costs. With
Reliance Jio rolling out its service soon, analysts feel it will lead to
new paradigms in India’s slow growing data market. The competitors
will have to fight a brutal price war with Reliance.
What is the expected launch date of

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Jio?
Mukesh Ambani-owned Reliance Jio
Infocomm is likely to commercially roll
out its 4G services from August 15,
India’s Independence Day and it may
launch free voice along with data services.
Jio had ‘soft launched’ its services for its employees in December
last year. It opened up its network with preview data offer in May
this year.

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Jio has however extended its preview offer only to select Samsung
4G smartphones and HP laptop users.
The company earlier this year had said that it was trying to ensure
full network optimization before the complete rollout of its
services, also citing it as the only reason for the delay in launch.
In its annual report for 2015-16, Reliance Industries Limited (RIL)
said that Jio will have over 92,000 Evolved Node B (eNodeB) and
over 1,00,000 small cells at launch at the time of commercial
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launch.
The new 4G entrant already has a network of over 2,50,000 route
km of optic fibre cable (OFC) for a full-IP network.
In addition to the fibre backhaul, the company said that extensive
pi last mile fibre connectivity is being rolled out to address the fibre
to the home potential.
Jio is expected to offer a differentiated offering - which will be
unlimited VoLTE voice bundled with its data offering above Rs.
ap
300 per month.
Reliance also revealed that Jio has deployed advanced network
technologies such as Software Defined Networking (SDN) and
Network Functions Virtualisation (NFV), and its network is
ready for future evolution of technology including transition to
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5G with minimal additional capital expenditure in the network.

Described as ‘the world’s biggest startup’ with an investment of
around Rs 1.5 lakh crore, the launch has been six years in the
making since Reliance Industries re-entered the telecom sector by
buying a company which had won pan-India 4G airwaves in an
auction in 2010.
Why is Jio expected to revolutionize the telecom market of India?
Reliance Industries’ chairman Mukesh Ambani has ‘vowed’ to
‘revolutionize’ the telecom market by providing Internet speed

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that will be 80 times faster than its

rivals.
Reliance Jio’s tariffs are also likely
to be as low as 0.5 paise for 10
kilobytes of data and video calls
can be made at 5 paise per second.
Reliance Jio Infocomm is also entering into partnerships with
almost all smartphone makers to bundle three months of free
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data and voice with handsets.
A first for the Indian market, this is seen as a way of ramping up
users rapidly while providing a push to smartphone sales. The
company expects this strategy will help to instantly build up its
pi consumer base even before the commercial launch expected

anytime this year.
Reliance Jio already has more than 1.5 million subscribers,
which include customers of its Lyf smartphones, employees and
ap
business partners including retailers. Buyers of the bundled
devices will be eligible for a SIM card that will allow them to
access the Jio network immediately.
Jio has spectrum in the 4G bands of 2300 MHz, 1800 MHz and
850 MHz. It has also signed trading and sharing pacts for 850 MHz
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— considered to be the best available in India for 4G — with

Reliance Communications, owned by Mukesh Ambani’s younger
brother, Anil.
Considering these factors either the incumbents - Bharti, Vodafone and
Idea - themselves need to take the lead to democratise and expand the
data market in India without needing to lean heavily on Reliance Jio or
the Indian wireless data market will change in complexion after Jio’s
launch, catalyzing the development of new powerful paradigms in the
data market.

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When can going be tough for Jio?

Reliance Jio’s entry may make the going
tougher for existing operators, but Jio
too will have to contend with a slowing
data market and increasing price
competition in India.
Reliance Jio will initially disrupt the market because of lower data
tariffs but eventually, an expansion in the data subscriber base
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will benefit all operators.
Voice will continue to remain important even as data gains
prominence. India’s biggest telecom operator Bharti Airtel Ltd said
pi June-quarter voice revenue grew at the fastest pace in six quarters.

Data and voice have their own set of challenges.Data shall in
future continue to replace short communication, while voice
will lead for long communication in India.
ap
While smartphones have become almost ubiquitous in cities, the
older generation feature phones are only useful for making calls.
These phones still dominate rural and semi-urban areas, where
most Indians live.
One needs to understand that not everyone lives in metro cities and
a large chunk of population is based out of that part of India
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where voice is predominant. This scenario is not expected to

change in the near future. Jio can only hope to ‘revolutionize’
urban India.
Mobile data revenue growth has been slowing down after a period
of strong growth. In the quarter ended 30 June, Bharti Airtel said
data revenue grew 4.5% from the preceding three months, the
slowest recorded pace. For Vodafone, fiscal first quarter data
revenue growth slowed to 22% from 65% in the year-ago period. In
contrast, voice revenues for both the companies have grown

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remarkably well.
Growing Wi-Fi penetration is another reason for slower
growth of data revenues, as major data volume is getting routed
through Wi-Fi networks.
Where is the impact of Jio
already being felt?
While the Reliance offers are new
and not widely known, it has started
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creating ripples in the competitive
telecom industry.
Jio has fuelled a price war in the telecom industry. Much to the
pi delight of millions of customers, incumbent players such as

Airtel, Vodafone and Idea Cellular have started slashing data
prices and adding value to existing internet and voice packs.
Ambani’s freebies - that company officials say will continue till Jio
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commercially starts operations - are forcing incumbents to add
value to their offerings to contain the excitement around the new
entrant.
Airtel lowered the threshold for plans where it also offers free
voice, though this remains restricted to the postpaid segment.
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Vodafone recently added additional 67% data on its prepaid packs

to give more internet value at the same price. The company also
announced a lucrative offer - Vodafone Delights - that promises
free 10-minute talk-time to all customers whose conversations get
interrupted for any reason.
Idea Cellular had also added benefits to its smaller prepaid data
packs (below 1 GB) as it increased value for customers.
To counter Reliance Jio, the three telecom companies have been
expanding 4G operations and introducing various offers.

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Telecom industry analysts said margins of the telecom players will

get thinner as competition rises. Business has already become
difficult, and no one is sure of how things will pan out as Reliance
Jio gets aggressive.
Who will benefit from Jio?
Increased and aggressive competition
will bring down costs of services in the
telecom space – benefitting consumers,
ly
both Jio users and non-users.
4G new entrants may look at
leveraging intranet-based data offerings in an attempt to take
pi market share. Currently telecom companies monetize data

connectivity and charge only for data usage.
Jio’s success will depend on the penetration of 4G handsets,
which at present is less than 5 per cent of the unique wireless
ap
subscriber base and even by year end it is not expected to be more
than 10 per cent of base (around 80 million).
The intranet route will be used to introduce cheap or free data. In a
recent development, telecom regulator TRAI suggested that
rules prohibiting differential pricing for data will not be
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applicable to intranet-based offering of telecom players.

This allows telecom players to have a B2B model by charging
content providers/ ecommerce players a carriage fee and in turn
subsidizing subscribers’ data services.
Intranet services are network based on internet protocols belonging
to an organization accessible only by that organization’s members.
These are not available to the public from the internet.
Telecom companies, in order to enhance value preposition can
charge fixed fee and might integrate intranet with content around
movies/sports and enhancing subscriber value proposition.

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Such an approach may allow 4G entrants to ask for a fixed fee that
is not directly linked to data usage, to target the medium/high
ARPU (average revenue per user) data users and churn subscribers
from top incumbent.
4G entrants’ ability to leverage data spectrum ownership,
particularly 800 MHz spectrum holdings and their ability to offer
better content deals are working in their favour.Telecom
companies on the other hand have not built up their strength in
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content, which gives the new 4G entrant a head start, provided
they launch fast.
How does Jiofi work?
pi The Jio Fi devices are similar to any Wi-

Fi hotspot devices that are available in the
market, except that these are going to be
limited to the Reliance Jio 4G network
ap
and thus only the Jio SIM can be used
here.
With the built-in battery, the JioFi devices will last up to 5 hours on
a single charge.
Apart from using as a Wi-Fi hotspot, the JioFi also offers to make
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HD voice and video calls with the help of JioJoin app. By installing
the app, the users can virtually make calls using the VoWiFi (Voice
over Wi-Fi) technology.
Jio 4G Preview offer has free unlimited data, calls, and SMS for a
period of three months. HP laptop owners are chosen for this
Preview Offer.
Some specifications and features of the Jio Fi device:
VoLTE calls and app to app sharing possible
Can host upto 31 devices simultaneously

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Has 6 hours of battery backup and is fully charged within 3 hours

Comes in 3 colours; Red, Blue and Black
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INDIA - BUSINESS / Telecom / Reliance Jio is

winning the 4G war
1-Dec-2016
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pi Reliance Industries chairman Mukesh Ambani has announced that Jio
users will be able to use all its services for free until March 31, 2017.
ap
After having added a phenomenal 5 crore subscribers within 3 months
of its launch, Jio is now gunning for 4G dominance. Market
Intelligence firm IDC said recently that with Reliance giving free 4G
SIM cards and launching affordable 4G-smartphones, India is set to
lead the 4G revolution.
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What has Reliance Industries

announced?
Chairman Mukesh Ambani in an
address to customers and
employees has announced the
extension of the promotional
offer, with the announcement of the new ‘Jio Happy New Year Offer’
that gives free data, voice calling, national roaming and more till
March 31, 2016. He spent a considerable time highlighting the success

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of Jio and the scale of its achievements.

He said, “In the first 3 months since its birth, Jio has grown faster
than Facebook, WhatsApp or Skype. In 83 days, Jio has crossed 50
million customers on its 4G LTE ALL-IP wireless broadband
network.”
He also revealed that an average Jio customer is using 25 times
more data than the average Indian broadband user.
He again claimed that the competitors of Reliance are ‘blocking’
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calls from Jio to make it seem the fault is with Jio network. As
many as 900 crore voice calls from Jio to the networks of its 3
largest competitors “were blocked.”
pi Towards the end of his address, he congratulated India’s Prime

Minister for the demonetisation move.“I want to congratulate and
applaud our Honorable Prime Minister, Shri Narendra Modi-ji, for
his bold and historic decision to demonetise old currency. By doing
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this, our Prime Minister has given the strongest possible push to
the growth of a digitally-enabled, optimal-cash economy in India”.
What has the IDC said of Jio?
With the Reliance Jio Infocomm (Jio) giving free 4G SIM cards and
launching affordable 4G-enabled smartphones to connect the next
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billion, India is set to lead the 4G revolution, the International Data

Corporation (IDC) said.
“We are quickly seeing this change in key growth markets like
India where new operator Reliance Jio is aggressively trying to
shake up the market by handing out free 4G SIM cards and
launching own-branded low-cost 4G-enabled smartphones,” said
Melissa Chau, Associate Research DirectWorldwide 4G
smartphones are expected to show double-digit uptake at 21.3 per
cent Year-on-Year growth for 2016 to reach 1.17 billion units —

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up from 967 million in 2015.or, IDC’s “Worldwide Quarterly

Mobile Device Trackers”, in a statement.
Reliance Jio Infocomm commercially launched its services on
September 5.
Jio has introduced Aadhaar-based paper-less Jio SIM activation
(eKYC) across 3,100 cities and towns.
Why is Jio being considered a
winner already?
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Reliance Jio has reportedly crossed
the 50 million subscriber mark in just
83 days following its 4G services
pi launch.Jio has emerged as the

biggest broadband operator in India.
Jio set a record of acquiring 1,000 customers each minute, since
its launch on September 05. It continues to be the fastest growing
ap
company in the world.
This is a landmark in the telecom world as other networks took
years to reach the 50 million customers mark.While Vodafone
took 13 years, Airtel achieved it in 12 years. Reliance Jio, which
was launched in September, already had 16 million customers in
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the first month itself.

Beating industry estimates, the company has signed up an average
of 6 lakh subscribers a day, which is a globally unprecedented feat
for any customer-facing company including the likes of Whatsapp,
Facebook and Skype.
Jio has reportedly become India’s biggest operator to provide
digital services with the highest number of mobile broadband
users.It is even larger than Airtel’s 41 million 3G and 4G
subscribers which it had acquired in 6 years. When it comes to
just 4G, Jio user base is 5 times the base of Airtel and a

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whopping 17 times of Idea.

Why did the service click?
One of the reasons is the timing of the launch. Jio was launched just
before the festive season of Dussehra and Diwali, and the telecom
auctions were also about to start, which eventually made it possible to
garner all the attention.
Apart from that, the lucrative plans and offers disrupted the
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market and brought down prices, which resulted in maddening
demand with long queues to buy the SIM.
Moreover, Jio brought the high-speed 4G internet to the budget
buyers.
pi Additionally, Jio also brought other add-ons and aggregated apps to

lure in more and more consumers.
Countering the amazingly low priced offers and extended validity
made the rival network providers bring down prices as well.
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It remains to be seen what the market dynamics will be once Jio free
offer period ends. The customers are enjoying their free lunch for now.
When will the Jio story get more
interesting?
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Reliance Jio is a full-fledged tech brand

which has ambitions to take on the likes
of some local and some global
technology companies. There are a
bunch of things Reliance Jio will unveil in the coming months, which
include a broader vision to what Reliance is trying to achieve with
the Jio brand. Perhaps the most disruptive thing that Reliance Jio
wants to introduce to India is a Fibre-To-Home service with speeds
up to 1Gbps.
Reliance has already the infrastructure in place for the same, but it

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intends to bundle it with a set-top-box, for which at the time, it has

partnered with Nvidia for the Shield Android box. This box, when
coupled with the power of the 1Gbps connection will have the
ability to stream Ultra HD content from YouTube.
The Shield box also comes with a voice enabled remote which can
be used to give commands over speech vanquishing the age old TV
remote which most Indians find in their living rooms.
The Shield is the tip of the ice-berg; Reliance Jio is open to
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partnering with other Original Equipment Manufacturers (OEMs)
who can enable Jio to harness the power of a platform like Android
to deliver content through its Fibre-To-Home service.
One of the candidates to take over the living room is this Jio TV
pi app which will be offered for free. It has 360 channels. Some are
live and 50 of these are HD. There’s a catch up feature too that can
be used for up to a week and all the content is delivered in 11
genres and 15 languages.
ap
There is also the Jio Cinema service which has 6000 movies, more
than 100,000 TV show episodes and 60,000 music videos and all of
this will be ad-free bundled with the Fibre-to-Home connection.
This will be disruptive.
Reliance is also going to make installation simpler. Gone will be
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the days of multiple Dish antennas; one router will be able to

cater to up to 3 TVs with set top boxes.
Its ambitions for home automation seem interesting. It will launch
a series of connected surveillance cameras which will enable users
monitor their homes from the phone, see and interact with people at
the door remotely, unlock the house from the phone and even get
alerts if movement is detected in the house when no-one is around.
It has even developed a bunch of smart plugs which can be
remotely connected over the internet which will add smarts to
legacy hardware in the house - be it an AC, light or even a fan.

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Jio has also developed an on-board diagnostics system (OBD) for

cars in India. It intends give Indians a slice of the connected car.
This OBD will capture information from the car - things like
battery, fuel and mileage and combine it with a Jio MiFi which
will add Internet connectivity to the car for up to 10 devices.
Using another app called the Jio Car Connect will give users more
intelligence like driving patterns, remote tracking, remote
unlocking and locking and headlight on and off. Using geo-fencing
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you would be able to ensure that your car doesn’t even leave the
city and only roams about in a fixed area.
One of the big bets that Reliance has made is in the Cloud. It has a
Jio Cloud service which will work in tandem with its living room
pi offerings. It already has a Jio Drive which provides up to 1TB of

storage which is quite impressive and on lines with what
Microsoft and Google are doing with OneDrive and Google
Drive.
ap
It also has the Jio Chat service which isn’t just a rudimentary chat
app. Like what Google and Microsoft are doing with Allo and
Skype, Jio Chat will soon have chatbots integrated. Already, the
service supports a group size of up to 500 members which is almost
double the size that of WhatsApp.
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Other salient feature of the app includes integration with around

150 brands which includes the likes of Coke, Domino’s and
FreeCharge. It also delivers news and will stream live events which
makes this a one-stop-shop for everything. Other than this, it also
supports basic stuff like video chats, messaging, calling and
sharing of content and even stickers.
It also has a Jio Music streaming service which already has more
than 11 million songs in high 320 kbps quality. For some context,
Apple Music and Spotify which are global players have 30 million
songs. 11 million is a very good start.

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Its investment in Jio Money payments gateway also points towards

a cash-less future for India.
Where can you buy the Jio SIM from?
Right now you have to visit the local
shop, and stand in a queue (unless you are
standing in an ATM queue), but in the
coming weeks, the SIM will come to you.
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Reliance Jio has officially launched a
pilot program for home delivery of SIM cards. Targeting the
biggest cities in India, the service is aimed to help consumers get
their hands on a Reliance Jio SIM card without going through the
pi trouble of visiting a retail store.

While earlier reports had tipped an online portal would be launched
that would allow users to apply for and schedule a Reliance Jio
SIM card home delivery, the pilot program is based on an invite
ap
system.
The Reliance Jio SIM card home delivery pilot program is being
rolled out in a phased manner. Currently in beta, the program is
being rolled out area wise in Ahmedabad, Bengaluru, Chandigarh,
Chennai, Delhi NCR, Hyderabad, Jaipur, Kolkata, Mumbai, Pune,
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and Visakhapatnam.
Under the Reliance Jio SIM card home delivery pilot program,
individuals will receive an invite to schedule a Jio SIM delivery at
home. Notably, users cannot request an invite.Instead, Reliance
Jio will send invites to “influencers” it has discovered. Reliance
employees will not be able to refer people for this program either,
and only the team responsible can make selections.
The invite to the Reliance Jio SIM card home delivery pilot
program allows the individual to request for a SIM card to be
delivered at their home at a time of their choice.Deliveries can be

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scheduled as soon as “within 30 minutes”.

Separately, Reliance Jio is running a program for housing societies
and enterprises that makes it easier for consumers to procure Jio
SIM cards.Housing society and enterprise officials can register
their interest on the respective section of the site. If the
application is selected, a Reliance Jio team will visit the housing
complex or office to distribute SIM cards via a kiosk.
Consumers hoping to avail the services from these kiosks will need
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a local Aadhaar card for ‘instant eKYC-based activation’. To use
services, they will need a 4G-enabled smartphone.
Who are making Mukesh Ambani
pi angry?
Reliance
complaint
Jio
with
Infocomm
the
has
Competition
filed
Commission of India (CCI) alleging that

a
ap
Bharti Airtel, Vodafone India and Idea
Cellular have formed a cartel against it and are not providing
points of interconnect (PoIs) required for calls to go through.
The case, filed by the Mukesh Ambani-owned company, is likely
to be heard within a fortnight, along with another complaint
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registered by Jio consumers on call quality.

The incumbent telcos rubbished allegations of cartelisation with
market leader Airtel saying “such fanciful and baseless allegation
of cartel of three companies operating in a highly competitive and
price sensitive market needs to be debunked.”
“These allegations follow a standard pattern of browbeating and
are aimed at creating multiple regulatory hurdles in the sincere
efforts of other players in the space,” Airtel spokesperson said.
Like Airtel, Idea Cellular said that it had not received any
communication from the Competition Commission, but said that it

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has never indulged in cartelisation.

The plaint from the telecom arm of Reliance Industries Limited comes
on the back of telecom regulator Telecom Regulatory Authority of
India (TRAI) suggesting a Rs 3,050-crore cumulative penalty on
the top three incumbents on the grounds that they violated licence
norms by not providing adequate points of interconnect (PoIs).
In a scathing recommendation to the telecom department, TRAI
said the incumbent telcos’ act, which violated licence conditions,
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appeared to be aimed at stifling competition and it was against
consumer interest.
TRAI even suggested licence cancellation, but cited public
pi inconvenience and then suggested the highest possible penalty of

Rs 1,050 crore each for Bharti and Vodafone, and Rs 950 crore
for Idea, on October 21.
A complaint filed under Section 19 (1) of the Competition Act, 2002
ap
allows CCI to inquire into any alleged contravention of anti-
competitive agreements or abuse of dominant position in the market.
As a next step, CCI would order an investigation under Section 26 of
the Competition Act, and it may close the matter if it does not find
anything anti-competitive. However, if the investigation finds violation
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of Competition Act rules, it will pass an order under Section 27.

How is 4G different from 3G?
First things first, the “G” stands for a
generation of mobile technology, installed
in phones and on cellular networks. Each
“G” generally requires you to get a new
phone, and for networks to make expensive
upgrades. The first two were analog cell phones (1G) and digital
phones (2G).Then it got complicated.

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Third-generation mobile networks, or 3G, came to the U.S. in

2003. With minimum consistent Internet speeds of 144Kbps, 3G
was supposed to bring “mobile broadband.” There are now so
many varieties of 3G, though, that a “3G” connection can get you
Internet speeds anywhere from 400Kbps to more than ten times
that.
New generations usually bring new base technologies, more
network capacity for more data per user, and the potential for
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better voice quality.
4G phones are supposed to be even faster, but that’s not always the
case.There are so many technologies called “4G,” and so many
ways to implement them, that the term is almost meaningless.
pi The International Telecommunications Union, a standards body, tried

to issue requirements to call a network 4G but they were ignored by
carriers, and eventually the ITU backed down. 4G technologies include
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High Speed Download/Upload Packet Access (HSPA)+ 21/42, the
now obsolete WiMAX, and LTE (although some consider LTE the
only true 4G of that bunch, and some people say none of them are
fast enough to qualify.)
There is a big difference between 4G LTE and other technologies
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called “4G” though, and it’s most visible in upload speeds. If you
upload a lot of data - posting photos or videos, for instance - you
will find LTE’s upload speeds are far better than those on HSPA.
There are many different ways to implement LTE, too, so you can’t
assume all LTE speeds are the same.Carriers with more available
radio spectrum for LTE can typically run faster networks than
carriers with less spectrum.
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INDIA - BUSINESS / Telecom / The great Indian

telecom consolidation
14-Oct-2017
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pi Bharti Airtel is acquiring Tata’s consumer mobile business in a deal
that gives India’s top wireless player a major subscriber base boost,
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while giving Tata a face-saving exit. The only other option for Tata
was to wind down the debt laden business. The deal gives Airtel 42
million customers free with spectrum licenses in 19 out of the 22
circles. The telecom sector of India is now ready for a three-way battle
to the finish.
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What is the deal?

Bharti Airtel, India’s biggest telecom
operator, is acquiring the consumer mobile
business of Tata Teleservices and Tata
Teleservices Maharashtra, in a deal that
gives the company a major subscriber base
boost for virtually free, while stemming the bleed for Tata from a loss
making venture.
As part of the agreement, Bharti Airtel will absorb Tata’s consumer

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mobile operations across the country in nineteen circles (17 under

Tata Teleservices Limited and 2 under Tata Teleservices
Maharashtra Limited). It will also enable Bharti Airtel to further
bolster its spectrum footprint with the addition of 178.5 MHz
spectrum (of which 71.3 MHz is liberalized) in the 850, 1800 &
2100 MHz bands.
The merger is being done on a “debt-free cash-free” basis, except
for Bharti Airtel assuming a small portion of the unpaid spectrum
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liability of Tata’s, which is to be paid on a deferred basis.
The proposed merger will include transfer of all the customers and
assets of Tata’s consumer mobile business to Bharti Airtel, further
augmenting Bharti Airtel’s overall customer base and network.
pi Tata’s consumer mobile business operations and services will

continue as normal until the completion of the transaction.
The deal, subject to regulatory approvals, will see over 4 crore Tata
ap
customers join Bharti Airtel. According to July data from the Telecom
Regulatory Authority of India, Bharti Airtel led the local market with
over 281 million customers, while Tata Teleservices stood at eighth
place with just 42.9 million subscribers.
Why is this a big win for Airtel?
Kn
After its acquisition of Tata

Teleservices’ consumer mobile
business, Bharti Airtel would be
able to bridge, to a large extent,
the gap between the share of
total spectrum held by it and that owned by the merged entity
formed after rival Idea Cellular’s merger with Vodafone India.
Bharti and Tata Tele will together control over 28 per cent of the
total spectrum available to telecom service providers, and that will

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bring them on par with the Idea-Vodafone’s share across the

country. Also, the Bharti Airtel-Tata Tele combined entity would
have a share of around 40 per cent in the total telecom revenues,
not much behind the projected 44 per cent for the Idea-Vodafone
combine.
The move also bolsters Airtel’s position against Mukesh
Ambani-promoted Reliance Jio Infocomm Ltd since the
acquisition of Tata Teleservices will give it access to 178.5 MHz
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spectrum (of which 71.3 MHz is liberalized) in the 850, 1800 and
2100 MHz bands and help it strengthen its 4G coverage.
Airtel has virtually got TTSL on a platter – it just has to pay 15
per cent to 20 per cent of the deferred payment for spectrum
pi which comes to around Rs 1500-Rs 2,000 crore. It of course

might have to fork out US $ 1.2 billion to the government if it
wants to liberalize the 1800 MHz spectrum, which it gets from
TTSL but the choice of that will be up to Airtel.
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In return Airtel has to absorb a large part of the 5,000
employees that Tata Tele has. That is hardly an issue since Airtel
also gets 40 million additional customers to its fold.
“The acquisition of additional spectrum made an attractive business
proposition. It will further strengthen our already solid portfolio and
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create substantial long term value for our shareholders given the
significant synergies,” Bharti Airtel chairman Sunil Mittal said in a
statement.
“On completion, the proposed acquisition will undergo seamless
integration, both on the customer as well as the network side, and
further strengthen our market position in several key circles. The
customers of Tata will be able to enjoy India’s widest and fastest voice
and data network, and bouquet of Airtel’s best-in-class products and
services,” he added.

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When did Tata lose the telecom

plot?
Despite being one of the earliest
entrants into the space, the Tata
group’s long engagement with
India’s telecom market has come
to naught with this measured exit for Tata Teleservices. Even after
investing billions of dollars over the last 22 years, mounting losses
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and the inability to grab significant market share have forced the
group to take this drastic action.
Tata Teleservices, which has more than $5 billion of debt, has been
pi mired in losses and it had been speculated that the group might opt to
permanently shut the operation. Its parent, salt-to-software
conglomerate Tata Group, is also in the middle of a restructuring
exercise to improve profitability and cut its complex structure.
ap
The merger allows the group to shed a loss-making business, which
Chairman N Chandrasekaran said was “close to impossible for
us to recover”. More so when Mukesh Ambani’s Reliance Jio has
shaken up India’s telecom industry by offering free services and
cheaper plans. The country’s newest operator has been gaining
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share at the expense of smaller rivals like Tata Teleservices

Ltd. and Tata Teleservices (Maharashtra) Ltd.
“Tata will be relieved of the cash burn that was happening in its
operations. And given the high competitive intensity in the market
right now, it would have been difficult for them to survive,” said
Nitin Soni, director at Fitch Ratings.
Employees of Tata Teleservices will be split among two businesses
– consumer mobile, and enterprise and fixed broadband line. Tata
is also exploring combining its enterprise business with Tata
Communications and retail fixed broadband line business with Tata

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Sky. It will retain its 32.8 percent stake in Viom Networks valued
at Rs 4,526.4 crore and take care of associated liabilities.
“Contrary to popular belief, Chandra has found a solution or a
permanent home for telecom instead of closing the business…his
biggest pain point,” said a Tata official. “Talks have been ongoing
for a few months to explore a strategic partnership. In between, it
stalled but got revived in recent days. Both sides have been keen to
forge a deeper alliance and this is just the start.”
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“We believe today’s agreement is the best and most optimal solution
for the Tata Group and its stakeholders. Finding the right home for
our longstanding customers and our employees has been the priority
pi for us. We have evaluated multiple options and are pleased to have this
agreement with Bharti Airtel,” said Chandrasekaran on the deal.
Chandrasekaran, who took charge of the corner office eight
months back, emphasized that he will not shy away from “tough
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decisions” to drive agility, increase accountability and ensure high
performance. Fixing telecom within this fiscal was his urgent
priority.
Where is the larger play for Airtel and
Tata?
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Group watchers on both sides believe this

could possibly be the beginning of a
much larger strategic alliance. Bharti
Enterprises and the Tata Group held
exploratory talks to evaluate a mega alliance involving their
telecom, enterprise services, overseas cable and direct-to-home TV
businesses, ET reported in July.
Such alliances, involving mobile, landline, broadband, and TV is
increasingly common in markets in the Americas, Europe and Asia

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- AT&T-Time Warner in the US, BT-EE in the UK, Vodafone-

Liberty Media in the Netherlands.
According to an official statement, Tata is also in initial stages of
exploring a combination of its Enterprise Business with Tata
Communications and its Retail Fixed Line and Broadband business
with Tata Sky.
Analysts expect any potential Tata-Bharti mega alliance to unlock
synergies in the direct-to-home TV industry.
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BankAm-Merrill Lynch said in July that the Direct-to-Home
(DTH) industry would turn into a two-player market with a
Airtel-Tata Sky combine commanding 43% of the subscribers
pi and Dish-Videocon controlling 45%. Edelweiss backed the view

and said such a potential merger would strengthen the bargaining
power of DTH companies and help lower content cost.
Singapore Telecommunications (Singtel), which owns over a third
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of Bharti Airtel, is reportedly keen to cherry pick the enterprise
business of Tata Teleservices and Tata Communications and not
take on the complexities of such a major “multi-play” buyout
involving stakeholders such as public shareholders and the
government of India.
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Moreover, SingTel felt integrating such a large operation into Bharti

would take the focus away from its core focus of winning against the
Reliance Jio Infocomm juggernaut.
Who will fight the final battle of the
bloody Telecom war?
Reliance Jio launched services in
September 2016 and has already cornered
130 million users and 19 per cent of the
spectrum holdings. But now it shall be

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challenged by the old fighters. The ongoing shake-up in the telecom

sector has set the stage for a three-way battle between Airtel,
Reliance Jio and the Vodafone-Idea combine. At stake is India’s
data services market, which is estimated to be ₹95,000 crore by 2020,
growing at a compounded annual rate of 21 per cent.
While Airtel consolidated its market position as the No. 1
player with the acquisition of Tata Teleservices’ mobile
business, the bugles have been sounded by Vodafone and Idea,
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with the shareholders of the latter overwhelmingly approving
the earlier-announced merger.
Once the merger goes through, the Vodafone-Idea combine will
pi become the largest operator in terms of subscribers, but Airtel will

keep the pole position in terms of revenue market share and
spectrum holding.
Prashant Singhal, Global Telecommunications Leader at EY, told
ap
BusinessLine, “From having 9-10 mobile operators in each circle
just a few years ago, the Indian telecom sector is all set for a major
consolidation that would reduce the number of players to 3-4.”
Even in other markets, he added, “the industry has settled at
around four operators. India has taken time to consolidate to the
right number, but it is finally happening.”
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To be clear, India’s telecom sector has had several rounds of

consolidation earlier.
Between 2001 and 2004, there were several deals that saw the exit
of regional players like Koshika Telecom and Escotel and the
emergence of pan-India operators. “The difference between then
and now is that the current consolidation has led to huge value
destruction. It has been painful for those exiting,” said Singhal.
According to one market estimate, as many as 30,000 jobs could
be at stake from the ongoing consolidation. “Consolidation is

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good, but it would have been better if it was done as a natural

progression than being forced due to market disruption by one
operator,” said an analyst without naming Reliance Jio as the
disruptive force.
How can the Government help the
telecom sector?
Telecom summits in September and
October 2017 have thrown light on the
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varied views on Government
intervention.
In September 2017, Bharti Airtel, Idea Cellular and Vodafone India
pi sought for immediate government intervention for alleviating the

increasing financial stress in telecom sector, and addressing issues
of lower taxation and ensuring ease of doing business through
more streamlined merger and acquisition (M&A) policy.
ap
“__There a lot of debt in the industry, about Rs 450,000 crore,
return of capital is less than 1%…From the government, we need
help in two things. One is in ease of doing business, we still find
great difficulty in right of way to lay fibre, it’s a painful process
to get access to government buildings, we find that M&A, pace at
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which it is happening, is a challenge… all this needs to be

streamlined, because we need to get on with business,” said
Gopal Vittal, CEO of Bharti Airtel. The top boss of the market
leader added that financial factors such as taxation at 29-30%,
highest spectrum costs but lowest tariffs in the world, need to be
addressed if the country has to take the next leap.
Vodafone India’s chief executive Sunil Sood said that the future
success of the country depends on the success of the telecom
industry, which provides the connectivity layer that other
industries are dependent on. Therefore, right and enabling policies

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are key to this success.

Idea Cellular’s chief executive Himanshu Kapania pointed to the
57% cut in interconnect usage charge (IUC), saying that the
regulator had pushed older technologies to extinction while
supporting the case for newer technologies. “Recent market
development has drastically altered the dynamics of the industry
resulting in the sector passing through severe mental and financial
stress. The introduction and proliferation of bundled unlimited
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plans, outcome of lack of effective regulatory intervention, has had
a deep impact on realization rates of the industry,” Kapania said.
Government position
pi The government is bullish about the prospects of India’s telecom

sector in the medium to long-term, given the surging demand for
data. It believes the current situation of stress faced by the sector is
temporary and there will be no significant job losses.
ap
“The current situation is a temporary phenomenon. We haven’t
even begun to scratch the surface in terms of data. Data explosion
has just begun. The medium and long-term prospects of the
industry are very robust,” telecom secretary Aruna Sundararajan
said at a panel discussion at the India Economic Summit 2017.
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Aruna added that the government was aware of the financial strife
in the industry but won’t intervene beyond a point. “The
government will play the role of an enabler and make sure it’s a
level playing field. The rest will be left to the market players. But
there is enough for everyone to grow,” Sundararajan added.
Note: The term ‘interconnection’ refers to an arrangement under
which telecom players connect their equipment, networks and services
with other Telecom Services Providers. The regulator, TRAI,
addresses the various issues related to interconnection arrangements. It
also regulates the IUC. This is a charge payable by a service provider,

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whose subscriber originates the call, to the service provider in whose

network the call terminates.
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INDIA - BUSINESS / Telecom / The last telcos

standing
27-Dec-2017
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pi Reliance Communications will sell telecom assets, including spectrum,
towers and fibre, worth Rs 25,000 crore by March 2018 to exit the
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ongoing strategic debt restructuring (SDR) program. This is only the
latest episode in the upheaval that has swept through the telecom
industry since the entry of Reliance Jio. The consolidation is now close
to complete with only Jio, Airtel, Vodafone-Idea and minnow Aircel
surviving the bloodbath, aside from state-owned BSNL-MTNL.
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What is the telecom field looking

like now?
In about three months from now,
if Reliance Group chairman Anil
Ambani has his way, he would
have sold the spectrum, tower,
fibre and real estate assets of Reliance Communications Ltd (RCom).
The divestments, together with the sale of the telecom company’s
media convergence nodes and exit from a strategic debt restructuring

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exercise with its lenders, will mark the end of an era for the company
he inherited after a 2005 settlement with older brother Mukesh
Ambani.
Once the RCom asset sale is completed, Aircel Ltd will be the
sole remaining small operator that is outside government
control in the telecom sector, indicating the consolidation in the
industry has entered the final phase.
The entry of Reliance Jio in September 2016 triggered the long-
ly
heralded telecom consolidation and ushered in a data
revolution. The first outcome was the collateral damage from the
latter, a well-thought-through strategy by the Mukesh Ambani-
pi controlled Reliance Jio to destabilize the incumbents that was

centred on a tariff war initially caused by free services and later
by ultra cheap offers.
Anil Ambani, chairman of the Reliance Group that controls RCom,
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indicated on 26 December that the group’s inability to make
regular investments hastened the end of RCom’s wireless business.
“The writing was on the wall. You really need a pipeline into the
Reserve Bank of India’s printing press, if you want to be in the
wireless business because it is a guzzler of currency every minute,
every hour and every single day,” Ambani said. “This is a crisis of
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the wireless telecom sector. It has engulfed many, many people. If

it is the mighty house of the Tatas, who had to gift their business
then there is little to be said about other competitive groups,” he
added.
In a statement to the exchanges on 4 July, Reliance Communications
had said, “The telecom industry’s current financial problem to some
extent can be attributed to the entry of a new telecom operator and its
strategy of freebies to gain customer and market share.”The telecom
industry is capital intensive. As a result of this, debt of telecom

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companies has been ever rising, the company had said then. “For the
first time in history, the listed telecom operators debt has exceeded
their market capitalization.”
Among the most notable deal-making since Reliance Jio started
commercial services is the proposed merger between Vodafone
India Ltd and Idea Cellular Ltd, a combination that is set to end
Bharti Airtel Ltd’s more than two-decade-long reign as India’s
No.1 telecom firm.
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The Vodafone-Idea merger will create the world’s second
largest and India’s largest telecom firm. It will have almost 400
million customers, with 35% customer and 42% revenue market
pi share. It will have a revenue of Rs.81600 crore and an operating

profit of Rs.24400 crore. Together, Idea Cellular and Vodafone
India have a debt of Rs1.08 trillion. The merger is expected to be
completed in 2018.
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To counter Reliance Jio and a mammoth that Vodafone-Idea could
be, Airtel on its part acquired assets of Telenor India, Tikona
Digital, and consumer and mobile businesses of Tata
Teleservices. The Tata deal, which was Bharti Airtel’s seventh
acquisition in the past five years, is what Anil Ambani called as
‘free’. Airtel had to pay neither cash, not equity for acquiring Tata
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Tele. It just has to pay a “small portion” of unpaid spectrum

liability of the Tatas, estimated at ₹2,000 crore.
Why are the stakes high in this
sector?
In a country of 1.3 billion people
with a young demographic, the
smartphone market is rapidly
expanding. India recently
overtook the United States to become the world’s second largest

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smartphone market after China, with shipments of phones to India

rising 23 per cent in the third quarter of the year to more than 40
million handsets, according to figures from technology research firm
Canalys.
Smartphone use is only expected to rise, with many Indians still
using older phones expected to migrate to the smartphones,
particularly as data costs and the price of devices come down.
Manufacturing of budget smartphones in China and India is going
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to make owning a device easier and more affordable.
“Consumers have become more powerful and connected,” says
Malik Gilani, the founder and chief executive of Esar Media and
pi Advertising in Mumbai, who adds that for many Indians, a mobile

phone is often the primary mean of accessing the internet and data
use is on the rise in the country. This bodes well for the
operators, which are left standing. The surviving players now
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have a significant opportunity to grow, say analysts.
“The industry revenues could revive over 12 to 18 months period
led by Jio increasing its tariffs, the exit of smaller telcos and
expansion of the data revenue base, leading to probability of
relatively stable pricing environment with lower competitors per
circle,” says Tanu Sharma, an associate director at India Ratings
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and Research.
The four major firms that are now left in India are: Bharti Airtel,
Idea-Vodafone, public sector BSNL-MTNL and Jio.
There will be more opportunities for telecom companies in the near
term as Indian government continues to look at ways to test and
meet its target of rolling out 5G technology for consumers by
2020 in the country, which offers enormous potential for the
telecom to ring up significant profits.
Telcos have seen sharp declines in profit and some of them even

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recorded losses this year. The industry is expected to see a 5.3

per cent year-on-year decline in the gross revenues to 1.79
trillion rupees (US$28 billion) in the current financial year,
which runs until the end of March 2018.
However, the firm forecasts a recovery in the next fiscal year, and
projects that revenues could rise by 6.5 per cent, largely on account of
fewer competitors in the market.
When do we see some sibling
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love in the troubled times?
Mukesh Ambani-owned Reliance
Jio Infocomm appeared to be the
pi highest bidder for assets put on for

sale by the debt-ridden Reliance
Communications (RCom), people aware of the development said.
“Bids have been received for all five asset packages. Reliance Jio has
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emerged as the highest bidder for 3-4 of the five asset packages of
Reliance Communications. It seems unlikely that any other company
can outbid Reliance Jio,” Mint quoted a source.
A banker further confirmed that Reliance Jio was the highest
bidder and also showed interest in buying optical fibre assets,
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spectrum and tower infrastructure owned by brother Anil Ambani's

RCom. “Others did not match the price that Reliance Jio was
willing to offer,” he added. The Ambani brothers parted ways in
2006 as differences grew. Since then, Mukesh Ambani's flagship
RIL has outperformed his younger brothers' businesses on
profitability and returns.
RCom's assets on sale include its real estate, fibre network,
enterprise business, towers and spectrum, reported the business
daily. After almost 11 years, it seems like the big brother is

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coming forward to save young one's business or is it just

another maverick business strategy by Mukesh Ambani?
Interestingly, earlier in September, speaking at company's annual
general meeting (AGM), RCom's Anil Ambani said, “…there has
already been a virtual merger of the two organisations (RCom and
Jio).” If the deal passes through, Reliance Jio will trigger another
round of consolidation in the sector, this time through spectrum
wave.
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For RCom, as on March, the company had a consolidated total
debt of Rs 49,000 crore. The firm is also facing strong headwinds
because of shrinking subscriber base, leading to huge losses. On
the other hand, Reliance Jio's free-for-life call service and dirt
pi cheap data through new fourth-generation (4G) wireless service

sparked a price war and consolidation in the Indian telecom
industry.
The firm has over 138 million users even as the company continues
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to gain market share, and older players such as Airtel, Vodafone,
Idea have been forced to cut tariff. “The deal with Reliance Jio is
set to be announced soon and the funds received from the sale are
expected to address a major portion of the Reliance
Communications debt,” the official stated.
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Where will consolidation impact

stakholders?
Pros
Steady long-term realizations
Growth in capital efficiency
Better service to customers
Cons
Increased pricing discipline

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Massive job cuts

Less discounts as competition dwindles
On the whole, consolidation would be bad for consumers.
“The end of consolidation is looking bad for consumers with only a
few companies left. Today consumers are happy as they are getting
cheap tariffs, but this party will end soon,” said an industry
executive.
The industry believes there will be three private companies and
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one government entity (MTNL-BSNL) that will fight it out in
the telecom space. “But actually only Bharti Airtel and Reliance
Jio will be the real companies left as Vodafone-Idea have not
pi shown significant investments in 4G. For Reliance Jio and Airtel,

this trend looks fantastic as they will have more pricing power in
the market,” the executive added.
Fewer companies would also be a deterrent to the prospects of
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tower companies and equipment makers. “Their valuations will
be affected,” the executive said.
Who will eventually benefit from this
aggression?
The Indian telecom industry is passing
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through complex times. It has been

almost two decades since the Atal Bihari
Vajpayee government heralded the
telecom revolution with the formulation of the National Telecom
Policy (NTP) in 1999. When the policy was enforced, India merely
had a million subscribers. Since then, the industry has grown on to
become the second-largest telecommunications market in the world
that is now well past the billion-mark in terms of subscribers.
Over the years, the sector has become a significant contributor of

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the country's GDP and job growth. According to one estimate, it

contributed 6.5 per cent of India's GDP while providing direct and
indirect employment to four million people in 2015.
The industry has also been one of the fastest-growing sectors in the
country with a compound annual growth rate (CAGR) of 7.3
percent over the last decade. This is the result of the dynamic and
hyper-competitive nature of the Indian telecom market.
Competition among telecom companies has risen to the extent that
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tariffs are one of the lowest in the world.
However, the pace of transformation of the industry over the course of
last year has been astonishing, even by its own dynamic standards.
pi Jio's entry last year changed the market in more than one way.
First, the battle shifted from voice to the data front. Reliance
had spent the last few years building the largest LTE (long term
evolution) network in the country that allowed it to provide Voice
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over LTE services at virtually no extra cost - enabling it to offer
free calling and only charge for data.
The second significant impact of Jio's entry has been a
consolidation wave that has swept the industry due to escalated
levels of competition. This has been so intense that scale has
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become a necessary prerequisite.

The final impact of Jio's entry, which is often less talked about, is
in its effect on increasing mobile and data accessibility. The Indian
telecom industry was adding an average of 54 million wireless and
50 million Internet subscribers each year until mid-2016, as per
TRAI (April-June) reports.
In contrast, over the course of June 2016 - June 2017, the
industry added over 150 million wireless and 80 million
Internet subscribers. Jio's entry in September 2016 has had a
clear effect on the acceleration in adoption of mobile technology

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and, especially, Internet.

An ICRIER study recently pointed out that a 10 percent increase in
the rate of growth of Internet subscribers will result in a 2.4
percent increase in the GDP rate.
Therefore, there will be clear economic gains from the industry
developments that have recently taken place. India's telecom
revolution has been the driving force of the economy since the turn
of the century and it has done well to evolve with the times and
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climb the data bandwagon.
It has largely gone unnoticed, but this year India has also become
the highest mobile data user in the world with monthly usage
pi exceeding a billion GB.

As data accessibility of Indian consumers increases, it creates a
multitude of opportunities for the government to reach out and enable
social progress by providing services that were previously not feasible.
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Tapping into these opportunities can unlock the next phase of growth
for the Indian economy.
How has 2017 been for the telecom
industry?
It was a year of turmoil for the hyper-
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competitive Indian telecom sector as the

balance-sheets of many major players
kept bleeding, prompting the
government to form an panel to chalk out plans to bail out firms.
Reliance Industries' Jio continued to disrupt the market with its free
or low-priced offers while three or four majors fought for the
telecom pie tooth and nail. Despite assurances to the sector, the
central government's policy did not help: the Goods and Services
Tax (GST) hiked the tax on the sector from 15% to 18%.

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Also, the Telecom Regulator Authority of India (TRAI)

reduced the Interconnection Usage Charges (IUC) to 6 paise
from 14 paise per minute from October 1, 2017, putting
additional pressure on the incumbents. However, a few mergers
and acquisitions in the sector sparked hopes of a better tomorrow
as consolidation would help the majors to cope with challenges
better, even as the cumulative debt of telcos rose to around Rs 4.6
lakh crore and the revenues fell. The sector's adjusted gross
ly
revenue fell to Rs 30,759 crore for the quarter ending September
2017 - a year-on-year decrease of 18.1 per cent.
“This is a consequence of a number of developments over the
years, including the entry of new operators in 2009 and the voice
pi tariff war. This was followed by expensive auctions for spectrum

(2016), needed by the telcos to offer communications services,”
Rajan S. Mathews, Director General, Cellular Operators'
Association of India (COAI), told IANS. “In 2018, consolidation
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in the sector is likely to take shape and the telcos will get the
benefit of synergy in operations and the overall costs are likely to
come down. Eventually, pricing power could also return,
enabling longer-term sustainability overall,” he added.
However, Mahesh Uppal, Director of consultancy firm Com First,
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feels competition from Reliance Jio would continue to hurt

margins of the incumbents. “With Jio guaranteeing free calls to
its subscribers, other players will find it difficult to sustain
revenues from voice calls. They will be forced to do the same. They
will then compete aggressively in the market for data services,
especially by providing larger data packs at even cheaper prices. It
is not clear whether players will compete more vigorously on
quality of service. This might take more time,” Uppal told IANS.
But Amresh Nandan, Research Director, Gartner, said Jio's
disruption with free voice and data offers would eventually subside

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and become normal. “Beyond a point, quality and reliability of

service matter most. As that takes centre-stage, which has started
to happen, free or even discounted services won't help. If Jio comes
up with products beyond connectivity - that enables greater
interaction and transactions for consumers with necessary quality
and reliability, then the competitive scenario may change,” he said.
Talking about mergers and acquisitions, Uppal said the sector was
in the process of reaching an optimal number of players. “I expect
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the eventual survivors to be Airtel, Jio, the combination of Idea and
Vodafone and the government-owned MTNL-BSNL,” Uppal said.
Nandan said mergers and acquisitions were good for the market
from the economic perspective. “Four telcos are dominant in the
pi market and it should lead to a better scenario. However, real

value from these deals will take time. These M&As are yet to
reach operational culmination, which in itself will shake-up
things a bit more,” he added.
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“As far as consolidation is concerned, no market in the world has
more than five telecom operators, but in India, there were more
than 10. In 2018, the Bharti Airtel-Tata Teleservices-Telenor
combine and the Idea Cellular-Vodafone combine would take
shape,”said Mathews. The country saw almost 40 per cent jump in
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10 months in the number of wireless broadband users from 217.95

million at the end of December 2016 to 322.18 million users at the
end of October 2017.
The pivotal question for the industry (or whatever remains of it) is: will
Reliance Jio be content with substantial pickings in 2017 or will it go
hard in 2018 too? Reliance Jio’s entry has seen revenues of the top
players stagnate and profitability plunge. And if Reliance Jio stays
aggressive in 2018 — it has the deep pockets to do so — it will strain
the financials of all players, including Jio, even more.

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The market is free enough take care of itself, we guess.

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INDIA - BUSINESS / Telecom / India aims at 5G
28-Sep-2017
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pi Even as telecom operators struggle to improve 4G services, the
government of India has moved to prepare India for 5G services. A
high-level panel has been announced to develop a roadmap for
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operationalising 5G telecom services by 2020. Rs 500 crore have been
set aside for research on the latest telecom standard. While it is
appreciable that the government does not want to miss the bus, it is
unlikely that India will board it in 2020.
What is the latest development in the

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Telecom sector?
If everything goes as per the Government
of India’s plan, come 2020 every Indian
would be able to download a movie in just
matter of few seconds.
In its quest to speed up the ‘Digital India’ campaign, the
government has announced the roll out of 5G services for the
consumers by 2020. That would effectively make wireless
communication superfast by enabling higher data speed.

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To achieve the objective, the government has set up a high-level

forum that will evaluate and approve roadmaps and action plans to
bring in the latest technology in the country.
The government has included the two ministries of Telecom,
Information and Technology, and Science and Technology in the
forum and has set aside a corpus of Rs 500 crore for research
and development in 5G.
India, according to the government release, is aiming at “a globally
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competitive product development and manufacturing ecosystem
targeting 50% of the Indian market and 10% of global market over
next five to seven years”.
The Telecom Regulatory Authority of India (TRAI) had already
pi released a consultation paper on framing regulations and standards

for the roll out of 5G networks and IoT (Internet of Things) in
August 2017.
ap
Note:
IoT refers to the interconnection via the Internet of computing
devices embedded in everyday objects that are intelligent enough
to send and receive data.
G in 3G, 4G and 5G refers to Generation. A higher number before
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G means greater power and efficiency to send and receive

information over a wireless network.
Why is 5G becoming important for the
world?
Mobile data use has rocketed over the past
five years – increasing 74 per cent alone in
2015 – taking the overall global figure to
around 3.7 exabytes (one Exabyte is 1
followed by 18 zeroes) per month. Underpinning this explosion is the

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growth of streaming services and people's growing use of apps – all

underwritten by the expectation of having a high-speed data
connection at all times.
And when 4G can no longer cope, 5G will step up.
But the next evolution of mobile data could be the last step-change we
see in mobile data transmission. Yes, 5G would definitely put an end to
apps stalling, video faltering and that annoying loading sign but that is
only the part of the story, says Prof Rahim Tafazolli, the lead
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researcher at the UK's multimillion-pound government-funded 5G
Innovation Centre at the University of Surrey.
5G means the opportunity for properly connected smart cities,
pi remote surgery, driverless cars and the IoT.

According to IHS 5G economic impact study, the global 5G value
chain will generate $3.5 trillion in output and support 22
million jobs in 2035. This figure is larger than the value of today’s
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entire mobile value chain and also to the combined revenue of the
top 13 companies on the 2016 Fortune Global 1000. The study also
points out that the total contribution of 5G to ‘real global GDP
growth is expected to be equivalent to a country the size of
India’.
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5G networks promise more speed, less latency (the time it takes

for a packet of data to get from one designated point to
another), can serve a higher density of broadband users, and
are optimised for Internet of Things (IoT)
So, both technically and economically, 5G becomes indispensable.
India was late in the adoption of 3G and 4G revolutions, so it is
natural that the government does not want to miss the 5G bus. The
government’s push to move to 5G is driven by the logic that India,
one of the world’s largest markets for telecom services, should

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not be left behind when the world shifts to 5G.

“We missed the opportunity to participate when the standards were
being set for 3G and 4G, but don’t want to miss the 5G
opportunity. Now when the standards are being set for 5G across
the world, India will also participate in the process,” Minister of
State for Communications Manoj Sinha said. 2020 is the year when
5G will be globally launched.
As per the minister, India’s active involvement in setting 5G
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standards will help the local industry. 5G technology will be
leveraged for the deployment of next-generation broadband
infrastructure, through which the government aims to have 100%
coverage of 10 Gbps broadband across urban India and 1 Gbps
pi across rural India.

Considering the current infrastructure and financial bottlenecks
plaguing the telecom sector, it would be nothing short of miraculous if
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India does achieve its goal.
When do we see the challenges?
For the roll out of 5G, at the very
minimum, the stakeholders who
are going to offer the services to
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the consumers should be

confident. Indian telecom
industry is unsure of India’s readiness for 5G.
In its August 2017 consultation paper TRAI asked stakeholders on
the timing and quantum of the spectrum in the 3300-3400 Mhz
and 3400-3600 Mhz bands to be used for 5G.
While some in the government back an early sale of such airwaves,
the industry wants it sold not before 2019, noting that the
ecosystem around the technology is far from being developed.

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They add that India will be 5G-ready only around 2021-22.

A spectrum auction will potentially generate more revenue for the
government but it will also require the bleeding telecom firms to
invest more.
The industry argues that for the success of 5G, 4G has to attain
maturity, and the technology is currently in a nascent stage in
India. The operators are developing a 4G or long term evolution
(LTE) footprint in a bid to provide better coverage to the
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consumer. 5G will not be an overlay network; it will work in
tandem with 4G.
A 5G user will be able to seamlessly use 5G, 4G (LTE), and Wi-Fi
since 5G will interwork both with 4G and Wi-Fi. So, for the
pi operators to be relevant in 5G, they would need to have a very

good quality 4G network.
According to Mahesh Uppal, director at telecom consulting firm
ComFirst, it does not seem feasible to roll out such technologies in
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the foreseeable future. “Telcos would certainly want to offer 5G
services, when they are ready for deployment. However, they
cannot bid for spectrum in the current financial state of the sector.
As a government, you need to ensure that the public policy
objective of network growth does not become a hostage to revenue
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generation,” Uppal said.

Here and slow
Despite big telecos offering freebies and really cheap data in recent
months, the user experience stays dismal with 4G speed in India
much slower compared to other countries, including Pakistan
and Sri Lanka.
Even as India improved its 4G LTE availability rankings on the
back of Reliance Jio's entry into the telecom sector last year, the
average data speed of 4G in India was recorded at 5.14M bps

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(Pakistan’s is 11.71 Mbps as per Open Signal report).

Jio's nationwide 4G launch in September attracted 100 million LTE
subscribers, making 4G services far more accessible in India but
sending the average speeds lower.
Still…
India’s largest telecom service provider Bharti Airtel Ltd is
deploying Massive Multiple-Input Multiple-Output (MIMO)
technology, which is a key enabler for 5G networks. “It is a pre-
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5G technology that will make the network future ready for meeting
the data demand coming from digital revolution and data explosion
in India,” Airtel said in a statement
pi Airtel is implementing MIMO in Bengaluru and Kolkata and

would expand to other parts of the country soon.
Nokia has signed a memorandum of understanding (MoU) with
Airtel and BSNL to introduce 5G in India.
ap
Note:
Long Term Evolution (LTE) is a 4G wireless broadband
technology developed by the Third Generation Partnership Project
(3GPP), an industry trade group. LTE provides significantly
increased peak data rates, with the potential for 100 Mbps
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downstream and 30 Mbps upstream, reduced latency, scalable

bandwidth capacity, and backwards compatibility with existing 2G
and 3G technology.
MIMO (multiple input, multiple output) is an antenna technology
for wireless communications in which multiple antennas are used
at both the source (transmitter) and the destination (receiver).
Where else in the world is 5G being rolled-out?
While universal 5G standards have not been agreed upon yet, various
countries are preparing to roll out 5G services. Some of them are

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aiming to launch it as early

as 2018.
South Korea: The
country's largest telecom
company KT Corp has
announced plans to launch
its 5G network during the PyeongChang Winter Olympics in
February 2018. The company has reportedly completed successful
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trials of the system.
Japan: The country’s communications ministry has met three of
the biggest domestic carriers, NTT Docomo, KDDI Corp. and
pi SoftBank Mobile. The ministry has said that 5G technology will

be nearly 10 times faster than 4G technology. Japan, like India, is
aiming to launch 5G services by 2020.
United States: Even United States is aiming for a 2020 roll-out of
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5G. The country's Federal Communications Commission’s (FCC)
has begun creating regulations for 5G technology and has opened
the high-band spectrum for the technology. Leading telecom giants
AT&T, Verizon, T-Mobile and Sprint are already testing 5G
components. Verizon has plans to run a pilot test project for
selected customers across 11 cities in the US this year 2017
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Sweden and Estonia: Two of Scandinavia's largest

telecommunications companies Telia and Ericsson have
announced deployment of 5G services in Swedish capital
Stockholm and Estonian capital Tallinn by 2018.
Estonia deserves a special mention when it comes to adopting new-age
technlogy
Most people would be unable to find this pinprick of a nation on a
map, squeezed between its small Baltic Sea neighbor Latvia and
mammoth Russia. Its population, just 1.3 million, is about the same

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as New York City. But its modest size and remoteness belies its
clout. It is here that a group of friends created the hugely popular
Internet calling platform Skype.
Given Estonia’s history, the invention of Skype in this country was
ironic. While Americans were buying their first cell phones, about
a quarter-century ago, Estonians were shut off from the world as an
outpost of the Soviet Union. You could easily wait 10 years to be
assigned a landline phone. By the time the Soviet Union imploded
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in 1991, the country was in a time warp.
One generation on, Estonia is a time warp of another kind: a fast-
forward example of extreme digital living. For the rest of us,
Estonia offers a glimpse into what happens when a country
pi abandons old analog systems and opts to run completely online

instead.
In various forms, governments across the world, including those in
Singapore, Japan, and India, are trying to determine how
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dramatically they can transform themselves into digital entities in
order to cut budgets and streamline services (and for some, keep
closer tabs on citizens). Estonia claims its online systems add 2%
a year to its GDP.
For most nations and peoples, going ‘paperless’ is a slogan. For
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Estonia it is a way of life.

In 2000, Estonia became the first country in the world to
declare Internet access a basic human right — much like food
and shelter. That same year it passed a law giving digital
signatures equal weight to handwritten ones.
That single move created an entire paperless system. Since no one
was required to sign with a pen, there was no need for paper
documents to pay taxes, open a bank account, obtain a mortgage,
pick up a prescription, or perform most of life’s other tasks, other

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than marrying and divorcing. Estonians were also first to be able

to vote online in elections, back in 2005.
After coming out of the Soviet control, scrambling to piece
together a country, the new leaders, young and inexperienced, also
rapidly privatized the telecom industry. “It was highly
successful,” says Mart Laar, 57, who became the first post-Soviet
Prime Minister, at age 32, and is now chairman of the board of
supervisors for the Bank of Estonia.
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Since so few people had even landline phones, many simply
bought mobile handsets instead. Laar, a historian, says he knew
nothing about computers but believed they needed to start with
the latest technology. When Finland offered to donate its analog
pi telephone exchange to its poorer neighbor for free, Estonia turned

it down. They created their own digital infrastructure. Everybody
adopted it.
Skype, founded in Estonian capital city, Tallinn, in 2003,
ap
spawned a generation of techies and would-be entrepreneurs.
“People thought, If Estonian guys could do something like Skype,
I can do it also,” says Andrus Oks of Terra Venture Partners, an
investment fund in Tallinn. And when Microsoft bought Skype in
2011 for $8.5 billion, ex-Skypers plowed money into new startups
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in Tallinn, further attracting U.S. investments.

Who is paving the way for 5G?
Just to understand a bit of technology,
data is transmitted through radio
waves. These waves are split up into
bands - or ranges - of different
frequencies. Each band is reserved for
a different type of communication - such as aeronautical and maritime
navigation signals, television broadcasts and mobile data.

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The use of the frequency bands is regulated by the International

Telecommunications Union (ITU). ITU is the United Nations
specialized agency for information and communication
technologies – ICTs.
ITU allocates global radio spectrum and satellite orbits, develops
the technical standards that ensure networks and technologies
seamlessly interconnect, and strives to improve access to ICTs to
underserved communities worldwide.
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To implement 5G technology, the current radio frequency
spectrum needs to be harmonised, and ITU is working towards
it.
Currently, as new technologies have developed, frequencies for use
pi have been squeezed. This has caused problems with connection

speeds and reliability. So, to pave the way for 5G the ITU is
comprehensively restructuring the parts of the radio network
used to transmit data, while allowing pre-existing
ap
communications, including 4G and 3G, to continue functioning.
How is 5G different from its
predecessor?
The telecom world has seen a new mobile
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generation roughly every 10 years since

the first 1G system was introduced in
1981. The first 2G system started to roll
out in 1992 while the first 3G system first appeared in 2001.
The 3G network is several times faster than the 2G one. Almost all
telecom firms claim that they can provide speeds up to 21.1 Mbps on
their 3G networks but real download speeds invariably fall when
shared among users. Besides, most telecom firms have a “fair usage”
policy wherein speed drops after reaching a specified download
limit.

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4G, at least technically, should have data speeds capable of reaching

100 megabytes per second while on the move, and 1 GB per second
when stationary. However, 5G networks can increase download
speeds to up to 10 gigabits per second.
Another defining feature of 5G will be that it won't break. Ericsson
predicts that 5G's latency will be around one millisecond -
unperceivable to a human and about 50 times faster than 4G.
Wireless networks till 4G mostly focused on the availability of raw
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bandwidth, while 5G is aiming on providing pervasive connectivity
to lay grounds for fast and resilient access to the Internet users,
whether they are on a top of a skyscraper or down under a subway
pi station.
The 5G networks are not going to be a monolithic network entity
and will be built around a combination of technologies: 2G, 3G, 4G
Wi-Fi. Unlike 4G, 5G network will offer the ability to handle a
ap
variety of devices and traffic type.
Worldwide, 5G is still in research and development stage and no one is
yet able to put a figure to the cost which will be involved in the roll-out
of 5G.
—– | —–
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INDIA - BUSINESS / Infosys / Buying back

confidence
4-Sep-2017
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pi Eighteen of the 19 members of the promoter group of Infosys - with
the exception of former CEO SD Shibulal - have decided to participate
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in the forthcoming share buyback of the company. Co-founders N.R.
Narayana Murthy and Nandan Nilekani have offered to sell as many as
1.77 crore shares — worth up to Rs. 2,038 crore — in the company’s
Rs13,000 crore share buyback offer. Knappily explores if this is
enough to get the investor confidence back.
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What is the offer?

Infosys shares were trading flat on
Monday morning at Rs 915 on NSE, after
promoter and promoter and promoter
group reportedly offered to sell as many
as 1.77 crore shares — worth up to Rs
2,038 crore — in the company’s Rs 13,000 crore share buyback
offer.
The co-founders including N R Narayana Murthy who collectively

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hold 12.75% stake in Infosys, have offered to tender up to 1.77

crore shares in the buyback. The buyback price which is pegged at
Rs 1,150 a piece implies a total of Rs 2,038.94 crore for the
promoter group, if all the shares tendered by them are accepted in
the buyback offer.
Earlier, Infosys had indicated that some of its promoters have
shown the intent to take part in the IT major’s share buyback
program.
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“In terms of buyback regulations, under the tender offer route, the
promoters have the option to participate in the buyback. We would like
to inform that some of the members of the promoter and promoters
pi group of the company have communicated their intention to participate

in the proposed buyback,” the company stated in a regulatory filing
last week.
The announcement comes days after an upheaval at the Infosys
ap
board, which first saw the company’s first non-founder CEO
Vishal Sikka quit citing slander by founders led by former chief
executive Narayana Murthy. Over the next few days, co-founder
Nandan Nilekani was installed as the Chairman as several
board directors resigned.
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The shares have lost more than 8.5% of their value in the year so far.
Many security firms continue to remain cautious on the stock for the
near term.
Why does Infosys want to buyback
its own shares?
Stock buybacks refer to the
repurchasing of shares of stock by the
company that issued them. Essentially,
a buyback occurs when the issuing

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company pays shareholders the market value per share and re-
absorbs that portion of its ownership that was previously
distributed among public and private investors.
Each share of common stock represents a small stake in the
ownership of the issuing company, including the right to vote on
company policy and financial decisions. Since companies raise
equity capital through the sale of common and preferred shares, it
may seem counter-intuitive that a business might choose to give
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that money back.
However, there are numerous reasons why it may be beneficial
to a business to repurchase its shares, including ownership
pi consolidation, undervaluation, and boosting financial ratios.

Companies issue shares to raise equity capital to fund expansion, but if
there are no potential growth opportunities in sight, holding on to all
that unused equity funding means sharing ownership for no good
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reason.
Shareholders demand returns on their investments in the form of
dividends which is a cost of equity – so the business is essentially
paying for the privilege of accessing funds it isn’t using.
Buying back some or all of the outstanding shares can be a simple
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way to pay off investors and reduce the overall cost of capital.
Another major reason why businesses repurchase their own shares is to
take advantage of undervaluation.
If a stock is dramatically undervalued, the issuing company can
repurchase some of its shares at this reduced price and then re-
issue them once the market has improved, thereby increasing its
equity capital without issuing any additional shares.
Buying back stock can also be an easy way to make a business look
more attractive to investors. By reducing the number of outstanding

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shares, a company’s earnings per share (EPS) ratio is automatically

increased.
Infosys will buy back 113,043,478 equity shares totalling 4.92
percent of the paid-up equity share capital of the company at a
premium price of Rs 1,150 under the tender offer route.
The shares bought by the company during the tender process are
completely extinguished and the share capital reduces. The
promoters’ stake will remain the same if they participate in the
ly
buyback offer. Their share in the company is likely to increase if
they do not participate in the buyback offer.
“With many companies opting for buybacks due to the tax advantage
pi and a near 100 percent acceptance ratio, the retail participation is

increasing,” Nilesh Doshi, founder of Mumbai-based stock broking
firm Prospero Finvest, told BloombergQuint. Prospero sees a high
likelihood of a stronger retail participation in the Infosys buyback,
ap
“which may lower the acceptance ratio for this category”, said Doshi.
Infosys’ buyback is the second biggest in the country after rival
TCS’s buyback of Rs 16,000 crore announced in April this year.
When will this buyback work?
Retail Quota
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The Securities and Exchange Board of

India (SEBI) mandates companies to set
aside 15 percent of the total buyback
size for retail investors, or those
holding shares worth up to Rs 2 lakh on the record date – the
cut-off date to decide which shareholders are eligible. Which
means, Infosys will have to set aside Rs 1,950 crore to buy shares
from retail investors, subject to regulatory approvals for its
repurchase plan.

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The Entitlement Ratio

The entitlement ratio is the number of shares offered under a
buyback to the total outstanding shares of the company. For retail
investors, it’s the ratio of shares tendered by such investors to the
total number of shares held by this category of shareholders.
The entitlement ratio can be calculated only on the basis of the
share price on the record date and the total number of shares held
by retail investors.
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According to the company’s filings, 2.87 crore Infosys shares were
with investors holding 200 shares or less as of March 31. If we
assume a price of Rs 1,000 on the record date for Infosys, the value
pi of the shares held by these investors will be Rs 2 lakh or less,

qualifying them as retail investors.
Since Infosys will have to buy back Rs 1,950 crore worth of shares
from retail investors, at the buyback price of Rs 1,150 apiece this
ap
works out to 1.69 crore shares. So, the ratio of the shares Infosys
will buy back from retail investors to the total number of shares
held by the category stands at 59 percent. And that’s the derived
entitlement ratio.
Remember, that’s based on an assumption and the entitlement ratio
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changes with the share price and the total number of shares.
Acceptance Ratio
Acceptance ratio is the proportion of shares accepted to the total
number of shares tendered in the buyback by investors, including
promoters. Acceptance ratio is generally lower if a higher number
of eligible investors tender shares. But it cannot be less than the
entitlement ratio.
Recent buybacks of companies like Wipro Ltd., Bharti Infratel
Ltd., Mphasis Ltd. and Tata Consultancy Services Ltd. saw an

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acceptance ratio of 100 percent – which means all the shares

tendered were accepted. One of the reasons could be lower
participation or many investors not opting for the share buyback.
Risks Involved
Shareholders do not approve the buyback scheme or changes are
made to it.
Higher participation by retail investors versus the assumed retail
investor base.
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A fall in share price may lead to losses if shares unaccepted in the
buyback are sold below cost.
Where does this help Infosys?
pi Investors worried with the leadership

crisis at Infosys may find its latest
buyback offer timely considering a
significantly higher premium with
ap
greater probability of acceptance, ET
Intelligence Group reported. On Saturday, the company said it would
purchase 11.3 crore shares back from investors at Rs 1,150 per share
amounting to not more than Rs 13,000 crore.
When compared with the recent buyback offers of peers including
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Tata Consulting Services (TCS), Wipro and HCL Technologies,

the offer by Infosys looks lucrative. For starters, its offer price is
at nearly 25% premium to the Friday’s closing price of Rs 923
on the BSE. Offers by the peers were at a premium of 17-19%.
The higher premium of Infosys offer reflects the 9.6% crash in its
share price on Friday following the resignation of its CEO Vishal
Sikka.
The acceptance ratio of the offer at nearly 5% is also greater
compared with nearly 3% for TCS and HCL Tech’s buyback

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offers. The acceptance ratio indicates how many shares the

company will be able to accept in a buyback offer for every 100
shares tendered by shareholders. Higher the ratio, the better it is.
For retail or small investors, the acceptance ratio for Infosys offer
works out to be 59% considering the shareholding pattern at the
end of FY17. This is also much better when compared with the
ratio of 45% for TCS and 37.5% for HCL Tech. According to the
Buyback Regulations in the Companies Act, a small shareholder is
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the one who holds not more than Rs 2 lakh worth of shares of a
company as on the Record Date.
Even though the generous buyback offer is likely to support the
performance of Infosys on the bourses in the days to come, it may
pi continue to underperform the broader market and even the sector

index in the near and medium term given the uncertainty
surrounding its leadership. This may prompt investors to tender
their shares in the buyback offer to secure a decent return on a
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portion of their holding in the company.
Who was looking forward to
participate?
Infosys said that some of its promoters
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have communicated their intent to tender

shares in the proposed buyback by the
company.
According to media reports, Nandan Nilekani has offered to
tender 58 lakh shares. Narayana Murthy, along with his family
who together hold 3.44% stake, have offered tender up to 54
lakh shares. The other co-foeunders, S. Gopalakrishnan and
family and K. Dinesh have offered to sell up to 22 lakh shares
and 29 lakh shares, respectively.
The promoters hold a 12.75 percent stake in the company, of which

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Narayana Murthy and his family hold 3.44 percent stake and the
family of new chairman Nandan Nilekani owns 2.29 percent.
“In terms of buyback regulations, under the tender offer route, the
promoters have the option to participate in the buyback. We would like
to inform… that some of the members of the promoter and promoters
group of the company have communicated their intention to participate
in the proposed buyback,” Infosys said in a BSE filing.
How should we view this offer?
ly
The share buyback program by Infosys
has once again raised questions on the
recent but increasingly common practice
pi of Indian companies, particularly IT

companies, of putting surplus cash in
the hands of shareholders.
Unlike the United States, where companies have undertaken
ap
share buybacks of over USD 1.5 trillion in the last three years
alone, Indian companies have for long avoided such programs.
This trend began to change since last year after major Indian
companies such as the government-controlled Coal India, Novartis
India and tech companies such as Cognizant, Tata Consultancy
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Services and Wipro announced a stock repurchase option.

In this context, Infosys’s buyback program doesn’t come as a
surprise but as a reaction to the market anticipation of the
company following suit like its competitors. Three broad reasons can
be attributed to Infosys’ own buyback policy, which is being done
through a tender process.
First, like TCS, Infosys was sitting on a huge cash pile of close to
USD 6 billion. The company’s quick ratio — measure of liquidity
— is at a three-year high of 3.77 percent, indicating the

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company’s current assets are 3.77 times higher than its current
liabilities. However, in an uncertain growth climate with fewer
acquisition opportunities, sitting on such a huge reserve of cash
simply meant increasing its own cost of funds.
Secondly, the recently announced capital allocation policy is also
being seen as an effort to boost Infosys’s falling share price. In
the last one year, the company’s share price has fallen from a high
of Rs 1,278 in June 2016 to Rs 923 on Friday.
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Apart from putting more cash in the hands of otherwise jittery
shareholders — a significant portion of the buyback has been
reserved for small shareholders — a buyback also reduces the
number of outstanding shares, thereby increasing the company’s
pi earnings per share or its overall market value and expectation,

thereby even benefitting those shareholders who don’t want to
participate in this buyback.
By announcing a buyback in the light of recent news over
ap
management struggle and job losses, Infosys’ move is also a
signal to the market that its long-term prospects still remain
bright.
Third, the Dividend Distribution Tax (DDT), announced in the
2016 Union Budget, is also being seen as a reason for companies
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like Infosys to adopt the buyback route as a more tax-effective way

of rewarding shareholders with cash rather than announcing
dividends.
Under DDT, the net taxation on dividends can go up to 25 percent
but under a buyback, the highest tax rate applicable would be
capped at 15 percent.
However, all buybacks cannot be assessed uniformly. A buyback
funded by debt rather than cash reserves may end up defeating the very
objective of the program.

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In the case of Infosys, the buyback is a much welcome move but

definitely not a surprising one. It is one of the few instruments
available to enthuse confidence in investors about its gloomy
prospects.
—– | —–
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pi
ap
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mba.knappily.com
INDIA - BUSINESS / Infosys / The outsider Infosys

needs
4-Dec-2017
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pi Infosys, India’s second largest IT services company, has named Salil S
Parekh as its new CEO and managing director, picking an outsider for
ap
the job for a second time and handing him the twin challenges of
reviving growth and forging peace between its founders and the board.
Parekh was primarily responsible for the success of Capgemini in
India, but he now has to steer Infosys to a future that must definitely
disassociate from its past.
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What is the new appointment at

Infosys?
In many ways, Infosys has pulled a
rabbit out of its hat by appointing
Salil Parekh as its CEO and MD.
He will take over his new position
on January 2.
A member of the Group Executive Board of the Euro 12.54 billion
French consultancy major, Capgemini, Parekh was never seen as

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a front-runner for one of the most coveted jobs in the Indian

technology space.
But his track record shows that Infosys couldn’t have picked a
more suitable person to head the organization. Parekh was at the
forefront of the acquisition of the company he worked for, Ernst &
Young’s consultancy division, by Capgemini in 2000 and was
widely credited with bringing scale and value to the Indian
operations of the consultancy firm. In 2015, he led from the front
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the acquisition of i-Gate by Capgemini for $4 billion.
These two acquisitions, one as being part of a merger process and
another as being instrumental in acquiring a company, clearly
shows that Parekh has what it takes to head Infosys. In an official
pi statement, Paul Hermelin, Chairman and Chief Executive Officer

of Capgemini Group said: “I would like to thank Salil for his
involvement in the Capgemini journey. Salil contributed in
particular to the development of the Group in India and in the
ap
US.”
What is Parekh walking into?
In a NASSCOM presentation, Parekh had outlined his business
philosophy. These are
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Market discontinuities make leaders

Look outside, not inside - spend more time in the market with
clients
Be truthful to yourself and your people – it is difficult to solve a
problem without first acknowledging it
Hire good people, remove non-performing managers
Keep cash ready and use shares for acquisitions
Drive operational excellence above other priorities
Prepare the business to benefit first and fast when the market
recovers

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Stay calm, don’t panic

Parekh might have to re-read his own mantras before he takes up the
onerous task of heading Infosys which has seen a great amount of
turbulence over the last 18 months. Early this year, following a
tumultuous relationship with Infosys co-founder, N R Narayana
Murthy, Vishal Sikka stepped down as the CEO, putting the
immediate future of the company uncertainty.
This forced another co-founder, Nandan Nilekani, to step in as
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the chairman in an attempt to calm the investors as well as the
shareholders’ concerns about the future of the company.
He immediately set up a committee headed by Biocon chief and
pi Infosys Chairperson of the Nomination & Remuneration

Committee, Kiran Mazumdar-Shaw, to hunt for a CEO. This
resulted in Parekh being roped in to head the role.
Parekh will have, to use a cliche, his task cut out. He will not only have
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to restore confidence among the employees but also fill up the right
people to head verticals which are without one for some time now. A
whole host of key personnel left the company following the exit of
Sikka, some of whom came from the same company their boss
came from, SAP Labs.
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Parekh will have to ‘stay calm’ and ‘not panic’ before he acts on his
other mantras.
Why does Murthy’s ‘all is well’ at
Infosys mean little?
On Nov. 30, most of the other IT stocks
that rose were of medium and small size.
Infosys was the only large IT player
that posted a handsome return,
gaining 4 percent. What gave Infosys the extra thrust was an

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indirect assurance by founder NR Narayana Murthy that he will

no longer bother the board with his ‘issues’ on how to run the
company.
Murthy declared that “all is well” with Infosys and that its present
Chairman Nandan Nilekani has the skills to simplify the
complexities in the company. Murthy was quoted as saying,
“Let’s leave it to him (Nilekani) and let’s all keep quiet so that he
can do his job well.”
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This statement cane from the person who was making all the noise
that resulted in a complete revamp of the board and an unhappy
ending to the tenure of CEO Vishal Sikka, a man handpicked by
pi Murthy himself.
Less than a month ago, Murthy was peeved because the newly
installed board under Nilekani gave a clean chit to Infosys’
acquisition of Panaya, an Israel-based company at the focal
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point of allegations of wrongdoing by the founders. Markets
breathed a sigh of relief after Murthy’s statement, concluding that
the board can concentrate on steering the company back onto the
growth path with a business plan that promises better numbers
ahead.
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But is Murthy right in saying that ‘All is well’ at Infosys?

Not really. Just because Nilekani has taken over as the
chairman does not change the ground realities. Change in a big
company cannot take place overnight. In fact, Infosys has been
moving around in circles after Sikka quit.
A series of senior-level exits, mainly of Sikka’s international
recruits, pose problems for the company. What will be left after
the churn is the old team that prefers to work in its comfort
zone in traditional areas. Media reports earlier said that an
insider, either an ex-employee or a current one, will be made the

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CEO, which indicated that maintaining the status quo was the
priority. Thankfully for the company and its shareholders, the new
CEO is an outsider who may bring in the out-of-the-box thinking
that the company needs now.
Infosys needs to figure out its next business moves fast.
Infosys has already shifted its nerve centre from Palo Alto in
the United States back to Bengaluru. An office in Silicon Valley
would have allowed the company to stay abreast with the latest
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developments at the global IT hub.
Infosys, like other IT companies in India, has a problem staying
abreast of global developments; they continue to feel the pressure
pi in their conventional business as well. As a report by Nomura

points out, growth is decelerating in Infosys’ traditional
business segments like BFSI (Banking, financial services, and
insurance), retail and manufacturing, apart from the problems
ap
in the United States.
Attrition level at 21.4 percent during the September 2017
quarter continues to remain high but the company’s
recruitment of trainees is at a historical low. This chimes well
with Infosys reducing its guidance below consensus levels.
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As if these problems were not enough, Infosys has not covered

itself in glory with its implementation of the prestigious GST
project. The Confederation of All India Traders (CAIT) has
blamed Infosys for glitches in the GST Network (GSTN) and
said that the GST portal has brought much harassment and mental
agony to traders by its rocky functioning and has proved a major
roadblock in the success of a good taxation system like GST.
Earlier, the GST Council headed by Bihar’s Deputy Chief
Minister Sushil Modi asked Infosys to send more technically
qualified people to resolve the GSTN glitches.

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As far as the company is concerned, all is not well. Perhaps it was

Murthy making peace with himself that prompted that statement. But if
the board of Infosys agrees with Murthy that ‘All is well’ in the
company, it’s time for the shareholders to get worried, especially those
who still have shares in hand after the buyback.
When does Parekh appear to be the
right choice?
The new CEO of Infosys is described
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as a soft-spoken yet determined man by
those who know him. These skills will
certainly come handy when he takes
pi over the top role at India’s second largest IT company which is

recovering from a year-long acrimony between the previous
management and the founders, led by NR Narayana Murthy.
Parekh, 53, was chosen from over two dozen candidates in a search
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that lasted about three months and covered a wide canvas of names
within Infosys as well as alumni and external aspirants. He is
slated to take over on January 2, 2018 for a period of five
years, according to a statement by Infosys. He will have to then
prove himself as the ‘Turnaround Manager’ Infosys needs right
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now.
He holds a Master’s degree in Computer Science and Mechanical
Engineering from Cornell University, and a Bachelor’s degree in
Aeronautical Engineering from IIT Bombay. People who know him
describe him as a ‘turnaround manager’ with expertise in mergers
and acquisitions.
Nandan Nilekani, non-executive Chairman of Infosys, said Parekh
has a strong track record of executing business turnarounds and
managing very successful acquisitions and is the right person to

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lead the company at a time of transformation.

NASSCOM President R Chandrashekhar said Parekh is well
entrenched in the industry and has international experience as well
as a good understanding of the Indian ecosystem. He further
expressed the hope that the appointment would bring the curtains
down on the challenges within Infosys.
The appointment also sent the Twitter buzzing. Infosys and Parekh
were in the top 10 list in India hours following the announcement.
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Parekh is the second outsider after Vishal Sikka to be made
Infosys CEO.
The Bengaluru-based company would also be betting heavily
pi on Parekh’s expertise in financial services and his experience

with in North America and European markets, which account
for over 80 per cent of Infosys’ revenue. According to industry
watchers Parekh’s performance would also depend on the how
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much independence he gets in decision making.
Besides, Parekh will have to push further the innovation agenda in
areas like cloud, blockchain and analytics given the increasing
pace of automation across industries, rapid pace of technology
change and increasing visa scrutiny in key markets, they said.
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Where did he rise to fame?

Parekh will be taking over the position
which was left by Vishal Sikka, whose
resignation on August 18, created
immense distress in Infosys, so much so
that the exit was also followed by
Chairman R. Seshasayee and Co-Chairman Ravi Venkatesan and
two Directors Jeffery Lehman and John Etchemandy.
Capgemini has agreed on Parekh’s departure which will be in

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effect from January 01, 2018. According to Kiran Mazumdar-

Shaw, Chairperson of the Nomination & Remuneration Committee,
Parekh was Infosys’ top choice from a pool of highly qualified
candidates.
Salil Parekh has an experience of 25 years in Capgemini, a
leading technology service provider,as member of the group
executive board. Salil, as a result of the acquisition of the
consulting division of Ernst and Young in the year 2000, occupied
ly
various leadership positions in the Group. Frenchman Pierre-Yves
Cros, Chief Development Officer at Capgemini, vividly recalls one
of his first meetings with a young Salil Parekh at the turn of the
millennium. Capgemini had just acquired Ernst & Young
pi Consulting for $11 billion. The latter had a 300-member team in

India, which Capgemini inherited, establishing its first foothold in
the country.
Cros was meeting a few leaders from the India team. “Give us your
ap
trust and we can build the Indian operation to 10,000 people,”
Parekh told Cros at that meeting. Parekh would go on to play a
pivotal role in building Capgemini’s operations in India, first as
CEO and then in a variety of roles, including as executive
chairman, from 2007 to 2010. The 300-member team that
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Capgemini started off with in India has since grown to 60,000.

In early 2015, in the weeks leading up to Capgemini’s $4-billion
acquisition of iGate, Cros, Parekh and several business heads of
both firms met at a historic castle near Paris to thrash out the
merger details. With this acquisition, Capgemini’s India head count
grew closer to 100,000.
So, Capgemini has realised 10 times more growth than what
Parekh had promised Cros. “Parekh’s career at Capgemini stands
as a testimony to Capgemini’s willingness to embrace leadership
which originates outside of France, and to the outstanding

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capabilities of Salil,” says Peter Bendor-Samuel, CEO, Everest

Group, an advisory firm. Last February, Parekh was promoted to
the title of ‘directeur general adjoint’, along with four others. The
title translates to deputy CEO of the 10.5-billion Capgemini. The
company has five deputy CEOs.
In 2011, Capgemini promoted Parekh as deputy Chief Executive
Officer of Application Services in North America, UK, Asia Pacific,
and global Financial Services. Earlier he worked as the CEO of global
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Financial Services, Asia Pacific, and India offshore in the Group.
With this, Parekh was connected to 26 board members in 4
different organizations across 6 different industries. These
pi organizations accounted for nearly 50% of Capgemini’s total

revenue.
Salil was responsible for the strategy and execution for the Cloud
business - setting its direction and enabling its rapid adoption at
ap
clients. He was also the architect of the North America growth and
turnaround, and was instrumental in setting up their off-shoring
capabilities.
Who said what of Infosys’ new
boss?
Kn
The market and the analysts

approve of the appointment.
_“Salil is an awesome option for
work. He has a strong track
record of consulting and IT services, which he has demonstrated with
many years of technology and business leadership experience,”_said
Phil Fersht, CEO and Chief Analyst at HfS Research.
Fersht also added that Parekh has extensive experience in
working cultures in America, Europe and India, which is

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critical to Infosys, has a solid reputation within Capgemini’s

financial services business and can help to increase Infosys’
consulting focus, which is key to the growth of the company.
“Personally, I believe that this is the right balance: it brings the
experience of its competitor Capgemini, which has solid consulting
and delivery business, and will not attempt or interfere with the
culture of Infosys as aggressively as Vishal Sikka. It will bring
some new ideas, some new leadership talents, but it is unlikely to
ly
make big changes, especially with Pravin staying as COO.”
Sanchit Vir Gogia, CEO and Chief Analyst at Greyhound Research
said that Salil is a great choice, with great control over yesterday, today
pi and tomorrow’s business. “The only thing common between Vishal

and him is that they had not been the CEO of a publicly traded
company before their appointment on Infosys.”
What works in Salil’s favor is that he will have a cover in the
ap
form of Nandan, who is also very close to the founder NR
Narayana Murthy. Co-founders’ advice was completely lacking
for Vishal, Gogia added. Salil has an eye for detail, and is a “good
talker” in digital, in the cloud and in the history of IT
modernization, he said.
Kn
“The new CEO decision brings an end to uncertainty at the top, he is

credited to be part of the team that turned around Cap Gemini,”
Dinesh Rohira, Founder & CEO, 5nance.com told.
“Nandan Nilekani and the new team will now steer the ship. The
stock should see a 3-4 percent upside on Monday. The cleanup
process at Infosys coming to an end setting the grounds to focus
completely on the business growth trajectory,” he said.
“With the appointment of CEO, the uncertainty is over, the majority of
IT shares had performed well recently but Infosys was lagging behind,

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but now with the clarity on leadership, the stock should perform well,”
said Jimeet Modi, Founder & CEO, Samco Securities.
“P/E for IT industry is trading at 20-times trailing earnings while
Infosys is trading at 15x, a deep discount, which now will get
narrowed down. The appointment is positive for the stock both for
the short and long-term,” he said.
“The appointment of Mr. Salil Parekh as MD and CEO is a welcome
move. The stock may react positively on Monday. Mr. Parekh is
ly
coming from Capgemini has 30 years of strong experience,” Sanjeev
Jain, Associate Vice-President of Ashika Stock Broking said. “He has
proved himself in terms of business growth. So, I think the joining of
pi Parekh may be taken as a positive step by the board of the company,”

he said.
How many CEOs away is Infosys from
greatness?
ap
After Sikka’s exit, many in the industry,
especially Infosys rivals, mocked at the
handling of a non-founder CEO and said
the company will go back to the safe
option of trusting an insider with the top job. For his part, Nilekani
Kn
proved them all wrong by getting an outsider to be the new CEO of

Infosys.
The question is not whether Infosys has finally found the right
leader to steer through the ongoing technology disruption and
stabilise the ship. The real question is how many CEOs is
Infosys away before it becomes a next generation software
company, and challenge Accenture.
Finding someone who understands technology and has the chops to
lead a large, multi-cultural and complex organisation, makes a

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good start. And in Salil S Parekh, Infosys seems to have found a

leader who can do all that. But that can only take Infosys so far.
For all his irrational exuberance and hurriedly executed and
questionable acquisition strategy, as described by the critics, Sikka
did bring some important cultural changes. Breaking the
Bangalore mould was clearly a timely cultural shift. Sikka did that
by first making Silicon Valley his home, and then hiring and
shifting Infosys top leaders there. The CFO ’s relocation is where
ly
it all started sounding an overkill. But the intent was perfect.
How else could Infosys break the mould, acquire the positioning of a
new-age, global services company, which is closer to its customers in
pi the world’s biggest market for software services?

Then came a massive push for automation and design thinking.
Both great ideas, but poorly executed. For instance, while setting
targets for automation, the company should have tweaked its
ap
incentives structure too, by linking delivery managers’ bonuses
to the amount of automation they can drive in every project. As
for design thinking, it was perhaps just skin deep. Below the
superficial layer of the organization, the thinking remained old
world.
Kn
The real crisis facing Infosys today is how will it build the
foundations for a company that will be around in the decades to
come. And while Parekh should make a good leader in leading the
current organisation, it’s the future that continues to look worrisome.
What Nilekani now needs to do is to build a board that combines
futurism and singularity with real world understanding of
technology. A board that on one hand, asks management all the
tough questions, but also has the vision to guide Infosys to its
future.

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All this will need Nilekani to stay longer at the board. And
while many analysts believe that his skills are better utilized in
building far more important things for the country, Infosys needs
Nilekani more than ever before. And that’s because India’s entire
IT industry will be closely watching every move Infosys makes
under his watch, and learn from it.
If we are looking at future-readiness, Infosys is only a start-up now -
and must be treated like one. Murthy did a fine job once upon a time. It
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is time for him to let Nilekani and Parekh build Infosys 2.0.
—– | —–
pi
ap
Kn

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INDIA - BUSINESS / Tata / Tata Corus: the match

that was not
25-Nov-2016
ly
pi Ever since Cyrus Mistry was ousted as chairman of Tata Sons last
month, the two sides have been trading barbs on a daily basis. This
ap
week, Mistry alleged that the expensive acquisition of UK-based
steelmaker Corus was undertaken due to “one man’s ego”. Knappily
delves into Tata’s ambitious acquisition of Corus and analyses why it
is often dubbed as the worst deal ever done by an Indian company.
What is the story of the acquisition?

Kn
In 1999, British Steel Corp., a giant

steel producer, acquired Sogerail, a
company that specialised in rail
manufacturing. A few months later,
British Steel then merged with
Koninklijke Hoogovens, a Dutch steel company to forum the
Corus Group.
When the Group was formed, it was the largest in Europe and
third largest worldwide. The Anglo-Dutch merger was expected

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to resuscitate British Steel which had incurred a loss of £81 million

in financial year 1998-99.
However, lack of strong leadership, communication gap and low
morale would lead to labour unrest and cultural mismatch. (In
2001, the company announced that it will lay off 6000 employees
at plants across the country.)
After the merger, investments were directed to the Dutch side of
operations- Ijmuiden would become a world-class unit, while
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British Steel would be left behind.
The Group’s financial health took the brunt of all this as the market
value plummeted from $6 billion in 1999 to $230 million in 2003.
At first, this prompted Corus to go looking for low-cost steel slabs,
pi and Tata and OP Jindal were among the firms her

considered.However, as steel prices hardened, Corus became a
takeover target instead of a buyer.
In the decade leading up to this, Tata Steel had upgraded its
ap
technology and cut down its work-force to become the lowest-cost
steel producer in the world. With 5.3 million tonnes output per
year, the company was the fifth-largest steel producer. Corus’
output was 18.2 million tonnes per year.
Tata had also been expanding abroad by acquiring Singapore’s
Kn
NatSteel in 2004 and Thailand’s Millennium Steel in 2005.

In 2006, Corus would receive a takeover bid from Tata Steel, paying
up $13.6 billion, the largest overseas acquisition by an Indian
company as the latter outbid CSN, a Brazilian steel-marker.
The Tata group saw this as an opportunity to achieve global scale
and strategic fit (matching Tata Steel’s resources and capabilities
with the opportunities in the external environment).
The acquisition was also supposed to help the company move up
the value chain (produce highly profitable products, with higher

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margins).
Why is the acquisition in the news?
Last month, Tata Sons announced that
Cyrus Mistry had been removed as
chairman of the company. The holding
company of India’s biggest
conglomerate announced that Ratan
Tata would replace him atop until they find a suitable replacement.
ly
Since then Mistry and Tata group have been trading barbs on almost a
daily basis. On Tuesday, Mistry alleged among other things that the
acquisition of Corus for a whopping $12 billion was based on “one
pi man’s ego” and against reservations of some board members and

senior executives.
Earlier this year, the company reported a consolidated net loss of
Rs 3213.76 crore (approximately $480 million) against a loss Rs
ap
5674.29 crore in the year ago period.
Tata Steel UK, which employs 11,000 people, has approached
the UK government for financial aid. The parent company is in
the middle of negotiations with German company ThyssenKrupp
about merging their European steel operations.
Kn
Uncertainty has cast over the future of Britain’s steel industry since
Mistry was at the heart of these negotiations.
When did Tata start forging links
with Britain?
Tata Steel’s links with the British were
forged over a century ago. The bitter-
sweet relationship has weathered wars,
nationalism, and economic downturns.
In the late nineteenth century, Jamsetji Tata, the founder of the

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Tata Group was vocal about his dream of a self-reliant India. And
his path to making India so was by constructing its own industrial
backbone - steel.
In the early 1900s, Tata approached the British colonial
government for assistance. He was snubbed.
Chief Commissioner for Indian Railways, Frederick Upcott,
quipped, “Do you mean to say that Tatas propose to make steel
rails to British specifications? Why, I will undertake to eat every
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pound of steel rail they succeed in making.”
Jamsetji was dubbed as “the JP Morgan of the East Indies” when
he visited the US in 1902 to hire men to build and run his steel
firm. Six years later, Tata Steel would be started. One of those
pi men, John Keenan would be affectionately called the “Irish-

American maharajah of Jamshedpur”.
During World War I, Tata Steel worked overtime to produce 8,000
tonnes of five-inch-round steel shells and harnesses for the horses
ap
that pulled field guns.
The grateful Viceroy of India Lord Chelmsford said, “I can hardly
imagine what we would have done if the Tata Company had not
given us steel for Mesopotamia, Egypt, Palestine, and East
Africa.”
Kn
During World War II, the steel sheds, water pipes, sleepers, shells
and guns streamed out of the steel mill. This helped stop the
Japanese, according to Keenan’s memoir “A Steel Man in India”.
But the journey wasn’t all that smooth. After World War I, “cheap
Continental steel smelted out of scrap from the French and Flemish
battlefields” prompted talks of Tata Steel being a takeover target,
much like how the influx of cheap steel from China has made the
company discuss the possibility of a British takeover (in Britain) today.
An angry, passionate Dorabji Tata, son of Jamshedji Tata would shout

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that the day Tata Steel is sold off would never come until he is alive.
The company would soon successfully negotiate with the
government to impose tariffs on continental steel. Soon the
company was back to paying shareholders a handsome dividend.
When Corus Group was acquired by Tata, it was a proud moment for
Indians - several dailies ran Upcott’s quote in their front page.
Where is the problem?
ly
Unrecovered premium
One of the key components of the
acquisition is valuation, a process
pi used to estimate the worth of the

target firm. This is done by the
prospective buyer in order to not overpay. (If it underpays, the
target firm will anyway resist the takeover.)
ap
Corus, analysts estimate, is worth a third or less of the $13
billion Tata paid for it. Tata Steel paid 608 pence a share, a
premium of 34 per cent to the original offer price to ward off a
challenge when CSN jumped into the fray. Since the price was too
high, the premium hasn’t been recovered from the post-merger
synergies.
Kn
Steel Cycle
After the acquisition of Corus, Ratan Tata explained how an ailing
British steelmaker that was five times the size of Tata Steel at the time
of the deal, would equip the group to remain at the leading edge of the
steel industry.
But as the celebrations subsided, the company had to reckon with
the streaks of red on its balance sheets as losses mounted. The
acquisition had become costly as financial crisis hit two years after

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it happened.
Later the commodity crash and cheap Chinese exports made the
operations became unprofitable. A director on the board said that
Rs 70,000-80,000 crore of Tata Steel’s funds had gone down the
drain because of its European operations.
Save for one good year, Corus has remained a problem for Tata
Steel. The steel market started deteriorating from the second half of
2008-09, and the company went for restructuring.
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Denial
In May 2013, Tata Steel announced a $1.6 billion goodwill
impairment charge, mainly of its takeover of Corus, six years after
pi they acquired the company.

The announcement came months after Ratan Tata had stepped
down as chairman of Tata Steel. However, it was clear for at least
four years that the deal was a financial disaster.
ap
This was partly because it takes time for accounts to catch up with
reality, but majorly because the company couldn’t bring itself to
acknowledge that their biggest ever deal was a flop.
Earlier this year, Tata Steel’s UK plant had started bleeding
profusely losing pound 1 million a day. Mistry then decided to
Kn
sell Tata Steel’s loss-making UK assets after two years of ground

work and trying to find a solution with the CEO and management
team of Tata Steel.
Note: Goodwill impairment is a charge that companies record when
goodwill’s carrying value on financial statements exceeds its fair
value. In accounting, goodwill is recorded after a company acquires
assets and liabilities, and pays a price in excess of their identifiable
value.
Who said what?

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“The decision to disinvest in Europe

was taken by the entire Tata Steel
board and no one should hold Mistry
alone responsible for the decision.
Dozens and dozens of meetings of the
board took place, including with
British labour unions and British ministers, who came to Mumbai,”
said a director of the board to Business Standard, a week after Mistry
ly
was axed.
“Was it Cyrus’s decision (to acquire Corus)? Corus was a problem
that Mistry inherited and he was just trying to clean it up. And, in
pi the process of doing so, quite miraculously, he found

Thyssenkrupp. If the merger with Thyssen goes through, then Tata
Steel will be rid of Tata Steel Europe and that will save Tata
Steel,” he said.
ap
Mistry
On Tuesday, a five-page letter from Mistry’s office read, “It is
common knowledge that the decision to acquire Corus for over USD
12 billion, when only a year earlier it was available at less than half
that price, was based on one man’s ego and against the reservations of
Kn
some board members and senior executives.”

Tata
“The long term strategy of Tata Steel was well thought out after a lot
of deliberation to grow the company through capacity expansion in
India and internationally through inorganic growth,” B Muthuraman,
former vice chairman and MD of Tata Steel, said in a rebuttal.
“The overseas growth strategy was also to focus on accessing new
markets through acquisitions, enhance the technology capability of
the company and develop high end premium products,” he added.

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How might Tata Steel handle the

predicament?
Tata Steel is now looking to scale back
its global footprint and consolidate its
profitable India operations. The unit
may be saved from deeper write-downs
if it pursues a tie-up with ThyssenKrupp, a move proposed by Mistry,
Economic Times quoted an expert saying.
ly
But the challenge arises if Tata Steel is left with the British assets
of Tata steel in case ThyssenKrupp refuses to include it in the joint
venture.Tata Steel may have to shut down its Britain operations
pi as the country has ceased to be viable location.

The decision to sell or shut down will be well received by the
company’s shareholders since Tata Steel lost INR 3049 crore
globally but made a profit of 4901 crore from its Indian
ap
operations.
India’s raw material advantages and Tata’s network continue to
remain a boon. Tata Steel has added an efficient capacity with its
Kalinganagar project. With massive infrastructure projects in the
pipeline, the potential demand for steel within the country is
Kn
enormous.
At a time of depressed global demand, consolidation makes more
sense. The company should put a competent management in place and
look towards a promising future in India.
—– | —–

mba.knappily.com
INDIA - BUSINESS / Tata / Meet the chairman
13-Jan-2017
ly
pi Natarajan Chandrasekaran, 53, will be the new executive chairman of
Tata Sons from 21 February, the holding company of the $103 billion
group announced on Thursday. Chandra, who is currently the
ap
managing director and chief executive of Tata Consultancy Services, is
‘a safe choice’ for the board as they look to soothe investors after a
bruising public spat over the ouster of his predecessor, Cyrus Mistry.
Chandra has his task cut out.
What is the announcement?

Kn
Natarajan Chandrasekaran, the CEO of

India’s largest software exporter Tata
Consultancy Services, was on Jan 12
anointed chairman of Tata Sons, the
holding company of India’s largest
conglomerate by revenues.
The Tata Sons board unanimously endorsed the appointment after a
search panel recommended Tata lifer Chandrasekaran, 53, usually
referred to as Chandra.

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Chandrasekaran and Jaguar Land Rover CEO Ralf Speth were

inducted on the board of Tata Sons on 25 October, a day after the
board ousted Mistry and named his predecessor Ratan Tata as
interim chairman, kicking off a feud which has now reached the
National Company Law Tribunal.
At that time, the board had named a selection committee to pick
Mistry’s successor within four months. Chandrasekaran was picked
within 12 weeks of Mistry’s ouster, unlike the previous time, when
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the selection panel took about 18 months.
The selection committee included five members: Ratan Tata, interim
chairman; Venu Srinivasan, chairman of the TVS group; Amit
pi Chandra, managing director of Bain Capital; Ronen Sen, ex-diplomat;

and Sushanta Kumar Bhattacharyya, founder of the Warwick
Manufacturing Group. All of them, except Bhattacharyya, are on the
board of Tata Sons.
ap
Why has Chandrasekaran been
made the Chairman?
Among the names discussed for the
post were Ralf Speth, CEO of Jaguar
Land Rover, Natarajan
Kn
Chandrasekaran, CEO and MD of Tata

Consultancy Services Ltd, and Harish Manwani, non-executive
chairman of Hindustan Unilever Ltd.
Manwani was a strong candidate, an inside source said, but he lost
out on account of age, and the fact that he wasn’t an internal
candidate, which the selection panel thought would help, especially
given the controversy surrounding Mistry’s exit and its fallout.
Tata was very keen on a (relatively) younger chairman, this
source added. Chandrasekaran is 53 and Manwani 64.

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Chandrasekaran is a true insider. He has been with TCS for almost

three decades and has never applied for any other job.
His performance as CEO of TCS during which TCS has tripled
both in revenue and profits also added to his credentials. TCS now
accounts for 60% of the Tata Group’s combined market cap of
$116 billion, besides contributing 70% to Tata Sons’ revenue,
which comes from dividends of its listed entities. Chandra has also
made TCS the biggest cash generator for Tata Sons—contributing
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almost 90% to the Tata Sons coffers in 2014-15.
Chandra also has international exposure and familiarity with
global economic conditions, according to Tata insiders. TCS
counts some of the largest global companies among its clients such
pi as GE, JP Morgan, Wal Mart, Home Depot, Quantas, Electronic

Arts, ABB, Cisco and Vodafone, among others. For a sprawling
business group like Tata, for which the international market still
accounts for two third of overall revenues at $70 billion, that could
ap
be handy.
Thus, Chandrasekaran’s record at TCS, his equation with Ratan
Tata, him being one of the youngest CEOs in the Tata Group
companies, and the almost unanimous feeling that being an insider
he was a ‘safe choice’ who wouldn’t rock the boat like the previous
Kn
Chairman Cyrus Mistry did, worked in his favour.

Since when had the Tata Group been
looking for a new Chairman?
On 24 October, after unseating Cyrus
Mistry as chairman, the board of Tata
Sons Ltd issued a statement saying that
a new chairman would be named within
four months (by 24 February).

mba.knappily.com
Mistry was sacked after he lost the confidence of the board and was
replaced by his predecessor Ratan Tata, who became interim
chairman.
In the initial days following 24 October, the board was busy
strategizing its response to Mistry, who, contrary to expectations,
refused to go quietly.
The two sides have since been trading charges and Mistry, who ran
the group from December 2012 till October 2016, is now fighting a
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legal battle with the group at the National Company Law Tribunal.
The NCLT will next hear the case on 31 January.
He has alleged oppression of minority interests and other
corporate governance issues at Tata Trusts, which owns two-
pi thirds in the holding company. Mistry along with his family owns
18.3% stake in Tata Sons.
Tata Sons has also served him a legal notice, accusing him of
“breach of confidentiality and making sensitive documents,
ap
minutes of board meetings and financial information public”
and “reckless failure” in discharging his “fiduciary, legal and
contractual duties.”
Where has Chandra been
instrumental in transforming TCS?
Kn
Chandra took charge at 45, the

youngest CEO in the history of Tata
Group.Under Chandra’s leadership,
revenues of TCS rose more than
three-fold from Rs 30,029 crore in fiscal 2010 to Rs 1,08,646 crore in
fiscal 2016.The company is India’s largest private sector employer
with 3,70,000 employees.
It was S Ramadorai who had talent-spotted him back in 1996 and
tasked him with overseeing IT implementation for a key client, GE.

mba.knappily.com
In 1999, he started the e-business unit of TCS and grew it to a

business unit of over $500 million in four-and-a-half years. After
this, he was made head of global delivery at Mumbai, which was
then TCS’s largest delivery centre.
In 2002, Chandrasekaran got yet another boost when he was
appointed head of global sales. He expanded the European
operations, started the Latin America and China operations, and set
up the TCS Global Network Delivery Model in Uruguay, Mexico,
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Hungary and China.
In July 2005, he got another leg-up and became head of global
sales and operations. By then, he had consolidated his position.
Ramadorai had walked him through all key functions, including
pi customer management, operations and expansions, readying him

for the next level.
On 6 September 2007, Chandrasekaran was nominated to the
TCS board and named chief operating officer (COO) of the
ap
firm. It was in this role that he drove the company’s acquisition
strategy. The acquisition of Citigroup Global Services for $505
million in October 2008 is credited to him.
In April 2008, TCS reorganized its global operations. The
company, then, had nearly 140,000 employees but was not nimble
Kn
enough to capture new growth opportunities. So, Chandrasekaran

set up integrated, customer-centric units to enhance customer
focus, drive operational agility and address new growth
opportunities. The new model divided the operations of the firm
into five groups—industry solutions, major markets, new growth
markets, strategic initiatives and organizational infrastructure. Each
of these had a director who began reporting to Chandrasekaran.
After taking over as CEO in 2009, when Ramadorai stepped down,
Chandra steered the company through what was a turbulent time for

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the world economy and the IT outsourcing industry. During the tough
times, Chandra and TCS proved its mettle. Chandra’s reign also
witnessed TCS taking bold bets from artificial intelligence to
internet-of-things and blockchain. Chandra’s new-age
management style is what transformed TCS into a nimble IT
powerhouse.
Who have been the chairmen of
Tata Sons before Chandra?
ly
Natarajan Chandrasekaran will be the
7th chairman of the 148 year old Tata
group to take over on February 21.He
pi is only the third non-Tata after

Nowroji Saklatwala and Cyrus Mistry, the first non-Parsi and the
seventh chairman to head the 150-year Tata group.
Here’s a brief history of the six chairmen before Chandra:
ap
Jamsetji Tata (1868-1904): The founder of the Tata group began
with a textile mill in central India in the 1870s. His powerful vision
inspired the steel and power industries in India, set the foundation
for technical education, and helped the country leapfrog from
backwardness to the ranks of industrialised nations.
Kn
Sir Dorab Tata (1904-1932): Through his endeavours in setting

up Tata Steel and Tata Power, this elder son of Jamsetji Tata was
instrumental in transforming his father’s grand vision into reality. It
was also under his leadership that the Sir Dorabji Tata Trust, the
premier charitable endowment of the Tatas, was created, propelling
the Tata tradition of philanthropy.
Nowroji Saklatwala (1932-1938): During his chairmanship of
Tata Sons, he gave the labour force certain benefits and privileges
which were unheard of at that time.

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JRD Tata (1938-1991): In 1938, following Sir Nowroji’s demise,

34-year-old JRD Tata was appointed as the new chairman. The late
chairman of the Tata Group pioneered civil aviation on the
subcontinent in 1932 by launching the airline now known as Air
India. That was the first of many path-breaking achievements that
JRD, who guided the destiny of the Group for more than half a
century, came to be remembered for.
Ratan Tata (1991-2012): Ratan N Tata was the Chairman of Tata
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Sons, the promoter holding company of the Tata group, since 1991.
He was also the Chairman of the major Tata companies, including
Tata Motors, Tata Steel, Tata Consultancy Services, Tata Power,
Tata Global Beverages, Tata Chemicals, Indian Hotels and Tata
pi Teleservices. During his tenure, the group’s revenues grew

manifold, totalling over $83 billion in 2010-11. Tata also serves on
the board of directors of Fiat SpA and Alcoa. He is also on the
international advisory boards of Mitsubishi Corporation, the
ap
American International Group, JP Morgan Chase, Rolls Royce,
Temasek Holdings and the Monetary Authority of Singapore.
Cyrus Mistry (2012-2016): The selection of Cyrus Mistry, a non-
executive director on the Tata Sons board as well as Managing
Director of the Shapoorji Pallonji Group - which has an 18.37 per
Kn
cent stake in Tata Sons - instead of the others whose names were
being bandied had surprised many four years ago. Some had
attributed it to Ratan Tata’s push to lower the average age of senior
management in the group. Most of the other candidates were felt to
be either too old or too low in the hierarchy. Mistry seemed just the
right age.
How challenging is the new role for Chandra?
Chandrasekaran’s lack of manufacturing experience and lack of
conglomerate experience may prove to be the Achilles Heel to steer

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the $103 billion group. He also takes

charge at one of the most critical
moments for the Tata group.
It is embroiled in what appears to be a
long drawn legal battle with the
group’s second largest shareholder
Shapoorji Pallonji Mistry group over the ouster of Cyrus as
chairman.
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Only one of Tata group’s two large investments–Corus and
Jaguar Land Rover–in recent times has borne fruit. JLR rode
the success of its China subsidiary which rode out the global
pi economic recovery very well. The other, Corus, is close to wiping

out the nearly $10 billion investment.
Despite owning the country’s largest IT services firm TCS, the group
appears to have missed the Internet/e-commerce revolution in the
ap
country.
Interestingly, Ratan Tata’s personal investment vehicle RNT
Associates has a formidable portfolio of his own investments in
several start-ups, including Snapdeal, Ola, Lenskart, Cashkaro,
Tracxn, paytm, Urban Ladder, among others. The group has made
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a re-entry into the e-commerce space with Tata CliQ which is

showing early traction.
For years the group has struggled to make a success of Ratan
Tata’s pet project–the Tata Nano car. Tata Motors, once a pride
of the group, is now relegated to a small and marginal player in the
passenger car market with a string of failed product launches,
having failed to face the onslaught of Japanese and Korean small
car makers.
Also, Tata Steel has just commissioned a part of its Kalinganagar
steel plant after significant project delays.

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The group’s telecom venture Tata Teleservices is not just

bleeding with massive accumulated losses but is also embroiled
in a protracted legal battle with joint venture partner DoCoMo
over the valuation for DoCoMo’s exit from the venture.
Importantly, the group’s cash cow Tata Consultancy Services, so
far headed by Chandrasekaran, is showing signs of slow growth
after a decade of formidable performance under his leadership.
So while being an ‘insider’ Chandrasekaran may be spared the group’s
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internal pulls and pressures that took down Cyrus, Chandrasekaran is
not short of challenges in running the nearly 100 company group that is
in the midst of making a transition from the old economy to the new.
pi —– | —–
ap
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INDIA - BUSINESS / Tata / Tata Nano hits end of

the road
9-Jul-2017
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pi Once touted as an embodiment of a revolution and the pride of the
nation, Tata Nano might be approaching the end of its decade long
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agonizing run. Amidst dwindling sales, the Nano is unlikely to upgrade
to meet advanced emission standards which will be implemented in
2020, nor does it meet the safety features that will soon become
mandatory. An epitome of frugal innovation, the ‘world’s cheapest car’
will go down as a failed product.
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What is Nano up to?

The Tata Nano is unlikely to be upgraded
to comply with Bharat Stage (BS)-VI
emission norms, which will become
mandatory from April 2020.
The car will then have to be phased out
of the domestic market. It could be exported to countries with
different emission standards. Tata Motors exported 595 Nanos in
fiscal year 2016-17; however, only 50 cars have been exported in

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the current fiscal year.

A Tata Motors spokesperson, however, maintained that the
hatchback segment is very important for the company, and
regulations and customer preferences are going to play a major role
in defining various sub-segments within this segment.
“We continue to produce the Nano catering to customer demand in key
markets,” he added.
Sources, however, pointed out Tata Motors, which was focusing on
ly
its latest cars, the Tiago hatchback and the Tigor sedan, was
unlikely to make further investments in the Nano platform.
Investment is needed for the Nano, not only to upgrade to BS-VI
pi but also for mandatory crash tests from 2019. The new emission
and safety norms are likely to increase car prices by Rs 1 lakh,
which will make what was touted as the world’s cheapest car less
attractive to potential buyers.
ap
As of now, suppliers have not been asked to ready for BS-VI
compliant components for Nano.
“We have not heard from Tata Motors on developing BS-VI compliant
components for the Nano,” a Sanand-based vendor of Tata Motors
said.
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Dealers too indicated Tata Motors’ focus was on its newer cars and
the automobile maker had not shared plans for revival of the Nano
brand or launch of the face-lifted versions.
Note: BS IV has been implemented from April 1, 2017. But the larger
aim for the automotive sector as a whole is to implement BS VI
emission regulation by the year 2020 in India. There will be no BS V
in between IV and VI.
Why does a shutdown seem inevitable?
Tata made a big bet on the Nano. It spent close to $400 million

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developing the vehicle and hundreds of

millions more building a factory capable
of manufacturing 15,000 to 20,000 of the
tiny cars a month.
But the sales figures have been
disappointing ever since its launch. In
2009-2010, the year it was launched, it was 30,000, and 70,432 in
the next. But sales started dwindling since 2011-12, when it sold
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74,521 cars. It dropped to 53,847 cars in 2012-13, followed by
21,130 cars sold in 2013-14 and 16,903 cars in 2014-15. In the
year ended 31 March 2016, the Nano’s sales fell 64% to 7,591
pi units.
In March this year, Tata Motors Ltd sold just 174 units of the
Nano. Just over 300 cars were sold each in April and May.
Over the past eight years that Nano has been on the road, Tata
ap
Motors has done everything it could to breathe life into sputtering
sales — from launching attractive schemes to re-positioning the
Nano as a zippy, smart city car loaded with bells and whistles to
woo young, upwardly mobile buyers. Nothing worked.
Cyrus Mistry, ousted as Tata Sons chairman in October,
pegged the cumulative losses arising from the Nano at Rs 6,400
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crore. The Nano was the pet project of Mistry’s predecessor Ratan
Tata, who took over as interim chairman of the group’s holding
company after the former’s ouster.
Mint reports that the company officials are silent about the fate of
the Nano. Executives at suppliers to Tata Motors say the Nano has
not been part of any discussions and that orders for parts that go
into it are erratic — an indication that the model’s future is
uncertain.
In the near-decade since the car’s launch, say analysts, low cost

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entry-level models have lost their appeal and customers are

trading up to bigger, premium hatchbacks and compact sports
utility vehicles of all sizes.
When was the idea born?
Ratan Tata, Tata’s chairman, was inspired
to build the car after seeing families of
four or more crammed onto single
motorbikes to negotiate the danger-filled
ly
streets of big cities. By producing a
vehicle that would supposedly cost “one lakh” (100,000 rupees or
$1,970) he hoped to create a whole new class of road users.
pi Rather than compete directly with the next cheapest car, at twice
the price of the baseline Nano, he hoped to persuade drivers to
trade-up from the ubiquitous scooters and small motorbikes that
throng the roads.
ap
Nano, the car that Tata Motors hoped would make car ownership a
reality for millions of Indians, was named both for its tiny size and
association with revolutionary technology.
When Tata first designed the Nano, engineers tried to pare down
features to keep costs in check. The car is the least expensive
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mass-produced automobile in the world.

The car is equipped with a tiny, two-cylinder 623cc engine.
Various “luxuries”, such as air conditioning, fog lamps or central
locking are only available on pricier models. The range-topping LX
even boasts a cup-holder. But for Indians who are used to
braving the roads on two-wheels the Nano will count as luxury
just the same.
When the first models hit the roads, the base model had no air
conditioning, no stereo and just a single windshield wiper. The
Spartan interior had no glove box and thinly padded seats that

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didn’t adjust.
Such was Tata’s dedication to the project that he would frequently
drive test models around the company’s plant at Pune in western
India. After his jaunts, he would suggest adaptations to the vehicle.
As head of Tata Group, he envisioned distributing flat packs of
parts to rural mechanics who would become successful
entrepreneurs assembling the kits into complete cars in the
heartlands where 750 million poor Indians live.
ly
Where was the problem?
The Nano’s launch in 2009 was damp.
The Nano’s marketing problems began
pi with its product positioning. The price

crept up by around 15%, putting it out
of the reach of first-time buyers with no
regular employment or payslips to back an application for credit.
ap
And by emphasising its cheapness rather than its basic but
appealing qualities, it deterred slightly better-off consumers
who could afford one but aspired to more sophisticated vehicles,
such as those from Tata’s biggest rival, Maruti, the leader in
India’s small-car market.
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Those climbing into India’s middle class want cheap cars, but they
don’t want cars that seem cheap — and are willing to pay more
than Tata reckoned for a vehicle that has a more upmarket image.
There was no real national distribution scheme, very little
marketing and advertising, and no effective system of
consumer finance. The irony was that many rural Indians never
got to hear about or have the opportunity to see the car that was
supposed to help transform their lives.
Those who wanted the car were dubious. Was the car even meant for

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driving on highways? How would it handle on rural roads?

Nano tried rebranding Nano as the “people’s car,” into the “cool
people’s car.” It gave the car itself a face-lift, adding a stereo,
hubcaps and chrome trim, raised the price and started a new
marketing campaign to give it more cachet for a brief time.
In 2014, the car failed independent crash tests conducted by a
global car safety watchdog. Vehicle safety in India has to be a huge
issue. In a country where you often have to vie with livestock for
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road space, improvise lane directions, or suddenly swerve to avoid
being swallowed alive by a gaping pothole, you need to know that
your chariot will keep you intact.
pi NCAP’s morose multi-angle footage of crash test dummies lethally

head-butting the dashboard while the Nano crumpled pathetically
around their legs was the final nail in the coffin.
Nano hasn’t recovered since.
ap
Note: The New Car Assessment Program (NCAP) is a European car
safety performance assessment programme based in Brussels
(Belgium) and founded in 1997 by the Transport Research Laboratory
for the UK Department for Transport and backed by several European
governments, as well as by the European Union.
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Who was Ratan Tata trying to

emulate?
When the idea of Nano was born, it was
supposed to be India’s answer to Henry
Ford’s Model T, who pioneered the idea
of affordable vehicle for the masses as
well as a paragon of frugal engineering. Before the Model T, cars were
a luxury item: At the beginning of 1908, there were fewer than 200,000
on the road.

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Though the Model T was fairly expensive at first (the cheapest one
initially cost $825, or about $18,000 in today’s dollars), it was built
for ordinary people to drive every day. It had a 22-horsepower,
four-cylinder engine and was made of a new kind of heat-treated
steel, pioneered by French race car makers, that made it lighter (it
weighed just 1,200 pounds) and stronger than its predecessors had
been. It could go as fast as 40 miles per hour and could run on
gasoline or hemp-based fuel. (When oil prices dropped in the early
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20th century, making gasoline more affordable, Ford phased out
the hemp option.)
“No car under $2,000 offers more,”ads crowed, “and no car over
pi $2,000 offers more except the trimmings.”

Ford kept prices low by sticking to a single product. By building
just one model, for example, the company’s engineers could
develop a system of interchangeable parts that reduced waste,
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saved time and made it easy for unskilled workers to assemble the
cars.
By 1914, the moving assembly line made it possible to produce
thousands of cars every week and by 1924, workers at the River
Rouge Ford plant in Dearborn, Michigan could cast more than
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10,000 Model T cylinder blocks in a day.

On October 1, 1908, the first production Model T Ford was
completed at the company’s Piquette Avenue plant in Detroit.
Between 1908 and 1927, Ford would build some 15 million
Model T cars. It was the longest production run of any
automobile model in history until the Volkswagen Beetle
surpassed it in 1972.
How relevant is frugal innovation in today’s age?
The term “frugal engineering” was first used by Carlos Ghosn, the

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boss of Renault-Nissan — and an admirer

of what Tata Motors has achieved with the
Nano — to describe making basic, low-
cost products.
Frugal innovation discovers new
business models to serve users who
face extreme affordability constraints, in a scalable and
sustainable manner.
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There is more to this than simply cutting costs to the bone. Frugal
products need to be tough and easy to use. It also means being
sparing in the use of raw materials and their impact on the
pi environment. It involved reconfiguring value chains, and

redesigning products.
It doesn’t end there: it involves rethinking entire production
processes and business models. Companies need to squeeze costs so
ap
they can reach more customers, and accept thin profit margins to gain
volume.
The number of frugal products on the market is growing rapidly.
Jeff Immelt, GE’s boss, and Vijay Govindarajan, of the Tuck
Business School, have dubbed this “reverse innovation”. Others
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call it “frugal” or “constraint-based” innovation.

India is becoming a hotbed for frugal innovation. One way to do it
is by contracting out work. Bharati Airtel has contracted out
everything but its core business of selling phone calls. Profit-
seeking companies, from deep-pocketed Uber to those with more
modest means, such as Duolingo, are beginning to come to grips
with the idea.
Some of the West’s biggest multinationals are designing no-frills
products in developing countries with the intention of selling them
in developed ones, too.

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General Electric designs affordable medical devices in India and

China. Renault-Nissan has a centre for frugal engineering in India.
The carmaking group sells a variety of no-frills cars built in low-
cost countries, including Dacia models made in Romania and
Datsuns made in Indonesia.
Among rich-world firms inspired by the idea of cutting costs by
sharing infrastructure, Ericsson and Philips are working together on
projects in which mobile-phone antennae are embedded in
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streetlights in European cities. And Hershey and Ferrero, two
confectioners, are sharing warehouses and vehicles in North
America.
The West led the frugal revolutions in low-cost airlines and
pi discount supermarkets. It is also pioneering the use of digital

technology to replace expensive physical plant and to help people
share resources.
The Khan Academy, founded by Sal Khan, an American
ap
entrepreneur, offers free maths and science lessons on YouTube
(Bill Gates, the world’s richest man, encourages his children to
attend the academy). Airbnb lets people supplement their incomes
by renting out spare rooms to cost-conscious travellers.
—– | —–
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INDIA - BUSINESS / Ecommerce / Indian

Ecommerce: The Evolution
25-Mar-2016
ly
pi The last few years have witnessed a massive transformation in the
services provided online with cheaper and faster connectivity, growing
ap
penetration of internet and smartphones in India. The ecommerce firms
are bullish. They are willing to splurge on acquiring customers through
promotions and discounts. They vow to transform’s India’s consumer
behaviour - how India buys and sells. Where does this confidence stem
from?
Kn
What are the inadvertent benefits of

ecommerce?
The two obvious benefits that were
predicted when commerce moved
online were lower and more uniform
prices, and an increase in the range of
products available for selection.
In the Indian context, here are the inadvertent benefits:

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Financial development:
Payment gateways have allowed the customers to pay bills and
transfer money. Paytm now has 120 million accounts in India,
which is six times as many as credit cards. (It is now run by Ant
Financial, which also successful runs Alipay, an arm of Alibaba in
China.)
Amazon India is currently helping small sellers on its website raise
loans, which they have otherwise struggled to raise. Snapdeal has
ly
tied up with State Bank of India for easier processing of loans.
Improving infrastructure:
Over the years ecommerce firms have had to overcome India’s
pi shoddy infrastructure to deliver goods on time to customers. More

than 50% of Flipkart and Snapdeal’s customers are outside Tier 1
cities.
To assist their delivery, they are focussing on the distribution
ap
network by melding warehouses and local outposts.
Reviving retail:
In a country of 1.3 billion, organised retailing contributes to less
than 10% of the total retail sales. However, ecommerce giants
Flipkart, Snapdeal and Amazon have surpassed the tally of the ten
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largest offline retailers, thanks to the tech-savvy generation.

“We could actually be a catalyst to transform India: how India
buys, how India sells, and even transform lives,” says Amit
Agarwal, the managing director of Amazon India.
Why are firms interested in India?
Over 65% Indians are below 35. In these people, the companies
see a willingness to transact online and experience shopping
differently.
Every second, three new Indians take to the internet. The internet

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penetration is expected to grow from

32% in 2015 to 59% in 2020. By
2030, the size of India’s digital
market is expected to be one billion.
In June 2015, one of four mobile
phones used in India was a
smartphone, up from one in five in December 2014.
Last year’s online sales were $16 billion. By 2020, Morgan Stanley
ly
anticipates that the online market will grow at least seven times as
much.
At a time when the world economy is mired in crisis, India boasts
of being the world’s fastest growing. That the Indian market can
pi become as big as China makes it even more attractive.

India also poses many challenges for these firms. However, India is
considered a better template than China in that the Indian model
can be mimicked across other emerging countries.
ap
“What is remarkable for me is that in a very short time, e-
commerce has become half of what the organised market is,” says
Abheek Singhi of the Boston Consulting Group. “Two years down
the line, three years down the line, the e-commerce market could
be larger.”
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When did Indian ecommerce take

off?
Online shopping might be a fad
today but it was not when the
concept was introduced in the late
1990s.
Since 1999, Rediff has been trying to capture the Indian market. A
few months later IndiaTimes and IndiaPlaza entered online retail.
The three companies haplessly tried to convince customers shop

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online. Interestingly, IndiaPlaza endured the dot com bubble burst

and the global economic meltdown, but shut down its operations in
2013 because it couldn’t raise funds!
In 2000, Baazee.com built a platform that allowed users to sell
preowned products. It was later acquired by eBay.
In 2002, IRCTC, which allowed online train ticket reservations,
was one of the first websites to convince customers to transact
online, albeit because it is under government surveillance. Even
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today, IRCTC is the biggest and the most profitable ecommerce
firm in the country.
In 2003, Air Deccan introduced a platform for air ticket
aggregation. MakeMyTrip and Yatra followed suit in 2005 and
pi 2006.
BookMyShow, currently India’s entertainment ticketing website,
and Flipkart, the largest ecommerce player, arrived in 2007, from
where India’s ecommerce took off.
ap
Where is Indian ecommerce
different?
Comparison with the West:
The top ecommerce players in India
Kn
Flipkart, Amazon and Snapdeal have

adopted a marketplace model where
thousands of sellers are allowed to sell anything from books to
apparels to electronic devices.
Indian Foreign Direct Investment laws bar foreign-backed
companies from holding their own inventory. In the west, firms
including Amazon hold their own inventory.
Comparison with China:
When Alibaba established itself in a post-2000 China, the country

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was a home of manufactures looking for avenues to sell their

excess production and inventories. India’s manufacturing base is
small for such a large economy.
India is relatively poorer, more heterogeneous, and have fewer
people transacting online (32% in 2015 as opposed to 52% in
China). Resistance to Goods and Services Tax (GST) which
promises to homogenise tax structure across the country will make
life harder for ecommerce firms.
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Who are the major players?
In 2014, a day after Flipkart
announced the plans for its big
pi billion day sales, Amazon founder

Jeff Bezos announced that he is
going to pump in $2 billion into
Amazon India.
ap
Three months later, Snapdeal announced its arrival into the big
league by raising $627 million from Japan’s SoftBank Group,
which is also the largest investor in Chinese online giant Alibaba
Group Holdings Ltd.
At the moment, Flipkart, Amazon and Snapdeal are engaged in a
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three-way tug-of-war that has seen millions of dollars spent in

promotions, diversification of product range, building warehouses,
recruiting man power, etc.
These firms along with Paytm and other hyperlocal ecommerce
firms have vowed to transforms the experience of buyers and
sellers alike.
How fierce is the rivalry?
The firms are engaged in a price war as they continue to cut prices
to attract buyers as they see benefits in the long run. Last year,

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Amazon’s sales were two-thirds the

size of its losses.
“The priority is growth,” the
Amazon India managing director
explains. This remains the priority of
all ecommerce companies in India.
But growth is coming with a (huge) cost.
Indian ecommerce firms is expected to take close to five years to
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achieve profitability. However, if firms can cut discounts and
operating costs, their average gross margins will jump to about
15% in 2020 from 8% currently, according to a new report by the
Indian financial services unit of UBS Group AG.
pi The ecommerce firms are further engaged in decisions that will require
millions of dollars, and will delay profitability. For example,
Flipkart, which is already moving from an inventory-based model
ap
to a marketplace model, is now shifting to an advertising-led
model from a commission-based one, which is the mainstay of a
marketplace.
Snapdeal, owned by Jasper Infotech Pvt. Ltd, is investing heavily
on logistics via GoJavas. Snapdeal had picked up stake in GoJavas
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in 2015.
Ola, the biggest cab service, is now planning to buy cars and lease
them to drivers as opposed to its original plan of just connecting
drivers with customers.
—– | —–

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Ecommerce: The needle above the bubble
28-Mar-2016
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pi In World War I, the German and Franco-British armies, in an attempt
to outflank each other wound up in the Belgian coasts as their two-
ap
month struggle ended in a stalemate. As India’s ecommerce companies
are waging a price war without imminent signs of profitability, it
appears that they are locked in a stalemate. Is there a needle dangling
above India’s ecommerce bubble?
What is a bubble?
Kn
In physics, a bubble has very high

surface area enclosing very little
intrinsic value. The high surface
tension causes it to burst when
touched/pricked.
In economic terms, it is a period when the price of an asset is
inflated beyond its intrinsic value. The intrinsic value is determined
by supply and demand factors. In a bubble, investors
overestimate the future cash flows of the asset until they realise

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that the collective market’s estimate falls below their

estimation.
If the demand for the asset doesn’t increase anymore, the prices
will not go up. As they realise this, investors would begin selling
the asset to match price to value triggering a collapse of the bubble.
On seeing the market value decrease, the market descends in panic,
where the investors become desperate to get rid of the asset they
are holding leading to a vicious cycle. As each investor aspires to
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be the first to get out of the murk, the bubble bursts.
There is a huge amount of wealth that gets destroyed after a bubble
bursts. Companies collapse overnight. Governments have to
sometimes intervene and splurge tax payer money in order to stall
pi the collapse to some extent.

Bubbles can occur in any financial instrument like gold,
government bonds, real estate, derivatives, etc.
ap
Why are the Indian ecommerce
firms running in losses?
The change in consumer buying
behaviour is primarily attributed to
the lucrative discounting in product
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prices and the variety of products.

Discounts are essential for ecommerce firms. Typically an online
buyer is assumed to go online for price benefits. One is expected to
relentlessly pursue the lowest possible price for the product one is
searching.
Due to FDI regulations, marketplaces like Flipkart, Amazon and
Snapdeal are not allowed to control the prices at which the sellers
list their product on their sites.
However, a Mint report revealed that the ecommerce giants
circumvent the regulations to fund part or sometimes the entire

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discount in an indirect manner. These companies pay the discounts

back to sellers by cheque, forgo commissions/listing fees, etc. to
encourage sellers to provide these discounts.
The total share of internet users purchasing online is expected to
increase from 15% in 2014 to 32.5% by 2020. The Internet user
base itself is expected to grow from 302 million in 2014 to 673
million by 2020.
Ecommerce companies spent about Rs. 2,000 crore on advertising
ly
and marketing in 2015 of which Flipkart, Amazon, Snapdeal and
Paytm account for nearly 90%.
The commerce companies are engaged in a war chasing growth and
market share as they aspire to tap into the potential of this market.
pi When are these firms expected to

achieve profitability?
The ecommerce giants Flipkart,
ap
Amazon and Snapdeal are all
reporting a sales growth of over
100% but this is caused mainly by
aggressive campaigning and deep discounts.
The elephant in the room is the question of whether this business
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model is capable of generate profits.

In 2015, the investors marked up Flipkart’s valuation to $15 billion
from less than $3 billion at the beginning of 2014, even though the
company hasn’t come anywhere near profitability.
Each of these firms is running in huge losses prompting analysts to
raise questions about the revenue model and profitability to the
firms.
“Profitability has to happen much before 2020, otherwise investors
will be in trouble, as it’ll be tough to justify valuations. However, I
do think it’ll actually happen before 2020 as discounts reduce over

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time,” said Abhishek Goyal, a former investor with Accel Partners

who now runs a start-up called Tracxn which sells data on private
companies to investors.
Where is the scene headed?
The Hong Kong Stock Exchange
noted that Snapdeal splurged $25
million a month for funding
discounts and promotions as its
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losses rose from around Rs 270 crore
in 2014 to nearly Rs 1,350 crore in 2015.
Flipkart’s losses quadrupled from Rs 400 crore in 2014 to Rs 2000
pi crore in 2015 according to filings with Registrar of Companies

(RoC).
Amazon India’s loss widened from Rs 321 crore in 2014 to Rs
1724 crore in 2015 even as its sales increased six times.
ap
The combined losses of the three firms account for Rs 5074
crores.
However, Flipkart and Snapdeal valuations stood at $ 15 billion
and $4.7 billion by the end of 2015. Flipkart commands the largest
market share of 44% in India.
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While the potential of India’s retail market is huge, the ecommerce

valuations are considered to be driven by the hyper-demand created
by investors without measurable improvements in the companies’
financial performance leaving many wondering if the needle is
dangling above this bubble.
Who all have sent out warning signals?
Questions over ecommerce valuations became shrill after the following
incidents:
Morgan Stanley slashes Flipkart’s value

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Morgan Stanley, a mutual fund

investor in Flipkart Ltd., slashed the
value of its holdings by 27% last
month by valuing its stake at $58.9
million as of 31 December 2015,
down from $80.6 million in June
2015.
This means that Morgan Stanley now values Flipkart at $11 billion
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signalling that the company’s valuation (at $ 15 billion) had run
ahead of itself.
Mutual funds constitute one of the largest institutional buyers of
shares in stock markets. As a result the valuation estimates of
pi mutual funds will be a key indicator of how stock market investors

will value the company.
Jack Ma backs off
ap
Alibaba Group recently backed out from buying stake in Snapdeal
after Alibaba sought at under $5 billion while Snapdeal sought at
$6-7 billion.
This is another clear indication that investors begin to realise the
perils of the ever-rising valuation graph and falling a prey to the
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euphoria surrounding the sector.

How are these companies valued?
Gross Merchandise Value (GMV)
of a retail company is equivalent to
its gross revenue.
i.e., GMV = Sale price charged to the
customer X Number of items sold.
GMV doesn’t factor in discounts, shipping and other internal costs.
So if a product with a Maximum Retail Price (MRP) of Rs 100 is

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sold at Rs 90, its Rs 90 is what is accounted for in the GMV.

GMV is used mainly in the context of marketplaces to distinguish
between company’s sales for accounting from the consumer
purchases.
In a market-place model, the company’s income is calculated as a
certain percentage of its GMV as its revenue is via commissions.
GMV is considered to be a good indicator of the growth of the
company, as this measures the volume and value of merchandise
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sold or the number of transactions handled.
Investors in ecommerce keep track of the Net GMV and its growth
to estimate commission income and measure the profit potential in
future.
pi —– | —–
ap
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mba.knappily.com

Ecommerce: To go, or not to go public
5-Apr-2016
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pi When a high-profile start-up raises millions from venture capitalists, it
generates market buzz for its whopping valuation. As the company
ap
gets listed, its true value gets exposed, and it suffers a fall from grace.
This may be the future of many of today’s hot companies as the giant
ecommerce bubble is pricked. Infibeam’s listing has further fuelled the
pessimism.
What should you know about

Kn
Infibeam’s journey?
Infibeam, like Flipkart, was set up in
2007.
About 29% of Infibeam’s revenue
originates from B2B business, which
involves building an ecommerce portal for third parties.
The company has largely chosen to function on its own accord,
partnering with traditional retailers, unlike the ecommerce giants
who compete with them.

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In doing so it has kept its bottom-line intact and has achieved

profitability. Its losses after tax for financial years 2012, 2013,
2014 and 2015 were Rs 10.83 crore, Rs 24.91 crore, Rs 25.95 crore
and Rs 9.79 crore, respectively. While it reported a revenue of
Rs.288.2 crore at a net loss of Rs.9.8 crore for the year ended 31
March 2015, it posted Rs 6.58 crore profit after tax in the six
months ended September 30, 2015.
The company is much smaller than Flipkart and Snapdeal, but is
ly
among the few profitable Internet companies. However, the scope
for B2B when compared with B2C is low and therefore the
company is unable to claim the same valuation even though its
business was profitable.
pi At the same time, it is also said that the traffic of Infibeam has
taken a hit since the company doesn’t have a proposition for the
customers. A customer who gets hefty discounts from the likes of
Flipkart and Amazon doesn’t need to visit Infibeam.
ap
A Business Standard report revealed as to how the company had
consciously kept away from private financial investors - venture
capitalists and private equity- despite being approached.
With the funds raised through the IPO, the company had planned to
expand its services in consumer business (B2C) by setting up cloud
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data centre, setting up corporate offices and logistics centres,

purchasing software, etc.
Why is the market monitoring
Infibeam’s IPO closely?
Last month, Infibeam Inc. Ltd.,
became India’s first online retailed to
go public. In its 450 crore initial
public offering (IPO) it had fixed the
price band at Rs 360-432 per equity share.

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The initial share sale was fully subscribed on the last day of its
IPO, by the close which it was oversubscribed 1.1 times. On
Monday, its first day as a public firm, Infibeam’s share closed at
Rs.445.70, up 3.17% from the issue price.
Infibeam’s valuation is pegged at Rs 1,800 crore much lesser than
Flipkart which pegs itself at Rs 40,000 crore. However, its IPO
became an experimental ground to gauge investor interests towards
online retailers in India.
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The issue had seen 40,000 retail applications, only eight
applications from institutional investors and another 106
applications from non-institutional or high net worth individuals.
The Rs 450-crore IPO was subscribed only 1.31 times, with mutual
pi funds giving a complete miss to the issue.

So far the company is off to a tepid start. The market’s acceptance
of Infibeam might colour their opinion about Snapdeal and PayTM,
the top two ecommerce firms registered in India.
ap
When has IPO been a problem in
India?
In understanding technology
companies
Kn
The technology companies are

usually not understood beyond the
metro and Tier I cities in India.
For this reason, large tech companies are not expected to take to
stock market for the next several years. Several smaller firms are
likely to list by 2018 which will help gauge the success of India’s
start-up ecosystem.
These companies can be expected to list abroad. Especially
Flipkart, registered in Singapore, can go public on NASDAQ even
before being profitable.

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In accepting technology companies

Indian IPOs have had their problems in accepting technology
companies, so much so that even Infosys had to be rescued by an
underwriter in 1993 after its public offering was under-subscribed.
Over the last 5 years, infrastructure companies such as Coal India,
Coffee Day, Interglobe Aviation, JP Infratech, and Bharti Infratel,
have dominated IPOs. The largest IPO in India has been that of
Coal India, a public sector unit, which raised Rs 15,199 crore in
ly
2010.
Where are the
opportunities/challenges in filing an
pi IPO?
Opportunities
Going for an Initial Public Offering
(IPO) is needed for one of the three
ap
reasons:
To raise funds and scale up the business
To identify the company’s value in the market
To allow existing investors to exit by unloading their shares
Kn
The third reason is especially true with ecommerce companies. Those

who have invested in ecommerce firms during its nascent stages have
done so to gain higher returns (by investing in high risk portfolios).
Most investors who enter at that stage plan on offloading stake for
huge margins when the businesses do well.
Challenges
In going public (IPO), the companies will be subjected to more
scrutiny by regulators and investors and will be required to sacrifice
the amount of control and privacy they once had. In case of

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ecommerce firms, here are a few things that will come up:
As a firm gets listed on the stock market, it has to file returns on a
quarterly basis and is expected to show operational profitability.
Lack of profitability would lead to investors beating the stock
down.
Investors may not approve of the deep discounting routes that these
companies are currently taking.
Who are the global giants to go
ly
public?
Technology giants
pi Facebook
Facebook was off to a treacherous
start as its stock declined by more
than 50% in 2 months (at US$ 18.06) after it was listed in May
ap
2012 (at US$ 38.23 a share).
However, 30 months later, the fluctuations had cooled down and
the company was trading steady at twice its listing price (at US$
76). In FY 2014-15, its value further increased by 50%.
Twitter
Kn
Twitter went public with an IPO price of $26 on Nov. 7, 2013. It

ended its first trading day at $44.94. However, in 2015, the shares
of the company dropped below its IPO. It is currently trading for
less than $20.
Twitter has been meted out with this punishment for its slower user
growth since it went public and over reports that suggested
institutional investors are offloading most of their stock.
Ecommerce giants
Amazon

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Amazon which went public in 1997, priced at $18 per share, when
the company was only selling books, has transformed into one of
the hottest stocks in the market.
As of July 28, 2015, the stock is worth $531.52.
This would mean that a $1,000 investment in 1997 would have
been worth $350,803 in 2015.
Alibaba
In 2014, Alibaba surpassed Agricultural Bank of China’s $24.3
ly
billion IPO to become the biggest ever IPO (in the world). It
achieved a valuation of more than $231 billion.
However, the company’s stock experienced a lot of turbulence last
pi year as China slowed down, and questions were raised over the
company’s accounting policies and business model.
Its market value plunged to less than $160 billion from a peak of
more than $250 billion. It is currently close to $200 billion
ap
How might the companies respond
to the challenges?
Merger and Acquisition
The giants can acquire smaller
companies and kill them to reduce
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competition. For example, Flipkart

acquired Chakpak, Mime360, etc before closing it down.
India’s big three - Flipkart, Amazon and Snapdeal have an entirely
different DNA and hence may not accept a merger.
Alternate sources of capital
Instead of going public, these companies can raise capital through
other sources. The commercial banks, for example.
But with defaulters increasing with each day, in order to evaluate
the credit-worthiness of these companies, the banks might require

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them to show profitability, which is unlikely to happen at least until

2020.
They can also raise capital by offering stock ownership to third
parties and employees. The investors accept the valuations that
companies dictate.
—– | —–
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pi
ap
Kn

mba.knappily.com
INDIA - BUSINESS / Ecommerce / Myntra’s app-

only experiment fails
4-May-2016
ly
pi Myntra has made an about-turn on its app-only venture after
unmanageable losses. The online fashion ecommerce retailer will re-
ap
open mobile and desktop web sites. Though many customers browse
ecommerce apps, not many transact through them. Customers’ refusal
to comply with and switch over to apps made Myntra give up the
experiment. Flipkart had acquired Myntra in 2014. Common problems
burden both companies now.
Kn
What has Myntra decided to do?

It has decided to relaunch its desktop
site on 1 June, having withdrawn from
its app-only strategy and reopened its
mobile website in February in response
to customers’ backlash.
Last year, the fashion ecommerce retailer had made a decision to
switch to an app-only platform and had shut its desktop and mobile
websites.

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The losses due to the shift tripled to Rs 1,126.60 crore that year,
way above what Myntra had expected.
Myntra will also cut losses by increasing sales of higher-priced
products and charging customers for deliveries of certain items.
The retailer has also cut discounts and supply chain costs.
The move to re-enter the website space comes after the exits of
Myntra founder Mukesh Bansal and Chief Product Officer Punit
Soni, who were driving the app-only strategy at parent Flipkart.
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Myntra’s desktop version will be a basic site where customers can
browse and transact while its mobile application will be much more
engaging. Myntra’s CEO, Ananth Narayanan said that he
believes the app will still be a dominant channel.
pi While the company wants to steer its customers to using the app, it no
longer wants to lose out on those who don’t prefer the app.
Why had Myntra gone ‘app-only’?
ap
It seemed far more lucrative to do so. 95
percent of Myntra’s Internet traffic came
through mobile and 70 percent of its
sales were generated through
smartphones.
Kn
Tier II and Tier III cities sourced 50 percent of Myntra’s mobile

traffic. It made sense to concentrate on this core.
The majority of online retail is expected to happen through
smartphones, particularly apps, by 2020. The move would give
Myntra a lead over competitors in preparing for the transition.
Taking the first step would make it a forerunner and enable it to set
up a foundation for dominating mobile app-commerce.
The move was encouraged by its parent, Flipkart.
Narayanan said, “It is part of the Myntra culture to try bold things.
We tried to do this last year because we thought we can offer

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consumers a much better experience on the mobile.”

Myntra’s website page describes the move as a look ahead that
improves customer freedom and can create a high quality
personalized experience.
When does it make sense to be only
available on an app?
When the customer base sustains the
company’s narrower platform and lets it
ly
build its own ecosystem like Amazon’s
Kindle.
When the company can take advantage of the smartphone
pi penetration to create a diverse experience for our heterogeneous

needs.
When the shift can match the dynamic nature of the market by
speedily providing features to incentivize customers without
ap
making them feel they’re losing out on choices.
When the unplumbed rural market proves to be a goldmine.
When the company can isolate a specific sector which will drive
demand, like the Kindle in case of Amazon.
Where could things have gone wrong
Kn
with Myntra?
Unlike Google or Facebook which offer
the customers free-of-cost services,
Myntra is a transaction platform. It
could have anticipated that customers
want more control when they pay for the service.
The shift was too abrupt and did not give customers time to get
used to it. A closure of desktop site followed by availability as a
lite mobile site and an app might have evoked a better response.

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It did not consider, in advance, the impact of the feasibility of the

shift for its customers. Narayanan said that women customers, a
key focus of the company, needed to shop across channels. Also
the newer product launches like jewellery are more positively
received when viewed minutely. A smartphone makes that
difficult.
Other app-only companies offered more specific services that were
conducive as apps. Urge to be the first in its domain might have
ly
unduly hastened Myntra’s move.
Myntra underestimated the importance of Google and lost out on
significant number of deals through searches. So it could not get
new customers on board as fast as it lost the old ones.
pi It shut out those without smartphones.

Who decides what to buy, from where,
and how?
ap
The customer is still the king (or the
queen) and he (or she) should be spoilt
with choices of products as well as
platforms.
The cascading effect of word of mouth impacts even more
Kn
consumers today. This power is increasingly influencing

companies’ decisions.
Customer experience and personalization is climbing up
companies’ priorities.
Customer feedback is much more than a fast-filled form and the
better the company’s response, the higher its reputation rises.
The online market provides consumers the luxury of choice. The
customer has the privilege to surf on, at the slightest inconvenience.
Any attempt to restrict customers’ choice without their consent can

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lead to peril. Myntra has learnt this the tough way.

Myntra’s foray onto a narrower space (app-only) and Flipkart’s shorter
stint as an app-only platform have not been well received by the
customers. It soon became clear that shoppers wanted to buy products
and services across platforms and not be forced to only use apps. The
companies realized this and are reverting or have cancelled their move.
It proves the purchasers power yet again.
How has the Myntra acquisition worked
ly
out for Flipkart?
Flipkart has relied too much on its
smartphone sales. This led competitors
pi like Amazon to zoom in on other

domains. Acquiring Myntra was a great
decision as it gave Flipkart a great team and the apparel market
share, one that brings in the most profits.
ap
However, Myntra’s app-only decision, that Flipkart encouraged,
led to major losses. In addition, both Flipkart and Myntra relied too
much on discount-driven sales. That has proven costly.
Myntra is now caught between discounting losses and losing its
customers if it removes the discounts. One silver lining is that
Kn
Amazon and Jabong are offering lesser competition.

Flipkart, to maintain its strong user base needs to reduce
dependence on smartphone sales, expand its revenue from
advertising, new product launches, services, payments and online-
offline partnerships and capture first-time online buyers. Else,
competitors will cash in on its stagnancy.
—– | —–

mba.knappily.com
INDIA - BUSINESS / Ecommerce / The Big Fat

Indian festive sales
20-Sep-2017
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pi Spending a collective Rs100 crore, e-commerce giants Flipkart and
Amazon are sparing no effort to advertise their annual sale events —
ap
Big Billion Days and Great Indian Festival, respectively. The new
challenger, Paytm Mall, is ready with its own set of deep discounts and
exclusive deals. As customers prepare to benefit from the ‘big loot’ of
‘never before offers on hundreds of brands’, analysts wonder if the e-
tailers can ever find a path to profitability.
Kn
What makes this year a three-way

competition?
The Indian festive season is round the
corner and the ecommerce players are
revved up to take their share of the
consumer’s wallet and consumers too
can expect big online discounts across the categories.
E-commerce biggies Amazon and Flipkart are all set to launch their
flagship festive seasonal sale, and then there are the next big players

mba.knappily.com
such as Snapdeal and Shopclues, but the real stir comes from the ‘Mera
Cash Back’ sales event of the young challenger Paytm.
Paytm Mall is launching its first major sales event on 20-23
September that will see the company line up cashback offers of
as much as Rs. 500 crore ($77.7 million).
Through the ‘Mera Cash Back’ sale event, which coincides with
Flipkart’s Big Billion Days (BBD) sale on 20-24 September,
Paytm aims to rope in 5 million new buyers, it said in a statement
ly
on Sunday.
During the sale, Paytm Mall will offer cash-backs ranging 15% to
100% of merchandise value on consumer electronics, mobile
pi phones, fashion products and other items. This translates to cash-

backs worth up to Rs 15,000 on smartphones, Rs20,000 on laptops,
and up to 20% of value on large appliances like televisions,
refrigerators and washing machines.
ap
It will also award 100% cash back to 25 phone buyers and 100
grams Paytm Gold to 200 customers every day during the four-day
sale.
The company has roped in top brands including Apple, JBL, and
Woodland for the sales event. Under this arrangement, which is
called as O2O (Online to Offline) model, Paytm has tied-up
Kn
directly with brand-authorised stores, retail chains as well as

small stores and the customer orders will be serviced from local
consumers stores.
Paytm expects that this model will drive increased sales for Paytm
Mall’s partners and will also lead to shorter delivery timelines and
save logistic investments like warehousing for Paytm.
Why is this season important for Indian etailers?
Market leader Flipkart has tasked executives with registering a lead of
“70-30” over rival Amazon India, while the American online retailer

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has promised to fight with the force of

“two Amazons” from last year setting the
stage for an epic battle that will also draw
in new entrant, Alibaba-backed Paytm
Mall, as well as Snapdeal and ShopClues.
For Flipkart the season is important
because it has set an ambitious target from its BBD event, and it would
be looking to justify the huge funding which it got earlier this year. For
ly
Amazon the season is important because it has set an ambition of
overtaking the bigger Indian counterpart Flipkart. For Paytm the
season is significant because it has set an ambition of acquiring a large
pi consumer base (5 million).

It is also a known fact that the sales of the festive season set the
tone for the following year because of a significant rise in
revenue. This trend was belied last year as the companies were
ap
unable to capitalise on their 2016 flagship sales because of
demonetization and he anticipation of a new sales tax. And this in
turn makes the coming festive sales all the more important.
Market watchers are expecting that a head-start into the festive
season could help stir up India’s online retail market that has
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been tepid for most of this year largely because of the

demonetisation exercise and the introduction of a new tax
regime (GST) in July 2017.
On the battle front, Amazon India could find bettering Flipkart a tough
challenge given the latter’s position as one of the well-funded start-ups
in the world after it raised $1.4 billion this year.
Amazon India too has also received a hefty investment from its
parent company. Amazon will be investing $5billion in its Indian
subsidiary over a period of time. A large part of the investment,

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over $ 2billion, has already been made.

In an interview, Amazon India chief Amit Agarwal said, “We are
pretty confident that this will be our biggest shopping season
ever…in our four-year history (in India)”.
On the other hand, Flipkart’s chief executive Kalyan
Krishnamurthy has reportedly set an ambitious target for his
executives to more than double sales from last year’s BBD,
when it had generated gross sales of at least Rs. 3,000 crore.
ly
Both the companies, along with Paytm, are set to offer huge discounts,
have roped in many new products and suppliers, and are revving up
their cash engines for their flagship events starting today (Paytm and
pi Flipkart) or tomorrow (Amazon).

When do we see the preparation?
E-commerce companies are expecting this
year's sales to be better and bigger. The
ap
major players are expected to sell over
USD 1.7 billion or nearly Rs 10,880 crore
worth of products during the sale,
according to RedSeer Consulting.
The e-tailers have been prepping for the sale season by roping in new
Kn
brands and innovative offerings.

Flipkart: Flipkart's ‘Big Billion Days’ sale will be on from
September 20 - 24. The sale will offer up to 90 percent off on
products across categories. As a fresh initiative, the company is
offering ‘buy now and pay later’ option for its loyal customers
and is also offering instalments for debit card transactions. Flipkart
has tied up with four big banks for the same.
Amazon: It will hold its Great Indian Festival sale from
September 21-24 (For Amazon Prime customers, sale will open 12

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hours earlier). The e-tailer is expected to focus more on high-

margin products like fashion, health and beauty, a report in ET
said. Amazon's own brand AmazonBasics will also be available for
up to 60 percent discount. Boosting its war reserves, Amazon
India has almost doubled its warehouse capacity to 13 million
cubic feet after taking the number of warehouses to 41. The
company expects the 41 fulfilment centres to help in quicker
storage and distribution during the Diwali sale.
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Paytm: The e-tailer has set aside nearly Rs 1,000 crore for
marketing, cashback and promotions during the sale event ‘Mera
Cashback sale’. The e-tailer will be offering 100 percent cashback
on select products during the sale.
pi ShopClues, which focuses on unbranded product categories to

target the lower-end of the consumer-base, said it would offer a flat
50-80% discount on a wide range of products across home and
kitchen, electronics and accessories, and fashion and lifestyle
ap
categories.
Snapdeal, which had scaled down its operations significantly and
pivoted to a pure-marketplace, has not disclosed its strategy.
However, according to a report by ET, which cited several people
familiar with the company’s plans, Snapdeal is expected to have
Kn
three or four festive season sales. Considering that it is barely able

to pay its own running expenses, Snapdeal is in no position to burn
cash and win customers. Snapdeal, which had carried out a Rs 200-
crore marketing campaign, Unbox Zindagi, in 2016, has earmarked
just Rs 40-60 crore for the festive season. In fact, it stands
(somehow) as the very example of what can go wrong if a
company forgets the aspect of profitability in the attempt to garner
greater market share.
Flipkart is spending less on festive advertising due to its focus on

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profitability, while Amazon has increased its budget to overtake

Flipkart or at best equal it in sales.
Note: Amazon Prime is Amazon’s annual membership program that
offers customers fast product deliveries, additional discounts, video
streaming and other benefits. The firm launched Prime in July 2016 at
a 50% discounted annual price of Rs499. Since then, millions of
customers have signed up for Prime, which has become a key
differentiator for Amazon in its fight with Flipkart.
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Where did the etailers stand post last
year’s sale?
The Gross Merchandise Value (GMV), a
pi proxy for gross sales, for Flipkart and

Amazon India (combined) stood at $900
million in 2016, an increase of three-fold
from $300 million in 2015 as per the report of Forrester Research.
ap
Flipkart won the war last year. It clocked a GMV of $500 million
from its festive sales in 2016 and Amazon India about $400
million.
This year, Forrester Research expects the combined GMV to grow
from $900 million to $1.2-1.5 billion, with the two biggies sharing
Kn
the split almost equally.

The total value of India’s online retail market grew 33.7% to
$16.3 billion in 2016, significantly slower than its 114.4%
growth in the prior year. The market is expected to increase by
about 31% to $21.3 billion this year.
Interestingly, as per a Morgan Stanley report, the combined Gross
Merchandise Value (GMV) of three ecommerce leaders – Amazon,
Flipkart and Snapdeal - in 2015 was more than the top ten offline
retailers.

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While the overall GMV (for the full year) of the three ecommerce
biggies in 2015 was $13.8 billion (about Rs 94,400 crore), offline
retailers’ GMV was $12.6 billion (nearly Rs 86,200 crore).
One of the reasons for ecommerce companies’ high GMV is said to be
the increase in investment in the online industry in recent years.
Note: Gross merchandise volume or GMV is a term used in online
retailing to indicate a total sales dollar value for merchandise sold
through a particular marketplace over a certain time frame.
ly
Who have invested in the Indian online
market?
pi The biggest investor in the Indian online

space is Japan’s SoftBank Group which
has invested close to $4 billion in
companies like Paytm, Snapdeal, Ola, Oyo
and Grofers. Tiger Global, the backer of Flipkart, is the next big
ap
investor with nearly $ 2billion.
Flipkart is the most well-funded etailer with nearly $ 5 billion in
investments. Earlier this year, Flipkart closed a mammoth
funding round of $1.4 billion from Tencent Holdings Ltd (a
Chinese social networking and gaming firm), eBay Inc. and
Kn
Microsoft Corp., in the biggest-ever start-up funding of India.

Since starting out in 2007, Flipkart alone has accounted for more
than 45% of funds raised by all 10 Indian unicorns (startups with a
valuation of more than $1 billion), which include Snapdeal, Paytm,
Ola and Quikr.
Following Flipkart’s trend, Paytm later raised $1.4 billion from
SoftBank in the largest funding round by a single investor in
India, making the digital payments firm the Japanese company’s
biggest bet in India’s start-up ecosystem.

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Amazon has crossed $2 billion in India investments with the

promise of more $3 billion to be infused in India.
How are these e-tailers
faring financially?
Most of the e-tailers in India
are witnessing a phase of
increase in revenue as well as
a proportionate increase in
ly
losses.
Amazon India reported revenue of Rs 2,275 crore ($ 353 million) for
the year ended March 2016, compared with Rs 1,022 crore ($ 159
pi million) in the previous year.

The loss escalated to Rs 3,572 crore ($ 555 million) from the last
year level of Rs. 1,724 crore ($268 million). The revenue of the
company almost doubled in the fiscal year, but so did its losses.
ap
The impact was felt by the parent company.
Amazon.com Inc.’s loss from its international business surged
five-fold to
724millionintheJunequarterofthisyear, mainlybecauseofitsinvestments
< /strong > ,buttheUS − basede
Kn
− commercegiantintendstoaggressivelypursueexpansioninthecompetiti
</li > <li
> ForAmazon, Indiarepresentsacrucialbattlefrontwhereitislockedinab
− rivalFlipkarttodominatewhatisseenas < strong
> theworld’slastmajorunconqueredInternetmarket.</strong >
</li > </ul > <p
> Flipkart’slossesalsodoubledinthe2016fiscalandstoodatRs.2,
306crore( 358 million) as it ramped up spending on advertising,
logistics, and discounts to maintain its top position in the

mba.knappily.com
country, which has the world’s fastest-growing e-commerce

market. Several other online retailers, such as eBay, Shopclues
and Firstcry, also witnessed a similar trend of increasing
revenues and losses in 2016.
So, are they learning the lessons from the fall of Snapdeal?
Flipkart’s chief executive officer (CEO), Kalyan
Krishnamurthy, recently said in an interview with Mint, “Cash
burn is not a metric that anybody worries about any more. And
ly
with the fundraise, burn is almost irrelevant.”
That is easier to say when you have just raised more than a
billion dollars.
pi But to assume that investors aren’t bothered about burn

any more is taking things too far. While the funding tap has
been gushing this year, investors have been more discerning
— the list of investable companies has been whittled down
ap
considerably, and valuations are far lower compared to the
peak of 2015.
Flipkart’s valuations in the latest funding rounds were
lower by about a fourth compared to its peak valuation
about two years ago.
Kn
Flipkart itself had said in a meet organized by an

investment bank in late 2015 that its cash burn has reduced
by around 25% from peak levels. But when burn reduces,
so does growth; which is what Flipkart experienced in 2015-
16.
So, there is no solution in sight for the sector for now. Let the
burn begin.
—– | —–

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ecommerce gets a festive boost
22-Oct-2017
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pi Days after Flipkart announced that it was the winner of the Great
Indian Festival sales battle between itself and Amazon, Amazon has
ap
claimed the season to be its biggest ever shopping event. The season
has offered the ecommerce giants a much-needed revival after months
of sluggish growth. It is also interesting that the companies have
embraced the offline retail channels which they once considered
untouchable. Knappily analyses what went down and up during the
Kn
festive season.
What has Amazon claimed?

Online retailer Amazon India has
claimed that its flagship festive season
sale, the Great Indian Festival, was its
biggest ever shopping event, and has
said that more customers shopped on
its online marketplace during the sale than on any other e-
commerce site.

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Amazon India on Friday claimed that it had grabbed a 44% share

of total customers and shopping volumes, which was higher than
any of its competitors. Amazon held three separate sale events as
part of its Diwali season sale.
Amazon said it saw the highest number of transacting
customers and number of orders placed during the sale event,
driven primarily by its Prime subscription service that saw a
fourfold jump in the number of subscribers.
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“We are humbled by the tremendous response from customers
making Amazon.in the undisputed leader in the e-commerce
industry with most number of transacting customers and order
share. More customers shopped on Amazon.in than anywhere else,
pi with orders received from 99.7% of India’s pin codes. Customers

shopped across mobile phones, TVs, large appliances, home décor,
furniture, sports equipment and everyday essentials, making the
‘Great Indian Festival’ the biggest shopping event for Amazon.in
ap
in history,” said Amit Agarwal, senior vice-president and country
head of Amazon India.
The latest claim by Amazon further escalates a bitter market share
battle for supremacy between the company and arch-rival Flipkart,
which for now still remains the market leader.
Kn
“The festive shopping season in India, which really takes off every
year with the Big Billion Days, is synonymous with Flipkart. This
year, we garnered a disproportionate market share across all
parameters, making everyone else irrelevant. The trends are
consistent with the observations of other independent research and
surveys, which have also said Flipkart was the unquestionable
leader this festive season,” said a Flipkart spokesperson.
Earlier during the festive season, Flipkart had also claimed that it
had beaten all its competitors and had emerged as the outright

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winner of the sales season.

Flipkart generated gross sales of more than Rs5,000 crore, driven by
booming sales of electronic gadgets, especially smartphones, during its
Big Billion Day sale.
Amazon India (Amazon Seller Service Pvt. Ltd) generated gross sales
of Rs2,500-2,700 crore during the first round of its Great Indian
Festival that was held between 21 and 24 September. The latest claims
are based on consolidated numbers from all its three sale events.
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Why was this an important period for
etailers?
pi India is the world’s fastest-growing large

economy, its consumers increasingly
clutching smartphones and fattening
wallets.
ap
And the festive season sale organised by online ecommerce
behemoths in India is more of a battle rather than a celebration.
This year, while Snapdeal was already out of the race and
Paytm was just trying to set its foot, the contenders for the top
spot were Flipkart, an Indian unicorn and Amazon India, the
Indian subsidiary of global giant Amazon.
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This year’s festive season may have also marked a turning point for
e-commerce in 2017, as online retail is now set to grow by more
than 25% for the full year after a sluggish first-half performance,
according to analysts and executives from both companies.
While Flipkart held its five-day mega event Big Billion Day
Sale between September 20-24, 2017; Amazon held the
‘Amazon Great Indian Sale’ for four days, from September 21-
24, 2017.
Unlike previous years, this time Flipkart’s war chest is also filled

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with over $4 billion investors’ money, almost nearer to

Amazon’s $5 Bn commitment to invest in India. So, right from
the start of the year 2017, both the firms did not leave any stone
unturned to entice customers with offers as well as new features.
For Flipkart, electronics and smartphones were again the
winning categories. As shared by the company with Inc42, it sold
1.3 million smartphones within the first 20 hours of the category
opening for sale while the total number of Smart Wearables sold on
ly
Day 1 is 3X the number of Smart Wearables sold in India on a
regular day.
Amazon, on the other hand, saw a 2.5x growth in smartphones,
while large appliances saw 4x growth over last Diwali led by
pi brands like Samsung, Apple, Bosch & BPL. Amazon also

claimed to acquire 85% of the new customers from Tier II and
Tier III cities. Also, as the stats shared by Amazon revealed, the
ecommerce company raked in full benefits from its Amazon Prime
ap
launched in July this year.
When did the growth stall?
Five years ago, online shopping, worth
just $1bn then, seemed to be growing so
Kn
fast that it could exceed $100bn by 2020.

In the 18 months to December 2015,
investors put $9bn into Indian startups,
often at eye-popping valuations. However, online sales, after more than
doubling in 2014 and nearly trebling in 2015, were nearly flat in
2016.
Analysts are now scrambling to lower their forecasts. Given that
total retail consumption in India grows by around 18% a year, and
internet penetration went up by two-fifths last year, e-commerce if
anything looks to be losing ground. Forrester, a research group,

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now reckons that the market will grow to $48bn by 2020.

That may not be enough to sustain the five big general online
retailers — Flipkart and Snapdeal, two established Indian firms that
are trying to fend off Amazon, as well as a pair of smaller firms,
Paytm and ShopClues. A long tail of niche firms peddles
everything from taxi rides to cinema tickets.
They collectively hoped that 2016 will prove to have been a blip.
Some factors that slowed sales growth may have been one-offs; some
ly
changes were in fact welcome.
Where was the problem?
An unhealthy cycle had developed,
pi whereby investors backed e-

commerce firms that showed strong
sales growth, which then used the
cash to fund discounts needed to
ap
attract more customers, who were unprofitable but boosted sales
growth, attracting new investors. Ad infinitum.
According to consultancy firm RedSeer, by 2015 some 20-30% of
all e-commerce sales were to middlemen who were buying
heavily discounted merchandise from the big companies and
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selling it on nearer its full price, pocketing the difference.

But a deluge of funding in 2015 turned to drought in 2016.
Firms ceased subsidising unprofitable sales and concentrated on
limiting their losses, which dented overall sales.
The authorities also put a dampener on the market, by reiterating a
year ago that e-commerce firms have to act mostly as
matchmakers between buyers and sellers (as eBay does in most
countries), not sell their own inventory.
Companies were already skirting the rule using subsidiaries, but it

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became harder to do so. The sudden “demonetisation” of large

bank notes in November hurt online sales since around two-thirds
of Indian buyers of goods online are paid with cash upon
delivery.
Not all online firms have been equally affected by the slowdown. By
all accounts Amazon continued to grow; it now claims to be the
market leader. Flipkart, which also claims to be the biggest Indian e-
commerce firm, struggled in early 2016 amid mass departures of senior
ly
staff; it appears to have recovered somewhat since. A battered
Snapdeal, after fending of a forced merger, is now a distant third.
Who have the ecommerce companies
pi joined forces with?

E-commerce had unleashed its first
edition of the big festival discount in
2014. The buzz created by Flipkart for its
ap
Big Billion Day sale, matched by
competitors such as Amazon and Snapdeal, had captured the
imagination of buyers like never before.
Brick and mortar retailers could do little to stop the onslaught from
e-tailers in an already slow economy. This saw slow sales casting
Kn
a pall of gloom over traditional retail.

As the online and offline channels seems to be at war, the offline
retailers, who were at the receiving end, had to either take on debts
on their books or slow down their expansion plans to absorb the
losses caused by e-commerce companies’ aggressive selling.
Over the last year two years even as ecommerce players were
preparing to make a success of the online sales, physical retailers too
were strategising to find new ways to woo buyers, well ahead of the
festival season. As a result, in spite of the headline-grabbing Diwali

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sales across the online universe, they were better off.

However, both parties seem to have realized that there will be no
clear winners in a war that is turning out to be costly for both sides.
Badly bruised, both the factions are now calling a truce and
embracing what is being termed as omnichannel.
In less than a month of Amazon picking up a 5 percent stake in
retailer Shopper’s Stop, there is news of Flipkart looking eyeing
a stake in Future Retail. For Future Retail, the development
ly
comes soon after its acquisition of retailer Hypercity. For a sector
swamped with gloomy news, things appear to be turning
around.
pi E-commerce companies joining hands with the retailers is a

marriage of convenience for both the players. The move has
largely been necessitated by the fastest growing and biggest sector
for both the players being common - garments.
ap
Though the sale of garments has soared for e-commerce
companies, the number of rejections too is high. For a business
that still operates in the cash burn model cutting down losses
on account of rejections is important. Having a brick and mortar
frontend helps the customer getting a ‘feel’ of the product. For the
retailer, the e-commerce companies help push their brand to a
Kn
wider audience.
This trend of a joint venture between retailers and e-commerce
companies is not restricted to India. Online company Amazon
recently acquired a grocery store Whole Foods for $13.7 billion.
Earlier it had picked up Westland, the publishing unit of Tata group. In
China, Alibaba and JD.com are hunting for retailers in which to
either buy a stake or the entire company.
How big is the Indian online market?

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Some observers are questioning

whether the long-term promise of
Indian e-commerce still holds.
Increasingly, executives hint in private
that the market is far smaller than
their former marketing material
suggested.
“Most people talk about India being a 1.2bn consumer market. It’s
ly
not,” Ashish Hemrajani, founder of BookMyShow, a ticketing site,
told a conference recently.
Though smartphone usage is rising quickly, there are perhaps
pi 200m-250m Indians with internet access and credit or debit

cards, most of them in big cities. But only a proportion of this
total is actually inclined to shop online. The number of active
online shoppers reached 35m-40m in 2015, and has not grown
ap
much since then, says Arya Sen of Jefferies.
The funding drought of 2016 seems to be easing. But the so-called
“down rounds”, in which companies accept investment based on
valuations significantly below their peaks, are now the norm.
Both Flipkart and Ola, a ride-hailing firm, have to endure
Kn
them. This duo has been at the vanguard of calls for protection
from foreign competition. Sachin Bansal, a co-founder of
Flipkart, has complained about unfair “capital dumping”, notably
by Amazon, which has pledged $5bn to its Indian subsidiary.
Both Amazon and Uber failed to crack China, and are hoping
for redemption in India. They can deploy oodles of capital
generated by non-Indian operations. Along with the top brass at
Ola, Bansal has pleaded with the government to follow the Chinese
model of restricting foreign companies from operating in India.
It also bodes well that founders have pointedly shifted their focus

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from sales to profits. The question is whether customers will buy

as much online if they no longer receive a subsidy from venture
capitalists every time they check out. The assumption used to be
that the Indian e-commerce market had room for all firms to thrive.
Now the consensus is that only the implosion of the weakest can lift
returns so that investors become willing to pour in more money,
allowing the Indian champions to take on the likes of Amazon. And if
this year is no better than last, even that will be called into question.
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—– | —–
pi
ap
Kn

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INDIA - BUSINESS / Ecommerce / Amazon buys

Whole Foods
17-Jun-2017
ly
pi AMAZON.com has jolted the grocery industry by buying Whole
Foods Market, introducing new uncertainty to a sector already
ap
struggling to keep up with growing competition. The deal represents a
dramatic turn in strategy for Amazon, which has offered food delivery
through its Fresh service for a decade but has not made a major dent in
the $700 billion grocery market. Buying Whole Foods represents a
major escalation in the company’s long-running battle with Walmart.
Kn
What is the deal?

Amazon agreed to buy the upscale grocery
chain Whole Foods for $13.4 billion, in a
deal that will instantly transform the
company that pioneered online shopping
into a merchant with physical outposts in
hundreds of neighborhoods across the country.
Whole Foods would keep its name under the deal, which is
subject to shareholder and regulatory approval and expected to be

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completed in the second half of this year.

The company also would maintain its Austin headquarters, and
John Mackey would remain Whole Foods’ chief executive.
The deal unfolded after Jeff Bezos, Amazon’s chief executive
officer, approached Whole Foods CEO John Mackey about a
month ago and received an eager response from Mackey.
Whole Foods has posted seven straight quarterly sales declines
at established stores and recently overhauled its board of
ly
directors in the face of pressure from activist hedge fund Jana
Partners LLC
Jana, which disclosed an 8.3 percent stake in Whole Foods in April
and is the company’s second biggest shareholder, stands to make
pi roughly $300 million from the sale to Amazon.

The deal is for $13.4 billion in cash and the remainder in debt. The
acquisition price implies a trailing 12-month price-to-earnings
multiple for Whole Foods of 31 times, versus a 14.4 average for the
ap
S&P 500 Food Retail index.
Amazon and Whole Foods expect to close the deal during the
second half of 2017.
In response, Whole Foods has revamped its board and replaced its
chief financial officer. Gabrielle Sulzberger, a private equity
Kn
executive, was named the company’s chairwoman.

The merger announcement made no mention of the radical changes
that could be in store, with Amazon CEO Jeff Bezos saying simply that
Whole Foods was “doing an amazing job, and we want that to
continue.”
Why is Amazon buying Whole Foods?
There are a couple strategic plays at work for the online-retailing giant.
For starters, acquiring Whole Foods’ 440 US stores - many of them
in primo locations - will bolster the network for AmazonFresh, the

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company’s online grocery delivery

service.
“To ship efficiently groceries to
consumers , you need physical
distribution (item-picking to put parcels
together, click & collect points) close to
the consumer,” analysts at Bernstein wrote in a research note.
“Stores are ideally located for that. They won’t look like stores in 5
ly
years time, but they will be in those locations.”
AmazonFresh’s rollout has gone slower than expected, according
to analysts at Credit Suisse. The move also makes a lot of sense
pi given the weapon Amazon unveiled back in March: AmazonFresh

Pickup.
The service allows customers to order groceries online, then set a
time for pickup as soon as 15 minutes after they place the order.
ap
There are only two locations , both in Seattle, so far, but
AmazonFresh Pickup could scale up rapidly after Friday’s deal.
The move will also improve the selection of grocery items for
AmazonFresh users, as well as strengthen Amazon’s bargaining
position with suppliers, according to Credit Suisse.
Buying Whole Foods will also ramp up Amazon’s private-label
Kn
grocery business, an industry that is growing steadily in the the US

and other developed markets, Bernstein noted.
“Developing [private label] is time consuming. This gets Amazon
straight up the curve with a credible, albeit upmarket, range,”
Bernstein said in the research note.
The acquisition is a reflection of both the sheer magnitude of the
grocery business — about $800 billion in annual spending in the
United States — and a desire to turn Amazon into a more frequent
shopping habit by becoming a bigger player in food and beverages.

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After almost a decade selling groceries online, Amazon has failed

to make a major dent on its own as consumers have shown a
stubborn urge to buy items like fruits, vegetables and meat in
person.
Buying Whole Foods also represents a major escalation in the
company’s long-running battle with Walmart, the largest grocery
retailer in the United States, which has been struggling to play
catch-up in internet shopping.
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On Friday, Walmart announced a $310 million deal to acquire the
internet apparel retailer Bonobos and last year it agreed to pay $3.3
billion for Jet.com and put Jet’s chief executive, Marc Lore, in
charge of Walmart’s overall e-commerce business.
pi “Make no mistake, Walmart under no circumstances can lose the

grocery wars to Amazon,” said Brittain Ladd, a strategy and
supply chain consultant who formerly worked with Amazon on its
grocery business. “If Walmart loses the grocery battle to Amazon,
ap
they have no chance of ever dethroning Amazon as the largest e-
commerce player in the world.”
When do we see Amazon strengthening
its foothold in every possible market?
Kn
The company’s $13.4 billion deal for

Whole Foods is the latest signal of
Amazon’s ambitions to have a hold on
nearly every facet our lives — like the
computer servers that power our favorite websites and the food we eat.
Amazon has made nearly 80 acquisitions since listing its stock
publicly in 1997, according to data from FactSet Research Systems
Inc. They included movie-and-TV information provider IMDB, the
audiobooks service Audibile and shoe retailer Zappos.

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Online Retail: Amazon has a variety of sites, namely

Amazon.com, Zappos as well as smaller ones, like Fabric, which
focuses on quilting and sewing materials, and ShopBop, which
sells fashion and clothing. Amazon competes with Wal-Mart,
Target, and BestBuy in this space.
Groceries: Amazon has pilot tests of AmazonFresh Pickup stores
and drive-through locations to pick up items ordered online and, if
the deal goes through, it will have high-end markets with Whole
ly
Foods. Amazon competes with Freshdirect, Walmart, and Kroger
in this space.
Cloud Computing: Its cloud computing business, Amazon Web
Services, hauled in $12.2 billion in revenue last year from
pi customers including Netflix and the C.I.A. Amazon competes with

Google, Microsoft, and IBM in this space.
Voice-Activated Speakers: The Echo, which uses its Alexa
personal assistant, has been a breakout success. Amazon competes
ap
with Google, Apple, and Lenovo in this space.
Streaming Video: Amazon Prime Video, which features a
combination of new movies, TV shows and original programming.
Amazon competes with Netflix, Apple, and Hulu this space.
Production Studio: Created in 2010, Amazon Studios has
Kn
produced award-winning movies and shows, including

“Manchester by the Sea” and “Transparent.” Amazon competes
with Disney Pictures, Warner Bros, and Universal Studios in this
space.
Large-Scale Delivery: Its logistics business includes warehouses,
an army of workers and even planes. It is also testing drones for
delivery to homes. Amazon competes with FedEx and DHL in this
space.
Food Delivery: Available to Prime members, Amazon Restaurants
promises to deliver meals from restaurants to customers in one

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hour or less. Amazon competes with Seamless, Postmates, and

Eat24 in this space.
Mobile Devices: With its Fire Tablets, Amazon’s touch-screen
devices are still far behind rivals Apple and Samsung. Amazon
competes with Samsung, Apple, and Lenovo in this space.
It doesn’t end there. The company has its hands in a wide range of
industries, both in the United States and abroad.
Where do we see the ripple effect of the
ly
deal?
The potential ripple effects of Amazon’s
largest purchase ever immediately rattled
pi the industry, sending stocks of supermarket

companies tumbling. That’s because
Seattle-based Amazon already has aggressively used lower prices,
technology and a vast network of distribution centers to transform
ap
other retail sectors.
Whole Foods, in effect, would be a springboard for Amazon to
make waves throughout the grocery business that could benefit
consumers, analysts said.
For starters, Amazon probably will put added pressure on its rivals
Kn
to lower prices at a time when grocers already are feeling pinched

by price pressures and eking out profits of only a penny or two for
every dollar of sales.
“Amazon will take a virtual sledgehammer to Whole Foods’
pricing structure,” Bankrate.com senior economic analyst Mark
Hamrick said. “This is an earthquake rattling through the grocery
sector.”
Investors immediately sold off the stocks of other major
supermarket chains after the announcement that Amazon would

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pay $42 a share for Whole Foods. (Amazon would pay $13.4
billion for the stock and is assuming some Whole Foods debt,
bringing the total value of the deal to $13.7 billion.)
The industry was already highly consolidated, with a few
companies holding big chunks of the supermarket business. The
lower stock prices could make those companies ripe for takeover
offers, analysts said.
Whole Foods’ stock soared 29% to $42.68 a share, and Amazon
ly
gained 2.4% to $987.71 a share.
In fact, Amazon is now so big that investors mostly made its
deal for Whole Foods effectively a free purchase — for one day,
at least. The gain in Amazon’s stock Friday added $11.3 billion
pi to the company’s overall stock-market value, which stood at

$475 billion.
Amazon is absorbing Whole Foods at a time when the grocer is
struggling, in good part because conventional supermarket chains
ap
have been stocking their aisles with more natural products — often
at lower prices than those at Whole Foods.
Who are impacted by this deal?
Shares of Walmart, Target, Kroger and
Kn
Costco, the largest grocery retailers, all

tumbled on Friday.
Kroger sank 14.5 percent, Supervalu
plummeted 17 percent, Costco fell 7
percent, Sprouts Farmers skidded 12.7 percent, and United Natural
Foods dropped more than 15 percent.
Big-box retailers weren’t immune from the Amazon effect, either.
Discount retailers Target and Wal-Mart also fell after the deal’s
announcement. Target was down 10 percent, while Wal-Mart was
down around 7 percent at one point.

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European grocers, including Sainsbury and Tesco, also sank on the

deal announcement. Amazon announcement came as unexpected
by many who follow the companies.
Needless to say, nobody is safe, including consumer packaged
goods companies, Moskow went on. Shares of Kellogg and
General Mills, for example, were falling 2 percent and 3 percent,
respectively, Friday.
Grocery stores have spent the last several years fighting against
ly
online and overseas entrants. But now, with its $13.4 billion
purchase of Whole Foods, Amazon has effectively started a
supermarket war.
pi Armed with giant warehouses, shopper data, the latest technology

and nearly endless funds — and now with Whole Foods’ hundreds
of physical stores — Amazon is poised to reshape an $800 billion
grocery market that is already undergoing many changes. And
ap
much of the battle is expected to take place online, Amazon’s home
turf.
The grocery business is facing a slew of upstart companies trying
to figure out how to make a business of getting food on the kitchen
table. Instacart delivers food from grocery stores to doorsteps,
Kn
while FreshDirect delivers from its own warehouse. Blue Apron

delivers boxes of food packaged to make meals.
In addition, Lidl and Aldi, two European discount grocers, have
recently announced enormous expansions in the United States. Aldi
plans to invest $3.4 billion to grow from 1,600 stores to 2,500
stores by 2022, while Lidl, which recently opened a handful of
locations, plans to operate 100 by the middle of next year.
They are taking on a handful of major companies that have
dominated the grocery market. Walmart supercenters, Kroger,
Safeway and Publix accounted for about 36 percent of the market

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in 2013, according to the most recent data from the United States
Department of Agriculture.
While the grocery giants have been under attack, they have
advantages of their own. Walmart has 4,500 stores, for example,
compared with the 460 Whole Foods, putting it in far more
markets. Walmart has also tried to move swiftly into e-commerce,
setting up grocery pickup at many stores.
How did Whole Foods grow into an
ly
Organic giant?
Led by co-founder John Mackey, Whole
Foods Market quickly grew from a small
pi store in Austin, Tex., to the largest

natural-foods supermarket chain in the
United States. But as organic foods grew in popularity, Whole Foods
was squeezed by lower-cost grocery rivals.
ap
In 1980, Mr. Mackey joined his rival Clarksville Natural Grocery
to open the first Whole Foods Market, with 19 employees. A year
later, the store was nearly destroyed in a flood. It reopened within a
month thanks to the rebuilding efforts of employees and Austin
residents.
Kn
In 1988, Whole Foods Market expanded outside of Texas with the

acquisition of the similarly named Whole Food Company of New
Orleans. It was the company’s sixth store. Whole Foods’s early
growth came largely from mergers and acquisitions.
By 1992 Whole Foods operated 12 stores in Texas, California,
North Carolina and Louisiana, Whole Foods Market and went
public. Later that year, the company expanded into the Northeast
with the purchase of the Boston-based supermarket chain Bread
and Circus.
In 1996, Whole Foods acquired Fresh Fields, a Maryland-based

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chain with 22 stores. Mr. Mackey’s natural foods empire now

consisted of 70 stores in 16 states. While still small compared to
traditional supermarket chains, the natural and organic foods
company grew at more than 20 percent a year. The next year,
revenue surpassed $1 billion.
A year later Whole Foods started its store brand, 365 Everyday
Value. The private label was later used to combat the perception
that Whole Foods, sometimes known as “Whole Paycheck” for its
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notoriously high prices, was too expensive for everyday people.
In 2002, Whole Foods, which already operated a 40,000-square-
foot store in Chelsea, opened its flagship 58,000-square-foot store
in the basement of the Time Warner Center.
pi In 2013, Whole Foods became the first retailer in the United

States to label all genetically modified foods. The company’s
stock peaked at $65.24.
ap
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INDIA - BUSINESS / Ecommerce / Snap, no deal!
2-Aug-2017
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pi The proposed Snapdeal sale to arch rival Flipkart was called off on
Monday after the founders and shareholders of the company couldn't
agree on the terms of the deal. Snapdeal has decided to pursue ‘an
ap
independent path’. This comes four months after leading investor
Softbank initiated a distress sale to Flipkart. If Snapdeal redeems itself,
it would be a great start-up story. If it doesn’t, it would be a big
business blunder. Welcome, Snapdeal 2.0
What has Snapdeal decided?

Kn
Snapdeal on Monday called off the

$950 million-takeover (over Rs.
6,000 crore) by Flipkart,
apparently over differences in
valuation and terms of what
could possibly have been the largest deal in the Indian e-commerce
space.
Discussions to acquire the beleaguered Snapdeal by Flipkart were
initiated in March but contours of the deal could not reach finality

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even after several rounds. The founders, who started the company
in 2010 as a deals website, said the surface of the $200 billion e-
commerce market has barely been scratched yet.
Having dumped the $950-million takeover offer from Flipkart,
Snapdeal founders Kunal Bahl and Rohit Bansal on Monday
said the online market place can survive on the money made from
sale of assets like Freecharge and will make a gross profit of Rs.
150 crore in the next 12 months.
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They also said the company will continue to keep control over costs
and make operations efficient. “We will be continuing the Snapdeal
journey as an independent company… after the last few months of
pi tumultuousness, it is time to focus on the business and leverage all our

strengths to progress towards our vision of building the best
marketplace to connect buyers to sellers in India,” they wrote in a
joint letter to company employees.
ap
They highlighted that the company has made tremendous progress
towards the new path over the last few months and is already profitable
at a gross profit (net margin) level. “…with clear visibility to making
upwards of Rs150 crore in gross profit in the next 12 months. Finally,
with the ongoing streamlining of costs and sale of some of our assets,
Kn
such as Freecharge, we are financially self sufficient as a company

and don’t need to raise additional capital to reach profitability,” they
said.
The founders added that they will “need to keep a tight control on
costs and work towards becoming a hyper efficient culture delivering
profitable growth, month on month”. There are speculations that the
move to continue operations could see large-scale layoffs at the
company, which has about 1,200 people.
Why didn’t the deal work out?

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Last week, it seemed like the on-again-

off-again Flipkart-Snapdeal merger would
finally be completed. On 26 July, the
board of online marketplace Snapdeal
gave the go-ahead to the company to
continue negotiations to sell itself to
Flipkart, which had increased its buyout offer to $850 million two
weeks ago.
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However, there were three major problems holding up the deal:
One, Snapdeal co-founders Kunal Bahl (CEO) and Rohit Bansal
(chief operating officer) were against the sale to their sworn enemy
pi Flipkart from the start and they still preferred to keep Snapdeal
independent, Mint quoted people saying.
The newspaper also quoted that Bahl and Bansal had also
expressed reservations about the “indemnity clause” in the
ap
proposed deal. As per this clause, the founders of Snapdeal and its
board will be held accountable for the representations they have
made to Flipkart about the company’s financial statements,
business, structure and other matters, the people said. The Snapdeal
founders wanted this clause to be watered down.
Kn
Their efforts to keep the firm independent were boosted by the sale
of its payments unit FreeCharge to Axis Bank Ltd last week for
Rs. 385 crore in cash, the people said.
Two, some of Snapdeal’s minority shareholders were against the
proposed payouts to Nexus Venture, Kalaari Capital and the Snapdeal
co-founders, the people said. After SoftBank, Nexus and Kalaari are
the largest investors in Snapdeal, which has more than 25 institutional
shareholders, and they were supposed to get higher payouts relative to
other shareholders as part of the deal.

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Three, SoftBank wanted Flipkart to change the structure of the

sale. According to the proposed structure, the deal would impose tax
liabilities on SoftBank which it found unacceptable. SoftBank had
asked for a new deal structure.
The new structure says no deal.
When did things unravel?
March 22: It was first reported that
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Softbank was in possible talks about
selling Snapdeal to Flipkart or Paytm.
Paytm withdrew its interest by March
29.
pi April 13: Amid anxiety surrounding employee layoffs at Snapdeal,

Flipkart's management and board were largely in favour of the
merger. SoftBank looked to hold at least 20 percent in the merged
entity. It had offered to buy out founders Kunal Bahl and Rohit
ap
Bansal's stake in Snapdeal for USD 50 million.
May 2: Squabbles between Snapdeal’s internal investors cause a
delay.
May 11: Snapdeal agrees to a non-binding letter of intent (LoI) for
a merger with rival Flipkart. This document is usually signed to
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map out the contours of the deal, followed by due diligence and
other procedures.
May 12: It was reported that Snapdeal co-founders Kunal Bahl
and Rohit Bansal were likely to receive USD 30 million in cash
each after their exit from the company.
May 15: The All India Online Vendors Association (AIOVA)
requested the government to stall the deal, citing pending dues and
financial disputes.
May 24: Japanese investor SoftBank buys out stake of Kalaari
Capital in Snapdeal. The merger looked set to be completed by

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June.
May 30: Snapdeal's Human Resources (HR) head quits ahead of
deal with Flipkart.
June 13: Snapdeal talked of a plan B in the event of the deal
falling through. This involved another round of layoffs which
would have impacted 600 to 1,000-odd employees.
June 19: Snapdeal believed that Flipkart should add USD 150-200
million for subsidiaries Vulcan and Unicommerce to the then
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valuation of USD 1.1 billion.
July 4: Flipkart offers USD 550 million to take over Snapdeal.
Snapdeal SVP Business Finance quits.
July 7: Flipkart asks for 30 more days to get back to Snapdeal with
pi a fresh offer for an all-stock acquisition.

July 17: Flipkart makes an official revised offer of USD 900-950
million for Snapdeal.
July 22: Snapdeal founders aggressive on plan-B as Flipkart deal
ap
appears in limbo.
July 26: Sources claim that Snapdeal has approved Flipkart's USD
900-950 million buyout offer.
July 28: Snapdeal board decides to let all the two dozen
stakeholders take a call on whether to accept the Flipkart offer after
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the term sheet holds all Snapdeal employees liable for any
wrongdoings in the firm. Also, Axis Bank buys Freecharge from
Snapdeal for Rs 385 crore.
July 31: Snapdeal-Flipkart merger called off, plan-B with layoffs
and consolidation as the key strategy comes into force.
Where does this leave Snapdeal?
A merger with the muscled Flipkart would have meant resolution of
some, it not all, of its problems. Going solo, Snapdeal must ensure
industry-beating operational efficiencies, low or zero cash burn,

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far less flab in terms of employee

strength and a flowing funding tap if it
wants to have a serious shot at a
turnaround.
Online commerce companies, such as
eBay (now part of Flipkart) and
Alibaba-backed Paytm Mall, have been operating on the pure
marketplace model, i.e., they act merely as a seller-buyer platform
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and don’t store any goods. However, most e-tailers in India,
including Flipkart and Amazon, operate what is called a ‘managed
marketplace’ or hybrid model. It’s a mix of marketplace and
pi inventory-involved e-commerce operations. In fact, even Snapdeal

ran a pure marketplace till Amazon’s onslaught forced it and its
arch-rival Flipkart to go hybrid.
Founder Bahl has long been an advocate of the zero-inventory
ap
model. However, the pioneer of true marketplace eBay, for
example, couldn’t even compete with the might of Flipkart and
Amazon in India. (On Tuesday, it was reported that the company
completed its merger with Flipkart.) It rolled its India business into
Flipkart earlier this year, with the US parent putting additional
money into the homegrown e-tailer.
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“All of them [e-tailers] have realised that operationally and for

customer service, a pure-play marketplace is very complex. There is no
control on inventory, logistics or delivery. The cost of retaining
customers is huge,” said Satish Meena, analyst at Forrester Research to
VCCircle.
Other experts want to wait and watch what Snapdeal actually does on
this front.
“Whatever has been released by Snapdeal on version 2.0 is only a

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statement of intent. It’s going to be a new business…so maybe in a

year’s time, we would get to know if it’s working out,” says Arvind
Singhal, chairman of retail consultancy Technopak.
Clearly, the new model might kick in a few efficiencies here and there,
but saying it will be a panacea for all that ails Snapdeal would be
jumping the gun.
After the deal fell through, Snapdeal’s biggest investor SoftBank that
was orchestrating the merger, said it “respected the decision to steer
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the company in a different direction”.
However, SoftBank’s eagerness to push for a sale of the troubled e-
commerce firm, evident also from its willingness to engage in six
pi months of excruciating discussions with multiple shareholders,

suggests it might have lost faith in its bet.
The aforementioned company official corroborated this. He said there
was no funding commitment from SoftBank, and neither did the
ap
company have any expectations. “Obviously costs are coming down
and it expects to make profits at the operating level, so there is no
intention to raise funds as of now,” he added.
Meanwhile, Reuters has reported that SoftBank is still in talks to invest
in Flipkart – despite the collapse of merger discussions – but it would
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do so through its Vision Fund.

The collapse of the merger deal has also come as a blow to most of
Snapdeal’s 25-plus institutional investors, whose investment has
soured badly. It is unclear if they will keep backing a company
whose performance has been ordinary in the last couple of years,
whether it’s high cash burn, falling orders, or nosediving valuation.
However, a third person close to the developments at Snapdeal said
early investor Nexus was in favour of the company running as an
independent entity. It is yet to be ascertained if Nexus will commit

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any funding going forward.

Snapdeal, which sold its digital payments unit FreeCharge for $60
million to Axis Bank last week, plans to divest its logistics arm Vulcan
Express for up to Rs 200 crore. A sale is expected within the next 30-
40 days, people close to the company say. The fate of Unicommerce,
an e-commerce management software and fulfilment solutions
provider that Snapdeal acquired in 2015, remains uncertain.
Proceeds from subsidiary and asset sales might shore up Snapdeal’s
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coffers for a few months, but it remains to be seen how the company
extends its runway.
Who are the real winners?
pi The founders of Snapdeal have been

fighting hard to keep control of their
companies or striving to come back in
more prominent roles after a period in
ap
which investor SoftBank Group Corp.,
called the shots.
On Monday, Snapdeal founders Kunal Bahl and Rohit Bansal
walked away from Flipkart. The decision to end talks with Flipkart
marked a win for the Snapdeal founders, both of whom were
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against the sale to their arch-rival from the start. Bahl and
Bansal have, for now, won the bitter boardroom battle against
SoftBank, Snapdeal’s largest investor, which was pushing for
the sale.
The recent events at Flipkart, Snapdeal and Ola reveal the fault
lines in India’s fledgling start-up ecosystem that has failed so far—
with a few exceptions—to deliver attractive exits to investors.
In the go-go years of 2014 and 2015, when valuations of Indian
Internet jumped manifold, critics warned that founders in India

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had diluted too much of their stakes in the hunt for higher and
higher valuations. These entrepreneurs were left with single-digit
ownership individually in their start-ups after raising billions of
dollars in capital from Tiger Global, SoftBank and others.
Yet, some of India’s top entrepreneurs also received large pay-outs
from investors. Flipkart’s Binny and Sachin Bansal have made
hundreds of crores of rupees by selling their shares, while
Snapdeal’s Bahl and Bansal, too, have made at least Rs. 300
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crore in bonuses and share sales, three people familiar with the
matter said.
These payouts were given to ensure entrepreneurs stay motivated
enough to run the firms despite having little ownership left. Yet,
pi Flipkart, Snapdeal and even Ola have failed to live up to investor

expectations to varying degrees. Flipkart and Ola have seen their
valuations drop by nearly a third from their peak in 2015 while
Snapdeal has seen both its business and valuation collapse.
ap
The two investors hit hardest by the struggles of these start-ups are
Tiger Global and SoftBank, which have together invested more than
$5.5 billion in Indian internet companies. Over the past 18 months,
Tiger and SoftBank have acted ruthlessly at times to protect their
interests.
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How will this impact the employees?

Snapdeal's parent Jasper Infotech has been
hard at work chalking out a survival plan
that likely entails letting go of a
significant portion of its workforce.
As per its remodelled severance
package, several employees are being asked to leave without
notice on one month's salary and one month's severance

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package, as opposed to three months severance pay promised in

February, according to Snapdeal employees ET spoke with.
The company let go of nearly 600 employees earlier this year and
currently has about 1,300 employees.
The Snapdeal 2.0 strategy put forth by co-founders Kunal Bahl and
Rohit Bansal has been bolstered following a meeting between
Bansal and the management of Japanese ecommerce and internet
company Rakuten for an investment as recent as a few weeks ago,
ly
said a person aware of the discussions. Rakuten did not comment
on the talks. Snap deal declined to reply to email queries sent by
ET.
A leaner Snapdeal will focus on its top product categories with a
pi fraction of its earlier team strength. Three Snapdeal employees said

they each had been promised retention bonuses and asked to stay
back when they had earlier planned to leave for other jobs. But on
Monday morning, these three employees received emails asking
ap
them to leave.
A person aware of the Snapdeal management's plans, however, said
the company might see attrition among mid and junior-level
employees.
Apart from the anticipated layoffs, the platform will also begin
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consolidating categories that would result in a smaller business.

The founding team of Snapdeal, who have been in a tug of war over
valuation with Flipkart and SoftBank, will be required to prove the
goal of achieving gross profitability of Rs 150 crore over the next 12
months, as stated by Bahl in a letter to employees on Monday.
—– | —–

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INDIA - BUSINESS / Ecommerce / Ola digests

Foodpanda
20-Dec-2017
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pi Ola’s rivalry with Uber has just entered the next level. Seven months
after Uber launched its on-demand food delivery app UberEATs in
ap
India, Ola on December 19 announced that it would acquire
Foodpanda’s India business for an estimated $50 million. The
struggling but attractive food delivery startup is likely to get an
additional $200m in investment. Though this is a bargain deal for cash-
rich Ola, there isn’t much synergy to be reaped from the deal.
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What is the acquisition?

Uber rival Ola is set to re-
enter the food delivery space,
and this time by acquiring
Foodpanda. The cab
aggregator has bought the
India business from Foodpanda’s Germany-based parent Delivery
Hero Group.
Neither of the companies has announced what the deal is worth, but

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reports claim that it is likely to be a ‘stock-based acquisition at

under $50 million’. Ola has also committed to invest a further
$200 million as it readies to take on immediate rival
UberEATS, and incumbent players like Zomato and Swiggy.
“I’m excited about our partnership with Delivery Hero as we team
up to take Foodpanda India to the next level. As one of India’s
pioneers in the food delivery space, Foodpanda has come to be a
very efficient and profit focused business over the last couple of
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years,” Bhavish Aggarwal, co-founder and CEO at Ola said.
“Our commitment to invest $200 million in Foodpanda India will
help the business be focused on growth by creating value for
customers and partners.”
pi Post the acquisition, CEO of Foodpanda, Saurabh Kochhar, has

left the company. In the meantime, founding partner Pranay
Jivrajka has been appointed as the interim CEO of Foodpanda. “I
also thank Saurabh Kochhar for building a wonderful team at
ap
Foodpanda India over the last couple of years and wish him the
very best in his new endeavors,” Aggarwal added.
In October, Ola raised $1.1 billion in funding from the likes of
SoftBank, Tencent and others. Banking on this investment, the
company has bought what is considered to be the third-largest
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player in the food delivery business in India.

Niklas Östberg, Chief Executive Officer and Co-founder of
Delivery Hero AG, said in a press statement, “the partnership with
Ola will allow us to further consolidate markets where it
strategically makes sense to collaborate with leading local players.
At the same time, we consider our stake in Ola as a very valuable
asset, while Ola’s investment commitment in Foodpanda India is a
clear and confident signal to the Indian market.”
While it is clear Ola is looking at diversifying its range of services, this

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is not the first time the company has ventured into the food delivery
space. Back in 2015, the company had launched Ola Cafe, but the
venture never really picked up. This time around, Ola will be able to
leverage Foodpanda’s brand and reach. The food delivery service
claims to have around 12,000 restaurant partners in over 100 cities.
Given that this time it is pegging its fortunes to a business with scale,
Ola just might emerge second time lucky.
Why is the food delivery industry
ly
seeing action again?
The move signifies Ola’s interest in the
lucrative online food ordering market in
pi India that is expected to grow at a

compound annual growth rate of
about 60% over the next five years and hit a gross merchandise
value (GMV) of $2.5-3.5 billion by 2021.
ap
With this service, Ola is trying to battle its direct rival Uber, which
started its food delivery service UberEATS, which was started in
India with Mumbai in June 2017, and then later expanded to
Gurgaon, Bangalore, Chennai, Chandigarh, Delhi, and Hyderabad.
Besides that, players like Swiggy and Zomato are dominating the
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food delivery space. Zomato had started its online ordering service
back in March 2015, Swiggy was founded in August 2014, and is
currently available in 8 cities (including Ahmedabad), and
Zomato’s food delivery is currently live in 15 cities in India. It
claims to have over 9000 restaurant partners live on its platform.
For the month of July, Zomato surpassed 3 million online
orders, also reported food ordering revenues of $9 million for
the financial year ended 31st March 2017 (FY17), around 8
times of FY16. Swiggy claims to stand ahead of Zomato with 4
million orders per month.

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“Food delivery is one of the fastest-growing segments in the

Internet business space,” said Jaspal Singh, a partner at research
and advisory firm Valoriser Consultants. “Foodpanda already has
a brand name, delivery network, and existing restaurant partners,
so Ola will not need to develop the business from scratch.”
Meanwhile, the food delivery segment in India has itself been plagued
by shutdowns, layoffs, and downsizing. It has also seen casualties like
TinyOwl, Dazo, and Eatlo. Even bigger players like Swiggy and
ly
Zomato have had to take drastic measures to survive, including laying
off hundreds of employees. Besides facing competition from their
peers, they also have to fight bigger and deep-pocketed food chains
pi like Pizza Hut and Domino’s, which have their own robust delivery
services.
When does the sector make business
sense?
ap
With a population of over 1.2billion,
India is undeniably one of the biggest
consumer markets in the world today.
Moreover, 50% of this population fall
under the age of 25, and 70% below the age of 35 years; making India
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among the youngest population in the world too. Most of the fast food
demand comes from age group 18-40 years. What’s more, by the year
2025 the Indian middle-class demographic is expected to touch 550
million. Young India’s appetite is one of the key drivers for
demand in the food and beverage industry on the whole.
With an increasing number of young Indians being productively
employed in lucrative industries, sectors like IT services have
upped the living standards and made their wallets fatter too.
The World Bank reports a staggering 50% increase in per capita

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income since 2006 until now. Urban India sees a visible change in
the social setting, which further fuels the advance of fast food
restaurants in India. Higher disposable income is also a key driver
for other subcategories of food products too. With dual-income
families, now urban India sees both parents bring home salaries,
thus changing the way people live drastically; with changes in
routines, lifestyle and food habits.
The demand for quick access to food with affordable rates is on the
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rise. Time crunches and the rise of nuclear families, which
comprise 92% of the total number of families in India today, make
it imperative to save time and energy that would otherwise go into
cooking up a meal at home every day of the week.
pi With more people using smart phones, increasing literacy and

access to the Internet, the fortunes waiting to be reaped from the
business of home delivery are just a click away. The changing
urban lifestyle of the average Indian is dramatic enough to be
ap
favourable for the food-on-the–go and quick home delivery
models to grow at higher rates. The ever-increasing population
crowded metro cities and longer travel times are drivers for the
convenient, ready-to eat and cheaper options of having food and
groceries delivered at your doorstep.
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Companies that are aware of the huge potential for growth may venture
straight in, but only the fittest will survive. Businesses who keep their
value proposition and their brand active in consumer’s minds, will take
the biggest share of the Indian online food service pie.
Where, then, are the reasons for the
panda’s struggle?
Foodpanda has had many crises over
the last couple of years:

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Layoffs: Foodpanda laid off 300

people in December 2015, about 15% of its workforce.
Fake restaurants: A publication exposed that the company claims
that it has more than 12,000 registered restaurants, but in truth the
real number was only around 2,000. It also uncovered a tout
allegedly named Sunny Goel, who is said to have set up around 70
fake restaurants. Goel circumvented Foodanda’s verification
process and set up fake restaurants across Gurgaon, Noida and
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Meerut, among others. The company also continued taking and
processing orders for restaurants that had long been shuttered.
Fake orders: If fake restaurants were not a big enough problem,
the company also ran into issues with fake orders. The publication
pi cited an example of Gurgaon-based La Pizza Mill, which claims to

have delivered 250 each day, and asked Foodpanda to reimburse
Rs 1.25 lakh. While this sounds fishy, Foodpanda had no way of
proving it, and had to pay up.
ap
Ethics, or the lack of it: Maintaining ethical standards isn’t a top
priority for Foodpanda as an article in LiveMint revealed through
an example. Rather than involving a well-known ad agency, the
company roped in Crazy Boyz Entertainment Pvt. Ltd. While
there’s nothing wrong with hiring a newbie, it turns out that
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Foodpanda co-founder and MD, Rohit Chadda, was also the

director of the ad agency. His partners included brother Mohit
Chadda and one Suraj Suresh Joshi. Crazy Boyz’s portfolio only
includes the Foodpanda campaign, yet was awarded a contract of
Rs 3 crore.
Workforce: Foodpanda’s customer care was outsourced to
Capricorn eServe, a small call center in Gurgaon. According to a
report, Foodpanda was paying a salary for 200 odd customer care
executives, but at any given time not more than 60-70 employees
were ever present in the office. Moreover, according to documents,

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the call center was set up in July 2015, but Foodpanda has been
paying for these employees for quite a long time. Hmm….
Lack of customer service: It is also alleged that Foodpanda is not
giving adequate care to customer grievances. Complaints refer to
food quality, money reimbursement and non-delivery of orders. To
be fair, this is typical of the food delivery sector in India.
Who are the new food sellers?
Cab aggregators.
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India’s homegrown taxi giant Ola does not
want to stop at ferrying people around—
and has now made its intentions clearer
pi than ever before.

Consumer demand for convenience and access to a wide variety of
food is driving innovations in the food delivery space, with
restaurant brands rushing to offer their own delivery services or
ap
team with companies offering on-demand delivery. Delivery
companies are transporting meals in all sorts of ways, from cars to
scooters and bicycles, but the cab aggregators are tapping into a
network of drivers already on the road to connect people with
their food.
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Mobility start-ups with terabytes of data on local routes and

consumer app usage patterns are generally believed to be better
placed in running a delivery business. The cab companies are
sitting on a mountain of data that can be ruthlessly exploited to
offer customized food options to the commuters, who - no surprise
here - also eat.
Food delivery is most popular among millennials, and delivery
meals represent about one-fifth of the demographic’s
foodservice occasions, compared with a tenth of occasions for

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Baby Boomers, according to research from Technomic. Millennials

are also the largest customer segment for on-demand ride apps,
with younger millennials being the heaviest users, according to a
Skift survey. Utilizing the growing network of on-demand drivers-
for-hire to deliver meals was a logical next step for cab
aggregators.
The thinking, to be rude, is elementary: since we already have the
delivery boy, why not deliver food?
ly
How much financial sense does this deal
make?
The Foodpanda acquisition hints at the
pi beginning of the highly anticipated

consolidation of Indian Internet businesses.
After a lull of nearly two years, Indian
unicorns (those valued abve 1 billion USD) benefited from a funding
ap
spree during 2017. E-commerce major Flipkart raised around $4
billion in two tranches, while digital payments unicorn Paytm
raised $1.4 billion in May. Ola also raised $1.8 billion during the
year.
And with growth in their existing businesses slowing, it is widely
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expected that these companies will use this money to give their
earnings an inorganic boost. There has been much talk of some of
India’s biggest startups buying out companies in their non-core
businesses like hyperlocal services, insurance and wealth
management, and food delivery.
Foodpanda India reported a 64 percent increase in revenue at 621.6
million rupees (62.16 crore or $9.7 million) for the fiscal year
ended March 31 and losses narrowed to 448.1 million rupees
(44.81 crore) from 1430 million rupees (143 crore) in the year-ago

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period. That simply means that the food they supply reaches your
home by burning investors’ money.
Foodpanda will be able to leverage a lot of Ola’s strengths across
customer reach of more than 100 million Indian customers and
logistics capabilities and technology, giving a structural advantage to
Foodpanda India over its peers.
One immediate benefit that Ola could derive from this
acquisition is for its digital payments business, Ola Money. The
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payments services, launched primarily for Ola ride-hailers, was
expanded to include several other merchants in 2015.
Competing with larger rivals like Paytm and Mobikwik, Ola has
pi been trying to bring more merchants to transact on Ola Money.

Currently, a customer can use Ola Money to pay at Domino’s,
Pizza Hut, Cafe Coffee Day, BookMyShow, and OYO Rooms,
among others. Now, Ola is likely to integrate Ola Money with
ap
Foodpanda, too. Besides, it may be able to utilise its bike-rental
service, Ola Bikes, and bicycle-rental service, Ola Pedal, to
make food deliveries.
Yet, food delivery does not have many direct synergies with Ola’s
core taxi-booking business. Services like grocery delivery and
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logistics, which Ola earlier experimented with, can be easily integrated

with taxi-hailing in the long run as the company could use its existing
fleets for these businesses. This could help Ola improve vehicle
utilization. “When they bought TaxiForSure (in 2015), it made
complete sense because it was an allied business and it led to lesser
competition. But was Foodpanda the best use of their money? Only
time will tell,” Yugal Joshi, practice director at Everest Group, said.
They have the money; they have the drivers; people have smartphones;
India is a hungry nation; and Uber has launched UberEATS. They

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might as well buy Foodpanda, which was up for taking anyway.

—– | —–
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pi
ap
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INDIAN ECONOMY / Iranian oil for Indian

economy
16-Jan-2017
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pi India’s annual oil imports from Iran surged to a record high in 2016 as
some refiners resumed purchases after the lifting of sanctions against
ap
Tehran, according to ship tracking data and a report compiled by
Thomson Reuters Oil Research and Forecasts. The sharp increase
propelled Iran into fourth place among India’s suppliers in 2016, up
from seventh position in 2015. Iran used to be India’s second-biggest
supplier before sanctions.
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What are the recent findings about

India’s oil imports?
Overall, India imported 4.3 million
bpd oil in 2016, up 7.4 percent from the
previous year.
Saudi Arabia remained the top
supplier to India last year followed by Iraq and Venezuela.
Imports from Latin America declined for a second year, with its
share of imports shrinking to about 16 percent from 18 percent,

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while Africa’s share fell to about 15 percent from a fifth.

Iran’s share of Indian oil imports surged to 11 percent in 2016
from 5 percent in 2015.
India’s annual oil imports from Iran surged to a record high in 2016 as
some refiners resumed purchases after the lifting of sanctions against
Tehran, according to ship tracking data and a report compiled by
Thomson Reuters Oil Research and Forecasts.
The sharp increase pushed Iran into fourth place among India’s
ly
suppliers in 2016, up from seventh position in 2015.
Not long ago, Iran used to be India’s second-biggest supplier
before sanctions.
pi For the year, India, the world’s third biggest oil consumer, bought
about 473,000 barrels per day (bpd) of oil from Iran to feed
expanding refining capacity, up from 208,300 bpd in 2015, the data
showed.
ap
In December, imports from Iran trebled from a year earlier to about
546,600 bpd.
In April-December, the first nine months of this fiscal year, Iranian
supplies to India averaged a record 530,300 bpd, up from about
400,000 bpd before sanctions tightened against Tehran.
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India’s 2016 Iranian oil imports were the highest in at least six
years, according to the Reuters data.
Government data going back over a longer period shows the
average was the highest since the 2001-02 fiscal.
Note: In 2015 refiners had slowed purchases due to sanctions which
choked payment routes, insurance and halved Iran’s exports. Indian
refiners Reliance Industries, Hindustan Petroleum, Bharat Petroleum
and HPCL-Mittal Energy Ltd (HMEL) last year resumed imports from
Tehran, attracted by the discount offered by Iran.

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Why are these good days for Iranian

economy?
Iran’s economy has slowly but
measurably rebounded in the year
since Tehran signed a historic nuclear
deal with the world’s six major
powers.
The two most tangible changes have been the increase in oil
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exports – which have nearly doubled since sanctions were lifted on
Jan. 16, 2016 – and the dozens of foreign trade and investment
deals Iran has negotiated.
pi In June, Iran even reached a tentative $17.6 billion deal with

Boeing, the world’s largest aircraft manufacturer, to purchase
passenger planes.
The International Monetary Fund (IMF) has predicted between
ap
4% and 5.5% growth in 2016 – up from the 1.3% growth it had
predicted for 2016 before the deal was signed.
The IMF also predicted that average inflation will drop from
15.1% in the 2015-2016 Iranian fiscal year to 11.5% in the
2016-2017 fiscal year.
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Chinese President Xi Jinping visited Iran on January 22, 2016 and

signed 17 agreements.
Two days later, Iranian President Hassan Rouhani embarked on
his first trip to Europe, where he inked deals worth $43 billion with
French and Italian companies.
In January this year, Iran also finalized a deal with European
aircraft manufacturer Airbus to deliver more than 100 commercial
jets to Iran.
Foreign Direct Investment (FDI) could total $8 billion by
March 2017, according to Seyed Hossein Salimi of the Iranian

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National Committee of the International Chamber of Commerce. In

2015, FDI could only reach around $2 billion.
When did the world impose sanctions
on Iran?
United States Sanctions
1979 – As a result of the hostage crisis
in 1979, the U.S. government froze
ly
Iranian government assets in the
United States and U.S. banks overseas, totaling $12 billion,
according to the U.S. Treasury. That freeze was eventually
expanded to a full trade embargo until an accord was signed with
pi Iran in 1981. Most assets were unblocked and the embargo was
lifted.
1987 – United States imposed a new embargo on Iranian goods and
services, “as a result of Iran’s support for international terrorism
ap
and its aggressive actions against non-belligerent shipping in the
Persian Gulf.”
1995 – United States banned “involvement with petroleum
development in Iran.” Two years later, the United States banned
“virtually all trade and investment activities with Iran by U.S.
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persons, wherever located.”

2010 – United States passed the Comprehensive Iran Sanctions,
Accountability, and Divestment Act. It revoked, for example,
permission to import “certain foodstuffs and carpets of Iranian
origin.” Those who violated the law could face a fine of up to $1
million and 20 years imprisonment.
2011 – United States added further sanctions, including tightening
restrictions on companies that provide Iran with equipment and
expertise to run its oil and chemical industry. It prohibited groups
that do business with financial institutions in Iran from holding

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accounts in the United States.

November 2013 - Iran and the P5+1 signed an interim agreement
known as the Joint Plan of Action (JPA) that provided some
sanctions relief and access to $4.2 billion in previously frozen
assets in exchange for limiting uranium enrichment and permitting
international inspectors to access sensitive sites.
United Nations Sanctions
2006 onwards – Material related to Iran’s “proliferation-sensitive
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nuclear and ballistic missile programs” were embargoed.
One of the resolutions banned the export or procurement “of any
arms and related material from Iran.”
pi A long list of individuals and entities were subjected to a travel ban

and assets freeze. “The assets freeze also applies to any individuals
or entities acting on behalf of, or at the direction of, the designated
persons and entities, and to entities owned or controlled by them.”
ap
European Union Sanctions
2010 – The European Union put in place a series of sanctions,
targeting the oil and gas industry, nuclear industry, financial sector
and more.
Measures put in place included restrictions on “equipment which
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might be used for internal repression,” the official text said.

2012 – The European Union announced it will ban the import of
Iranian crude oil and petroleum products.
Assets of Iran’s central bank in the European Union were frozen,
and trade with Iran in gold, diamonds, and precious metals was
blocked.
The export to Iran of “key” petrochemical equipment and
technology from the European Union was blocked.
Where are the reasons for India getting close to Iran?

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There is a strong historical root between

India and Iran.Apart from being
intrinsically linked through culture
and traditions, Iran is important for
India strategically as well as
economically.
Energy Imports
Iran is among the world’s largest suppliers of oil and natural gas
ly
which makes Iran an invaluable supplier of fuels.
Chabahar Angle
pi Chabahar port will make way for India to bypass Pakistan in

transporting goods to Afghanistan using a sea-land route.
At present, Pakistan does not allow India to transport through its
territory to Afghanistan. It has, however, recently allowed some
Afghan shipments to come to India.
ap
This will also give momentum to the International North-South
Transport Corridor of which both are initial signatories along with
Russia. Iran is the key gateway in this project. It entails the ship, rail,
and road routes for moving freight between India, Russia, Iran, Europe
and Central Asia. The route primarily involves moving freight from
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India, Iran, Azerbaijan and Russia. The objective of the corridor is to

increase trade connectivity between major cities such as Mumbai,
Moscow, Tehran, Baku, Astrakhan etc.
It would counter Chinese presence in the Arabian Sea through
the support to Pakistan in developing Gwadar port.
It can be used to station security vessels for merchant ships off
the African coast apart from giving the country a foothold in the
western Arabian Sea, which is important as many of its energy
imports pass through the route.

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Who is keeping Iran interested in

India?
The one billion-strong country is
pivotal for Iranian interests as Tehran
emerges from its economic and
political isolation. Iran has three main
goals in its relations with India.
Firstly, Iran will seek to use its influence within India to discourage
ly
Delhi from aligning with a belligerent Trump presidency, which is
set to harden Washington’s line against the nuclear deal in the Joint
Comprehensive Plan of Action (JCPOA).
pi The US-India Peaceful Atomic Energy Cooperation Act, known as

the Hyde Act, contains a ‘‘Statement of Policy’’ which includes
provisions that ensure India’s support for US policies regarding the
Iranian nuclear issue.
ap
According to the Act, India is “to dissuade, isolate, and if
necessary, sanction and contain Iran for its efforts to acquire
weapons of mass destruction, including a nuclear weapons
capability and the capability to enrich uranium or reprocess
nuclear fuel and the means to deliver weapons of mass
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destruction.”
Although Presidents Bush and Obama treated this provision as an
advisory rather than a central aspect of policy, President Trump is
likely to demand far more loyalty from India in confronting
Iran’s military power.
Secondly, Iran will want to deter India from further strengthening
its relationships with Israel and the Arab Gulf states.
India is a major customer for Israel’s defense industry, while Israel
has assisted India with satellite imagery for defensive purposes

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against Pakistan, notably in the 1999 Kargil War.

Israel is also bartering for India’s friendship in dealing with Iran’s
military aggression, particularly on the JCPOA.
Meanwhile, the Gulf states play a crucial role in supplying India
with oil as well as hosting a massive population of expatriate
workers, who remit vital sums of hard currency.
These ties with Iran’s Middle Eastern rivals chafe with Iran’s
strategic interests.
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Thirdly, Iran sees the Indian market as a lucrative destination for
exports as well as a crucial source of investment for infrastructure
and industrial projects; the resumption of sanctions would imperil
pi those interests.
India has pledged investments in a number of projects, notably the
Chabahar port in the Gulf of Oman, but progress is painfully slow.
Delhi is also keen to forge closer relations with Tehran with Iran
ap
giving it an alternative source of energy supplies with oil
procurement increasingly molding its foreign policy.
Both governments also share concerns over Pakistan’s influence in
Afghanistan. Iran will also want to deepen this economic
partnership in order to diversify markets and wrest itself from
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dependence on China.
How have India-Iran relations
progressed through all these
years?
Iran aligned with CENTO while
India founded NAM
After independence and
creation of Pakistan, India lost the geographical boundaries with
Iran and this brought distance between the two nations.

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Iran signed the US led Central Treaty Organisation (CENTO)

where as India founded Non Align Movement (NAM) which
allegedly had proximities to the Soviet Union.
Inception of Pakistan
Pakistan’s creation did affect India-Iran relations.
Although Pakistan has a majority Sunni Muslim population,
it’s India that has the second largest population of Shias after
Iran.
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But despite this fact, the relation between the two countries
remained less than cordial.
End of Cold War
pi End of Cold War and death of Supreme leader Ayatollah Khomeini

opened a window of opportunity for India to clear
misunderstandings and upgrade its relationship with Iran.
Islamic ties with Pakistan notwithstanding, Iran began to cultivate a
ap
strong relationship with India.
Bilateral relations also remained extremely cordial during Iran’s
years of global chastisement for its nuclear program, with the
exception of a short period during which India was unable to deal
with the dynamic of Iran-U.S. divergence.
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India voted against Iran in United Nations

In 2009, India under the pressure from US, voted against Iran in a
resolution passed by UN watchdog for atomic expansion IAEA
censuring the Islamic nation over its controversial nuclear program.
When India ignored US and bought Iran’s oil
India is the third biggest buyer of crude oil in the world.
In 2013, US kept pressurizing India to stop buying oil or
completely freeze its economic relations with Iran.

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But, unlike in 2009, India didn’t bow to US pressure and continued

to buy oil from Iran.
Obama’s arrival and halt on oil import
In January 2015 before the signing of historic nuclear deal between
Iran and P5+1 comprising Britain, China, France, Russia, US and
Germany, India for the first time in the last decade halted oil
import which irked Iran.
ly
Chabahar indispensable for India
After the much hyped Economic Corridor from China to Pakistan’s
Gwadar port (CPEC), developed by China, and which can be used
pi to station nuclear submarines in time of war against India,

Chabahar acts as a counter.
India constructing Chabahar Port would provide the country with a
new gateway to Afghanistan, Middle East and Central Asian
countries for better trade relations.
ap
—– | —–
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INDIAN ECONOMY / Can India reclaim Low

Skill Manufacturing?
3-Feb-2017
ly
pi The rising wage level in China has given India a “narrow window of
opportunity” to boost its apparel and leather sectors. These sectors
ap
meet many desirable attributes for policy attention like creating half a
million additional direct jobs every year, especially for women,
opportunities for exports and growth. Economic Survey 2016-17
highlights the challenges faced by these sectors and emphasizes their
potential to become vehicles for broader social transformation in India.
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What is the present status of apparel and

leather industries in India?
Apparels
As per the data published by Ministry of
Textiles in its annual report 2015-16,
India is ranked as the 6th largest
exporter of apparel in the world after China, Bangladesh, Vietnam,
Germany and Italy.
It is the largest segment of the Indian Textile and Clothing Industry

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and accounts 60-65% of the total Industry.

It is one of the largest sources of foreign exchange flow into the
country. It accounted for around 4.78% share in the country’s total
exports in 2013-14.
Textiles and apparel exports from India are estimated to increase to
US$ 65 billion by 2016-17 from US$ 40 billion in 2013-14.
Cotton, silk and denim being highly popular abroad and with the
upsurge in Indian design talent, Indian apparel too has found
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success in the fashion centres of the world.
Leather
The Indian leather industry accounts for around 12.9% of the
pi world’s leather production of hides/skins.

About 2.5 million people are employed in the $12 billion leather
industry of India.
The country ranks second in terms of footwear and leather
ap
garments production in the world. India’s share of leather footwear
exports in the world market is more than double the share of non-
leather footwear.
However, India exported leather and leather goods worth $5.92
billion against $6.58 billion for the year-ago period, marking a
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negative growth of 10.11% during April 2015 to March 2016.

Domestic demand is expected to grow steadily. As per Council for
Leather Exports, per capita footwear consumption in India is
expected to increase up to four pairs, while domestic footwear
consumption is expected to reach up to five billion pairs by 2020.
Why should India focus on increasing exports in Clothes and
Shoes?
The apparel and leather and footwear sectors are eminently suitable
candidates for targeting because they can generate jobs that are formal

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and productive, have the potential for

broader social transformation, and
can boost exports and growth.
India has an opportunity to promote
these sectors because of the rising
wage level in China that has
resulted in China stabilizing or losing market share in these
products.
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India is well positioned to take advantage of China’s deteriorating
competitiveness because wage costs in most Indian states are
significantly lower than in China.
pi Apparels are 80-fold and leather goods are 33-fold more

labour-intensive than autos and 240-fold and 100-folds more
labour-intensive than steel.
In the successful East Asian economies, countries where GDP
ap
growth averages between 7 and 10%, there has been rapid
expansion in clothing and footwear exports.
India, on the other hand, has underperformed relative to the East
Asian competitors during the take-off phase of growth. Its
underperformance is marked particularly in the leather sector.
The organized retail apparel market is growing rapidly due to
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increased consumer spending, high brand consciousness, rising

income and purchasing power, increasing number of dual income
nuclear families, changing lifestyle and consumer behaviour
As per the data published by World Bank in its report, ‘Stitches to
Riches’ in March 2016, India’s apparel market is valued at $40
billion, which is almost entirely produced within the country. If
production for the domestic and export markets are combined,
India’s value jumps to $57 billion, compared with $24 and $20
billion in Bangladesh and Vietnam, respectively.

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When were steps taken by the

government to reform these sectors?
Apparels
The government approved a Rs 6,000-
crore special package for the textiles and
apparel sector to create one crore new
jobs in 3 years, attracting investments of USD 11 billion and
generating USD 30 billion in exports in June 2016.
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The new measures overhaul labour laws, allowing workers to do
overtime of eight hours per week and provide additional subsidy
for garment manufacturers to upgrade technology and expand
pi industries.
In Budget 2016-17, the government had allocated a sum of
Rs.1,480 crore towards the Amended Technology Upgraded
Fund (A-TUF) Scheme incentive and Rs.100 crore under the
ap
Scheme for Integrated Textile Parks (SITP).
The customs duty rate of 5% on specified fibers and yarns used in
the production of apparel was reduced to 2.5%.
The export incentive under the duty draw back scheme had been
increased to 10.5% from previous 7.2% along with 3% interest
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subvention on pre- and post-shipment rupee export credit facility

availed by apparel exporters.
Leather
Indian Leather Development Programme (ILDP) was
introduced in January 2014. It was aimed at augmenting raw
material base through modernisation and technology upgradation
of leather units, addressing environmental concerns, human
resource development, supporting traditional leather artisans,
addressing infrastructure constraints and establishing institutional

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facilities.
Leather has been a focus area under the ‘Make in India’
initiative.
Finance Minister in this year’s budget has announced plans to
launch a scheme for the labour intensive leather and footwear
sector — similar to the existing one for textiles.
Where are the challenges in Indian
apparel, leather and footwear industries?
ly
Logistics: The costs and time involved in
getting goods from factory to destination
are greater than those for other countries.
pi Example: Very few ‘very large capacity

containers’ come to Indian ports to take cargo; so exports have to be
transhipped through Colombo which adds to travel costs and hence
reduces the flexibility for manufacturers.
ap
Labour regulations: Some issues include minimum overtime pay,
burdensome mandatory contributions, lack of flexibility in part-
time work and high minimum wages in some cases.
Tax & Tariff: India imposes a 10 per cent tariff on man-made
fibers vis a vis 6 per cent on cotton fibres. This creates distortions
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that impede India gaining export competitiveness. This is serious

because world demand is shifting strongly towards manmade
fibers and against cotton-based exports. The global demand for
footwear is shifting away from leather footwear and towards non
leather footwear.
Domestic taxes favour cotton-based production rather than
production based on man-made fibers with 7.5 per cent tax on the
former and 8.4 per cent on the latter. Footwear production also has
similar problem with taxes of 20.5 per cent on leather and 27 per

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cent on non-leather footwear

Discrimination in export markets: The window of opportunity is
narrowing as the space vacated by China is fast being taken over by
Bangladesh and Vietnam in case of apparel and by Vietnam
and Indonesia in case of leather and footwear. These countries
enjoy better market access by way of zero or at least lower tariffs
in the two major importing markets, namely, the United States of
America (USA) and the European Union (EU).
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Example: In the EU, Bangladesh exports enter mostly duty free (being
a Less Developed Country), while Indian exports of apparels face
average tariffs of 9.1 per cent.
pi To retain competitiveness, Indian apparel and leather firms are

relocating to Bangladesh, Vietnam, Myanmar, and even
Ethiopia.
Indian apparel and leather firms are smaller compared to firms in
ap
say China, Bangladesh and Vietnam.
Limited availability of cattle for slaughter in India has led to loss
of a potential comparative advantage due to underutilization
despite India having a large cattle population.
Who will benefit from
Kn
reclaiming Low Skill

Manufacturing in clothes and
shoes?
Women
Apparels and Leather sectors
offer tremendous opportunities for creation of jobs, especially for
women. These sectors are female labour intensive in nature.
The opportunity created for women implies that these sectors could
be vehicles for social transformation.

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Case-in-point: In Bangladesh, female education, total fertility

rates, and women’s labour force participation moved positively due
to the expansion of the apparel sector.
Low-skilled labourers
These labourers will benefit as the export-oriented apparel industry
provides significant opportunity for employment creation due to
relatively low skill requirement.
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India
The country will benefit as rapid export growth could generate
about half a million additional direct jobs every year.
pi This can help in government’s vision to maximize the employment

generation and value creation within the country under the ‘Make
in India’ campaign.
How can the challenges faced by these
ap
sectors be addressed?
The role of the government is crucial for
the overall growth of the Indian Apparel
sector and leather industry.India needs to
act fast if it is to regain competitiveness
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and market share in these sectors as the window of opportunity is

narrowing.
India will still need to carefully weigh the benefits and costs of
negotiating new Free Trade Agreements (FTAs) with the European
Union (EU) and the United Kingdom (UK).
It is estimated that an FTA with the EU and UK can lead to
108029, 23156, and 14347 additional direct jobs per annum in the
apparel, leather and footwear sectors respectively.
In the case of apparels, it will offset an existing disadvantage for
India relative to competitors - Bangladesh, Vietnam and Ethiopia

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which already enjoy better market access.

Government should undertake ‘rationalisation’ of domestic policies
which are inconsistent with global demand patterns.
These sectors should be provided a subsidy for increasing
employment. This can be achieved by government contributing
the employers’ 12 per cent contribution to the Employee
Provident Fund (EPF).
Goods and Service Tax (GST) will offer an excellent opportunity
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to rationalize domestic indirect taxes so that they do not
discriminate in the case of apparels against the production of
clothing that uses man-made fibers; and in the case of footwear
against the production of non-leather based footwear.
pi Exporters should be provided relief to offset the impact of state

taxes embedded in exports.
Labour law reforms would overcome obstacles to employment
creation in these sectors.
ap
Employees should be offered three choices when they start
employment: Decide whether they want 12 per cent employee
contribution to be deducted; decide whether their 12 per cent
employer contribution goes to EPFO or National Pension Scheme
(NPS); decide whether their health insurance premiums go to
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Employees’ State Insurance (ESI) or a private health insurance of

the employee’s choice.
Measures must be taken to assist technology upgrade, capacity
expansion and modernisation, and achievement of exports targets.
—– | —–

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INDIAN ECONOMY / The Convergence-

Divergence conundrum
2-Feb-2017
ly
pi Despite rapid growth in India, there is striking evidence of widening
gaps in income and consumption among the Indian states, in sharp
ap
contrast with the rest of the world. This trend is puzzling since the
forces of equalization — trade and movement of people — are stronger
within India than they are across countries. In contrast, health
outcomes are converging. India does well on life expectancy, not-so-
well on infant mortality, and strikingly well on fertility.
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What is the current status of Indian

states in terms of income and health
outcomes?
Income
During the last decade, there has
been an across-the board
improvement with incomes increasing for all the states. For
example, between 1984 and 2014, the least developed state
(Tripura) increased its per capita GSDP 5.6 fold; (from per

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capita GSDP of Rs. 11,537 in 1984 to Rs. 64,712 in 2014) and the
median state (Himachal Pradesh) increased its income level 4.3
fold.
Health and demographic outcomes
The survey considers three health and demographic indicators for the
analysis:Life expectancy, Infant mortality rate, Total fertility rate.
Across these indicators, there have been dramatic improvements:
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over the last 3 decades, the poorest performer (UP) has
increased its life expectancy by 13.8 years, reduced its IMR by
99 points, and lowered its TFR by 2.5 points (with a level of 3.2
TFR in 2014).
pi The corresponding numbers for the median state are: a rise in life
expectancy by 12.5 years (West Bengal), a fall in IMR by 36 points
(Karnataka), and a drop in TFR by 1.8 points (Assam).
Note: Life expectancy at birth (LE) indicates the number of years a
ap
newborn would live if prevailing patterns of mortality at the time of its
birth were to stay the same throughout its life.Infant mortality rate
(IMR) is defined as the number of infants dying before reaching one
year of age, per 1,000 live births in a given year.Total fertility rate
(TFR) is defined as the number of children that would be born to a
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woman if she were to live to the end of her childbearing years and bear
children in accordance with age-specific fertility rates in a given year.
What metric has the survey introduced for making a comparative
assessment of the outcomes?
In order to make a relative assessment that could provide a clear
perspective of these outcomes, the survey adopts a measure called
‘convergence’.
Convergence means that a state that starts off at low
performance levels on an outcome of importance, say the level

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of income or consumption, should see faster growth on that

outcome over time, improving its performance so that it catches
up with states which had better starting points.
It measures the rate of catch-up, in particular whether less
developed states have caught up with richer ones and hence
whether regional dispersion is increasing.
Convergence is an intuitive measure of absolute and relative
performance, allowing national and international comparisons.
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Why is the income divergence in India
surprising?
In terms of income convergence, Indian
pi states offer a striking contrast to the

catch-up that is happening globally -
poorer countries are catching up with the
richer ones - and within China.
ap
For convergence or catch-up to occur, the relationship between
the growth of per capita GDP and the initial level of per capita
GDP (in PPP terms) should be negative because convergence
theory says that the less developed a country is to start off with the
faster it should grow subsequently.
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While the relationship is strongly negative for the world and China,
it is weakly positive for India. (Refer to the figure above).
Since the 1980s poorer countries are catching up with richer
countries, the poorer Chinese provinces are catching up with the
richer ones, but in India, the less developed states are not
catching up; instead they are, on average, falling behind the
richer states.
This stark contrast of divergence within India as compared to the world
and China is puzzling.

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Convergence happens essentially through trade and through

mobility of factors of production. If a state/country is poor, the
returns to capital must be high and should be able to attract capital
and labor, thereby raising its productivity and enabling catch up
with richer states/countries.
According to the theory of comparative advantage, trade is really a
surrogate for the movement of underlying factors of production.
(Nobel Laureate Paul Samuelson pointed out this early on).
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That is, a less developed country that has abundant labor and scarce
capital will export labor-intensive goods (a surrogate for exporting
unskilled labor) and will import capital-intensive goods (a
surrogate for attracting capital).
pi The data on income suggests that India stands as an exception to this

principle.
Within India, where borders are porous, convergence has failed
ap
whereas in China, we observe successful convergence. Even across
countries where borders are much thicker (because of restrictions
on trade, capital and labor) the convergence dynamic has occurred.
The driving force behind the Chinese convergence dynamic has
been the migration of people from farms in the interior to factories
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on the coast, raising productivity and wages in the poorer regions

faster than in richer regions.
Contrary to perception, trade within India is quite high. And so
is mobility of people which has surged dramatically — almost
doubled in the 2000s.
Thus, even though India has porous borders — reflected in actual
flows of goods and people — convergence has not happened.
When do we see some possible explanations for the failure of
convergence in India?

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Even as the underlying forces are in

favor of equalization within India —
namely strong and rising movements
of goods and people — the failure of
convergence is evident. While further
research is required to understand the
underlying reasons of this conundrum, the Survey ponders over
possible reasons.
ly
One possible hypothesis that there might be governance traps that
impede the catch-up process. If that is the case, capital will not
flow to regions of high productivity because this high productivity
pi may be more notional than real.

Poor governance could make the risk-adjusted returns on capital
low even in capital scarce states. Moreover, greater labor
mobility or exodus from these areas, especially of the higher
ap
skilled, could worsen governance.
Another hypothesis, the survey suggests, relates to India’s pattern of
development.
India, unlike most growth successes in Asia, has relied on growth
of skill-intensive sectors rather than low-skill ones (reflected not
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just in the dominance of services over manufacturing but also in

the patterns of specialization within manufacturing).
Thus, if the binding constraint on growth is the availability of
skills, there is no reason why labor productivity would necessarily
be high in capital scarce states.
Unless the less developed regions are able to generate skills, (in
addition to providing good governance) convergence may not
occur.
Both these hypotheses do not provide a satisfying answer and only

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raise an even deeper political economy puzzle as to why the less

developed states are not reforming their governance in ways that would
be competitively attractive. That is, persistent divergence amongst
the states runs up against the dynamic of competitive federalism
which impels, or at least should impel, convergence.
Where are the reasons for health
indicators to converge?
There are reasons to expect convergence in
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health indicators such as life expectancy
and infant mortality rate.
Intuitively, the worse the initial
pi situation, the faster progress will occur not least because many
medical “technologies” such as antibiotics and other medical
practices are commonly available across the world and India.
Also, there are much clearer bounds on health indicators that
ap
would naturally lead to convergence. For instance, once a country
has reduced its infant mortality to near zero, it is fundamentally
impossible for it to experience a drastic reduction while countries
with high mortality rates have much more room for improvement.
This type of natural limit found in Life Expectancy and IMR does
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not exist for income or consumption.

Who is doing better in terms of
health indicators?
The survey examines two key
health indicators – Life
Expectancy (LE) and Infant
Mortality Rate (IMR) – for
analyzing convergence on a global scale as well as within India.
India’s low level of expenditures on health (and education) have

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been the subject of criticism. However, for both indicators of

health, there is strong evidence of convergence within India.
Kerala, which started off with a life expectancy of 73.5 years in
2002, posted an increase of about 1.27 years over 11 years; UP,
which started off with an LE of 60.8 years in 2002, saw a gain
that was twice as large of about 3 years.
Similarly, even more than a decade later, Kerala experienced little
change in its IMR of 11 while Odisha registered a 49 point
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decrease, moving from an IMR of 87 to 38 points.
Globally
In LE, there is strong evidence of international convergence;
pi however, there is also an indication that the Indian states are

making slower progress than the average country.
For example, Kerala’s LE increases by 1.7% in 11 years, whereas
the representative country that started off at the same position as
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Kerala, posted greater gains in LE. This is true for all the Indian
states.
Further analysis shows that the under-performance of the Indian
states was not true of the 1990s, but that owed in part to the AIDS
epidemic that drastically reduced LE in large parts of sub-
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Saharan Africa. The world recovered from that in the 2000s and
seems to have posted stronger gains than the Indian states.
The interpretation is the opposite for IMR.
Nearly all the Indian states posted larger declines in the IMR
than the average country. For example, Odisha registered a 38
point decline in IMR over the 2000s whereas the average country
with similar IMRs in 2002 posted only a 28 point decline (Bihar,
the median state in 2002, reports a drop from an IMR of 61 in 2002
to 42 in 2014.)

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So, there is convergence within India on the two health outcomes and
India does not fare too badly in the 2000s compared to other countries.
Another key comparison — which gives a sense of long run
performance — is simply to compare the level of these two outcomes
today against a country’s level of per capita GDP.
When LE and IMR are plotted against GDP per capita for Indian
states and the world, in LE, the Indian states are doing about the
same or better on average than their international counterparts; but
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for IMR, most states look worse in this international comparison.
In sum, India is doing reasonably well on life expectancy on an
international scale, but on IMR has scope for improvement.
pi How do the Indian states fare in

fertility rates?
12 Indian states out of the
reporting 23 states have reached
ap
levels of fertility that are below
the replacement rate. And, like
in the case of LE and IMR but unlike income, there is evidence of
strong convergence across the states.
Between 2002 and 2014, UP reduced its TFR by 1.3 points
Kn
compared with Kerala that registered an increase and Tamil Nadu

which posted a very small decline.
Again, all the Indian states (with the exception of Kerala) are
performing much “better” (in the sense of more rapid fertility
declines) than countries on average.
The extent to which they are doing better is striking especially
for the high TFR states such as Bihar, UP, MP and Rajasthan.
These states are in fact posting much stronger fertility declines
than is true of the average country.

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All these developments are reinforced when doing a comparison of

Indian states against their international counterparts.
When the level of TFR for countries and the Indian states is plotted
against the level of per capita GDP, the figures show the striking
over-performance of the Indian states.
For their level of development, the Indian states have much lower
levels of fertility than countries internationally.
These fertility developments have strong implications for the
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demographic dividend going forward.
—– | —–
pi
ap
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INDIAN ECONOMY / A gifted democracy, a

fractured society, a poor economy
1-Feb-2017
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pi Since 1980, India’s growth performance has been robust, especially for
a democracy. Yet, there are serious challenges that might impede
ap
further rapid progress which result in part from the fact that India
started out as a poor democracy with deep social cracks - the Economic
Survey 2017 (in Chapter 2) calls it a “precocious, cleavaged”
democracy. Meeting these challenges requires overcoming vested
interests and broader societal shifts in ideation and execution.
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What suggests India is now a ‘normal’

emerging market, pursuing the
‘standard’ Asian development path?
India is open to foreign trade and foreign
capital, matters in which the government is
not overbearing, either in a micro,
entrepreneurship sense or in a macro, fiscal sense.
Openness to Trade

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In general, large countries tend to trade less than small countries.

Being large makes the benefits of trading with the outside world
very low relative to trading within the country.
The opposite is true for small countries: lacking an internal market,
their benefits of trading with the world are relatively large and
hence they tend to have higher trade-to-GDP ratios (exports plus
imports expressed as a share of gross domestic product.)
Large countries such as China, India, Brazil, the United States, and
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Japan have low trade (below 50-55 per cent) ratios.But India
trades far more than would be expected for a country of its size
India’s ratio has been rising sharply, particularly over the decade to
2012, when it doubled to 53 per cent; the recovery from the global
pi financial crisis in 2008 was also swift. As a result, India’s ratio

now surpasses China.
Openness to foreign capital
ap
Despite significant capital controls, India’s net inflows are, in
fact, quite normal compared with other emerging economies
India’s FDI has risen sharply over time. In fact, in the most recent
year, FDI is running at an annual rate of $75 billion, which is
not far short of the amounts that China was receiving at the
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height of its growth boom in the mid-2000s.

Size of public sector enterprises
India’s public sector undertakings (PSU) have been exceptionally
large in the past. However, the scenario has since changed with
India being squarely in the middle of the emerging market pack
when arranged in order of size of public sector.
This is partly because India has allowed the private sector entry
into, amongst others, civil aviation, telecommunications, and
financial services.

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These have all served to reduce the share of the public sector even
if there has not been much exit of the PSU enterprises themselves.
Share of government expenditure in overall spending
India is often accused of having a bloated government sector. But
when the size of government expenditure for a group of countries
is plotted against their per capita GDP, India sits on the regression
line, indicating that it spends as much as can be expected given
its level of development.
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As in other emerging markets, the pursuit of the standard
development path has paid off in terms of growth. In sum, these
standard measures suggest that India is now a “normal” emerging
pi market, pursuing the standard Asian development path.

Why is India’s growth
particularly remarkable?
model
ap
Taking a long view, and recognizing
that India’s reforms actually started
around 1980, the first order fact is that
India has grown at about 4.5 percent
per capita for thirty seven years, an impressive achievement by
any standard.
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This achievement is particularly remarkable because it has been

achieved under a fully democratic political system. The Indian
model of being a perennial democracy after acquiring
independence is rare in post-war economic history – and successes
are rarely democracies.
The only other countries that have grown as rapidly and been
democratic for a comparable proportion of the boom are Italy,
Japan, Israel and Ireland.
Other countries that have grown faster for as long have tended

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to be oil exporters, East Asian countries, and some that

recovered after World War II.
Even rarer, India, at independence, was a very poor democracy.
In fact, India was one of the poorest nations, regardless of
political system, with a per capita GDP of just $617 measured in
purchasing power parity prices (PPP -1990 prices).
The history of Europe and the US suggests that typically, states
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provide essential services (physical security, health, education,
infrastructure, etc.) first before they take on their redistribution role.
That sequencing is not accidental. Unless the middle class in
pi society perceives that it derives some benefits from the state, it will
be unwilling to finance redistribution. In other words, the
legitimacy to redistribute is earned through a demonstrated
record of effectiveness in delivering essential services.
ap
A corollary is that if the state’s role is predominantly redistribution,
the middle class will seek to exit from the state.
One sign of exit is fewer taxpayers. This is abundantly evident in
India.India has very few income taxpayers relative to the voting
age population, especially when compared to other countries, and
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this ratio has risen rather slowly over time.

Despite these inefficiencies, India has managed its affairs remarkably
well.
Different countries had to spend much more what India does
today at comparable income levels, in percent of GDP.
For example, South Korea spent at a per capita GDP level of close
to $20,000 what India spends today at a per capita GDP level of
$5,000.
Also central to understanding India’s economic vision is the fact

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that it has followed a unique pathway to economic success, what

might be called “Precocious, Cleavaged India”.
India was a highly cleavaged (divided) society at the time of
independence. Historians have remarked how it has many more
axes of cleavage than other countries:language and scripts,
religion, region, caste, gender, and class.
Measured by ethno–linguistic fractionalization alone, India is
similar to other countries, but if caste is also taken into account,
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India stands out.
Thus India had both high levels of poverty and deep social fissures,
and still emerged as an economically successful democracy at an
pi early age (therefore, precocious).

Note: The dictionary meaning of precocious is “having developed
certain abilities or inclinations at an earlier age than is usual or
expected”.
ap
When did India change its policy
stance to become a more open
economy?
India rejected its socialistic framework
after 1991 and moved towards
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becoming a more open economy.

The First Phase of Indian economy constituted nearly half a
century of socialism, where the guiding principles were economic
nationalism and protectionism.
During those years, the public sector occupied the commanding
heights and the government intruded into even the most micro-
decisions of private firms: their investing, producing, and trading.
While India adopted planning and a large role for the state
sector, unlike the Soviet Union it never abolished the private

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sector. Instead, it tried to control private businesses through

licensing and permits.
Paradoxically, however, this only further discredited the private
sector, because the more the state imposed controls, the more the
private sector incumbents were seen as thriving because of the
controls, earning society’s disapproval in the process.
Since 1991, India has replaced its erstwhile socialist vision with
something resembling the “Washington Consensus”: open trade,
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open capital, and reliance on the private sector - essentially the
same development model that has been tried and proven successful in
most countries of Eastern Asia.
pi Reforms along these lines have been adopted by every Indian

government over the past quarter century.
For example, in the last two years, the current government has
institutionalized a commitment to low inflation in the new
ap
monetary policy framework agreement.
There has also been a great effort to reduce the costs of doing
business and create an environment friendly to investment,
both domestic and foreign.
And in the last six months, the government has secured passage of
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major measures such as the Aadhaar Bill, the Bankruptcy Code,

and the GST constitutional amendment.
The result of all these reforms over the past 25 years has been a
remarkable transformation of India from a largely closed and listless
economy to the open and thriving economy that we see today. The
country’s progress is not only qualitative.It is also measurable.
Where do we see weakness of state capacity?
Nearly all emerging markets started off with weak state capacity at
independence.

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But as their economies

developed and prospered, state
capacity improved, often at an
even faster rate than the overall
economy.
In India, by contrast, this
process has not occurred.Indian state has low capacity, with high
levels of corruption, clientelism (patronage based social order),
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rules and red tape.
While competitive federalism has been a powerful agent of change in
relation to attracting investment and talent (the Tata Nano car being
pi the best example) it has been less evident in relation to essential

service delivery.
There have been important exceptions such as the improvement
of the Public Distribution System (PDS) in Chhattisgarh and Bihar,
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the incentivizing of agriculture in Madhya Pradesh, the kerosene-
free drive in Haryana, power sector reforms in Gujarat which
improved delivery and cost-recovery and the efficiency of social
programs in Tamil Nadu.
However, on health and education in particular, there are
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insufficient instances of good models that can travel widely

within India and are seen as attractive political opportunities.
To the contrary, at the level of the states, competitive populism
(with few goods and services deemed unworthy of being
handed out free) is more in evidence than competitive service
delivery.
Policy-making in certain areas has been heavily constrained, as a
way of ensuring that decisions do not favour particular interests. The
result is twofold.

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First, there is now adherence to strict rules — for example

auctions of all public assets — that may not necessarily be
optimal public policy. In telecommunications, it may be socially
optimal to sell spectrum at lower-than-auction prices because of the
beneficial effects stemming from increased spread of
telecommunications services but it could be perceived as favouring
particular parties and hence not feasible.
Second, there is abundant caution in bureaucratic decision-
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making, which favours the status quo. In the case of the twin
balance sheet problem, senior managers in public sector banks are
reluctant to take decisions to write down loans for fear of being
seen as favouring corporate interests and hence becoming the target
pi of the referee institutions, the so-called “4 Cs”: courts, CVC

(Central Vigilance Commission), CBI (Central Bureau of
Investigation) and CAG (Comptroller and Auditor General).
This encourages ever-greening of loans, thereby postponing a
ap
resolution of the problem.
Note: The Economic Survey devotes considerable attention to what it
terms India’s Twin Balance Sheet problem - overleveraged and
distressed companies and the rising NPAs in Public Sector Bank
balance sheets.
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Who is suffering due to ambivalence

about private sector and property rights?
All over the world, basic objective of
private enterprises of “maximizing
profits” does not always coincide with
any nation’s broader social concerns,
such as the public’s sense of fairness.
But the ambivalence in India has been greater than elsewhere - right

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from the beginning.

As a promising but fractured democracy that started out poor,
India was certain to distrust the private sector.
Reinforcing this notion was the prevailing intellectual air of
socialism. The founders of India wanted to “build the country” by
developing industry that would make India economically, as well
as politically, independent.
The private sector had conspicuously failed to do this under
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colonial rule, not only in India but in every other newly
independent nation, giving rise to severe doubts as to whether it
could ever do so.
pi In contrast, the example of the Soviet Union, which had

transformed itself from an agricultural nation to an industrial
powerhouse in a few short decades, suggested that rapid
development was indeed possible, if the state would only take
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control of the commanding heights of the economy and direct
resources into priority areas.
The distrust has survived even today. The most well-known example
is the difficulty of privatizing public enterprises, even for firms
where economists have made strong arguments that they belong in the
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private sector.
In civil aviation sector, there is still the commitment to make the
perennially unprofitable public sector airline “world class.” Airport
privatization has taken the form of awarding management contracts
rather than change in ownership. Policy reform in the sector has
been animated as much by an interventionist as liberalizing spirit,
reflected for example in restrictions on pricing.
In banking sector, discussion of disinvesting the government’s
majority stake in the public sector banks is often difficult in part
because of the view that they are legitimate instruments for the

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state to allocate and redirect resources.

In the fertilizer sector, rife with distortions, public policy finds it
easier to rehabilitate public sector plants than to facilitate the exit
of egregiously inefficient ones.
Beyond this reluctance to privatize, the ambivalence towards the
private sector is manifest in many other ways.
The agriculture sector is tangled in regulation, a living legacy of
the era of socialism. While progress has been made in the last two
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years, producers in many states are still required by the
Agricultural Produce Marketing Act (APMC) to sell only to
specified middlemen in authorized markets (mandis).
pi And when this system nonetheless generates price increases

deemed to be excessive, the Essential Commodities Act is
invoked to impose stock limits and controls on trade that are
typically procyclical, thereby exacerbating the problem. Pro-cyclic
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policies tend to magnify the fluctuations in an economic cycle
(e.g. government choosing to increase public spending when the
economic growth is already good).
Regarding property rights, initially the right to property was
inscribed as a “fundamental right” in the Constitution, which was
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later downgraded - via the Constitution 44th Amendment Act,

1978 - to that of a “legal right”. The ramifications of this decision
continue to be felt to this day, in such issues as retrospective taxation.
Even though the government has made clear its commitment not to
act retroactively on tax and other issues, it seems politically
difficult to uphold a widely shared — and judicially endorsed
— principle against expropriation and retroactivity because of
the fear of being seen as favouring the private sector, especially
the foreign private sector. This is true in a number of recent

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cases, including Vodafone and Monsanto.

One important reason the twin balance sheet problem has not
been resolved in the many years since it emerged in 2010 is the
political difficulty in being seen as favoring the private sector in
cases where some private sector debts have to be forgiven.
In each of the examples above, there may be valid reason for status
quo but the overall pattern that emerges is unmistakable.
How effectively does Indian Government
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redistribute?
Historically, India had to redistribute
inefficiently when its state capacity was
pi particularly weak, using blunt and leaky

instruments.
Given the pressing need to redistribute, India did not invest
sufficiently in human capital – for instance, public spending on
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health was an unusually low 0.22 per cent of the GDP in 1950-51.
This has risen to a little over 1 per cent today, but well below the
world average of 5.99 per cent.
The luxury of effectively targeted programs was not an option in
1950 or 1960 or even 1990.
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A state that is forced into inefficient redistribution, risks being

trapped in a self-sustaining spiral of inefficient redistribution,
reduced legitimacy, reduced resources, poor human capital
investments, weak capacity and so on.
Such inefficient redistribution still persists partially because of the
difficulty of exit as well.
Exit is difficult everywhere but it can be especially difficult in a
poor, cleavaged democracy like India which is dominated by
vested interests, weak institutions and an ideology that favours

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redistribution over investments.

Thus, currently redistribution by the government is far from
efficient in targeting the poor. Welfare spending via existing
programs to help the poor, through subsidies and through government
programs such as MGNREGS (Mahatma Gandhi Rural Employment
Guarantee Scheme), SSA (Sarva Shiksha Abhiyaan), ICDS (Integrated
Child Development Scheme), etc. suffers from considerable
misallocation.
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Districts with the most poor suffer from the greatest shortfall
of funds.
This leads to:exclusion errors (the deserving poor not receiving
pi benefits), inclusion errors (the non-poor receiving a large share of

benefits) and leakages (with benefits being siphoned off due to
corruption and inefficiency).
While strictly not an instrument of redistribution, even the design
ap
of the Goods and Services Tax (GST) reveals the underlying
tensions. On the GST, the political pressures from the states to
keep rates low and simple were minimal while much of the focus
was on ensuring that rates on essentials were kept low and on
luxuries kept sufficiently high with insufficient concern for the
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implied consequences for efficiency and simplification.

Over the past two years, Indian government has made considerable
progress toward reducing subsidies, especially related to petroleum
products.
Not only have subsidies been eliminated in two out of four
products, there is effectively a carbon tax, which is amongst the
highest in the world.
However, even on subsidy reform, while technology has been the
main instrument for addressing the leakage problem (and the pilots

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for direct benefit transfer in fertilizer represent a very important new

direction in this regard), prices facing consumers in many sectors
remain largely unchanged.
The experience of demonetization can be instructive going
forward.
In one sense, this could be thought of as inefficient
redistribution.So, if, subsidies have been an inefficient way of
redistributing toward the poor, demonetization could be seen
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as an inefficient way of redistributing away from the rich.
In the short run at least, the costs are being borne to a great extent
by those in the informal/cash-intensive sectors that tend to be less
pi well-off than the rich.

Yet, at least so far, demonetization has commanded popular
support, including and especially from those — the relatively less
well affluent — who have borne much of the short term costs.
ap
The resonance of demonetization stems from the sense that there is
not a level playing field and that some — the rich — gain from the
system in ways that are perceived to be unfair and illegitimate.
—– | —–
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INDIAN ECONOMY / PPP seeks Profits, the

fourth P
13-May-2017
ly
pi While India’s Public Private Partnership (PPP) mechanism saw
reasonable success over the last 20 years, the level of activity has been
ap
low in the last four fiscal years. With India’s economy set to grow at
the fastest pace among major economies, PPP can ensure GDP growth
is not constrained by inadequate infrastructure investment. Knappily
explains how India can make adjustments to its PPP framework to
align it more with more mature markets.
Kn
What is the problem with PPP

projects?
The promise of time and cost
efficiency through access to
specialised skills has had
governments increasingly
reaching out to the private sector for large infrastructure projects.
However, flanking the potential benefits is the rigid design of public-
private-partnerships (PPP), inhibiting asset owners from drawing the

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requisite balance between tightly composed contracts and injecting

adequate flexibility to accommodate unforeseen scenarios.
As a result, long term multi-stakeholder projects often encounter
financial difficulties and contract disputes, leaving little or no
room for structured resolution.
Many PPPs across developing and developed countries have failed
primarily due to mismanaged risk and lack of a structured
response to unplanned situations.
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Theoretically, large infrastructure projects, which have multiple
stakeholders collaborating over long periods, require that risk is
allocated to parties that are best positioned to manage it. In
pi practice, this results in over-prescriptive, inflexible contracts to address

inherent incompleteness of contracts — but is self-defeating as
identification of all risks is not feasible before the start of the
project.
ap
This leads to “winner’s curse” – a tendency for the winning bid in an
auction to exceed the intrinsic value of the item purchased. Because of
incomplete information, emotions or any other number of factors
regarding the item being auctioned, bidders can have a difficult time
determining the item’s intrinsic value. As a result, the largest
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overestimation of an item’s value ends up winning the auction.

Note: A Public–private partnership (PPP or 3P) is a commercial legal
relationship defined by the Government of India in 2011 as “an
arrangement between a government/statutory entity/government owned
entity on one side and a private sector entity on the other, for the
provision of public assets and/or public services, through investments
being made and/or management being undertaken by the private sector
entity, for a specified period of time, where there is well defined
allocation of risk between the private sector and the public entity and

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the private entity receives performance linked payments that conform

(or are benchmarked) to specified and pre-determined performance
standards, measurable by the public entity or its representative”.
Why does India need PPP?
Infrastructure in India is poor when
compared to similarly developed nations.
The Government of India has identified
PPP as a way of developing the country’s
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infrastructure. Construction of
infrastructure in India requires large capital outlays and there is a
deficit in supply.
pi In its Twelfth (and the last) Five Year Plan (2012-2017), India had
an ambitious target of infrastructure investment (estimated at
US$1 trillion). The investment requirement has since considerably
increased. In the face of such an enormous investment requirement,
ap
the Government of India is actively promoting PPPs in many
sectors of the economy.
“Historical underinvestment and rapid economic growth are straining
India’s existing infrastructure,” Abhishek Tyagi, Vice President and
Senior Analyst at Moody’s Investors Service said. “While the
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country’s PPP model has seen reasonable success in some sectors over
the last 20 years, PPP activity has been low in the last four fiscal years
due to challenges with the PPP model.”
PPP is also the way forward, given the ambitious infrastructure
plans the government has — such as Housing for All, 100 Smart
Cities — and the stiff goals in increasing capacities of power
projects, in conventional as well as renewable energy.
The government has thus created the necessary institutional structures
and policies in place for facilitating PPP.

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The Ministry of Finance centralizes the coordination of PPPs,

through its Department of Economic Affairs’ (DEA) PPP Cell.
In 2011, the DEA published guidelines for the formulation and
approval of PPP projects. This was part of an endeavor to
streamline PPP procedures and strengthen the regulatory
framework at the national level to expedite PPP projects approval,
reassure private parties and encourage them to enter into PPPs in
India.
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This was one of the main roles of the Public Private Partnership
Appraisal Committee (PPPAC) which is responsible for PPP
project appraisal at the central level.
The Government also created a Viability Gap Funding Scheme
pi for PPP projects to help promote the sustainability of the

infrastructure projects. This scheme provides financial support
(grants) to infrastructure projects, normally in the form of a capital
grant at the stage of project construction (up to 20 percent of the
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total project).
The Government has also set up India Infrastructure Finance
Company Limited (IIFCL) which provides long-term debt for
financing infrastructure projects. Set up in 2006, IIFCL provides
financial assistance in the following sectors: transportation, energy,
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water, sanitation, communication, social and commercial

infrastructure.
To help finance the cost incurred towards development of PPP
projects (which can be significant, and particularly the costs of
transaction advisors), the Government of India has launched in
2007 the ‘India Infrastructure Project Development Fund’
(IIPDF) which supports up to 75 % of the project development
expenses.
Finally, the PPP Cell has produced a series of guidance papers and a

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‘PPP Toolkit’ to support project preparation and decision-making

processes. The objective is to help improve decision-making for
infrastructure PPPs in India and to improve the quality of the PPPs
that are developed. The tookit has been designed with a focus on
helping decision-making at the Central, State and Municipal levels.
Since when has India been
exploring the PPP option?
It is difficult to determine when
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exactly the PPP movement started in
India, considering that the term is
used rather loosely.
pi It could be argued that the PPP story began with private sterling
investments in Indian railroads in the latter half of the 1800s. By
1875, about £95 million was invested by British companies in
Indian “guaranteed” railways.
ap
Or we could trace it to the early 1900s, when private producers
and distributors of power emerged in Kolkata (Calcutta Electric
Supply Corporation) and Mumbai, with the Tatas playing a
prominent role in starting the Tata Hydroelectric Power Supply
Company in 1911.
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Cut to the early 1990s, and one could postulate that it was then
that the new-wave PPP movement started.
A policy of opening electricity generation to private participation
was announced by the central government in 1991, which set up
the structure of independent power producers, or IPPs.
The National Highways Act, 1956, was amended in 1995 to
encourage private participation.
In 1994, through a competitive bidding process, licences were
granted to eight cellular mobile telephone service operators in four

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metro cities and 14 operators in 18 state circles.

But if one were to choose a date that would capture the essence of a
clear historic shift, one could zero in on January 30, 1997, when the
Infrastructure Development Finance Company was incorporated
in Chennai under the initiative of the then Finance Minister P
Chidambaram.
The firm, promoted by the government of India, was set up on the
recommendations of the “Expert Group on Commercialisation of
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Infrastructure Projects” under the chairmanship of Rakesh Mohan.
And Deepak Parekh was chosen as the first chairman. The idea was
that this would signal the government’s seriousness in channelling
pi private sector capital, expertise and management in the

nation’s infra development.
Two decades hence, India can easily be said to be the world’s largest
PPP market today.
ap
Across various shades of political opinion and different party lines,
our political leadership, supported by a near-converted
bureaucracy, managed to affect this tectonic shift across the geo-
plates of India’s economy. Surely, on this score, they deserve
appreciation. So does the private sector that rose admirably to the
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occasion and responded with entrepreneurial energy, conviction

and capital.
Huge efforts were also made to create the right enabling
environment for the PPP story to unfold rapidly.
These relate to enacting new legislation — for example, the
Electricity Act, 2003; the amended National Highways
Authority of India Act, 1995; the Special Economic Zone Act,
2005; and the Land Acquisition Bill.
As also the creation of new institutions like regulatory authorities

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in telecom, power and airports, implementing authorities like the

National Highways Authority of India (NHAI), and financial
institutions like the Infrastructure Development Finance Company,
the India Infrastructure Finance Company and so on.
A slew of model concession agreements across sectors created the
template for private participation. Innovative financial
interventions like viability gap funding, annuity models and
stimulation of debt for infra have also added fiscal punch.
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The Planning Commission, the Department of Economic Affairs in
the Ministry of Finance and the Prime Minister’s Office have all
played a stellar role in “making PPP happen”. Many states, too –
notably Punjab, Gujarat, Maharashtra, Delhi, Karnataka and
pi Tamil Nadu – have built significant capacity to deliver on PPP.

Even as a lot of governance issues still remain in execution and
implementation, few will deny the huge contributions of the warp and
ap
weft of PPP into India’s infrastructure fabric.
Where are the possible solutions?
To address the risks which may be unique
to each project/sector, risk management in
PPP contracts needs to be made
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dynamic. These adaptable mechanisms

need to delink players from
unpredictable risks.
Transport infrastructure owners may mitigate the impact of crisis
on projects by passing on unpredictable risks. For example, instead
of the well-established mode of build operate transfer (BOT),
concession to the highest bidder, an alternate and, perhaps, more
efficient way is through the Least Present Value of Revenue
(LPVR) mechanism.

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Here, the concession is auctioned to the private partner that offers

the best design/construction efficiency and minimum cost of
capital. During the project, the concession period is adjusted to
account for unexpected events, such as lower-than-anticipated
traffic and changes in toll revenue, to ensure that the private partner
generates the expected discounted revenues. Chile has used this;
many others are following suit.
This mechanism is attractive to all stakeholders. Private sector
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minimises the risk of a winner’s curse as long-term traffic
demand projects do not dictate the bid amount. Public sector
gains integrated and optimal design and operations capability over
a long term.
pi Societal benefit is in the form of a significantly reduced risk

premium to create a public good. Extensive technology
deployment to ensure transparency across stakeholders on quality,
progress, traffic would ensure smooth functioning of a variable
ap
concession model.
Another variant of the BOT model, currently being used by India’s
road transport ministry is the Hybrid Annuity Model. In this model,
the public and private sectors partly fund project construction cost.
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Financial returns to the concessionaire are predetermined

using semi-annual annuity payments, while toll revenues go to the
Government, transferring unpredictable commercial risk to the
public-sector partner.
The provision of inflation adjusted costs and annuity payments
with interests at minimum bank rate hedge inflation and revenue
risks.
Who can India learn from?
In a report last year, Moody’s pointed out that more developed PPP

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markets, such as in the UK, Canada

and Australia, use both availability-
payment and demand risk PPP models,
and relatively standardized bid
documents – features that could
address some of the bottlenecks in
India’s PPP framework.
In particular, Moody’s says these more developed PPP markets
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typically feature (1) well-developed regulatory frameworks; (2)
largely standardized project contracts; (3) a large and
sophisticated investor base; and (4) predictable project
pi pipelines.
Adjustments to the PPP framework in India to align it more with those
of more mature PPP markets could help attract new private investment,
says Moody’s.
ap
Governments in the UK, the Netherlands, Australia, New
Zealand have generally involved the private sector early in the
project so they are aware of the project scope and risk pertaining to
the project.
Internationally, for infrastructure concessions in developed countries
Kn
such as Spain, Italy, Chile as well as developing countries of Latin

America renegotiations are common. A mechanism for renegotiation
is a must.
A study of the 17 early concessions in Spain revealed that they
have been renegotiated a total of 121 times (an average of about
seven times).
Similarly, a World Bank study has indicated that out of a sample
of 1,000 concessions granted in Latin America and Caribbean
between 1985 and 2000, 30 per cent underwent negotiations. In

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the transportation sector, this was as high as about 55 per cent.

How should India move
forward with PPP?
India should even consider more
adaptable mechanisms in
contractor selection and
contractual flexibility.
ly
It is important to involve private sector early.
The principle of early contractor involvement is a collaborative
approach to tender a large, complex project. In a two-stage process,
pi based on quality and cost pre-qualification, two-three contractors

are shortlisted who compete in developing the best ‘solution’
i.e. detailed project plan, design and price. The asset owner
typically provides boundary conditions for these solutions.
Association of the contractor with project development reduces
ap
the information asymmetry with the asset owner, infuses
ownership and can achieve higher cost effectiveness and
expedite delivery. Identification of project scope and risk and
value drivers upfront induces collaboration and reduces the risk
premium demanded by the private contractor.
Kn
India should also facilitate structured negotiation.

Some events lead to substantial permanent changes in operating
environments. To account for such possibilities, asset owners
should make adequate provision for contract renegotiation,
including triggers for exceptional reviews, upfront while defining
the contract.
Hence, there must be provision in a PPP contract that clearly
articulates dispute-resolution mechanism that provides flexibility
to restructure within the commercial and financial boundaries of

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the project. India is taking steps in this direction.

For instance, last year, finance minister Arun Jaitley announced
setting up a Public Utility Bill for resolution of PPP contract
disputes based on the Kelkar committee recommendations.
The committee suggested setting up of sector specific monitoring
committees to review contracts and prevent distress in partnerships.
They also recommended setting up external regulators that would
decide the gravity and permissibility of a contract dispute and the
ly
Infrastructure Adjudication Tribunal — a multidisciplinary
expert committee that would make resolution recommendations.
With the Government’s target of $375 billion in investment in
pi infrastructure by 2019 and a hope of PPPs bridging 50 per cent of

this deficit, the need of the hour is to employ institutional
mechanisms while designing PPP contracts.
The time is now for asset owners to think through new ways of de-
ap
risking key stakeholders, sharing supernormal profits and negotiating
unforeseen conditions.
—– | —–
Kn

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INDIAN ECONOMY / India hikes import duty on

electronic items
16-Dec-2017
ly
pi India has increased the import duty on dozens of electronic products
such as mobile phones and television sets to curb supplies from
ap
overseas and pump up the domestic industry. The rise in tax from 10%
to 15% on handsets will make imports of phones more expensive and
affect companies such as Apple. Burgeoning electronic imports are
burdening India’s trade deficit. But critics say that import substitution
is the wrong way to ‘Make in India’.
Kn
What has the government announced?

India on December 15 raised the import
duty on mobiles, television sets,
microwaves and a host of other electronic
goods in a bid to force global giants to
manufacture locally and cut the country’s
burgeoning import bill.
The customs levy on mobiles was raised to 15 per cent from 10
per cent, while that on television sets, microwaves and LED

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lamps doubled to 20 per cent, a finance ministry statement said.

LCD and LED panels used to manufacture television sets, which
were exempt from customs earlier, will now attract a 7.5 per cent
levy.
India’s electronic imports grew 31 per cent to $29.8 billion
between April and October from a year earlier - the steepest
increase after the shipments of ores and gems. India’s goods
imports in the seven months ending October rose 22% to $256.4
ly
billion from a year earlier, raising concerns among policymakers.
As a result, trade deficit for the country rose close to $100
billion during the April-November period of 2017 against
$67bn in the year-ago period.
pi While the import duty has been increased by 5 percentage points

on items such as mobile phones, video recording devices,
electricity meters and digital cameras, it has been raised by 10
percentage points on items like microwave ovens, lamps and
ap
lighting fixtures. Currently, these items attract a flat 10% basic
customs duty (BCD) in addition to integrated GST. It is the BCD
that gives a tariff edge to local manufacturing, as a cut in GST
rate will equally benefit both imports and local production.
Prime Minister Narendra Modi had launched the flagship Make-in-
Kn
India program to expand the domestic industrial base, and one of the
areas showing success is electronics. With the increase in import
duty, local manufacture would be about 20-25 per cent cheaper
than imports. The drive to start taxing electronic goods and their parts
used in low-value screwdriver assembly came after India realised that
electronics was the third largest component of its rising import bill
after gold and oil.
Why will cellphones makers like Apple be the most affected?
The rise in tax from 10% to 15% on handsets will make imports of

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phones - including most of Apple’s iPhone

models - more expensive at a time the
company’s revenue growth is slowing in
India’s $10 billion smartphone market.
Samsung assembles most of the cell
phones it sells in the country within
India. Apple only assembles the iPhone SE in India and imports
the rest.
ly
At present, Apple works with Taiwanese contract manufacturer
Wistron Corp to assemble the iPhone SE in Bangalore, which
started production last May. However, it still imports most phones
pi sold here. “The move is expected to force Apple to expand its

assembly line here, regardless of whether the Indian government
accedes to its request for duty sops,”said Sudipto Bose, a telecom
market analyst.
ap
Apple and government officials have held talks about the iPhone
maker expanding its manufacturing presence in the country, but
Apple wants incentives and tax breaks. The company has
pursued a variety of concessions and financial handouts in
exchange for growing local manufacturing. The Indian
government, though, has allegedly held fast and refused to offer
Kn
Apple anything unavailable to other multinational businesses.

Apple had wanted carrots. Now it faces the cane of increased
taxation.
Domestic manufacturers produce 500 million cell phones each year
and account for eight out of 10 phones sold this year. The move is
likely to help them more and hurt companies like Apple that rely on
imports.
Apple is likely to raise prices on iPhones to compensate — a
serious matter, given that even the SE is too expensive for most

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Indians. Over 75 percent of smartphones sold in the country

cost less than $250, and the iPhone has a marginal share of the
local market.
According to analysts, prices of iPhones can go up by Rs 2,000 to
Rs 3,000. For example, the iPhone X’s starting model, priced now
at Rs 89,000, can go up to Rs 92,000 if the company decides to
pass on the cost to consumers. Apple has not officially commented
on the impact of the duty change on prices.
ly
Research firm Counterpoint said that 2017 will see 280 million phones
being sold, 80 per cent of them locally assembled. “With this duty
increase, the percentage share of local production will increase to
pi over 90 per cent, by our estimates,” they said.

The Finance Ministry emphasis was on the mobile phones and
other electronic items manufactured in India as they were not
getting into the market or were not being picked up because of a
ap
deluge of low-cost, low-technology imported items.
The move will also impact local manufacturing, especially those
who have more than 50-60 per cent of imported electronic
components in their finished products such as mobile phones.
When do we feel the cascading effect
Kn
of the hike?
A 42-inch 4K TV sold by online
exclusive brands now for about Rs
30,000 will see a price hike of around
Rs 1,200 to Rs 1,400. A 65-inch 4K TV
sold now for around Rs 2.15 lakh may cost Rs 2.25-2.28 lakh, industry
executives said. The extent of hike will be more for the bigger screens.
Many companies said these are estimates, since they are yet to work
out the exact price hike. To be sure, some companies may choose to

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absorb the duty increase, executives said.

Panasonic India CEO Manish Sharma said more than 90 per cent
of TVs sold in the country are locally manufactured and hence
will escape the hike in duty. “This will deter unnecessary cheap
imports which some brands are doing and increase prices of 65-
inch plus screen size TVs, which is a very small market,” he said.
“Some large brands will also try to manage this hike by adjusting
in their portfolio.” The hike in duty will increase prices of online
ly
exclusive TV brands that are imported as well as premium
largescreen curved and ultra HD television sets that cost over Rs
1lakh by 4-5 per cent.
pi The customs duty on water heaters and hair dressing instruments

has been doubled to 20 per cent, while that on TV cameras, digital
cameras and video camcorders raised to 15 per cent from 10 per
cent. Basic customs duty on imported lamps and light fittings has
ap
been raised to 20 per cent from 10 per cent. Imported LED lamps
will now face 20 per cent duty from 10 per cent before.
Prices of microwave ovens could rise 5-7 per cent, since almost all
brands currently import the units. Godrej Appliances business head
Kamal Nandi said the market for microwaves is small at around
500,000 units a year and hence it doesn’t make sense to produce
Kn
them locally. “However, with this duty hike, companies may be

encouraged to consider local assembling,” he said.
Where is India’s trade deficit
headed?
India’s trade gap in November
narrowed marginally from a near three-
year high last month as export growth
bounced back and import of certain
commodities saw seasonal slowdown.

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The trade deficit, the gap between exports and imports, increased
3.1 percent over last year to $13.83 billion, according to data from
the commerce ministry. While the deficit was higher than the same
month last year, it has narrowed from $14 billion in October.
The trade data reflects “a solid export rebound” but with imports
still elevated, the deficit narrowed only marginally, said
Japanese brokerage Nomura in a report.
Exports bounced back after declining for the first time in 15
ly
months in October. The value of outbound shipments grew 31
percent over last November to $26.2 billion, particularly from a
sharp rise in export of engineering and petroleum products.
The trend is similar to that seen in other Asian economies like
pi Korea, China and Taiwan, which too witnessed strong export

growth, Morgan Stanley Research had said in a prior note.
Exports of engineering goods, the largest contributor to India’s
outbound shipments, saw a 43.8 percent rise over last year to $7.1
ap
billion after a marked slowdown in October. Gems and jewellery
exports, the second largest contributor, climbed 32.7 percent to
$3.3 billion after contracting last month.
Indian exports have been on a downtrend since 2014-15,
adversely impacted by a global slowdown, a sharp fall in
Kn
commodity prices and currency fluctuations. It started

recovering in July 2016 and had been on the rise since, but this
growth was offset by India’s large import bill led by higher import
of gold and oil.
Imports in November rose 19.6 percent over the last year to $40
billion.
The pace of import growth was faster than that seen in October due
to a sharp rise in crude oil prices and the value of inbound
shipments of precious stones and pearls. Oil shipments, the

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largest burden on India’s import bill, went up 39 percent over

last year to $9.5 billion.
Global crude oil prices have rebounded from the year’s low in
June to reach nearly $65 per barrel for the first time since
2015, after exporting countries triggered production cuts to drain
the global oversupply. Since India imports nearly 80 percent of
its oil needs, fluctuation in global prices have a cascading
impact on the trade deficit. “Even an average annual $1 increase
ly
in oil price can lead to an increase in oil imports by $1.56 billion,
annually,” wrote Soumya Kanti Ghosh, chief economic adviser at
State Bank of India, in an earlier note.
Gold imports fell for a third straight month to $3.2 billion, 26
pi percent lower than in last November as demand tapered off.

Demand for gold was expected to slow down under India’s new
sales tax regime, according to the World Gold Council.
ap
A higher import bill increases India’s risks of a fiscal slippage. The
country had exhausted 96.1 percent of its budgeted target for fiscal
2018 by October. It is trying to bring down its fiscal deficit to 3
percent of the GDP by 2019.
Export Highlights
Kn
Export of petroleum products went up 47.7 percent to $3.6 billion.

Readymade garment exports fell 10 percent to $1.03 billion.
Export of organic and inorganic chemicals also saw a 54.2 percent
rise to $1.6 billion.
Pharmaceutical exports increased 13.4 percent to $1.6 billion.
Export of plastic and linoleum went up 40.9 percent to $0.6 billion.
Leather exports remained largely flat at $0.4 billion
Electronic goods exports increased 26 percent to $0.58 billion.
Import Highlights

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Pearls, precious and semi-precious stone imports increased 86

percent to $2.9 billion.
Coal and coke imports increased 52 percent to $1.9 billion.
Organic and inorganic chemicals went up 49 percent over last year
to $1.8 billion.
Iron and steel imports increased 36 percent to $1.2 billion.
Ores and mineral imports increased 50 percent to $0.8 billion.
Who said what?
ly
“This is a major policy shift from the
Government, as the peak customs duty
rate for many electronic products has
pi effectively been increased from 10% to

15% or 20%,” said Pratik Jain, Leader -
Indirect Tax, PwC India. “This seems to be with the twin objective
of increasing revenue as well as to encourage more
ap
manufacturing and value addition in India.” Jain said the duty
increases had been made under “emergency powers” included in
the customs laws, and could prompt manufacturers in other
industry segments to push for similar protection from imports.
“Some announcements can be expected in the upcoming budget
Kn
about these changes and policy direction in this regard,” he added.

Anwar Shirpurwala, Executive Director of MAIT, the IT hardware
industry body, said the move was aimed at boosting domestic
manufacturing and not at making products costlier. “There may be
some impact on the prices of products that are imported…
manufacturing infrastructure is being built in India and this move
will help push it further.”
Likewise, Abhishek Jain, Tax Partner at EY India said, “To foster
the national initiative of Make in India, the Government has raised
the basic customs duty for various electronic products like mobile

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phones, microwave ovens, television sets, LED lamps, cameras.

This would make import of these goods costlier and industry would
be forced to explore domestic manufacture of these goods to reduce
cost instead of importing these goods.”
Manish Sharma, President CEAMA and President and CEO,
Panasonic India and South Asia said, “This shall not lead to major
price hike as the duty structure for local manufacturing remains
unchanged, but will boost indigenous manufacturing & generate
ly
more employment opportunities.”
Pankaj Mohindroo, president of the Indian Cellular Association,
said the increase will boost domestic manufacturers who are
making about 500 million cellphones a year, more than double
pi the output three years ago.

Tarun Pathak, an associate director at Counterpoint Research, said
the tax notification, will impact mobile phone companies
dependent on imports. “It will impact Apple the most as the
ap
company imports 88% of its devices into India. Either this will lead
to increase in iPhone prices or force Apple to start assembling
more in India.”
Videocon Industries Ltd welcomed the move saying local
production will get a boost. “It will also encourage foreign
Kn
consumer durable companies to manufacture products in India

rather than import them, and go a long way in fulfilling the goal of
making the country a global manufacturing hub for a wide range of
electronic goods. However, it is too early to assess the impact of
the customs duty hike on product pricing,” Abhijit Kotnis, chief
manufacturing officer, Videocon, said in a note.
M.S. Mani, partner, Deloitte India, said the move was unexpected
so close to the Union budget. “The customs duty increase appears
to improve the case for manufacturing in India. However, there
could be short-term price increases for some of the products unless

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there is a reduction in the GST rates for such products.”

How does history offer a counter-
point?
In the immediate post-Second World
War era, following the then consensus
view, nearly all emerging independent
countries chose the path of import
substitution to achieve industrialisation. But by early to mid-1960s
ly
Singapore, Taiwan and South Korea had broken away from this
consensus and switched to export-oriented strategies.
They soon achieved growth rates of 8-10% for the following two to
pi three decades. India chose to stay course, deepening import

substitution (replacing imports with local products) yet further.
India’s imports as a proportion of the gross domestic product
(GDP) dropped to just 4% in 1969-70 from the peak of 10% in
ap
1957-58.
By mid-1960s India had banned consumer goods imports, which
took away the pressure on domestic producers to supply high
quality products. The “domestic availability” condition additionally
denied its producers access to world class raw materials and
Kn
machinery whenever equivalent domestic products, no matter how

poor in quality, were available.
Quality of India’s products plummeted and they failed to
compete in the global marketplace. Poor performance of
exports in turn created foreign exchange shortages, which led
to yet greater tightening of import controls. This vicious cycle
took its toll on growth, with per capita income rising at the paltry
annual rate of 1.5% during 1951-81.
The only way to break this cycle of import controls leading to poor

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export performance and poor export performance forcing yet tighter

import controls was to do away with import controls and let the rupee
depreciate sufficiently to incentivize exporters and producers of
import-competing products. That is exactly what India did beginning in
1991.
The process was gradual but steady and credible. With top quality
products beginning to flow into the country, consumers became
more and more discriminating and producers could access world
ly
class raw materials, machinery and technology.
This change eventually brought vast improvement in the quality of
India’s products allowing exports to grow alongside imports. Most
pi dramatically, India’s expanding exports could readily finance

the imports of millions of mobile phones that were critical to
the success of the New Telecom Policy that the Vajpayee
government implemented during 1999-2003.
ap
India’s exports of goods and services multiplied six-fold from just
$75 billion in 2002-03 to $450 billion in 2011-12. Many today
argue that India’s commitment to the WTO Information
Technology Agreement, which bound India to zero custom
duty on information technology products, denied India the
opportunity to manufacture millions of mobile phones that its
Kn
citizens bought. Some would argue that a protected mobile market

would have killed the mobile revolution instead.
Today, India is in danger of forgetting the lesson it has learnt the hard
way. Thanks to the reforms under Prime Ministers Rao, Vajpayee and
now Modi, India is now a $2.3 trillion dollar economy and its imports
stand at $450 billion. Unfortunately, however, the latter fact has
created renewed temptation for a return to import substitution to
make a success of Make in India. What better way to get there than
to replace this large volume of imports by domestic production, goes

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the argument. When policy makers think of replacing imports by

domestic production, they are invariably thinking this would be a net
addition to Make in India.
This is a false premise.
Equivalent reduction in exports is almost sure to accompany
the reduction in imports. This is because macroeconomic
stability requires Reserve Bank of India (RBI) to maintain the
exchange rate at a level that keeps the current account deficit
ly
(total imports minus total exports) to around 1-2% of GDP.
With rare exceptions, RBI has adhered to this policy since we
adopted flexible exchange rates.
pi Put another way, if foreigners cannot sell their goods to Indians,

they will not have the revenues to pay for the goods they buy from
India. If India cuts back on their goods, they will have to cut back
on Indian goods.
ap
—– | —–
Kn

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INDIAN ECONOMY / RBI waits and watches
7-Dec-2017
ly
pi The Reserve Bank of India’s monetary policy committee (MPC) – to
nobody’s surprise - kept the benchmark repo rate unchanged on
December 6, noting risks to inflation, but expressing optimism that the
ap
slowdown in economic growth had bottomed out. The constellation of
recent economic data left little room to reduce policy interest rates.
Inflation, though not still high, is likely to overshoot the 4% mark by
the end of the current fiscal.
What is the outcome of the review?
Kn
The Monetary Policy Committee (MPC)

of the RBI has decided to maintain
status quo and keep its key interest rate,
the repo rate, unchanged at 6%.
It had last cut rates by 25 bps (0.25%)
four months earlier in its August review. Consensus estimates
predicted a status quo policy and the review was on expected lines.
Consequently, the reverse repo rate under the LAF remains at 5.75
per cent, and the marginal standing facility (MSF) rate and the

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Bank Rate at 6.25 per cent.

The six-member monetary policy committee voted on the basis of a
majority for a pause. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Viral V.
Acharya, Dir Michael Patra and Dr. Urjit R. Patel were in favour of
status quo while Dr. Ravindra H. Dholakia voted for a policy rate
reduction of 25 basis points. This was on the same lines as the
previous policy.
Guide to economic terms
ly
Repo Rate: The fixed interest rate at which the Reserve Bank
provides overnight liquidity to banks against the collateral of
government and other approved securities under the liquidity
pi adjustment facility (LAF).

Reverse Repo Rate: The fixed interest rate at which the Reserve
Bank absorbs liquidity, on an overnight basis, from banks against
the collateral of eligible government securities under the LAF.
ap
Liquidity Adjustment Facility (LAF): The LAF consists of
overnight as well as term repo (for a period of 7 or 14 days)
auctions. Progressively, the Reserve Bank has increased the
proportion of liquidity injected under fine-tuning variable rate repo
auctions of range of tenors. The aim of term repo is to help develop
Kn
the inter-bank term money market, which in turn can set market,
based benchmarks for pricing of loans and deposits, and hence
improve transmission of monetary policy. The Reserve Bank also
conducts variable interest rate reverse repo auctions, as
necessitated under the market conditions.
Marginal Standing Facility (MSF): A facility under which
scheduled commercial banks can borrow additional amount of
overnight money from the Reserve Bank by dipping into their
Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal
rate of interest (higher than the repo rate). This provides a safety

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valve against unanticipated liquidity shocks to the banking system.

Why has nothing changed?
The Reserve Bank of India refused to bite
the bullet and kept the key lending rate at a
seven-year low of 6 per cent on December
6. Risk of rising inflation (though still
under control) can be considered as one of
the major factors that forced the RBI to keep policy rates unchanged in
ly
the fifth bi-monthly monetary policy review. This could mean that the
interest rates might not be coming down in a hurry and EMI payers
may not have anything to cheer about.
pi That the GDP growth rate of India improved to 6.3% in the second
quarter of this fiscal year meant there was less pressure on the RBI to
slash interest rates (to boost growth).
Expert views on why the RBI stuck to its guns
ap
Higher government spending and risk of deviation from the fiscal
roadmap also pose inflationary risks. Effectively, the monetary
stance remains unchanged and thus space for further easing of
interest rates is clearly ruled out.
Indian economy’s revival - expressed through an increase in
Kn
GDP growth rate and the first Moody’s rating upgrade in 14

years - could have played a role in the MPC maintaining the
status quo for a second session in a row. Global cues by central
banks - which have been tightening their monetary stance - coupled
with more domestic issues related to commodity prices, market
liquidity, hardening bond yields and more importantly, rising
inflation, which is now expected to touch 4.5% from 3.58% in
October 2017, appear to have influenced the RBI’s wait-and-watch
stance.

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Much also depends on government policies in the months ahead.

Indian governments have in recent decades tended to loosen
the purse strings before every national election. The last full
budget of the Narendra Modi government that is due in a few
weeks needs to be watched carefully for its inflationary potential.
The government also managed the food economy deftly in its first
three years, but the uneasiness among the farmers because of the
fall in food prices is bound to be a concern for any rational political
ly
party.
Going forward, the MPC will have to second-guess what the
government will do in the months ahead in terms of higher rural
pi spending as well as higher support prices, but it is likely that these

decisions will be taken only in the second half of the year.
When does the ‘neutral stance’ make
sense?
ap
The RBI retained its GDP projections for
the year at 6.7 per cent with risks evenly
balanced. It noted that Q2 growth, which
rebounded to 6.3 per cent from 5.7 per
cent earlier, was lower than projected in the October review.
Kn
It said that the recent increase in oil prices might have a

negative impact on margins of firms and economic growth.
Fifth Bi-monthly Monetary Policy Statement, 2017-18, noted that
“Shortfalls in kharif production and Rabi sowing pose downside
risks to the outlook for agriculture. On the positive side, there has
been some pick up in credit growth in recent months.
Recapitalisation of public sector banks may help improve credit
flows further. While there has been weakness in some components
of the services sector such as real estate, the Reserve Bank’s survey

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indicates that the services and infrastructure sectors are expecting

an improvement in demand, financial conditions and the overall
business situation in Q4.”
RBI Governor Urjit Patel said the central bank was working with
the Government on recapitalisation bonds. He added that bank
recapitalisation is not just fund infusion but reforms of state-
run banks as well.
On inflation outlook, the RBI projected that it would be in the
ly
region of 4.3% to 4.7% in Q3 and Q4 this fiscal. Explaining its
rationale, the RBI noted that moderation in inflation excluding food
and fuel observed in Q1 of 2017-18 has, by and large, reversed and
said that there is a risk that this upward trajectory may continue in
pi the near-term.
It said that the impact of HRA (House Rent Allowance) increase by
the Central Government is expected to peak in December. The
staggered impact of HRA increases by various state governments
ap
may push up housing inflation further in 2018, with attendant
effects.
“We have a neutral stance, which means that depending on the data
flow in coming months and quarters we’ll determine what we do
regarding the policy. So the neutral stance is there for a reason that all
Kn
possibilities are on the table, and we would look carefully at both the
inflation data and the growth data that comes in the coming months,”
said RBI governor Urjit Patel.
Where did the reactions come from?
The policy supports the expectation that
interest rates will remain unchanged for
a prolonged period but the mention of
the output gap, the difference between
the actual output of an economy and

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its potential, shows that the monetary policy committee is

concerned about growth as well, said Gaurav Kapur, chief
economist at IndusInd Bank. “Going purely by the upside risks
to inflation would have warranted a change in monetary policy
stance to more hawkish. But they stuck to neutral because of the
negative output gap. Going ahead, with expectation of CPI
remaining above 4%, I think they will hold on to rates, unless the
Union budget turns out to be populist and there is indication of
ly
significant fiscal slippage.”
“We are hopeful that going forward the RBI would shift its policy
stance from neutral to accommodative and effect a cut in interest
rates to revive domestic demand, which would provide a fillip to
pi broad-based investment activity that has yet to take off in a big

way,” said CII Director General Chandrajit Banerjee. He
observed that a reduction in interest rates would give the necessary
signal that fiscal and monetary policies are working in tandem to
ap
give a boost to growth.
“While inflation weighed on the decision of the Monetary Policy
Committee of the RBI, the growth concerns cannot be brushed
aside either, as the cost of capital is still high in India,”
ASSOCHAM President Sandeep Jajodia said. India Inc, he said,
Kn
continues to remain over-leveraged while consumer demand is still

subdued.
Upasna Bhardwaj, Sr. Economist at mKotak Mahindra Bank
said: “Given that MPC members are fixated with anchoring 4 per
cent inflation target and the upside risks emanating from higher oil
prices, higher rural real wages, sticky core inflation and mean
reversion of food prices, we find limited room for any further
monetary accommodation this year.”
“The move signals banks’ acknowledgment of tightening systemic
liquidity and an indication of the bottoming of the interest rate

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cycle with inflation rate normalizing and loan growth also showing
signs of uptick__,“ Manish Karwa and Abhishek Saraf_, analysts at
Deutsche Equities India Pvt.
“Our focus will be on the tone of the policy guidance, divided
between neutral or a hawkish bias,” said Radhika Rao, an
economist at DBS Bank Ltd. in Singapore. “Inflationary risks and
firm second-quarter growth numbers provide the central bank with
sufficient justification to sound cautious.”*
ly
SBI Chairman Rajnish Kumar said the RBI’s decision to
maintain status quo was in consonance with market expectations.
“The policy assessment is fairly balanced and pragmatic with
inflation and growth both expected to show an uptick in next two
pi quarters,” Kumar said in a statement.

ICICI MD and CEO Chanda Kochhar said it was a display of
prudence keeping in view risks to the inflation trajectory . “The
RBI has taken cognisance of further improvement on growth
ap
prospects by government through structural reforms including
recapitalisation of banks,” she said. “It is heartening to note that
RBI has also communicated greater clarity on the liquidity
framework indicating that it is ready to deploy both short term and
durable tools to absorb or inject liquidity as the need arises,”
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Kochhar added.
The tone of the policy is noticeably cautious on prices and positive
on growth, Dena Bank Chairman and Managing Director
Ashwani Kumar said. “It is also to be noted that the future policy
actions will largely depend on data facts. Overall, the outlook of
MPC is supportive to the growth of the economy,” Kumar said.
Rating agency ICRA’s Managing Director and Group CEO
Naresh Takkar, noting the tone of the policy not “particularly
hawkish” , said the expected uptick in CPI inflation spells a low
likelihood of rate cuts in the immediate term. “We expect an

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extended pause for the policy rate as a baseline scenario going into
2018,” Takkar said.
Muthoot Finance MD George Alexander Muthoot said RBI’s
decision to maintain status quo was well within the industry
expectations given the current economic conditions. “This
approach is more of tightening the systemic liquidity until the
inflation rate normalizes,” he said.
Market reaction
ly
The banking sector stocks extended losses after the RBI kept Repo
rate unchanged in its monetary policy decision. BSE Bankex,
which constitutes 10 key banking stocks from the BSE 500, closed
pi 348 points or 1.23 percent lower at 28,110 level.

All 12 components of the BSE Bankex ended in the red after the
RBI monetary policy committee announced its decision. SBI, Bank
of Baroda and Punjab National Bank and Canara Bank were down
ap
over 2 percent each.
Bank Nifty was down 273 points to 24,851 level with SBI, PNB,
and Canara Bank losing over 2 percent each. All 12 bank Nifty
components closed in the red. While the Sensex fell 205 points to
32,597, Nifty was down 74 points to 10,044 level.
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Who will drive the economy in the short

run?
Reform to boost growth prospects: In
the MPC assessment, there have been
several significant developments in
India’s economy, including raising
capital from the primary capital market, ease of doing business, the
recapitalisation of public sector banks and tightening of the
insolvency and bankruptcy code (IBC), which auger well for

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growth prospects.
Oil Prices to push inflation up: RBI noted that the recent rise in
international crude oil prices might sustain, especially on account
of the OPEC’s decision to maintain production cuts through
next year. Some relief on vegetable prices was anticipated due to
seasonal moderation as winter kicks in. The RBI also noted that the
GST Council in its last meeting has brought several retail goods
and services to lower tax brackets, which should translate into
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lower retail prices, going forward.
Global economies gain momentum: The RBI said the global
economic powerhouses like the US, and the Euro zone, and Japan
also gained momentum in the past quarter, with uptick momentum
pi in private consumption, investment activity and net exports.

Accommodative monetary policy, strong job gains and external
demand also contributed to the factor, said the central bank.
Talking about macro-level global economic trend, the RBI said the
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latest World Trade Organisation (WTO) report indicates a loss of
momentum in global trade due to declining export orders.
Debit card transactions: The RBI said that in recent times, debit
card transactions at ‘Point of Sales’ have shown significant growth.
With a view to giving further fillip to acceptance of debit card
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payments for purchase of goods and services across a wider

network of merchants, it has been decided to rationalize the
framework for Merchant Discount Rate (MDR) applicable on
debit card transactions based on the category of merchants. The
RBI has further reduced the MDR - cost paid by a merchant to a
bank for accepting payment via credit or debit cards - for debit card
transactions. For merchants with turnover of up to Rs 20 lakh, the
MDR has been capped at 0.40% if the transaction involves physical
infrastructure such as a swipe machine. If the transaction is
conducted via a QR code, the MDR has been further reduced to

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0.30%. For merchants whose annual turnover exceeds Rs 20 lakh,

the MDR has been capped at 0.90% for swipe machine based
transactions and 0.80% for QR code based sales, subject to a
maximum of Rs 1,000 per transaction. The revised MDR aims at
achieving the twin objectives of increased usage of debit cards and
ensuring sustainability of the business for the entities involved.
Allowing overseas branches/ subsidiaries of Indian Banks to
refinance ECBs: Currently, Indian corporates are permitted to
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refinance their existing External Commercial Borrowings (ECBs)
at a lower all-in-cost. The overseas branches/subsidiaries of Indian
banks are, however, not permitted to extend such refinance. In
order to provide a level playing field, the RBI said that it has been
pi decided, in consultation with the Government, to permit the

overseas branches/subsidiaries of Indian banks to refinance ECBs
of AAA rated corporates as well as Navratna and Maharatna PSUs,
by raising fresh ECBs. Revised guidelines will be issued within a
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week, the RBI said.
How far has the MPC come?
In October 2016, a page was turned on a
tradition that went back to the origins of
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the RBI in pre-independent India. The

monetary policy decision, hitherto
made solely by the Governor of the
RBI, was ceded to a six-member committee comprising the
Governor as the Chairperson, the Deputy Governor in charge of
monetary policy, one officer of the RBI appointed by its Central
Board, and three external members appointed by the central
government.
Quietly ushered in, without any grandeur about it or anything like that,
it was a big step towards the modernisation of the conduct of monetary

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policy in India.
Invested by legislative mandate – through an amendment to the
RBI Act – with the goal of ‘maintaining price stability keeping in
mind the objective of growth’, India joined a select but growing
band of countries that, beginning in 1990, adopted flexible
inflation targeting (FIT) as their framework for monetary
policy.
Under FIT, price stability is accorded primacy as an objective of
ly
monetary policy, while being mindful of the state of the economy.
Accordingly, the target for inflation is to be achieved over a
medium term horizon rather than at a point in time to mitigate any
pi output effects that disinflation could entail. Furthermore, the target

itself is set within a band or range (currently at 4 plus/minus 2
percent) in acknowledgement of potential supply shocks that well
up outside monetary policy’s realm. Accountability for failure to
ap
ensure the inflation band is generally defined, but after taking into
account the various lags characterising the operation of monetary
policy.
In India, the amended RBI Act defines the metric for the inflation
target as the year-on-year change in the monthly consumer price
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index (CPI).
The numerical inflation target has been set by the government at
four per cent, with an upper tolerance level of 6 per cent and a
lower tolerance level of 2 per cent, internalising flexibility. The
amended RBI Act has also specified accountability norms for
dealing with failure to achieve the inflation target while
building in recognition of the lags inherent in the conduct of
monetary policy.
It defines failure as average inflation breaching the tolerance
band for three consecutive quarters, not instantly. Although

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concerns about inflation had dominated monetary policy over the

past decades in deference to a societal intolerance threshold, such
an explicit commitment to a numerical inflation target as the
centre-piece of policy had never been made.
What has challenged the MPC throughout is the domestic dilemma –
the trade-off between inflation and growth was sharp and the
tension between the two so acute that it would eventually impact the
voting pattern of the MPC. The attempt of the MPC, through its
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resolutions and individual members’ views, is to make policymaking
more transparent and predictable.
The composition of the current and the first monetary policy
pi committee is as follows:
Governor of the Reserve Bank of India – Chairperson, ex officio -
Urjit Patel
Deputy Governor of the Bank, in charge of Monetary Policy —
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Member, ex officio - Viral A Acharya
One officer of the Reserve Bank of India to be nominated by the
Central Board – Member, ex officio; - Michael Patra
Chetan Ghate, Professor, Indian Statistical Institute (ISI) –
Member;
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Professor Pami Dua, Director, Delhi School of Economics –

Member;
Dr. Ravindra H. Dholakia, Professor, Indian Institute of
Management, Ahmedabad – Member
—– | —–

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INDIAN ECONOMY / The return of the golden

love affair
20-Oct-2017
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pi India imported an average of 75 tons of gold every month in 2017
before the demand tapered to 48 tons in September. Demand for gold
ap
jumped this week on account of Diwali, even though high prices took
some sheen off. The government has swung into swift action to prevent
the citizens from ravaging the country’s balance sheet again by
indulging in a process that economists have always struggled to
understand. Indians buy gold. No matter what.
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What is the impact of the festive season

on gold demand?
Demand in the world’s second-largest
gold consumer usually strengthens during
the final quarter as the country gears up
for the wedding season soon after the
festivals when buying bullion is considered auspicious. That beginning
has been made.
Demand for gold has jumped in India this week on account of the

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auspicious Hindu festivals of Dhanteras and Diwali, but it is still lower

than that of the last year due to higher prices in 2017.
After poor sales during the Dussehra festival, demand improved
significantly over the last two weeks, but was still 15 per cent
lower than last year’s Diwali, said Nitin Khandelwal, chairman of
All Indian Gems & Jewellery Trade Federation.
“In some regions, demand was nearly 30 per cent lower than
normal, but in others, it was at par compared with last year.
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Overall for the country, demand was down around 15 per cent”, he
said.
Diwali festival is associated with gold buying in India. It celebrates
pi the victory of light over darkness and comes right before India’s
wedding season; so it is considered a lucky time to buy gold.
Dhanteras is considered to be an auspicious day for buying gold,
silver and other valuables and is largely celebrated in northern and
ap
western parts of India.
As compared to the previous year, the demand for gold in India rose
almost 31% as jewellers increased their purchases due to the festivities.
The import figure in October could rise above 70 tons as importers
increase overseas purchases for the Diwali week.
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High price of gold was a dampener.

“Consumers were price sensitive and buying less gold than last
year. They had a very tight budget,” said Mangesh Devi, a jeweller
in the western state of Maharashtra. Gold prices in India have
risen nearly 8 per cent so far in 2017.
“This year, my husband’s business is down due to GST (Goods and
Services Tax). That’s why I reduced spending on gold,” said
Sangeeta Pardesi, a housewife, who buys gold on Dhanteras every
year.

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Why is the demand reviving?

Until recently, the gold industry
was struggling to cope with a
slump in sales caused by a
government crackdown on the
black market, and efforts to
increase financial transparency. In August, jewellers were dealt a fresh
blow by a decision to bring them under the Prevention of Money
ly
Laundering Act - a move they likened to being bracketed with those
selling arms.
This move spooked the buyers
pi New rules announced on August 23 have made it compulsory for

consumers to furnish KYC (know your customer) information
when they buy gold worth Rs 50,000 or more, compared with Rs 2
lakh previously.
ap
Gold sales halved in Spetember, as traders said tightened
restrictions on anonymous cash-based purchases kept buyers
away from market at the beginning of the festival season.
The PMLA curbs made customers wary of harassment at the hands
of authorities, keeping them away from jewellers, traders said.
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While reduced demand for gold may work in favour of the

government - large import of the metal is often blamed for high
trade deficit, the government was also losing out on tax revenue as
demand was believed to be shifting from official routes to
unofficial channels such as smuggled gold.
Average daily sales in India during August was 2.5 tons, which
swiftly plunged to about 1.25 tons after PMLA inclusion.
Then came the reversal
On October 14, the government released a new notification

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removing the KYC restrictions imposed on gold purchase.

The PMLA guidelines, which required jewellers to keep records of
customers’ Permanent Account Number (PAN) for transactions
above ₹50,000, had a drastic effect on gold sales as buyers were
hesitant to provide the PAN details, said Aditya Kumar, founder &
CEO, Qbera.com, another gold loan portal. “Post amendment,
there is a surge in demand. Currently, personal loans for gold
purchase forms about 8% of our loan book and have seen spike in
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the volumes post amendment.”
The reversal of PMLA restrictions helped increase the demand for
gold purchases, said B. Govindan, chairman, Bhima Group and
president of All Kerala Gold & Silver Merchants Association.
pi According to him, the demand will increase sharply in the festive

season and continue till the end of the wedding season.
“A good monsoon and stable gold prices are definitely encouraging
ap
consumers to make token purchases for the auspicious festival. The
ensuing wedding season however, holds the key for the quarterly
demand performance,” World Gold Council India Managing Director
Somasundaram PR said in a statement.
When did the importers display the
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great Indian jugaad?

The story went like this
India has had this major problem with
gold imports. So they introduce a 10%
import duty on gold. But then, India
also has free trade agreements (FTA) with some countries –
notably, South Korea. Where they make some refinements to gold,
and then export it everywhere. But a free trade agreement means no
customs duty. But you can’t have zero import duty from South

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Korea, and then 10% from everywhere else, because then

everyone in India will simply import gold from South Korea.
So, the government had to do something.
That something was done swiftly. What it did was to introduce a
12.5% excise duty on gold. When you import something that has
an excise duty there is a “countervailing duty” (CVD) that applies
even if you have no customs duty. This is simple – if you would
pay 12.5% to make that gold in India, you will pay that 12.5% on
ly
imports from anywhere else as well.
Then came GST
pi Now, from July 1, India introduced a new tax regime called GST.
The goods and services tax removes the entire concept of excise
duty. For gold, the GST is 3%.
Guess what happens next? Customs duty still applies, so if you
import from Dubai, you pay 10% customs duty and then 3% GST.
ap
But what happens if you import from Korea? There cannot be
customs duty because of the FTA. The GST is 3% and there is
no more excise duty, and thus, no countervailing duty.
So the effective rate for imports from Korea was just 3%.
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India and Indians love loopholes. From July 1 to August 21,

around 27 tons of gold – worth about Rs. 8,000 crore – was
imported from Korea. That’s a lot more than it used to – and the
lower cost of gold through an unintended loophole triggered the
action.
The government then did what it had to
On August 25, India removed gold and silver from the list of
“free” items from Korean imports. Of course, Korea doesn’t like
it. In a free trade agreement, you can’t unilaterally decide that

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something you import is taxed but other stuff is not. The

government’s defense is that the imports from Korea are
actually gold from Dubai which is only marginally changed in
Korea.
Enter Indonesia
Meanwhile, Indonesia – another country which we have an FTA
with – started seeing big gold exports to India. From almost nil
earlier this fiscal, gold imports from Indonesia exceeded 600 kg
ly
between July and September, more so after India restricted the
precious metal purchases from South Korea in late August to curb
similar violations or rules.
pi Here the Indian government was on a sticky ground because

Indonesia actually mines gold, so it’s not like they have to import
it from Dubai or elsewhere. Bans will unwind the FTA and create a
bitter taste for anyone with an FTA with India.
ap
Where did the solution come
from?
No imports, no problem
On October 18, the government of
India moved to curb “gold-trade
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irregularities” by preventing some

trading houses from importing the metal following a surge in
shipments in recent months.
The second-biggest consumer won’t issue or renew authorization to
firms nominated by the Reserve Bank of India that fall under the
so-called four- and five-star categories, the trade ministry said in a
notice on its website. Those companies that already have
permits can import gold to be used in manufacturing and then
for export during the remaining license period, it said.

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The nominated importers “are permitted to import gold as input

only for the purpose of manufacture and export by themselves
during the remaining validity period of the Nominated Agency
certificate,” the government said in the circular.
The decision comes after a jump in overseas purchases from
nations like South Korea and Indonesia, which have free-trade
agreements with India, as traders try to bring in gold at zero
tax and avoid paying a 10 percent import duty. The government
ly
in August also banned exports of gold products with purity above
22 carats. The latest move won’t impact overall imports, but will
help in streamlining trade, the All India Gems & Jewellery Trade
Federation said.
pi “Whether it is 10 companies or five, if there is a requirement then

imports will anyway happen,” Nitin Khandelwal, the federation’s
chairman, said. “With these measures, only the methods of import will
ap
change and they will now happen through proper channels.”
India’s jewellery industry has been suffering because some
companies were misusing trade agreements and selling gold at
discounted rates in the market, because they were not paying
import taxes, he said.
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In India, the companies allowed to import gold include some

banks, trading houses and large jewellers. Four- and five-star
categories typically cover the top trading houses.
Inbound gold shipments during the first eight months of this year
more than doubled to 666.7 metric tons, almost matching the total
local consumption in 2016, according to data compiled by
Bloomberg.
Who is scared of gold?
When Indians bask in the glitter of gold, the government of India

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experiences shivers down its spine.

Remember 2013
India had a deficit on its current
account of nearly $90 billion in the
year 2012-13. The current account is a
record of transactions relating to exports,
imports and cross border income transfers for a given period, that
is, transactions that require a foreign currency. A deficit on the
ly
current account (CAD, in short) means that India has to pay
out more than it receives on these transactions. The deficit can
be bridged either using the country’s foreign exchange reserves or
pi from foreign capital inflows. In essence, CAD is a “bad, bad”

thing.
The enormity of the 2012-13 deficit could be seen from the fact
that it exceeded the value of exports of the entire computer
ap
software and service industry. Gold stood out as the prime
culprit, the second commodity after oil which contributes
significantly to the widening of the current account deficit in
India. But while is used for productive purposes, Gold is, for the
most part, bought and stored.
Kn
Dangerous habits need drastic remedies

To curb the high import demand for gold — that bloated India’s
current account deficit to a record 4.8% of gross domestic product
in 2012-13 — the Union government raised the import duty on
gold from 2 to 10% over two years.
In August 2013, the 80:20 rule was introduced by the Reserve
Bank of India (RBI) to further restrict import. Under this rule,
nominated agencies were allowed to import gold on the condition
that 20% gold would be exported. RBI later withdrew this scheme

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apparently due to a rise in smuggling of gold and loss of revenue to

the exchequer.
But in the long run, Indians buy gold, no matter what
The long-term import dynamics are unlikely to be affected by such
ad-hoc measures. One answer to this problem could be to estimate
gold import demand elasticities, both in the short-term and
long-term.
Price elasticity of demand is a term in economics often used
ly
when discussing price sensitivity. Basically, in case of gold, it
answers the question: If we increase the price of gold by 1%, what
will be the fall in demand? If the demand falls by more than one
pi percent, we would say the demand is elastic (buyers are sensitive to

price hikes). If it is less than one percent, we would say the demand
is inelastic (buyer are not very sensitive to price hikes). Also,
income elasticity of demand answers the question: If your income
ap
increases by one percent, will your demand for gold increase by
more than one percent? (If yes, elastic. If no, inelastic).
A study in Mint empirically estimated short-run and long-run
elasticity of gold import demand for India with respect to real
income and real price of gold. The analysis found that the long-
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term elasticity of gold import demand, with respect to real

income is greater than one. Even though price elasticity of gold
import demand is highly elastic in the short-run, it is inelastic
in the long-run.
This means that in India the purchase of gold will increase by more
than one percent if people’s income increases by one percent. As India
continues to grow, the wealth of the average citizen will continue to
increase and – as per this result – they would buy even more gold. And
this also implies that increasing the price of gold will be effective in
restraining gold import demand but the effect will be short-lived.

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This is bad – really bad – news for the government. But again, in the
long run we are all dead. So the government can curtail the demand in
the short run without worrying much.
How is the global demand for gold?
Gold has generally held its status as an
investment haven in times of global
uncertainty and during economic crises.
2017, as you already know, is one such
ly
year.
Gold is also used as a hedge against inflation. This is one asset
which, in the long run, will yield good returns (provided you sell
pi it).
For some investors gold is a sentimental purchase, while for those
who are generally skeptical of financial markets, it provides a sense
of comfort about the safety of their investment and is also easy to
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use as a gifting product to friends and family members.
Globally, China, India, Germany and the US have accounted for 58
percent of global demand this year.
The demand for Gold has been increasing, with developing
economies accounting for two thirds of the growth in demand,
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led by China and India.

In addition to this, the gold mine supply is expected to peak in
2017, which is supportive for a bullish view on gold prices - this is
supported by a few big global players like Goldman Sachs who
recently revised their gold price forecasts upwards. So expect your
gold investment to yield good returns in the coming months.
But global gold traders don’t expect gold to turn into a wealth
creator anytime soon as it did between 2002 and 2012, when the
yellow metal’s value multiplied six times. Its price will rise, but

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only modestly so.

Investment, what investment?
Indians don’t really care for price appreciation, according to
Sandeep Kulhalli, senior vice-president, retail and marketing, at the
jewellery division at Titan. “Thankfully, customers in India buy
jewellery and not bullion. Our customers are largely women who
don’t think of annual returns,” he said.
Any Indian who bought bullion last Diwali would have gained
ly
nothing, with prices remaining flat. Investing in a bank fixed
deposit – considered as safe as gold – would have earned 7.5-8.5
percent returns. That’s an opportunity lost for a gold buyer.
pi What’s worse, if she bought gold five years ago on Diwali, she
would still be sitting on a nominal loss. The return on stock
investments would have doubled during the period.
But the thing about money is, well, that it is not gold.
ap
—– | —–
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INDIAN ECONOMY / The rise and rise of FDI in

India
28-Aug-2017
ly
pi The Ministry of Commerce and Industry has released the consolidated
Foreign Direct Investment (FDI) Policy of India. A compilation of all
ap
sector-specific policies, the document is aimed at making it easy for
foreign investors to understand the rules of investing in India. FDI in
India is surging since the last three years, with more sectors becoming
available for investment and the government pushing ahead with
liberal policies. The best is still to come.
Kn
What is the consolidated policy

about?
The Department of Industrial Policy
and Promotion (DIPP), under the
Commerce and Industry Ministry,
today released the next edition of its
consolidated FDI policy document, incorporating all the changes made
in the past one year. DIPP said the new “circular will take effect” from
today (28 August 2017).

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The consolidated policy is a compilation of the various decisions

taken by the government in the past one year.
DIPP, which deals with FDI related matters, compiles all policies
related to foreign investment regime into a single document to
make it simple and easy for investors to understand. Investors
would otherwise have to go through various press notes issued by
the department, and the RBI regulations to understand the policy.
The government updates the policy every year.
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The whole exercise is aimed at providing an investor friendly
climate to foreign players and, in turn, attract more FDI to boost
economic growth and create jobs.
pi During the last one year, the government has liberalised FDI policy
in over a dozen sectors, including defence, civil aviation,
construction and development, private security agencies and news
broadcasting.
ap
Foreign investments are considered crucial for India, which needs
around $1 trillion for overhauling its infrastructure sector such
as ports, airports and highways to boost growth.
Foreign investments will help improve the country’s balance of
payments situation and strengthen the rupee value against other
global currencies, especially the US dollar.
Kn
Note: The document does not introduce any new policy. It is merely a
compilation of sector-specific policies.
Why is India able to attract more
FDI now?
In the last three years, 21 sectors
covering 87 areas of FDI policy have
undergone reforms. This has resulted in
increased FDI inflow, which year after

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year is setting new records. If the FDI inflows of $55.6 billion for the
year ending March, 2016 were an all-time high, the record was not
meant to last long. The country registered FDI inflow of $60.08 billion
in the next financial year (2016-17).
Increased FDI inflows in the country are largely attributed to
certain bold policy reforms the government undertook to bring
pragmatism in the FDI regime.
A new direction was given to FDI policy reforms in 2014 itself
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when conservative sectors like Rail Infrastructure and Defence
were liberalized. This was accompanied by reforms in other
sectors such as Medical Devices and Construction Development.
pi The country in the year ending March 2015 received FDI of $45.15
billion as against US $36.05 billion in the preceding fiscal.
Reform measures gained further momentum the following year.
FDI policy on a number of sectors was liberalized. With a view to
ap
provide ease of doing business, licensed and non-sensitive
activities were placed under the automatic route and
investment caps were raised. FDI policy provisions were
radically overhauled across sectors such as Construction,
Broadcasting, Retail Trading, Air Transport, Insurance and Pension
among others. In addition, initiatives such as introduction of
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composite caps in the FDI policy and raising the approval limit
were also undertaken to promote ease of doing business in the
country.
The measures towards FDI policy liberalization and reforms
continued in the last financial year. For retail trading of food
products, the Government permitted 100% FDI with
unqualified condition that such food products have to be
manufactured and/or produced in India. In the Financial
services sector, Government promulgated that any financial sector

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activity which is regulated by any financial sector regulator

will be eligible for 100% FDI under automatic route, and
approval would be needed only for unregulated financial sector
activities. FDI policy reforms were also undertaken in other sectors
such as Defence, Airport Infrastructure, Broadcasting, Animal
Husbandry and Retail Trading.
Note: With the introduction of composite caps foreign investment
includes all types of foreign investments, direct and indirect, regardless
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of whether the said investments have been made under Schedule 1
(FDI), 2 [Foreign Institutional Investor(FII)], 2A [Foreign Portfolio
Investor(FPI)], 3 [Non-Resident Indian(NRI)], 6 [Foreign Venture
pi Capital Investor(FVCI)], 8 [A Qualified Foreign Investor(QFI)],

9[Limited Liability Partnership (LLP)] and 10 [Depository
Receipts(DRs)] of Foreign Exchange Management Act (FEMA)
(Transfer or Issue of Security by Persons Resident Outside India)
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Regulations. Foreign Currency Convertible Bond (FCCBs) and DRs
having underlying of instruments which can be issued under Schedule
5, being in the nature of debt, shall not be treated as foreign
investment. However, any equity holding by a person resident outside
India resulting from conversion of any debt instrument under any
arrangement shall be reckoned as foreign investment. The measure is
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expected to bring clarity in FDI policy and boost foreign investment.

When do we see the bigger
picture?
The course correction in 1991
was forced by circumstances and
the country embraced a more
open economy.
A clear message that comes out after analysing the progress since that

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year is that the direction of policy stance — to be a more open

economy and encourage foreign investments — has not changed in the
last 26 years. India has kept the faith on pursuing a market-oriented
open economy strategy despite unexpected challenges like the 2008
global financial crisis and several irregularities between 2011 and 2014
that dented the credibility of the then UPA-II Government. The spate
of irregularities had somewhat created a perception of ‘policy
paralysis’, leading to fall in growth levels as compared to the Golden
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Period of 2003-08 (when the country even hit 9 per cent growth
levels).
With the country now emerging as one of the fastest growing large
pi economies of the world, the investor interest is back.

The pace of economic growth may have faltered in recent years,
but India has only progressed despite the State’s overarching
presence in most economic activities.
ap
There is no doubt that the country only gained from its decision to
unleash the “animal spirits” in sectors such as information
technology, oil refinery, pharmaceuticals, telecom and to some
extent banking, giving a larger role for the private sector. A large
part of the credit should go to former Prime Ministers Narasimha
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Rao and Manmohan Singh (who was Finance Minister in 1991

Congress-led Government).
The successive Finance Ministers – P Chidambaram, Yashwant
Sinha, Pranab Mukherjee — kept the tempo going and ensured that
India did not completely retract from the path of a free market open
economy. The current dispensation — led by Prime Minister
Narendra Modi — is also not in any manner looking to alter this
trend.
A strong capital market infrastructure — built in the last two
decades — has only helped in the economic transformation journey.

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To gauge the extent of transformation of the Indian economy,

sample the following two macro data points: In 1991, the
country’s foreign currency reserve, at the height of the
economic crisis, was just $1 billion. Today, the forex reserves
have gone up to a record $385 billion (as of end June this year).
The total foreign investments (both portfolio and foreign direct
investment) in 1991-92 were hardly $150 million. Foreign Direct
Investment (FDI) hit an all-time high of $60.1 billion in 2016-17.
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The cumulative value of investments by Foreign Institutional
Investors (FIIs) during April 2000-December 2016 stood at
$183.69 billion.
Another interesting data point to show how the Indian economy has
pi expanded in the last two decades is the direct tax receipts. In 1998-
99, the country’s total direct tax collections stood at ₹44,600
crore. This progressively increased to ₹3,14,468 crore and is
budgeted to touch ₹9,80,000 crore in 2017-18. It is this surge in
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tax collections that has encouraged the Centre to share a larger 42
per cent of the central tax receipts with the State Governments (as
mandated by the Fourteenth Finance Commission). The story is
even better (over the last two decades) in indirect tax receipts front
with collections budgeted at ₹9,26,900 crore in 2017-18.
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Where does FDI seem heading to?

Foreign Direct Investment into India
grew 37% to $10.4 billion in the April-
June 2017 period compared with $7.59
billion in the year-ago period.
FDI inflows into India are likely to rise
to 2.5% of GDP over the next five years, helped by economic growth
and ongoing structural reforms, says a report by UBS Securities India.

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The foreign direct investments (FDI) into India have nearly

doubled over the past decade, reaching 1.9% of GDP in 2016-17.
“Post 2014 general election, FDI inflows saw a compound annual
growth rate of 11% versus a dip of 6 % seen over the previous 5
years,” UBS said. “We expect FDI inflows to India to rise further
to 2.5% of GDP over the next 5 years,” added the foreign
brokerage.
UBS noted that unlike China, where the government has phased
ly
out FDI-favoured policies, India will be increasingly recognised
as a favoured destination by overseas investors “if growth is
accompanied with continuous structural reforms”.
Interestingly, the report said that over the last couple of years,
pi India has recorded a pickup in FDI inflows to the

manufacturing sector. Historically such investments have been
more towards the service sector. According to the report, FDI flows
into manufacturing “bodes well for creating a productive spill-over
ap
impact on other sectors of the economy; for instance, boosting
exports and creating jobs”.
“In 2016-17, the largest increase in FDI was in the telecom sector
($4.2 billion) followed by insurance. Besides these, cement,
electrical equipment, banking services, metallurgical industries
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and the broadcasting sectors also received higher flows in the last
fiscal,” it added.
Observing that India needs FDI inflows to fund its trade deficit,
UBS said the country requires “to focus on attracting stable FDI
flows to improve the competitiveness of its manufacturing sector
and to make it an integral part of the global value chain”.
It said transfer of technical and organisational knowledge that
accompanies these flows would help boost productivity, support
investments and contribute to India’s overall growth – under the
right conditions.

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Who needs a more liberal FDI

policy?
India is contemplating 100 per
cent FDI in the defence sector
to stimulate the participation of
foreign companies in the
manufacture of military transport aircraft, battle tanks and
armoured vehicles.
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Presently, foreign investment is permitted only up to 49% under
the automatic route and foreign investment up to 100 per cent
is allowed only after government’s approval. Under the
pi automatic route, 76 per cent FDI is allowed for producing fighter

aircraft and helicopters. However, “this has not really propelled
the ‘Make in India’ initiative in the defence sector,” officials claim.
The disadvantage of the current system is that major foreign firms
ap
stay away as they are reluctant to agree for transfer of
technology.
To buttress their point, officials pointed out to the meagre FDI
received since a year ago. From July 2016 to January 2017, FDI
worth ₹0.61 lakh was received from Elbit Systems Land and C41
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Ltd, Israel, in BF Elbit Advanced Systems Pvt Ltd.

Referring to lack of interest by defence multinationals, sources
pointed out that the sector was in “dire need of significant capital
investment and infusion of technology. India is one of the biggest
buyers of foreign arms globally”.
Finance Minister Arun Jaitley recently held a meeting with
government officials and conducted a review of the current FDI policy.
The government has been looking to further liberalise the FDI regime
to attract foreign investments in various sectors, including defence and
retail.

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An official present during this meeting said that the FDI policy is
subject to industrial licence and such licences are granted by the
Licensing Committee in the Department of Industrial Policy
and Promotion (DIPP), which takes into account the security
clearances by the Ministry of Home Affairs.
Senior officials in the DIPP said a proposal sent by NITI Aayog
regarding encompassing more foreign participation in defence
production was discussed at the meet, as was the urgent need for
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India to partake of the large global demand for tanks and armoured
vehicles.
How does FDI benefit India?
pi FDI can be defined as a direct capital

investment or economic activity made by
a business enterprise located in one
country (or the host country) in another
ap
country (or the home country). India, just
like any other home country, benefits from the generation of
employment, transfer of technology, increase in exports and growth in
national income.
Creates new employment
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FDI benefits the home country with the creation of employment. It

also assists in ensuring the workers are paid better salaries. This
allows them to have an access to an improved lifestyle as well as
more facilities. The manufacturing and production sector is greatly
developed in the home country due to FDI investment.
New technology
FDI benefits the host country through introducing advanced skills
and technology. New research will be conducted in that home
country as the international organization looks for methods of

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enhancing its services. This leads to better technology that can be

applied in other parts of the nation for further development.
Improves export
FDI enables the home countries to enhance their export resources.
Furthermore, research shows that nations who get FDI from other
international organizations usually have lower interest rates. This
means that their exported products are much cheaper and,
therefore, more competitive.
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Increases income
Income generated through taxation is increased by FDI investment.
pi FDI also plays an important role with regards to increasing

productivity of home countries. It improves the local economy and
raises living standards.
—– | —–
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INDIAN ECONOMY / 100 and improving
1-Nov-2017
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pi India has jumped 30 spots to 100 in World Bank’s Ease of Doing
Business ranking for 2018, driven by banking reforms, power supplies
and protection of minority investors. The Doing Business 2018 report
ap
recognises India as one of the top 10 improvers this year. The report
captures reforms implemented in 190 countries between June 2, 2016
and June 1, 2017. With GST implementation, India’s rank is expected
to improve more in the coming years.
What is the good news for India?

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India’s ranking in the World Bank

Doing Business 2018 report climbed
30 notches to 100 as regulatory and
policy reforms put in place by the
central and state governments over the
past four years start to deliver results.
The Narendra Modi-led National Democratic Alliance (NDA)
government, which has been seeking an improvement in India’s
ranking to attract greater foreign investment, has set more

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ambitious targets. According to an output-outcome framework

document prepared by the government, India is seeking to reach
the 90th rank in 2017-18 and 30th by 2020. Last year, India’s ease
of doing business ranking improved by just one notch to 130.
The Doing Business 2018 report, which bases the rankings on
field surveys and interviews with corporate lawyers and
company executives in Delhi and Mumbai, also recognized India
as one of the top five reformers in this year’s assessment. The
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country improved its ranking on six out of the 10 parameters used
to judge ease of doing business, becoming the only large economy
to do so this year.
Out of the 10 parameters, India got its highest ranking in
pi “protecting minority investors” parameter by rising to the fourth

position globally from 13th last year as the country’s corporate law
and securities regulations were recognized to be highly advanced.
Its worst performance came in “dealing with construction
ap
permits” despite improving its ranking to 181 from 185th position
last year.
On the “distance to frontier” metric, which measures the absolute
improvement in the performance of a country against the relative
performance measures by the ranking, India scored 60.76 against
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56.05 last year, indicating that “the country is continuing its steady
shift towards best practice in business regulation”.
While the report this year takes note of the Insolvency and
Bankruptcy Code to ensure time-bound settlement of insolvency, the
implementation of the goods and services tax (GST) is not part of
the review process as it came after the 1 June deadline for the
World Bank survey. World Bank country director in India Junaid
Ahmad said effective implementation of both the reform measures may
improve India’s ranking significantly over the coming years.

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Note: The top five countries in the rankings are New Zealand,
Singapore, Denmark, South Korea and Hong Kong.
Why was this possible?
India’s fastest single-year jump has not
come out of chance. It is the result of a
meticulously planned exercise.
It began with the World Bank
ly
agreeing with the government that
the survey (that underlies the ranking) should be conducted in
two cities (Mumbai and Delhi) unlike the pre-2016
methodology of ranking reflecting the perception of business in
pi Mumbai alone. But that was only the beginning.

A bigger battle awaited the department of industrial policy and
promotion (DIPP), which has been driving the process of easing
business regulation in India. Three years ago, when PM Narendra
ap
Modi made a pitch for India to move into the league of Top 50
countries in the World Bank’s ranking in three years, Amitabh
Kant, who was then DIPP secretary, got down to work out a
checklist. He found that changes were possible within the legal
framework on most issues.
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His successor Ramesh Abhishek took the process forward, often

working with municipal bodies and utilities in Mumbai and Delhi.
It took a while for him and Kant to get the Mumbai and Delhi
power distributors to move to an online system for applying for
connection and collecting payments.
When it did happen, India’s rank on the parameter of ‘Getting
Electricity’ shot up from 170 in 2015 to 26 in 2017. Delhi Jal
Board was persuaded to lower the fee, something that the World
Bank has not acknowledged as yet.
Getting various approvals from local bodies were not easy too, but

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an online system of deemed approvals if an agency doesn’t

respond in the stipulated time has eased the process. The
National Monuments Authority was prodded into colour coding of
areas where its approval for construction was needed. This made it
easier to get clearances that had to come within a specified period.
At the Centre, several departments — from commerce to customs
and corporate affairs —were nudged into reworking processes to
reduce the number of forms that are required and significantly
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cut down the time needed for clearance. For instance, an
entrepreneur can now select a name and register a firm within a
few hours — something that took up to three weeks earlier.
Approvals now come with PAN and TAN.
pi But 2016 saw no improvement in India’s rank

Wiser from the 2016 experience, and under instructions from PM,
ministries were asked to implement changes well ahead of the
ap
deadline. If the deadline for the World Bank team’s assessment
was December, the process needed to be completed earlier so that
companies being surveyed by the Bank had the time to assess the
change and build that into their feedback.
Communication was critical to success. All reforms undertaken
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in a department were mentioned clearly in one place and a

special drive was undertaken to remove all old information.
Workshops were organised to explain the changes to specific
industries.
Perhaps the biggest change has been in the mindset. They now believe
doing business easily is doable.
When was the Doing Business report launched?
The Philosophy
The foundation of Doing Business is the notion that economic

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activity benefits from clear and

coherent rules: rules that set out and
clarify property rights and facilitate the
resolution of disputes. And rules that
enhance the predictability of economic
interactions and provide contractual
partners with essential protections against arbitrariness and abuse.
Such rules are much more effective in shaping the incentives of
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economic agents in ways that promote growth and development
where they are reasonably efficient in design, are transparent
and accessible to those for whom they are intended and can be
implemented at a reasonable cost. The quality of the rules also
pi has a crucial bearing on how societies distribute the benefits and

finance the costs of development strategies and policies.
The Factors that matter
ap
Doing Business captures several important dimensions of the
regulatory environment as it applies to local firms. It provides
quantitative indicators on regulation for starting a business,
dealing with construction permits, getting electricity,
registering property, getting credit, protecting minority
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investors, paying taxes, trading across borders, enforcing

contracts and resolving insolvency.
Doing Business also measures features of labor market regulation.
Although Doing Business does not present rankings of economies
on the labor market regulation indicators or include the topic in the
aggregate distance to frontier score or ranking on the ease of doing
business, it does present the data for these indicators.
The choice of the 11 sets of Doing Business indicators has also
been guided by economic research and firm-level data, specifically
data from the World Bank Enterprise Surveys.

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The Beginning
The Doing Business project was launched in 2002 to look at
domestic small and medium-size companies and measure the
regulations applying to them through their life cycle.
The first Doing Business report, published in 2003, covered 5
indicator sets and 133 economies. The 2017 report covers 11
indicator sets and 190 economies. Most indicator sets refer to a
case scenario in the largest business city of each economy, except
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for 11 economies that have a population of more than 100 million
as of 2013 (Bangladesh, Brazil, China, India, Indonesia, Japan,
Mexico, Nigeria, Pakistan, the Russian Federation and the United
pi States) where Doing Business, also collected data for the second
largest business city.
The distance to frontier (DTF) measure shows the distance of
each economy to the “frontier,” which represents the best
ap
performance observed on each of the indicators across all
economies in the Doing Business sample since 2005. An
economy’s distance to frontier is measured on a scale from 0 to
100, where 0 represents the lowest performance and 100 represents
the frontier.
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The Rankings influence other rankings

Two other prominent indices on competitiveness combine Doing
Business data with data from other sources to assess an economy along
a particular aggregate dimension such as competitiveness or
innovation.
The Heritage Foundation’s Index of Economic Freedom has
used 22 Doing Business indicators to measure the degree of
economic freedom in the world in four areas, including rule of
law, government size, regulatory efficiency and market

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openness. Economies that score better in these four areas also tend
to have a high degree of economic freedom.
Similarly, the World Economic Forum uses Doing Business data
in its Global Competitiveness Index to demonstrate how
competitiveness is a global driver of economic growth. The
organization also uses 13 Doing Business indicators in five indexes
that measure institutions, product market efficiency, labor market
efficiency, financial market development and business dynamism.
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This also means that India can expect to see significant improvements
in these two indices too next year.
Where did India make significant
pi progress?
The World Bank said that India’s
ranking reflects nearly half of the 37
reforms, adopted since 2003,
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implemented in the last four years.
This is a huge endorsement of the efforts of the Modi-government.
The World Bank credited India with the following improvements in
2017-18
Starting a Business: India made starting a business faster by
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merging the applications for the Permanent Account Number

(PAN) and the Tax Account Number (TAN), and by improving the
online application system. This reform applies to both Delhi and
Mumbai. Mumbai also made starting a business faster by merging
the applications for the value-added tax and the profession tax.
Dealing with Construction Permits: India made dealing with
construction permits less cumbersome by implementing an online
system that has streamlined the process at the Municipality of New
Delhi and Municipality of Greater Mumbai. The online system has

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streamlined the process of obtaining a building permit, thereby

reducing the number of procedures and time required to obtain a
building permit in India.
Getting Credit: India strengthened access to credit by amending
the rules on priority of secured creditors outside reorganization
proceedings and by adopting a new law on insolvency that provides
a time limit and clear grounds for relief to the automatic stay for
secured creditors during reorganization proceedings. This reform
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applies to both Delhi and Mumbai.
Protecting Minority Investors: India strengthened minority
investor protections by increasing the remedies available in cases
of prejudicial transactions between interested parties. This reform
pi applies to both Delhi and Mumbai.

Paying Taxes: India made paying taxes easier by making payment
of EPF (Employee’s Provident Fund) mandatory electronically and
introducing a set of administrative measures easing compliance
ap
with corporate income tax. This reform applies to both Delhi and
Mumbai.
Trading across Borders: India reduced import border compliance
time in Mumbai by improving infrastructure at the Nhava Sheva
Port. Export and import border compliance cost were also reduced
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in both Delhi and Mumbai by eliminating merchant overtime fees

and through the increased use of electronic and mobile platforms.
Enforcing Contracts: India made enforcing contracts easier by
introducing the National Judicial Data Grid, which makes it
possible to generate case measurement reports on local courts. This
reform applies to both Delhi and Mumbai.
Resolving Insolvency: India made resolving insolvency easier by
adopting a new insolvency and bankruptcy code that introduced a
reorganization procedure for corporate debtors and facilitated
continuation of the debtor’s business during insolvency

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proceedings. This reform applies to both Delhi and Mumbai.

Labor Market Regulation: India increased the mandatory length
of paid maternity. This reform applies to both New Delhi and
Mumbai.
Who said what?
World Bank vice president (South Asia
region), Annette Dixon said, “India has
embarked on a strong reform agenda to
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improve its business environment. The
significant jump this year is a result of
the Indian government’s consistent efforts, over the past few years. It’s
pi more than three years’ efforts of India. Due to the number of reforms
undertaken by the government, India’s ranking has gone up.”
“There have been implementation efforts not only at the Centre
level but also at state levels, and strong coordination between the
ap
ministries. As India focuses on growth model, it needs to do
consistent reforms like in the areas of competitiveness, soundness
of financial sector, etc,” she said.
The report didn’t consider Goods and Services Tax (GST) and
Demonetisation in its survey. “GST was a complicated reform to
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have rolled out. Steps taken by the government this year, may take
2 to 3 years to show results. This year it was too late for us and it
will be considered next year or thereafter. Demonetisation wasn’t
measured in this index,” added Annette Dixon.
The NDA government has been recently subjected to heavy criticism
for the sharp decline in India’s GDP growth rate, and for making lives
difficult for small businesses through GST.
The 30-notch jump in Doing Business comes as a welcome relief. The
World Bank also said the Small and Medium Enterprises (SME) sector

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in India has been growing larger and is important in job creation.

Visibly upbeat by the World Bank’s report, Finance Minister
Arun Jaitley in a press conference, after the release of the report,
said, “In the very first year of the government, Prime Minister
Narendra Modi said that our target should be to take India
amongst the first 50. It’s doable and can be achieved. World Bank
report clearly shows India is reaching a grand league.”
“The biggest jump has been in ‘Paying taxes’ indicator as last year
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among 189 countries, India ranked 172. This year it’s 53 notches
better and ranked at119. This has been due to a system of
electronically paying taxes, filing, assessment and making the
pi system easier. Starting a business is one area where lot of work is

in progress. If your business plan is ready, no license is needed
except in rarest cases, you can get your firm’s name registered
online in a single day. In the next few months, the impact of this
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work can be felt on ground,” the FM said.
On the country underperforming in the areas of registration of
properties and enforcing contracts, Jaitley said, “Though a lot has
been done on registration of properties by going online, we’ve
asked state governments to expedite the process at municipal
corporation level. There is lot of scope in improving enforcement
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of contracts.”
Prime Minister Modi fired five tweets to celebrate the jump
Historic jump in ‘Ease of Doing Business’ rankings is the outcome
of the all-round & multi-sectoral reform push of Team India.
Easier business environment is leading to historic opportunities for
our entrepreneurs, particularly MSME sector & bringing more
prosperity.
Over the last 3 years we have seen a spirit of positive competition
among states towards making business easier. This has been

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beneficial.
It has never been easier to do business in India. India welcomes the
world to explore economic opportunities our nation has to offer!
Guided by the Mantra of ‘Reform, Perform & Transform’ we are
determined to further improve our rankings & scale greater
economic growth.
Happier days for FDI in India
“FDI is like water. It seeks the path of least resistance. So the more
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you do to lower resistance the easier and faster the FDI will flow,”
Nisha Desai Biswal, the new head of the US-India Business
Council (USIBC) said.
pi “Let’s be clear that do people think that the reforms have gone far
enough? No. Neither in India nor in the US would anybody say. I
don’t think the Prime Minister himself would say that the reforms
have gone as far as fast as he would have liked. But has there been
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a change in perception…yeah absolutely,” she said.
Good, but not great
“FM’s announcement that focus will be on making construction
permit online is welcome. However, the report is indicative only
and excludes many issues like labour laws, corruption, competition
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policies, trade policies etc. It can’t be viewed as panacea for all

problems,” said Anil Bhardwaj, secretary general, Federation of
Indian Micro and Small & Medium Enterprises.
The Opposition is not impressed
Reacting sharply, the Opposition Congress said, “PM’s policy
adventurism coupled with the adhocism of his FM to deliver has
caused widespread economic misery and distress.”
“India’s GDP growth rate has fallen for six straight quarters. The
economy is, therefore, not growing at 7.5 per cent as claimed again

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and again by the FM. Over 3.72 crore jobs have been lost on
account of demonetisation in MSME sector. As many as 680 Start
Ups have shut down in the past two years. Share of exports in GDP
has fallen to a 14-year low. EODB rankings do not take into
account the utterly flawed implementation of the GST. Do all these
indicate robust EODB?” questioned Randeep Singh Surjewala,
Congress leader who is in charge of communications for the party.
How relevant is this report really?
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A favourable spot in the World Bank’s list
is useful when pitching for foreign-direct
investment or aid. Yet when such a
pi measure becomes a target of policy, it

may cease to be a reliable guide.
Countries might seek to improve their ranking on the Doing Business
index by amending regulations in ways that have little substance.
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Rwanda is a case in point. It was ranked 158th in 2005, and is now at
the 41st position. The 2017 report also ranks Rwanda among the global
best in Doing Business areas of registering property (ranked 2) and
ease of getting credit (6). But it remains one of the world’s poorest
countries.
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Such discrepancies feed concerns about shortcomings in the Doing

Business report (about many of which the World Bank is admirably
upfront). There are three broad criticisms.
One is that the survey has a bias against regulation and taxes. A
disputed labour-market gauge that looked at the ease of hiring and
firing workers and the flexibility of working hours was cut from
the survey in part to counter such criticism. High taxation may
hamper the incentive to invest, but a low tax take can also hurt
the business climate if it means governments do not have

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enough revenue to pay for essential infrastructure, education

and health care. In a 2015 paper, Tim Besley of the London
School of Economics found that the average rank of countries with
a value-added tax in 2006 was 23 places lower than that of
countries without one. Yet VAT is a vital plank of public finances
in many countries where income taxes are hard to collect. In most
cases, though, less really is more. Costly delays in starting a new
firm, registering property or issuing building permits can hardly be
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the desired goals of regulation.
A second grumble about the World Bank index is that it does not
cover important elements of the business climate, such as
security, corruption, market size, financial stability,
pi infrastructure and skills. The gauges that are included are often
incomplete. For instance, the survey’s credit-market measure is
based in part on how well the legal rights of borrowers and lenders
are protected; it is not a gauge of how easy it is to get loans or how
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wisely credit is allocated. The survey captures how troublesome
it is to get electricity connected but not how reliable the power
supply is.
A third weakness of the report is that it is too theoretical. What is
on paper may not be the reality on ground. Mary Hallward-
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Driemeier of the World Bank and Lant Pritchett of Harvard

University compared the Doing Business report with surveys of
firms carried out by the World Bank. How business is done in
theory and in practice was greatly at odds, they found. The
median time to get a building permit in the countries covered was
177 days according to the Doing Business report (2015), but the
median firm said it took just 30 days. The experiences of firms
varied enormously, even within countries with a low ease-of-
doing-business ranking. Some secured permits almost as quickly
as peers in high-ranked countries.

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So, one way to look at the big leap of India in the EDB report is that
India is 59 ranks below Rwanda. And Rwanda is now aiming to
“defeat Mauritius”, which is the topper from East Africa (ranked 25).
—– | —–
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pi
ap
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INDIAN ECONOMY / Modi gets Moody’s boost
18-Nov-2017
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pi India’s sovereign rating has been upgraded by global rating agency
Moody’s Investors Services for the first time in 14 years, taking
cognizance of the Narendra Modi-led government’s reform initiatives,
ap
such as the new GST regime and the mechanisms for resolving bad
loans and re-capitalising ailing public sector banks. However, as
India’s fiscal health comes under stress, it is feared that the boost may
be short-lived.
What is the big development?
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Moody’s Investors Service has

upgraded its ratings on India’s
sovereign bonds for the first time in
nearly 14 years, saying continued
progress on economic and institutional
reform will boost the country’s growth potential. Moody’s, along with
Standard & Poor’s and Fitch Group, is considered one of the Big
Three credit rating agencies.
The agency said it was lifting India’s rating to Baa2 from Baa3

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and changed its rating outlook to stable from positive as risks to

India’s credit profile were broadly balanced.
Moody’s upgrade, its first since January 2004, moves India’s rating
to the second lowest level of investment grade. Standard &
Poor’s has kept India at the lowest investment grade just above
junk status for a decade and Fitch Ratings for one year longer.
While it acknowledged that some steps such as the GST and
demonetisation have ‘ undermined’ growth in the near term,
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Moody’s said it expects real GDP growth in India to moderate
to 6.7% in 2017-18.
However, it stressed that the disruption effect of these reforms fade
and the government helps small and medium enterprises and
pi exporters with compliance issues under the new indirect tax

regime, growth will rise to 7.5% in 2018-19 and similarly robust
growth thereafter.
The agency also raised India’s local currency senior unsecured
ap
debt rating to Baa2 from Baa3 and its short-term local currency
rating to P-2 from P-3. Put together, they imply that it is less risky
for the rest of the world to invest in India’s currency.
The decision by Moody’s is a shot in the arm for Prime Minister
Narendra Modi’s government and the reforms it has pushed through,
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and comes just weeks after the World Bank moved India up 30
places in its annual ease of doing business rankings.
Why has the rating improved?
Last year, India lobbied hard with
Moody’s for an upgrade, but failed.
The agency had raised doubts about
the country’s debt levels and fragile
banks, and declined to budge
despite the government’s criticism of its rating methodology.

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However, this year’s upgrade has been explained by the agency as:
“The decision to upgrade the ratings is underpinned by Moody’s
expectation that continued progress on economic and institutional
reforms will, over time, enhance India’s high growth potential and
its large and stable financing base for government debt, and will
likely contribute to a gradual decline in the general government
debt burden over the medium term,”
“In the meantime, while India’s high debt burden remains a
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constraint on the country’s credit profile, Moody’s believes that the
reforms put in place have reduced the risk of a sharp increase in
debt, even in potential downside scenarios.”
pi “Longer term, India’s growth potential is significantly higher

than most other Baa-rated sovereigns.”
“While a number of important reforms remain at the design phase,
Moody’s believes that those implemented to date will advance the
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government’s objective of improving the business climate,
enhancing productivity, stimulating foreign and domestic
investment, and ultimately fostering strong and sustainable
growth,” it noted.
“The impact of the high debt load is already mitigated somewhat
by the large pool of private savings available to finance
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government debt. Robust domestic demand has enabled the

government to lengthen the maturity of its debt stock over time,
with the weighted average maturity on the outstanding stock of
debt now standing at 10.65 years, over 90% of which is owed to
domestic institutions and denominated in rupees,” the agency
said.
“The__relatively fast pace of growth in incomeswill continueto
bolster the economy’s shock absorption capacity. And even in
periods of relatively slower growth, as seen recently, stable

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financing will mitigate the risk of a sharp deterioration in fiscal

metrics,” Moody’s noted.
Moody’s also said the recently-introduced goods and services tax
(GST), a landmark reform that turned India’s 29 states into a single
customs union for the first time, will boost productivity by removing
barriers to inter-state trade.
Although the rating agency agreed that a lot remains to be done
such as fixing the GST’s implementation challenges, weak
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private sector investment and the slow resolution of banking
bad loans, Moody’s said it expects at least some of these issues to
be addressed over time and will help further improve the Indian
pi government’s effectiveness and overall institutional framework.

Why this improvement may not be sustainable?
For the present, the government is content celebrating its rating
upgrade by Moody’s. However, it must not lay down its guard as
ap
several challenges remain.
The fiscal deficit target of 3.2 per cent of GDP for 2017-18 is
under stress, as non-tax revenues have declined and the pressure
on the fiscal deficit has risen on account of additional expenditure
on account of public sector bank recapitalisation and infrastructure
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spending. There is also a demand from influential sections within

the government to relax the fiscal deficit reduction targets and give
a pause to the implementation of the fiscal responsibility and
prudent budget management practices to be stipulated under a
proposed law.
Meeting the fiscal deficit target for the current year and laying out
a road map for further fiscal consolidation in the coming years is of
utmost importance if the Moody’s rating needs to be upgraded
further. Worse, if there is any slippage in meeting the fiscal

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deficit target, the rating will be adversely affected.

Moody’s has warned that “the rating could also face downward
pressure if the health of the banking system deteriorated
significantly”. The government has laid out a Rs 2.11 lakh crore
plan for recapitalising the state-owned banks. But its
implementation in itself is not a panacea for the banking sector.
Recapitalisation will help the banks to improve their capital
adequacy and increase lending. But equally important will be early
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resolution of their stressed assets, strengthening their management
systems so that past imprudent steps like lending to risky projects
are not repeated and a revamped ownership structure that makes
them more nimble-footed and free from political interferences. If
pi the health of the banking system does not improve in the next
year or two, the risks of a downgrade may lurk once again.
India’s rating is likely to come up for a downward review if its “
external vulnerability increased sharply ”. For India, oil prices
ap
are certainly a factor. India continues to be hugely dependent on
imported oil, whose prices of late have begun to rise. If these prices
rise and the government is not able to manage their consequences
in the domestic economy through prudent pricing policies, then the
newly acquired rating can be subjected to a review. The
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government has to be cautious on this front.

And finally, India’s rating can be sustained and indeed improved if
the government continues to stay on the path of fiscal consolidation
and bring its debt under control. Moody’s has noted that the
combined debt of the governments has risen to 68 per cent of
GDP, which is significantly higher than the median rate of 44 per
cent for all countries classified under the Baa group. While there
are many other positive countervailing factors in India’s case, but
further growth in debt can be a cause for concern.
Similarly, stress on more institutional reforms and implementation

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of key pending reforms in the areas of land and labour laws

could help Moody’s consider an upgrade for India. But given the
current political situation, it is unlikely that the government will
like to spend its political capital for undertaking tough and
unpopular reforms like those that will relax land acquisition rules
and make labour laws more flexible.
When are these rating agencies
criticized?
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India’s last upgrade by Moody’s
was more than 13 years ago in
2004. And that was a far bigger
pi development. That was when

India re-entered the investment grade category on a rating scale
devised by Moody’s, after a gap of six years.
Things were not so bad in the 1980s. From January 28, 1988 to
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October 3, 1990, India had a credit rating of A-2, the highest
investment grade rating it ever got.
But on October 4, 1990, it was downgraded to Baa1 in the wake
of India’s twin crisis of worsening balance of payments and fiscal
indiscipline.
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On March 26, 1991, it was further downgraded two notches to

Baa3, which was the last category of investment grade rating.
On June 24, 1991, India plunged into the non-investment
category at Ba2, a downgrade of two notches.
It was upgraded to investment grade at Baa3 on December 1,
1994 and remained there till early June 1998.
From June 19, 1998 (in the aftermath of India’s nuclear tests in
Pokhran) to January 22, 2004 India remained classified in the
non-investment or ‘junk’ category.

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Why it took so long for India to move only one notch within the
investment grade category with a moderate credit risk profile is a
comment on the effectiveness of Moody’s rating methodology as
also on the government’s ability to influence the rating agency to
recognise the many policy developments that could have merited an
earlier upgrade.
Also, the link between ratings and asset performance isn’t always
clear-cut.
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For instance, since China was downgraded to A1 from Aa3 in
May by Moody’s, its equity market has jumped 26% in dollar
terms.
pi Indonesia, which was upgraded by S&P Global Ratings that same

month, has risen by only 4%.
Similarly, in case of India, in the last 13 years, investment flows from
abroad have seen a steady rise and Indian companies have been
ap
borrowing more from overseas markets, though it could be argued
that the terms of these loans could have been better with a higher rating
from Moody’s. Nevertheless, a rating of Baa3 has really not come in
the way of either more foreign investment or higher foreign
borrowing.
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Where do we see the significance of

these improved ratings?
The investment grade under Moody’s
rating scale has 10 notches (see the table),
starting with Aaa, which has the
smallest degree of risk, and ending with
Baa3, which has a moderate credit risk. If a country is ‘investment
grade’ it means that it is likely to meet its payment obligations. Till 16
November, India was at Baa3 and now it has moved up to Baa2.

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The ten categories of rating under the investment grade are further
classified under four broad groups.
Aaa is ranked at the top with the smallest degree of risk.
Aa1, Aa2 and Aa3 are categories that are meant for countries with
a very low credit risk (China, for instance, is rated at Aa3)
A1, A2 and A3 are assigned to countries that are seen to be having
a low credit risk.
The fourth group consists of Baa1, Baa2 and Baa3, which are
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countries with a moderate credit risk.
What has happened now is that India’s rating has moved up only one
notch within the investment grade category and it still remains within
pi the last group that classifies countries with a moderate credit risk. In
other words, India’s credit risk profile continues to be defined as
moderate.
Still, the immediate impact of India’s rating upgrade will be positive in
ap
terms of
Foreign loans will be accessible at relatively easier terms.
Investment flows into the country are also likely to increase.
Indian companies looking for loans and capital on easier terms
would certainly benefit.
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But its consequences for the government’s macroeconomic

management may not be entirely positive.
The increased flow of foreign exchange into the country is likely to
put further upward pressure to the exchange rate of the Indian
rupee, which is already significantly overvalued.
Exports growth in the first seven months of the current financial
year has been tepid and with an appreciating rupee the
government’s task to promote exports will become even more
challenging.

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Imports are also likely to see a surge with the appreciating rupee
and this might not augur well for the country’s current account
deficit that has already widened to over two per cent of gross
domestic product (GDP).
For the government however, the upgrade would still be a fitting
rebuttal to critics of its handling of the economy, coming on the back
of India’s rise in the World Bank’s ease of doing business index, and
as a culmination of years of efforts by officials to get global rating
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agencies to acknowledge India’s improved macro-economic situation.
Who reacted how to the development?
All Indian markets including stocks,
pi bonds and rupee rallied on the ratings

upgrade.
“It seems like Santa Claus has already
opened his bag of goodies,” said
ap
Lakshmi Iyer, head of fixed income at Kotak Mutual Fund said.
“The move is overall positive for bonds which were caught in a
negative spiral. This is a structural positive which would lead to
easing in yields across tenors,” she said.
On Friday, the government cheered the upgrade as an endorsement
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of its reforms.
Modi’s top colleagues saw it as a further victory for the prime
minister after U.S.-based research agency Pew released a survey
this week that showed nearly nine out of 10 Indians held a
favorable opinion of him.
“India’s largest ever increase in Ease of Doing Business rankings,
Pew study ascertaining PM’s popularity, Moody’s upgrade are all
reflections of Modi Govt’s hard-work and reform process,” Amit
Shah, the president of the ruling Bharatiya Janata Party, said in a

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Twitter post.
Chief Economic Adviser Arvind Subramanian said India’s
credit rating upgrade by Moody’s Investors Services was “long
overdue”. He also cited his Economic Survey for 2016-17, which
was released in January, in which he had criticised the
methodology used by the global ratings agencies. He had then said
that such agencies were slow in upgrading India despite “dramatic
improvement” in growth since 2014.
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Earlier in the day, Finance Minister Arun Jaitley said the rating
upgrade will force those with doubts about India’s economic
reforms to “seriously introspect on their positions”. “We believe it
is a belated recognition of all the positive steps that have been
pi taken in India in the past few years,” the finance minister said,
adding that the upgrade boosted the government’s “determination
to follow the track that we have embarked upon”.
ap
Still, some market participants questioned the timing of the move.
Some economists said an upgrade from the other big rating agencies
seemed unlikely.
“The timing is little dicey for the upgrade given that there are lot of
concerns over the government’s fiscal discipline,” said a foreign
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bank dealer, adding he did not expect other agencies to follow

Moody‘s.
Radhika Rao, an economist at DBS, said implementation of
reforms, a subdued rural sector and weak investment have slowed
economic growth while rising oil prices have raised the risks. “We
don’t think the other two global rating agencies – Fitch and S&P
- will follow-up in a hurry, based on their cautious rhetoric,” she
said, noting their concerns on “weak” state and central government
finances.
How favorable is the current scene of foreign investment in India?

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The Indian government’s favourable

policy regime and robust business
environment ensured that India became
the fastest growing investment region
for foreign investors in 2016, led by an
increase in investment in real estate and
infrastructure sectors from Canada, according to a report by
KPMG.
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On October 10, Invest India, the foreign investment promotion arm of
the government, crossed a milestone: it received the 100,000th
investment-related query, from a Japanese auto-components company,
pi which is considering investing in India.

Foreign Direct Investment (FDI) commitments – as opposed to
“intentions” – worth $83.5 billion have come through the
facilitator; and 90 per cent of it came in the past 15 months.
ap
“Most of these investments are greenfield, which shows foreign
investors’ confidence in India’s long-term prospects,” says Deepak
Bagla, CEO & MD of Invest India, a public-private partnership
company. Industry bodies such as FICCI, CII and Nasscom hold 51
per cent equity in the company; the Department of Industrial Policy
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and Promotion holds the rest.

Invest India functions out of a Ministry of Commerce building in New
Delhi, but the private sector character of Invest India gives it
operational flexibility, particularly in hiring and fixing salaries.
The company has 110 investment professionals, many of whom
have traded lucrative jobs for the “satisfaction of working for the
country”. They handle queries from prospective investors, and
chase investment opportunities.
Among Invest India’s notable ‘wins’ is the Indo UK Institute of

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Health (IUIH), which has committed to spend $5 billion to set up

11 medi-cities in India. These will be like industrial estates, in
which other investors will set up hospitals, medical colleges and
research labs. Andhra Pradesh and Maharashtra have signed MoUs
with IUIH to build medi-cities in the State; construction in
Maharashtra is scheduled to begin in December. French car-maker
Peugeot and Danish wind-turbine company Vestas are also among
those assisted by Invest India.
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Data from the Department of Industry Policy and Promotion (DIPP)
show that FDI (including re-invested earnings) into India rose from
$36 billion in 2013-14 to $45 billion in 2014-15; $55.5 billion the next
pi year; and $60 billion in 2016-17. In the first quarter of this year, India
received $14.5 billion of FDI.
—– | —–
ap
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INDIAN ECONOMY / Government goes big on big

data
16-Aug-2017
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pi Big Data is a term that describes the large volume of data – both
structured and unstructured – that inundates a business on a day-to-day
ap
basis. While businesses have eagerly adopted Big Data and analytics to
improve business efficiency, governments have been laggards. Indian
government is now seen to be taking big steps towards incorporating
Big Data in policy making. The benefits range from transforming
programs and empowering citizens to improving transparency.
Kn
What is the latest policy

making trend?
The second volume of the
Economic Survey released by
the Union finance ministry last
week shows that innovative use
of infographics has begun to make its overdue presence felt in India as
well.
The eighth chapter uses satellite data to see whether India is

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more urbanized than most traditional indicators suggest. There

are two sets of traditional indicators. The administrative metric to
define a town depends on whether an urban local body such as a
municipality governs it. The census uses three metrics to identify
a town — the population should be more than 5,000, the density of
the settlement should be at least 400 people per sq. km, and more
than three out of every four residents should have employment
outside agriculture. Satellite images show that India is far more
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urbanized than what the traditional metrics suggest.
The finance ministry has used a chart based on work done by urban
scholars at the IDFC Institute in Mumbai to show how the density
of built-up area in the Kozhikode Metropolitan Area spread
pi between 1975 and 2014. The Economic Survey also uses satellite
data from the Global Human Settlement Layer to map the
density of built-up area in the country as a whole.
Economists have now begun to use machine learning — or the
ap
use of computer algorithms that learn from data — to extract
information from satellite images. The finance ministry has also
used this new empirical tool in its recent work on urbanization.
There were two similar examples in the first volume of the
Economic Survey that was released in January. These examples did
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not involve satellite images but the use of Big Data for policy
analysis.
The first example was for the estimation of internal migration.
India is a country on the move. However, most of the information
about internal migration comes from either the census or sample
surveys. The economists in the finance ministry used monthly
data on unreserved railway passenger travel over five years as
a proxy for migration in search of work. The data was collated for
every pair of railway stations in India.

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The extent of migration in this analysis based on railway passenger

data was far higher than what the census suggests. The use of Big
Data also allows policymakers to understand the direction of labour
flows — down to the district level. The extent of migration is
directly proportional to the size of two regional economies and
indirectly proportional to the distance between them.
The final example is the way interstate trade in India was
estimated using Big Data, both trade between firms and within the
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same firm. The source of the data was the new GSTN, or the
Goods and Services Tax Network, that has been put in place as part
of the technological backbone of the new indirect tax system.
The economists used Central sales tax invoices for trade between
pi two states to estimate the extent to which states trade with each
other. There were gaps in the data — the name of the exporting
state or the tax identification number of a firm. A geographic
information system (GIS) software was used to identify the
ap
location of firms. These were then spatially merged with a state
shapefile to identify the location of firms.
What is Big Data?
Big data is a term for data sets that are so large or complex that
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traditional data processing application software is inadequate to

deal with them. Big data challenges include capturing data, data
storage, data analysis, search, sharing, transfer, visualization, querying,
updating and information privacy.
It is an evolving term that describes any voluminous amount of
structured, semi structured and unstructured data that has the
potential to be mined for information.
Big data is often characterized by 3Vs: the extreme volume of
data, the wide variety of data types and the velocity at which the
data must be processed. Although big data doesn't equate to any

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specific volume of data, the term is often used to describe

terabytes, petabytes and even exabytes of data captured over
time.
Such voluminous data can come from myriad different sources,
such as business sales records, the collected results of scientific
experiments or real-time sensors used in the Internet of things.
Data may be raw or preprocessed using separate software tools
before analytics are applied.
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Data may also exist in a wide variety of file types, including
structured data, such as SQL database stores; unstructured data,
such as document files; or streaming data from sensors. Further,
big data may involve multiple, simultaneous data sources, which
pi may not otherwise be integrated.

Big data can be contrasted with small data, another evolving term
that's often used to describe data whose volume and format can be
ap
easily used for self-service analytics. A commonly quoted axiom is
that “big data is for machines; small data is for people.
Note: The Global Human Settlement Layer (GHSL) framework
produces global spatial information about the human presence on the
planet over time. This in the form of built up maps, population density
Kn
maps and settlement maps. This information is generated with

evidence-based analytics and knowledge using new spatial data mining
technologies. The framework uses heterogeneous data including global
archives of fine-scale satellite imagery, census data, and volunteered
geographic information. The data is processed fully automatically and
generates analytics and knowledge reporting objectively and
systematically about the presence of population and built-up
infrastructures. The GHSL operates in an open and free data and
methods access policy (open input, open method, open output).
Why is the Government right in seeking to exploit Big Data?

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Almost 90% of the world’s data today

was generated during the past two
years, with 2.5 quintillion (10 raised
to the power of 18) bytes of data
added each day. Moreover,
approximately 90% of it is
unstructured. Still, the overwhelming amount of Big Data from the
Web and the cloud offers new opportunities for discovery, value
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creation and rich business intelligence for decision support in any
organization, more so in Government.
One of the most critical aspects of Big Data is its impact on how
pi decisions are made and who gets to make them. When data is
scarce, expensive to obtain, or not available in digital form, it
makes sense to let people with experience make decisions, based
on patterns and relationships they have observed and internalized.
ap
Leaders state their opinions about what the future holds, what’s
going to happen, how well something will work, and so on as per
their “intuition” — and then plan accordingly. However, in the
age of Big Data, leaders and managers in private organizations
and government have to be data-driven.
The possible benefits of Big Data analytics in government could
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range from transforming government programs and

empowering citizens to improving transparency and enabling
the participation of all stakeholders.
However, governments do differ from businesses in terms of goals
(profit to stakeholders versus sustainable development), mission
(development of competitive edge and customer satisfaction versus
security of basic rights and promotion of general welfare) and
decision making (short-term maximizing profit versus long-term
promoting public interest). While decision makers are limited in

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businesses, they are a diverse set in government.

The government has an enormous amount of data in legacy
databases and forms that need to be curated and migrated for new-
age analytics tools. Collection of data is also a paramount task for
government as data is received from multiple online and offline
channels. Sharing data between departments and across ministries
is a challenge, given the jurisdictional boundaries that exist.
Big Data can enhance the government’s ability to serve its citizens
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and address major national challenges involving the economy,
healthcare, job creation, natural disasters, and terrorism.
Big Data can have a big impact only if used on a massive scale — with
pi safeguards — by governments for the delivery of public goods and

services.
When have we seen the success of Big
Data?
ap
The US Food and Drug
Administration (FDA) is deploying big
data technologies across many labs
involved in testing to study patterns of
foodborne illness. The database, part of the agency's Technology
Kn
Transfer program, allows the FDA to respond more quickly to

contaminated products that enter the food supply and contribute
to the 325,000 hospitalizations and 3000 deaths related to
foodborne illness every year.
State and local law enforcement across the US have had shining
moments in deploying big data strategies. A great example of this
work is the response to the Boston Marathon bombing. Big data
technologies enabled the rapid analysis of more than 480,000
images. These images represent unstructured data. Good
descriptions of the suspects allowed analysts to write code and

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algorithms to quickly analyze the images, looking for anomalies

and certain patterns. Automation of the screening of sensor
information for criminal behavior enables real-time analysis,
reduces the time to decision, and reduces the number of individuals
or systems that touch the data.
Some emerging countries like Mauritius, for example, have
already started exploring ways to incorporate big data in their
innovation strategies to enable businesses to grow and to create
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jobs. Big data presents tremendous opportunities to low- and
middle-income countries, which can leapfrog expensive legacy
computer and communications systems and build new digital
networks and businesses at significantly lower costs.
pi Several countries, such as the UK, US and European Union (EU)

member countries, have started big data government programs. The
UN’s 2012 e-government survey gave high marks to several Asian
countries, notably South Korea, Singapore and Japan. These
ap
leaders have launched diverse initiatives on Big Data and started
numerous projects. India is joining this league.
Where is India’s ability to exploit Big
Data?
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“It is a capital mistake to theorize before

one has data,” Sherlock Holmes had
noted in A Study in Scarlet. Data
continuously aided this famous consultant
detective for deductive reasoning to solve perplexing investigations.
Availability and accessibility of data has helped increase the efficacy
in human intuition (decision-making) in every field of science,
medicine and technology.
With technological advancements in storage of this large volume of
data - which until recently were inaccessible for analysis - India

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has a vast opportunity to derive at conclusions. Big Data is

arriving from multiple sources at an alarming velocity, volume
and variety. And to extract meaningful value from this data, one
needs optimal processing power, analytical capability and skills.
With India currently among the top 10 countries in terms of
data analytics, the opportunities are limitless.
India has been making exponential growth with big data analytics
being employed by government agencies and private companies,
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and it is slowly being imbibed by not-for-profits organizations.
India's auditor, the Comptroller and Auditor General (CAG), has
drafted “Big Data Management Policy” for Indian audit and
accounts departments in an attempt to foster the use data analysis
pi to improve their functions. In this regard, it has inaugurated the

Centre for Data Management and Analytics (CDMA) to synthesize
and integrate relevant data for the auditing process. It aims to
exploit the data-rich environment in the union and state
ap
governments to build capacity in the Indian audit and accounts
department.
In India, Department of Science and Technology (DST), under the
Ministry of Science and Technology and Earth Sciences has been
tasked to develop Big Data Analytics (BDA) ecosystem. DST has
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identified important areas for development of BDA ecosystem in

India.
The Big Data Analytics program has five steps: -
To promote and foster big data science, technology, and
applications in the country and to develop core generic
technologies, tools, and algorithms for wider applications in
Government-owned or driven services.
To understand the present status of the industry in terms of market
size, different players providing services across sectors, SWOT of

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industry, policy framework and present skill levels available.

To carry out market landscape survey for assessing the future
opportunities and demand for skill levels in next ten years.
To bridge the skill level and policy framework gaps.
To evolve a strategic road map and micro level action plan clearly
defining roles of various stakeholders such as government,
industry, academia, and others with clear timelines and outcome
for the next ten years.
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Gearing up to capture the advent of big data in optimizing private
businesses and public goods and services, NITI Aayog has initiated a
multi-pronged approach to further the development of India's
pi capability in Big Data. This includes incorporating skill and human

resource development and developing products and platforms to
compliment the rising demand. India’s IT representative body
NASSCOM has anticipated India's big data industry will capture
ap
32% of the global market to reach $16 billion by 2025 from the
current level of $2 billion. This anticipated growth and use of big data
therefore has to be nurtured and enhanced to translate into financial
opportunities and job creation while also making India the largest data
analytics market in the world.
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With big data analytics being employed by both government agencies

(like Aadhar and UPI) and private companies, the big data industry in
India has been growing exponentially.
Who are the others making use
of Big Data in India?
The industry is witnessing rapid
growth driven by increased
demand for cloud-based and
predictive analytics solutions by

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industries such as BFSI, retail, telecom and healthcare. India has 600
data analytics firms with 100 new start-ups setup in 2015 alone.
Catering to this demand would require a large supply of data scientists.
According to TeamLease Services - a staffing solutions company - by
2020, India will face a demand-supply gap of 200,00 data analytics
professionals.
DISCOMS (power Distribution Companies) in India are capturing
data from sensors installed at the last mile of power consumption to
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analyze along with historical power usage patterns to hypothesize
preventive measures for Aggregated Technical and Commercial
(AT&C) losses.
pi Lux Research analysts have put together real-time monitoring

systems and connected platforms to integrate and deploy sensors
and track different parameters to make logistics of vaccines and
biological reagents safer and more efficient in India by ensuring
ap
continuous availability of data and analytical insights to optimize
their services.
Although a slower entrant, not-for-profits are also steadily using
more big data to increase the impact of their services and products
by optimizing their finances. Akshaya Patra Foundation in
Bangalore use data analytics in identifying a cost-effective solution
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to deliver foods to schools. Analyzing the data captured - the

number of vehicles used, the time and fuel consumed on each route
- enabled them in optimizing their logistics and reducing the routes
by five. It is therefore not a surprise that technology will play a
major role in addressing the large-scale social concerns of our
country.
Currently data scientists with around 5 years' experience are earning
over INR 7.5 million (75 lakh) per annum as compared to 8-15 lakh for
CAs and 5-8 lakh for engineers with the same experience level. With

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the skewed demand-supply gap, the Data Analytics industry - at a

current base of $2 billion and growing at CAGR of 26 per cent - is
incentivizing graduates. Big Data in the private and NGO sector has
huge potential.
Infosys co-founder and former Unique Identification Authority of India
(UIDAI) chairman Nandan Nilekani swears by big data, saying it will
address issues of economic growth and jobs and help small
businesses avail of loans that have eluded them so far.
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How much of a risk does it pose?
During this process of collecting and
analyzing big data, it should be ensured
pi that the information is not distorted; not

disclosed; not appropriated; not stolen;
and not intruded upon within specified
rules and guidelines. Hence the importance of government regulation
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and policies on the use of such collected data and associated privacy
rights.
While privacy of data is important for both businesses and
government, public trust in government is particularly
important. Hence, any breach of confidentiality regarding data
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that is collected and processed by the government could have

serious ramifications. Thus the importance of data protection and
privacy regulations and guidelines is paramount.
There are definitions and guidelines in place.
The Indian IT Act, 2000 defines “Cyber Security” as means for
protecting information, equipment, devices, computer, computer
resource, communication devices and information stored therein
from unauthorized access, use, disclosure, disruption, modification
or destruction.

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Also, the government recognizes that cyberspace is vulnerable to a

wide variety of incidents, where in targets could be the
infrastructure or underlying economic well-being of a nation state.
A cyber related incident of national significance may take any
form; an organized cyber-attack, an uncontrolled exploit such
as computer virus or worms or any malicious software code, a
national disaster with significant cyber consequences or other
related incidents capable of causing extensive damage to the
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information infrastructure or key assets. Large-scale cyber
incidents may overwhelm the government, public and private
sector resources and services by disrupting the functioning of
critical information systems. Complications from disruptions of
pi such a magnitude may threaten lives, economy, and national

security.
The National Cyber Security Policy 2013 was released with the
Vision “To build a secure and resilient cyberspace for citizens,
ap
businesses and Government”. The stated Mission is “To protect
information and information infrastructure in cyberspace, build
capabilities to prevent and respond to cyber threats, reduce
vulnerabilities and minimize damage from cyber incidents through
a combination of institutional structures, people, processes,
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technology, and cooperation”.

Cyber-security becomes a bigger concern with big data. To steal the
entire data of Aadhaar may be a mouth-watering proposition for the
best of hackers. The government has to be better than the best hacker
to deal with such threats.
—– | —–

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INDIAN ECONOMY / Bye Bye Debit Cards?
17-Nov-2017
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pi NITI Aayog chief executive officer Amitabh Kant recently spoke of
debit cards, credit cards and ATMs becoming redundant in India in the
next “three to four years”. Since demonetisation, the government has
ap
been working to transform a cash-hungry India into a cashless
economy. With the ubiquity of Aadhaar, smartphones and the new
UPI-based apps, it wants to move from cash to a digital payments
economy — where everything, from payment to receipt, is done
online.
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What may make the cards

obsolete?
NITI Aayog chief executive officer
Amitabh Kant on Nov. 11 spoke of
debit cards, credit cards and ATMs
becoming redundant in the next
three to four years. Kant’s prediction about debit and credit cards has
the potential to come true because the infrastructure to replace
physical cards, as well as the momentum in the adoption of alternative

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payment mechanisms, is well under way.

While debit and credit cards continue to dominate retail digital
payments, the UPI and prepaid payment instruments (PPIs) are
catching up.
Between 2014-15 and 2016-17, the share of PPIs in total volume
of card transactions increased from 18% to 36%.
PPIs caught on when customers didn’t want to authenticate
recurring transactions through the two-factor authentication
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process. That is why they linked their prepaid wallets with cab-
hailing, mobile-recharge and grocery-shopping services.
Then, in August 2016 came UPI, based on banks’ immediate
pi payment service (IMPS). It linked the user’s various bank accounts

to a single mobile application, doing away with the need to
recharge a wallet.
UPI transaction volumes have increased from 4.2 million in
ap
January to 30 million in September 2017 (growing 85% between
August and September itself).
While PPIs still have much higher volumes (87 million) right now,
UPI is eating into their share as well as that of cards.
With regard to offering a point of sale (POS) payment solution,
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Samsung is the first mover in India, offering a mobile payment mode

that works on all existing terminals — whether contactless or not —
with Samsung Pay; the technology is available on select handsets.
Samsung’s entry is likely to be followed by that of Google and Apple,
which can lead to wider adoption.
It is getting intense out there.
Riding high on cash back and reward offers, Google’s Tez, a UPI-
based digital payment app had registered almost 7.5 Mn downloads
in the 40 days since its launch, informed the company CEO Sundar

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Pichai while speaking at a quarterly investors’ meet on Oct. 30.

While the app could not break the Indian government-backed
BHIM’s record i.e. 10 Mn downloads in 10 days of its launch, with
7.5 Mn downloads, Tez is quietly shifting the digital payment
equation in India, posing some serious existential threat to Paytm,
Flipkart’s PhonePe, and Axis Bank’s Freecharge.
Kant said that India – being the only country in the world with a billion
biometric identities and as many mobile phones and bank accounts –
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will be the only nation which will make a lot of disruptions in the
coming years.
Thus, it is prophesized, cards may soon become symbolic of the stone
pi age of India’s commerce. Can’t argue with Kant on this one.

Or can we?
Note:
ap
Pre-paid Payment Instruments (PPIs) are payment instruments
that facilitate transactions like purchase of goods and services,
including funds transfer, against the value stored on such
instruments. They include smart cards, magnetic stripe cards,
internet accounts, internet wallets or digital wallets (like PayTM),
mobile accounts, mobile wallets, paper vouchers and any such
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instrument which can be used to access the pre-paid amount.

Unified Payment Interface (UPI) is a payment system that allows
money transfer between any two bank accounts by using a
smartphone. UPI allows a customer to pay directly from a bank
account to different merchants, both online and offline, without the
hassle of typing credit card details, IFSC code, or net
banking/wallet passwords.
Why is the process not as simple as it seems?
While other methods may be catching up for payments, making

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ATMs redundant is a task of

vastly different proportions. An
ATM’s role is to dispense cash,
and reducing the dependence on
cash requires a massive increase
in the adoption of bank accounts,
mobile wallets and payment platforms. There are several challenges
here.
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A prerequisite to a less-cash economy is financial inclusion.
The Economic Survey 2015-16 reported that the basic savings
bank penetration was 46% across states, on average.
pi The Jan Dhan Yojana (JDY) had laudably managed to open 294
million bank accounts as of August 2017, increasing access to the
formal banking system for the unbanked masses, but a quarter of
them remain zero-balance inoperative accounts.
ap
If people received income in their bank accounts and could spend
digitally, they could go cashless. But most people work in the
informal economy and get paid in cash.
Then there is the scarce use of mobile payment platforms.
Most product vendors still don’t use a mobile platform to receive
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payments because there are limited use-cases for digital money.

Take the case of Thane’s Dasai village, which was touted as
India’s first cashless village last year, but has gone back to its old
ways. The village doesn’t have a reliable internet service, which
hampers the functioning of POS devices and even ATMs.
All applicants haven’t been issued ATM cards and since cash has
become available, people have had little reason to use them
anyway.
Finally, mobile wallets are largely designed for use on

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smartphones, and 56% of Indians still use feature phones.

Given the frequent power outages, poor connectivity and low
income, smartphones have limited utility for most people.
Moreover, recent offers have reduced the acquisition cost of
handsets to near-zero; and survey data from Kantar IMRB shows
that only 15% of the current feature-phone users intend to buy a
smartphone.
UPI does work with feature phones, but it was used for just
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0.19 million transactions out of the 9 million that happened in
May.
Thus, in a country whose economy was 90 percent cash-reliant pre-
pi demonetisation, cash still remains the most commonly used medium

for financial transactions.
RBI data shows that as of April 2017, Rs 2,171 billion was
withdrawn via ATMs, while UPI transactions at that point
ap
were at Rs 22.41 billion, meaning that UPI replaced cash by
merely one percent.
Cash withdrawals, which were at a low of Rs 850 billion (85,000
crore) in November 2016, increased to Rs 2,262 billion in March
2017. Pre-demonetisation in October 2016 and September 2016,
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this was at Rs 2,223 billion and Rs 2,551 billion respectively.

Unlike digital payments, which rely on a steady internet connection
and acceptance from both - buyer and seller - , cash is quick, easy, and
instantly available for further offline transactions. That makes it the
mode of payment of choice for Indians right now. This is unlikely to
change until the digital infrastructure in the country is improved
to the extent that every Indian, no matter how remote their location,
can make digital transactions as easily as they can pay with cash.
When did the modern banking system enter India?

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The partition of India after

independence decimated the
country’s economy and paralyzed
banking activities for months.
Keen to restore economic welfare
in India, the government sought
to create a mixed economy as opposed to the laissez-faire system
which had existed (at least theoretically) thus far.
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With this intention, the Reserve Bank of India (RBI) was
nationalised with effect from January 1, 1949, under the Reserve
Bank of India (Transfer to Public Ownership) Act, 1948.
pi A few months later, the Banking Regulation Act, 1949, was

passed which empowered the RBI to “regulate, control, and
inspect the banks in India.”
This law was eventually amended in 1965 to place cooperative
ap
banks under the purview of the RBI for the first time.
By the 1960s, the Indian banking industry was a large employer and
played a key role in augmenting the country’s economy. Since the
banks in India, with the exception of the State Bank of India, were
owned by private entities, the government led by the then prime
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minister Indira Gandhi decided to nationalise the banking industry.

The Parliament passed the Banking Companies (Acquisition and
Transfer of Undertakings) Bill, 1969 and nationalised 14 of the
country’s largest commercial banks with effect from July 19, 1969.
In 1980, the government further nationalised six more
commercial banks after which it controlled around 91 percent of
the Indian banking industry.
The Indian banking sector underwent yet another upheaval a decade
later. Facing an economic crisis in 1991 — caused in large part due to

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the USSR collapse and the Gulf War — India introduced liberalisation
policies that allowed the entry of private banks into the country.
HSBC Bank, ICICI Bank, HDFC Bank, and UTI Bank (now Axis
Bank) ushered in a new era for the Indian banking sector.
HSBC was the first bank to set up an Automated Teller
Machine (ATM) in India; it did so in Mumbai in 1987.
Soon, ATMs began spreading through the country and ‘plastic
money’, in the form of debit cards and credit cards, slowly began
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gaining popularity as well.
Computerisation first entered the Indian banking industry in 1988,
and internet banking in the 1990s. But it was only in the 2000s
pi when online payment systems — like Electronic Funds Transfer

(EFT), Real Time Gross Settlement (RTGS), National Electronic
Funds Transfer (NEFT), and Interbank Mobile Payment System
(IMPS) — started being used.
ap
It is now time for India to leap to the next level.
Where does the hope for digital
economy come from?
While NEFT and other forms of online
payment required a computer and often
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featured lengthy transaction times, the

new wave of e-payments brought
about by digital wallets has made transferring money a lot easier
and quicker.
Since internet availability and smartphone usage have become
virtually ubiquitous, e-wallets like PayU, Paytm, and
MobiKwik are being used by millions for financial transactions,
both personal and commercial.
Digital payments themselves are evolving with the inception of

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cryptocurrency. Since they are a decentralised and highly secure

form of money, currencies like Bitcoin, Ethereum, and Monero are
rapidly gaining popularity around the world.
Even though India has been unable to increase accessibility to
banks within the formal banking system; only 27% villages have a
bank branch within 5km, but the increase in the number of
payment banks can bring the basic banking functions of securing
deposits, providing an ATM-debit card and allowing access to
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online payment gateways.
Private vendors are accustomed to collecting user fees for telecom
companies and they are now being used to provide last-mile
banking services like opening accounts by filling KYC forms, cash
pi withdrawals and deposits.

Interoperability across PPIs may increase adoption by vendors
and, therefore, increase the use-cases for people.
The government too is pushing its ‘cashless economy’ mission
ap
with the Unified Payments Interface (UPI) system backed up by
the BHIM App — an Aadhaar-based mobile wallet which can be
used to make digital payments directly from bank accounts.
The demonetisation move by the Narendra Modi-led
government saw a sharp uptake in cashless transactions in
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November and December 2016 — mobile wallet transactions

recorded a 114 percent rise, Point of Sale (PoS) transactions an 88
percent rise, and mobile banking transactions a 30 percent rise.
From November 2016 to May 2017, the total digital transactions in
India went up by 23 percent, from 22.4 million to 27.5 million. A
Google-BCG study also predicts that the Indian digital payments
industry will grow to $500 billion by 2020, accounting for 15
percent of the GDP.
All this is expected to continue with the launch of UPI 2.0, which
will bring the ease of pre-authorized deductions for recurring

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payments, like cab rides, to UPI, along with a possible increase in

the transaction limit from the present Rs1 lakh.
Major PPIs have already integrated UPI into their service so as
to not lose customers to competing UPI-only apps.
However, the largely informal nature of the economy, the
preponderance of feature phones and the old habit of using cash
are enduring problems that will keep the cashless economy from
spreading outside urban centres for many years.
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Who in the economy will benefit from
the digital push?
A digital, cashless economy has several
pi benefits in terms of transparency, security,

efficiency, and convenience.
At the most basic level, moving towards a
digital economy will save the exchequer the massive cost of printing
ap
large numbers of banknotes.
The cost of setting up a technology-driven digital system might be
high in the first instance, but it would be a one-time cost in
comparison to constantly reprinting currency.
A digital economy would also obviate the problem of counterfeit
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currency, which caused substantial economic loss before

demonetisation.
Even after demonetisation, several well-publicised instances of
fake INR 2000 notes being made caused much confusion amongst
citizens; a digital economy would handily avoid this problem.
India’s informal economy and the specter of ‘black money’ being
present in it has long presented a challenge to the government. Tax
avoidance and money laundering have led to massive problems
and increased the burden on legitimate taxpayers.

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A cashless economy would ensure more funds being paid as the tax
because the electronic record would prevent underhand
transactions, and consequently reduce the reliance on high
direct and indirect taxes.
Today India is also plagued by a huge demand-supply gap in credit
to Individuals and MSME sectors. Estimates put the gap at about $46
Bn (INR 3 Tn). Compared to the huge population of India we have
only three crore credit cards outstanding in the country.
ly
That is why today a person who sells groceries on a ‘thela’ (hand
cart) cannot access credit through the formal channel because
all his dealings are in cash and there is no visibility for the
pi lending institution into the credit appetite of this vendor.

If the vendor started to collect money through digital means like a
wallet, this would create a track record of cash flows and this, in
turn, would make the individual eligible for loans.
ap
Another way in which new age innovative companies are helping the
cause is by giving microloans to people in a digital manner and
helping bring many more people under the formal financial network.
They are able to lend to these individuals because of diversification
benefits and the small size of individual loans.
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The small size of loans is not affecting the economics of lending

because technology is helping these companies scale their books at
much lower costs than traditional lending companies.
As the borrowers start to pay in time he/she creates a track record
in the credit bureaus which in turn make them eligible for larger
loans from the former channels.
How will it all turn out for the common man going forward?
As with any economy, competition in the marketplace simply means
more choice for the customer, and a plethora of incentives to attract

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them.
India is going to see more such carrots
dangled for each customer from both, the
traditional banks that are cash-rich and
the new players who will either subsidize
the incentives from their other
businesses, like Airtel will, or will use VC money to provide
short-term incentives, as PayTM will.
ly
This is mostly a good thing – it will even give birth to a number
of industries, services and middlemen, ranging from online
aggregators of banking products to help the end customer choose,
pi to mobile phones optimized to facilitate these transactions (imagine

phones that open the banking apps only if they were unlocked
using the same biometric authentication provided when opening the
bank account) to local touts helping the technologically-challenged
ap
navigate the world of banking apps.
India has around 662 million debit cards and 25 million credit cards in
use currently, according to Business Standard. They may very well be
reaching the peak of penetration and usage (though this isn’t the peak
that was once targeted).
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This is the churning of an economy, and it’s a strong, albeit short term,
signal of growth. What might not be as great is when the banks
(payment or traditional) inevitably try to recover the monies they
spent in acquiring customers, down the line, through all of the
methods at their disposal whether it be dropping interest rates on
deposits, charging fees for previously ‘free’ services, or lending at
higher rates.
“It is impossible for India to become a ten trillion economy like this
where two trillion dollar is a formal economy and another one trillion

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dollar is an informal black economy. It is not possible for India to

grow before demonetisation,” Kant said.
—– | —–
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pi
ap
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INDIAN ECONOMY / The JAM India needs
2-Jan-2017
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pi The power of the JAM trinity - Jan Dhan, Aadhaar and Mobile - is felt
in the recently launched BHIM app by the government. To improve the
lives of India’s poor there is a need for large-scale, technology-
ap
enabled, real-time Direct Benefit Transfers (DBT). The JAM
experiment has seen limited success that can be extended to all parts of
the economy. However, not all states are prepared to just ‘JAM it’.
What is the present status of JAM in

India?
Kn
Aadhaar card
At the beginning of 2016, around 975
million individuals now hold an Aadhaar
card, which include over 75% of the
population and nearly 95% of the adult population.
There were 210 million Aadhaar cards created in 2015, at an
astonishing rate of over 4 million cards per week.
Nearly one-third of all states have coverage rates greater than 90%.
Only in the four states of Nagaland (48.9), Mizoram (38.0),

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Meghalaya (2.9) and Assam (2.4), the penetration is less than 50%
Jan Dhan Yojana
With a view to increasing banking penetration and promoting financial
inclusion and with the main objective of covering all households with
at least one bank account per household across the country, a National
Mission on Financial Inclusion named as Pradhan Mantri Jan Dhan
Yojana (PMJDY) was announced by the Prime Minister in his
Independence Day Speech on 15th August , 2014. The Scheme was
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formally launched on 28th August, 2014 at national level.
Under this mission, nearly 120 million accounts were created in
2015 alone, at a pace of over 3 lakh accounts per day.
pi The basic savings account penetration in most states is still

relatively low at 46% on average and above 75% in only 2 states of
Madhya Pradesh and Chhattisgarh.
The unbanked are more likely to constrain the spread of JAM than
ap
the unidentified.
Only 27 % of villages have a bank within 5 km. To help address
this problem, the RBI in 2015 licensed 23 new banks – 2 universal
banks, 11 payment banks and 10 small finance banks.
The spatial density of Banking Correspondent’s (BCs) in India is
Kn
17% which is a major hindrance.

Mobile
Mobile penetration across India is strong. Only in Bihar (54%) and
Assam (56%) the penetration is lower than 60%.
Case-in-point: BHIM app
BHIM app, or the Bharat Interface for Money, is the government’s
latest app to push India towards a cashless or ‘less-cash’ society.
Prime Minister Narendra Modi recently launched the BHIM app,

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which is available for Android OS. An iOS (Apple) app will be

launched soon.
According to the government, the BHIM app allows the users to
make cashless payments using their mobile phones in a “fast,
secure and reliable” way.
The Aadhaar-based payments app has been developed by the
National Payment Corporation of India (NPCI). The ‘Made in
India’ app is interoperable with other Unified Payment Interface
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(UPI) applications, and bank accounts.
Why should the government use JAM for
its bread-and-butter functions?
pi The introduction of Direct Benefits

Transfers (DBT) in LPG and Mahatma
Gandhi National Rural Employment
Guarantee Scheme (MGNREGS) proved
ap
that use of JAM can considerably reduce idle funds, lower
corruption and improve ease of doing business with the
government.
Significant savings and efficiency gains can be achieved by
transferring funds directly from the state/ central government to the
Kn
worker rather than layer by layer, with leakages along the way.
Similar gains are possible from adopting these reforms for all
government payments, including other central and state schemes
that still use the old model.
Thus, JAM can improve the reduction in delays, leakages, and
administrative burden for all the funds received from the
government. The beneficiaries include:
Poor households which rely on government subsidies to buy certain
commodities.

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State and local governments which rely on central transfers to fund

key programs.
Businesses working with government which rely on timely
payment to manage cash flow.
Government employees who rely on government transfers for their
salaries.
When can policy makers decide to
pursue JAM?
ly
Only by addressing the first-mile, middle-
mile and last-mile issues, JAM can be
pursued further.
pi Identification or First-Mile
Targeting: Since targeted subsidies are harder to JAM than
universal programs, the government should generate detailed
information about beneficiaries. Subsidies targeted at the poor
ap
require government to know people’s wealth, while benefits
targeted at farmers or pregnant mothers require government to
know beneficiaries’ occupation and pregnancy status respectively.
Beneficiary databases: To identify beneficiaries, the government
should develop a database of eligible individuals.
Kn
Eligibility: While some benefits are for households, others are for
individuals. There is a need to verify who is eligible for a
subsidized program. For example, the National Food Security Act
provides for subsidised grain to households but a cash transfer
maternal entitlement to mothers.
Transfer or Middle-mile
The administrative challenge of coordinating government actors
and the political economy challenge of sharing rents with supply
chain interest groups should be addressed.

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There is a need for check on those agents along a commodity’s

supply chain who can obstruct the spread of JAM to further their
interest.
Access or Last-mile
The issue of lesser bank penetration, mostly in rural areas should
be urgently addressed.
The issues related to the risks of excluding genuine beneficiaries,
especially the poor should be addressed.
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Where was the JAM trinity first applied
to?
pi The Indian government spends 4.2% of its

gross domestic product (GDP) on subsidies,
which it intends to reduce to 1%. This is
being done by eliminating certain subsidies,
reducing the scope and extent of some, targeting to a narrower
ap
population and reducing leakages through better administration. Direct
Benefit Transfer (DBT), or the transfer of subsidies directly to the
beneficiary bank accounts, along with using Aadhaar/Unique ID as the
identification proof, is being seen as the silver bullet to reduce leakages
in subsidy administration.
Kn
Over 20 % of India’s population received a cash transfer from the

government in FY14-15. JAM was involved in distributing benefits
across a range of government programs which include scholarships,
MGNREGS, subsidies and pensions.
The PAHAL (Pratyaksh Hasthantarit Labh) scheme, which
directly transfers LPG subsidies into customers’ bank accounts, has
generally been successful, and policymakers in other areas are
understandably keen to emulate its success.
Around 151 million beneficiaries receive LPG subsidies via DBT,

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and Rs 29,000 crore was transferred to beneficiaries in 2015-16.

The annual fiscal savings for the government was Rs 12700 crore.
With DBT in place, the government has begun eliminating ghost
and duplicate households from beneficiary rolls.
The sales of subsidised domestic cylinders fell by 27% after the
introduction of Pahal scheme.
Evidence shows that commercial LPG sales increased when
DBT was introduced and fell back when DBT was suspended.
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It should be verified that reduced sales of domestic cylinders do not
merely reflect exclusion errors. However, data gives a reassurance
that JAM in LPG has succeeded in reducing leakages rather than
excluding the poor.
pi Who is JAM-prepared as per the JAM

preparedness index?
JAM preparedness index measures states’
ap
preparedness to implement DBT in urban
and rural areas. The index is not the average
but the minimum of the respective
indicators.
Urban areas: Urban JAM index shows a significant variation
Kn
across states. Some, like Madhya Pradesh and Chhattisgarh, show

preparedness scores of about 70%, while others, like Bihar and
Maharashtra, have scores of only about 25%.
Rural areas: These areas are plagued by the last-mile challenge of
getting money from banks into beneficiaries. The DBT rural
preparedness scores are significantly worse than the urban scores,
with an average of 3% and a maximum of 5% in Haryana.
Comparing the rural and urban indexes, it is clear that last-mile
financial inclusion is the main constraints to making JAM
happen in much of rural India.

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BAPU: Biometrically Authenticated Physical Update (BAPU)-

Preparedness Index which uses Aadhaar penetration and Point of
Sale machines as indicators, for each state was compared by the
Economic Survey 2015-16 with Rural-JAM Preparedness Index.
It was found that many states are having higher scores in BAPU-
Preparedness Index as compared to Rural JAM-Preparedness
Index.
The survey suggests the use of BAPU as a short-term solution to
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reduce the leakages in these states, till states are well prepared for
introduction of the JAM.
Who is BAPU?
pi What the Economic Survey calls BAPU (biometrically authenticated

physical uptake) involves making it mandatory for card holders to
physically go to ration shops and authenticate their identity
through biometrics-based point of sale (POS) machines. Andhra
ap
Pradesh has been very successful in this. Madhya Pradesh has been
trying several pilots and the Rajasthan government has been pushing
for this aggressively.
If X is not interested in picking up subsidised food grains and is
allowing his card to be used by someone else, he will hardly be
Kn
willing to do so if it involves him making a trip to the ration shop,

proving his identity, taking the supplies and then giving it to
someone else.
In the earlier system, there was no cost involved; BAPU will
involve costs, making diversion less attractive. The Survey pitches
for BAPU for delivering food and kerosene subsidy and partly for
fertiliser subsidy.
How can there be a broader spread of JAM?
There is still some way to go before bank-beneficiary linkages are

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strong enough to pursue DBT without

committing “exclusion errors”.
The policymakers should decide where to
apply JAM based on considerations of
amount of leakages and control of the
central government.
If the amount of leakages in a given scheme/area is huge then it can
be the next target for introduction of JAM as subsidies with higher
ly
leakages will have larger returns from introducing JAM.
The centre should incentivise states by sharing fiscal saving from
DBT to help fully implement JAM.
pi There should be investment in the first-mile capacity by

improving beneficiary databases.
The centre and states should deal with middle-mile challenges by
designing incentives for the supply chain interest groups to
ap
support DBT.
There should be improvement in the last-mile financial
connectivity by developing the Bank Correspondents (BC) model
and mobile money space. There should be commission rates for BC
to ensure that they are incentivised for remaining active.
Kn
Policymakers should be cognisant about exclusion errors due to

DBT not reaching unbanked beneficiaries.
The government should take advantage of India’s deep mobile
penetration and agent networks by making greater use of mobile
payments technology.
Fertiliser and within-government transfers are the two most
promising areas for introduction of JAM.
—– | —–

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INDIAN ECONOMY / Growth / 2017: GST, IBC

and other things
28-Dec-2017
ly
pi 2017 has been a seminal year for the Indian economy. The government
brought in some key economic reforms but the results are yet to be
ap
seen. Due to the ‘teething troubles’ of GST, India’s GDP growth rate
fell to a three-year low, before showing modest recovery. With
consumption and investment growth falling, the already-stressed
government purse strings will have to be loosened more. The
Insolvency and Bankruptcy Code (IBC) offers hope to the banking
Kn
sector.
What was the status of

Indian economy in 2017?
It has been almost a decade
since the world underwent a
litany of economic crises
beginning with the financial
meltdown of 2008-09 immediately followed by the European debt
crisis of 2010-12 and then by the global commodity price adjustments

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between 2014-16.
The year about to end is when the global economy showed the
first promising signs of recovery. In contrast to a global
economic growth of 2.4 per cent in 2016, it is expected to grow at 3
per cent in 2017, the highest since 2011. It might have still been a
challenging year for some commodity-exporting nations (such as
Brazil), but most economies recovered in 2017, and in that sense,
this year could be termed as a hopeful one.
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India, on the other hand, has had a forgetful year in terms of
growth. It spent the year recovering from the twin shocks of
demonetisation and GST along with the twin balance sheet
pi problem of banks and corporates.

Due to these issues, GDP growth fell consistently until it reached a
3-year low of 5.7 percent in the April-July quarter before
recovering to 6.3 percent in July-September. By all means,
ap
growth in the current financial year will not exceed 7 percent.
The country’s economic performance has been of concern throughout
the year at all levels.
First, consumption, which is the largest component of the Indian
economy, now accounts for only 54% of the GDP as compared to
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59% in December 2016. Consumption growth fell for three

consecutive quarters in the calendar year from a high of 11.1 percent to
6.5 percent.
Demand for consumer durables seems to have been the most
affected. The IIP (Index of Industrial Production) growth for
consumer durables fell to a low of a negative 1.8 percent by
September 2017 as compared to 5.9 percent a year ago.
Both demonetisation and GST have contributed to these
subdued consumption trends. Considering that consumption is

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the primary driver of economy’s growth, reviving it should be the

foremost matter of concern stepping into 2018.
Second, investments have also taken a hit this year owing to the
twin balance sheet problem. Banks have become wary of lending due
to a rising proportion of bad loans on their balance sheets while
corporates with overleveraged balance sheets are postponing any
borrowing for later.
Investment activity has been affected at both ends. Gross fixed
ly
capital formation, which measures the level of investment in the
economy, has been plunging. It had reached heights of 38 per cent
a decade ago in 2007 and remained above 35 per cent till 2011,
pi which is the level it needs to maintain a minimum growth rate of 7

per cent.
However, it has fallen to an average of 29 per cent in 2017. The
credit growth to industry has fallen to negative levels, underlining
ap
the gravity of the situation. The recent bank re-capitalisation
plan of Rs 2.11 trillion (211,000 crore) will help, but the process
will be completed only by 2019. Therefore, additional measures
need to be taken to revive investment activity in the short-term.
The final major aspect of GDP is the government expenditure,
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which had been largely driving investments in 2017.

The government spending averaged 18 per cent in the first three
quarters of the calendar year 2017 as compared to 12 per cent
during the same period last year. However, even this has fallen to a
lowly 4.1 percent in the July-September quarter.
The drastic reduction was imminent due to the tight fiscal
situation that the government finds itself in after having
incurred 98 per cent of the budgeted expenditure for the
financial year in October itself.

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Moreover, to make matters worse, tax revenue collection has

witnessed a slowdown. The receipts were 48 per cent of the
budget estimates during April-October 2017 as compared to 51
percent a year ago. The recent reduction in GST rates will only
widen the shortfall and make the fiscal situation even more
challenging.
The inflation readings are not promising either.
Despite RBI’s best efforts to control inflation within its
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medium-term target of 4 per cent, it hit a 15-month high of 4.33
per cent in November. If the Central government exceeds the
fiscal deficit targets for the year, it will spark higher inflationary
pi trends.
The independent Monetary Policy Committee (MPC) also
completed its full year in 2017 and it showed its independence
not only by declining an invite from the finance ministry for
ap
consultations ahead of its meeting, but expressing divergent
opinions. In all that, external member Ravindra Dholakia, a
professor from the Indian Institute of Management, Ahmedabad,
stood out for his continued demand for rate cut to 5.75%.
Thus, 2018 is set to be a challenging year considering these aspects.
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Subdued consumption levels, low investment activity and

constrained government spending leave no scope for
complacency.
Boosting exports aided by a favourable global environment can
help, but only to an extent. Also, the external sector will be
largely dependent on how oil prices move during the year. A
slight indication of unrest in the Middle East can push prices
upwards and escalate India’s import bill.
Therefore, since investments are tied up with the problem of bad

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loans and government spending is constrained by fiscal limitations,

a lot will depend on whether the government can revive the
consumption appetite of Indians.
Hopefully, now that the effects of demonetisation and GST have worn
off and GST rates have been slashed, household spending will see an
uptick.
Why was Indian economy under
stress in 2017?
ly
While 2016 ended with the
government’s surprise and bold
currency scrapping exercise, 2017 had
pi to bear the twin shock of the

aftereffects of demonetisation and the mid-year rollout of the new
indirect tax system — the Goods and Services Tax (GST). The
Narendra Modi-led government rolled out GST on July 1 in a grand
ap
midnight event in Parliament.
India’s indirect tax system was overhauled by consolidating an
untidy patchwork of local and central duties such as VAT,
central excise, special additional duties, cesses and service tax
into a single levy.
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GST was also introduced to make tax administration more

efficient, bring in transparency, remove red tape and turn
India into a common national market by removing fiscal barriers
among states.
GST remained in limelight throughout the year, as it turned out to
be the economy’s biggest disruptor, with criticism pouring over
shoddy and hasty implementation, hurting especially the small
businesses.
The teething troubles that ensued included higher tax rates for

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some items, a complicated return filing system, errors in

invoice matching, and major technical snags on the reform’s
information technology backbone GST Network (GSTN),
among others.
The criticism of relatively high rates on certain daily-use
commodities forced the government to announce tax cuts on close
to 300 items within just four months of its implementation, to
soothe small traders hit by GST-related disruptions.
ly
Impact on the common man and small businesses, and implementation
woes aside, both the GST and demonetisation snowballed into a
political turmoil putting the NDA government in a tricky situation
pi ahead of the crucial Gujarat assembly election. Although this wasn’t a

deterrent in the BJP’s victory in Prime Minister Narendra Modi’s home
state, the moves clearly made a section of the business community
unhappy.The Indian economy felt the pangs of GST evidently.
ap
Manufacturing witnessed slowdown, as companies and traders
had emptied inventories to carry over as little old stock as possible
into July, triggering an unexpected mid-year pre-GST “sale”
season on many products at heavy price markdowns.
This large scale inventory clearance had caused an economy-
Kn
wide slowdown, pulling down overall Gross Domestic Product

(GDP) growth to a 13-quarter low of 5.7 percent in the quarter-
ended June.
Thereafter, GDP growth raced faster in July-September at 6.3 percent
as companies shrugged off the inventory disruptions. While the
implementation of GST became a thorny issue, the tax reform as a
whole was welcomed by the industry.
When did India shift to dynamic fuel pricing?
From June 16, 2017, the public-sector oil marketing companies

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started the system of daily price

revision as against the previous
system for auto fuel, where any
revision would be taken fortnightly.
Earlier, petrol and diesel retail prices
were revised fortnightly, depending
on fluctuations in international crude oil prices and the
demand/supply situation in the country.
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The three state-owned oil marketing companies (OMCs) - Indian
Oil, Bharat Petroleum Corporation and Hindustan Petroleum
Corporation - are since rolling-out the daily dynamic pricing
pi mechanism for petrol and diesel.

With its adoption, India joined the league of select countries like
the US and Australia where fuel prices are revised on a daily basis
in June.
ap
This move ensures that the benefit of even the smallest of changes in
international oil prices is passed down the line to dealers and the
end users every day.
It ensures that no party loses out for an entire fortnight in the
event of a sharp fluctuation, as it used to be earlier when the
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revision happened only fortnightly.

In case of a decline in crude oil prices, the benefit will be passed on
to the customer the next day itself. In case of a rise in crude prices,
oil marketing companies will be able to immediately pass on the
price hike to the customers.
The move is aimed at bringing parity with international product
prices — diesel and petrol. There is also a belief that daily dynamic
pricing will rein in speculative market forces.
Officials at OMCs say that when changes were made fortnightly,

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they often led to speculation in the market about the future

prices, and customers behaved accordingly.
The OMCs say the daily revision will bring in more
transparency within the system and it will also minimise the
impact of increasing/decreasing prices on the working capital
of companies and dealers.
Where did we see a big shift in
industry landscape?
ly
Many knapps have been written to
sympathize with every telecom operator
in India whose name is not Jio. With its
pi aggressive investment and pricing,

Reliance Jio made the entire telecom sector bleed, triggering mergers
and slashing data prices. The jury is still out on the long-term impact of
this intense and capital-intensive competition.
ap
Two events captured the essence of 2017 for the sector
Vodafone-Idea Merger
Shareholders of telecom operator Idea Cellular approved the
scheme relating to the merger of its mobile business with Vodafone
India in October to create the country’s largest telecom operator
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worth of more than USD 23 billion with a 35 percent market

share. The merger deal is expected to be completed by March next
year.
Both the companies are before National Company Law
Tribunal (NCLT), seeking its nod after which they will need final
approval from the Department of Telecom.
The combined entity of Vodafone India and Idea Cellular, which
are currently India’s number 2 and 3, respectively, would dislodge
Bharti Airtel to counter the fierce price war in the world’s second-

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largest telecom market.

The deal gives Vodafone India an implied enterprise value of Rs
82,800 crore and Idea Rs 72,200 crore.
Reliance Communication shuts down 2G business
Reliance Communications, reeling under debt of around Rs 46,000
crore, shut down voice call service in December asking
customers to move to other networks. RCom (or whatever remains
of it) will essentially be transformed from a business-to-consumer
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(B2C) into a business-to-business (B2B) entity which will provide
submarine cable systems that will deliver the latest sub-sea cable
technology to meet growing cloud infrastructure and data capacity
pi demand from global enterprises and over-the-top, or OTT, service

providers.
It has also asked a number of employees to quit as part of its
winding up of the operations. The move comes after the company
ap
failed to close the merger deal with telecom operator Aircel due to
what owner Anil Ambani called “vested interests”.
Who put their faith in India’s
economy?
Moody’s Investors Service raised
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India’s sovereign rating for the first

time since 2004, overlooking a haze
of short-term economic uncertainties
to bet on the nation’s prospects from a raft of policy changes by Prime
Minister Narendra Modi.
Rupee, bonds and stocks rallied after the ratings firm upgraded
India to Baa2 from Baa3 and said reforms being pushed through
by Modi’s government will help stabilize rising levels of debt.
That’s a one-level shift from the lowest investment-grade ranking

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and puts India in line with the Philippines and Italy.

Moody’s acknowledged that the cash ban and goods and
services tax have undermined growth in the near term. In the
longer term, however, the GST will promote productivity by
removing barriers to interstate trade, Moody’s said, also citing
the improvements in the monetary policy framework, measures
to clean up bad loans, and efforts to bring more areas into the
formal economy.
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“While India’s high debt burden remains a constraint on the
country’s credit profile, Moody’s believes that the reforms put in
place have reduced the risk of a sharp increase in debt, even in
potential downside scenarios,” according to the firm’s release.
pi While government officials hailed the move as long overdue, some

investors termed it a surprise given that India recently surrendered
its status as the world’s fastest-growing major economy amid sweeping
ap
policy change.
Meanwhile, foreign investors continue to flock to Indian capital
markets in a big way with a net inflow of over USD 30 billion (more
than Rs 2 lakh crore) of the so-called ‘hot money’ in 2017, with
equities alone getting over USD 8 billion - an amount bigger than the
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cumulative investment of the previous two years.

As the year draws to a close, the Indian stock market seems to have
regained its status as one of the most favoured destinations for
foreign portfolio investors (FPIs), as they have taken their net
investment position in equities so far in 2017 to Rs 55,000 crore -
the highest in three years after Rs 20,500 crore in 2016 and Rs
17,800 crore in 2015.
However, this remains a far cry from the heady levels seen earlier -
Rs 97,000 crore in 2014, Rs 1.13 lakh crore in 2013 and Rs 1.28
lakh crore in 2012. A sharper turnaround was seen in 2017 in terms

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of FPI inflows into debt markets where the net investments have
soared to a staggering Rs 1.5 lakh crore (USD 23 billion) after a net
outflow of about Rs 43,600 crore in 2016.
Marketmen, however, believe that this kind of FPI flows may not
continue in 2018 as the withdrawal of liquidity and rate hikes
in developed economies pick up. Also, the inflation cycle is likely
to turn following increase in commodity prices and recovery in
consumption demand.
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The overall net inflow has made 2017 as the best period for Indian
capital markets (equity and debt) in terms of overseas investment in
three years with combined net inflow of over Rs 2 lakh crore (more
pi than USD 30 billion).

Note: ‘Hot money’ refers to funds that are controlled by investors who
actively seek short-term returns (unlike in FDI, where they seek long-
term returns). These investors scan the market for short-term, high
ap
interest rate investment opportunities.
How did the government help
the banks it owns?
In 2017, the government took
several steps to tackle the bad
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loans menace that has dampened

the banks appetite to lend to the
sectors in need.
Banks, especially state-owned, have been saddled with non-
performing assets (NPAs), mainly across a few major sectors.
Steel, power, roads, highways, and telecom sectors are in the
process of revival, given the pile-up of bad loans that threatens to
negatively affect their growth. NPAs held by Indian banks have
crossed Rs 10 lakh crore.

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The Banking Regulation Act was amended to allow the Reserve

Bank of India (RBI) to crack down on loan defaulters.
Insolvency and Bankruptcy Code (IBC) was invoked to deal
with sick companies, with realty firms facing the maximum heat.
In addition, in October, the government also announced Rs 2.11
lakh crore capital infusion into state-owned banks as part of a
broad plan to create thousands of new jobs, raise income, boost
investment and quicken growth in the broader economy.
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The Insolvency and Bankruptcy Code (IBC), 2016 was enacted for
time-bound insolvency resolution process and to prevent unscrupulous,
undesirable persons from misusing or vitiating the provisions of the
pi code.
Over 4,300 cases have been filed for insolvency, out of which
around 470 have been admitted to National Company Law
Tribunal (NCLT), which is the arbitration authority for cases filed
ap
under IBC.
The first batch of 12 large defaulters were referred to their
creditors by the apex bank in June. Eleven of them are with
NCLT now.
Constituting a fourth of the system’s bad loans, these large
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companies presumably have a better chance to find buyers. But

as it stands, in these cases too, buyers demanding a huge
haircut is proving to be a stumbling block in arriving at a
resolution plan.
The resolution plan under IBC essentially includes a turnaround
fund investing in the company, or a strategic buyout, wherein a
competitor steps in to buy the assets of the company.
But given that most of the 12 big accounts identified by the RBI
are highly over-leveraged and some of these companies have debt-
to-market-cap levels of over 60 times, finding buyers has not been

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an easy task.
The year 2017 was a watershed year for IBC in terms of clarifying
ambiguities.
The first insolvency petition was filed by ICICI Bank in
December 2016. It was foreseeable that this laudable and long-
overdue legislation, would undergo its share of trial by fire
throughout 2017.
In the case of Innoventive Industries, the Supreme Court held that
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once an interim resolution professional (IRP) takes charge of
the insolvent company, the directors lose any right to prefer an
appeal on its behalf.
pi The judgment in Mobilox Innovations removed all ambiguities

regarding the extent to which the Adjudicating Authority can
investigate the veracity of a “dispute” for the purposes of a notice
under Section 8.
ap
In the case of Macquarie Bank, the Supreme Court made a
purposive interpretation (based on the context) while empowering
an advocate to send a demand notice on behalf of an Operational
Creditor.
In Lokhandwala Kataria Construction, the National Company
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Law Appellate Tribunal (NCLAT) held that, under IBC, financial

creditors cannot withdraw insolvency application by mutual
settlement after admission, to the detriment of the interests of other
creditors. However, the Supreme Court, exercising its inherent
powers under Article 142, allowed such withdrawal pursuant to
mutual settlement between the parties.
August witnessed the approval of the first insolvency resolution
scheme by the NCLT in the Synergies-Dooray Automotive case.
In November, the Insolvency and Bankruptcy (Amendment)
Ordinance was passed which prevented promoters of an

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insolvent company from bidding for the assets of the same. This
was challenged before the Punjab and Haryana High Court by
RMS Pvt Ltd and other debtors before various high courts.
In December, in Unigreen Global and Leo Duct Engineers case,
NCLAT held that the Adjudicating Authority, while admitting a
Section 10 Application for voluntary insolvency resolution, cannot
go beyond the records which had to be submitted in Form 6
(Rules).
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RCom now faces an insolvency petition filed by China
Development Bank. Also, according to the RBI mandate, banks
will refer 24 more stressed accounts for insolvency resolution.
pi 2018 promises to be full of interesting developments vis-à-vis the IBC,

particularly on the fate of the Insolvency Ordinance, fruition of the
insolvency proceedings of the 12 large debtors, further developments
in the Jaypee and RCom cases and what would be the fate of the 24
ap
accounts identified by the RBI. According to news reports, the
government plans to make further amendments to the IBC. This
development will also be interesting.
—– | —–
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INDIAN ECONOMY / Growth / Between a rock

and a hard place
26-Sep-2017
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pi Growth in India has been slowing for the past five quarters, a trend
which has been pinned on the chaotic roll out of GST and the
ap
demonetisation exercise. After looking the other way, the government
has been forced to acknowledge the slowdown and consider a revival
plan. The Prime Minister has formed a panel of experts to offer
guidance on pressing economic concerns. But for the medicine to
work, the diagnosis has to be correct.
Kn
What is the current status of India’s

economy?
The recent headlines on the Indian
economy have been dark and stark.
Economic growth, as measured by
the gross domestic product (GDP),
has declined for five quarters in a row (to 5.7% in the first quarter
of this fiscal year). Inflation has more than doubled in the three
months since June.

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The current account deficit (CAD) in the first quarter of the

current fiscal year was at its highest level in four years at 2.4%
of GDP. CAD refers to the difference between inflow and outflow
of foreign exchange that has a bearing on exchange rate.
The index of industrial production (IIP) – an indicator of the
growth of industry - grew at a dismal 1.2 percent in July compared
with 4.5 percent a year ago.
Bank credit growth – a precursor to future growth - is showing
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no signs of a pick-up. In July, non-food bank credit growth of
schedule commercials banks slowed to 5.3 percent as compared
with a rise of 8.3 percent in the same month last year.
Over the last five months, retail inflation (based on consumer price
pi index) has touched a high of 3.36% in August, compared to 2.17%

in July 2017 – and 2.47% in August 2016.
Sure enough, some of the worries are overdone.
ap
Inflation was expected to jump back from an absurdly low level
in June. The current account deficit is still being comfortably
financed by strong capital flows, though the dominance of debt
investments as well as the spurt in electronics and gold imports
deserve closer examination.
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And at least some of the sharp decline in economic growth in the

three months to June can be explained by inventory destocking by
companies ahead of the launch of the goods and services tax
(GST), so a cyclical bounce back is quite likely over the next two
quarters.
But there seems to be a structural element to the economic slowdown.
The Indian economy began losing momentum well before the
demonetization decision was announced in November.
India’s growth is faltering despite a benign macroeconomic

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environment with easy money flowing in, global growth

reviving, government revenues looking solid, deep foreign
exchange reserves, reasonable oil prices and a decent monsoon
keeping food prices in check.
Amid worries over an economic slowdown, Prime Minister
Narendra Modi has now set up a five-member panel of economists
headed by NITI Aayog member Bibek Debroy to advise him.
The economic advisory council includes NITI Aayog's Principal
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Advisor Ratan Watal as its member and economists Surjit Bhalla,
Rathin Roy and Ashima Goyal as part-time members. The panel will
analyse issues, “economic or otherwise, referred to it by the Prime
pi Minister”, and will advise him on it, a government release said.

Why must
government?
this bother
Economy is what Modi promised.

the
ap
Economy is what he must deliver.
There is no doubt that the
government faces its biggest
economic challenge as it enters the final stretch of its tenure.
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Modi’s administration, which took power in 2014 promising to

create jobs, is battling a public perception of economic
mismanagement. On top of it, foreigners are dumping stocks at
the fastest pace this year as weak earnings fail to justify the boom
in share prices.
The government’s regular cash cows aren’t in the pink of health
either. The Reserve Bank of India has halved its annual payout,
asset sale proceeds (disinvestment) are far from the target, and
telecom spectrum auctions may not find many takers as
carriers struggle amid a brutal price war. Refund claims under

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GST have further put the receipts goal at risk.

Meanwhile efforts to clean bank balance sheets with a new
bankruptcy framework have yet to yield results. Private investment
has been sluggish with banks battling bad assets and credit growth
for years now.
The government has, so far, failed to offer a concrete plan to solve
the capital woes of public sector banks (PSBs). The
‘Indradhanush’ plan envisaged the government infusing Rs
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70,000 crore in PSBs over a period of four years. But, this was too
little. The government then asked banks to fend for themselves for
the remaining money, i.e., by raising funds from the market. But,
this plan didn’t work well since there were hardly any takers in the
pi market to invest in these weak banks.

Till date, the government hasn’t come up with an alternative plan
to find an answer to the capital dilemma of banks. A weak
banking system, out of which government owns 70 percent of
ap
banks in terms of their assets, doesn’t augur well for the
economy. Right now, on account of huge NPAs and poor demand,
banks are unable to lend in a big way to productive sectors. This is
a major hurdle for growth recovery.
But the biggest headache for the Modi-government is its failure to
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create jobs. Speaking at his book launch recently, former RBI

governor Raghuram Rajan flagged this problem. “Remember that
we have what we call the population dividend. A million new
people entering the labor force every month,” Rajan said. “If we
don’t provide these jobs that are required, you have a million
dissatisfied entrants. And that could create a lot of social
mischief”.
When it came to power, the Modi government got an unexpected
bonanza early on thanks to the collapse of global crude oil prices.

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It was a positive in terms of trade shock that acted as a growth driver.

The sharp decline in the current account deficit added at least an extra
percentage point to economic growth.
But now, this fall.
Three years is a short time for an economy. But it feels like a long time
in India today.
When do we fear the worst?
ly
“All that is solid melts into air,
all that is holy is profaned, and
man is at last compelled to face
pi with sober senses his real

conditions of life, and his
relations with his kind.” ~ Karl Marx’s Communist Manifesto
Even Rahul Gandhi knows what India’s biggest challenge is. Speaking
ap
at an event at Princeton University in the US, the Congress leader said
creating employment opportunities for the youth was India’s
biggest challenge.
The challenge has just gotten bigger.
GST wants to formalize India's informal sector, drawing most of it into
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the tax bracket and killing off much of what is left behind. This
change will erode the flexibility the economy derives from
informality and has serious implications for India's political
economy.
The estimated contribution of Micro, Small and Medium
Enterprises (MSME) sector (including service segment) to
Indian GDP is around 37%. Since most MSMEs are labour-
intensive, the bulk of jobs is generated here.
More than 90 per cent of India's workers find employment in the

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unorganised sector. The Central Statistics Office (CSO) defines the

organised sector in manufacturing as enterprises that employ 10 or
more workers, if the enterprise uses power, or 20 or more workers,
without use of electricity. The rest are unorganised, naturally.
Not paying taxes is the holy creed of the unorganised sector.
The small producer supplies parts to other small producers,
finished goods for export and to distributors for sale to consumers
and parts and services to large firms.
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The mall producer provides big credit to large producers, by
way of accepting delayed payment for his supplies. He pays
minimal wages to employees, makes prompt payment to his own
pi suppliers, pays exorbitant rate of interest to those who lend him his
working capital in a world where banks don’t consider them credit-
worthy.
Large companies can sidestep laws on minimum wage and working
ap
conditions by outsourcing much of the work to small informal
firms beyond the scrutiny of the state. Contract workers have
replaced regular workers in routine jobs such as cleaning,
maintenance and running small errands in most offices. Guards, for
example, are almost entirely sourced from contractors. These
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contract workers are on the rolls of informal sector firms that pay
them a pittance.
The defining feature of the informal economy is its mystique - that it is
beyond official reach. GST is poised to rip apart that concealing
veil.
In the GST regime, there is a compulsion for all units to be
registered with the GST Network and to file returns and upload
invoices. If they do not, no one will buy from them.
Here is an example to better understand the plight of the small

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firms. A bank branch that used to buy its copier paper from a
stationer's next door will shun him now, unless he can provide an
invoice with GST — the bank needs it to claim input tax credit.
The stationer, small as he is, would source his paper from someone
who, in turn, would give him an invoice with GST, to reduce his
tax outgo. This is the beauty of GST: it has a built-in incentive
to comply.
But this is also its curse.
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Compliance with GST means revealing input purchases and sales.
That reveals income as well, to the beady eyes of the taxman, who
could then open up claimed expenses and verify them.
pi India’s paradigm shift to the GST regime in July has increased

their compliance costs and snared a majority of them into the
indirect tax net for the first time.
So far, unorganised MSMEs have grown faster than organised
ap
peers because of lower cost structures stemming from tax
avoidance, and not having to pay social security benefits to
employees (such as provident fund and gratuity), and excise duty
(if turnover is less than ₹1.5 crore).
Some MSMEs also understate employee base or set up multiple
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ventures to avoid breaching tax thresholds. Such sharp practices

helped them price products and services competitively over the
past few decades and also maintain operating margins at organised
player levels.
Small and Medium Enterprises (SMEs) have been considered as the
primary growth driver of the Indian economy for decades. SMEs have
emerged as the leading employment-generating sector and have
provided balanced development across sectors.
They were hurt by demonetisation, and now GST is hurting it even

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more.
The government must move quickly to ease the pain from GST for the
small and medium enterprises that drive generation of jobs and
exports, but have not been cared for. A way has to be found to ease
credit flow to this sector. A way has to be found to ensure they do not
lose out on their contracts from the big firms.
Where can the solution come from?
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The key to a sustainable recovery is the
investment cycle. The private sector is
still struggling with excess debt. The
banks are struggling with bad debts.
pi Capacity utilization figures show that

higher demand can be met through existing capacity. The clean-up of
the banks seems to have begun in earnest, though it is hard to see how
the job can be done in less than two or three years.
ap
The macroeconomic strategy will have to delicately balance between
the need to push public investment on the one hand and keep the
fiscal deficit under check on the other.
So where can the money come from?
Kn
First, the extra taxes that the GST is expected to send into the
treasury should hopefully create fiscal space for higher public
investment. If the GST collections fall, the government is in for
a really tough time.
Second, the government should push ahead with a privatization
program that should be used as a way to switch assets — from
airplanes to roads, for example, by privatizing Air India and
investing in building roads.
The time to spend – even overspend – is now

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“The government needs to give economy an immediate boost and

fiscal spending is the way to go about it without worrying too
much about the consequences because economic growth is in
doldrums,” says Ajit Ranade, chief economist at the Aditya Birla
Group.
Although the government has already spent much of its budgeted
expenditure, he argues, it needs to spend more to spur investment
and demand in the economy to push up the growth numbers.
ly
“The argument against fiscal spending is that it will be
inflationary, ratings downgrade will happen, interest rates will go
up, or debts could become unsustainable,” Ranade asserts, “but
right now, the situation is very dire.”
pi “We need to do whatever it takes, at least in the short term,” he

concludes.
Rate cut is needed, more now than ever before
ap
Radhika Pandey, a consultant for the National Institute of Public
Finance and Policy, says the key reason behind the slowdown is
weak private investment. So, a steep rate cut by RBI in the
benchmark lending rates is required to allow for monetary
policy expansion.
Kn
In simpler terms, the Reserve Bank needs to cut interest rates for
banks, thereby making borrowing cheaper for the industry and
spurring investment.
“High real interest rates do not augur well for private
investments,” Pandey said. “Given the limited transmission of
monetary policy there needs to be a steep cut to have a bearing on
private investments.”
Pandey also argues for more certainty in the business environment
and says businesses can do without shocks like demonetisation.
“After demonetisation shock, there is an environment of

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uncertainty in the economy,” she said. “This inhibits

announcement of new projects by the private sector. There should
be an environment of certainty that no such disruptive moves would
rock the economy in the near term.”
Go rural
Increasing rural people’s incomes can drive up the consumption
demand, which in turn will boost the industry.
The best way forward is to spend more money on areas where the
ly
demand has slumped to create more demand. That would be in
rural areas, construction sector and the unorganised sector.
That spending may have just begun. Prime Minister Narendra Modi on
pi 25 September launched a ₹16,000 crore scheme, Saubhagya, under

which households across the country that have no access to electricity,
will be given power connections free of cost.
Who says what on the current state of
ap
Indian economy?
Much of the commentary in the Indian
media over the recent weeks sought to give
prescriptions to the government on what the
economy needs in order to recover, while a
Kn
few analysts focused on why it is struggling in the first place.

Surjit Bhalla, senior India analyst at Observatory Group, says even
at an unlikely 6.5% for the rest of the year, 2017’s numbers
will not match the average for the bad years of the Congress-
run United Progressive Alliance government. Writing in the
Indian Express, Bhalla blames the low growth on the mismatch
between inflation, down seven percentage points since 2013,
and the central bank’s interest rates, which are only down two
percentage points. Bhalla is also a member of Modi’s newly

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formed five-member economic advisory committee, headed by

Bibek Debroy.
Swarajya Editorial Director R Jagannathan says Bhalla “probably
oversimplifies” by blaming everything on interest rates. Instead, his
hypothesis is that “the current slowdown – which began five years
ago – is prolonged because the Narendra Modi government has
substantially sealed the border between illegal (and tax-avoided)
capital sources and legal ones.” Basically, he believes that the
ly
slowdown is attributed to the crackdown on black money
which has left less cash in circulation (thereby impacting
demand).
“All of us are battling capacity underutilization,” says the Chief
pi Financial Officer of L&T R Shankar Raman in an interview with

Mint. “In fact, I don’t see the private sector coming back for the
next couple of years.”
University of Tunku Abdul Rahman research professor TK
ap
Jayaraman, writing in The Wire, cautions against a stimulus
package, saying it is a blunt tool with uncertain returns.
“Presently, what is needed is not any additional fiscal push but
simply better governance. It will restore confidence. The present
display of earnestness to implement reforms, structural and labour,
Kn
which have been initiated, should be carried through to logical

conclusion.”
Kaushik Basu, a former chief economic advisor to the government,
believes that though things seem dire, it is still possible for India to
climb out of the ditch. “If India implements policies that boost
short-term growth, while laying the groundwork for long-term
performance, confidence should rise naturally,” Basu writes in
Mint. “Once investment picks up, India will be able to recapture
its past rapid growth – and sustain it in the coming years. That
outcome would benefit not just India, but the entire global

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economy.”
“It is all the more important now that the government should not
fall to the temptation of spending its way out of the slowdown, with
one eye on the 2019 general elections,” writes Puja Mehra for The
Hindu Centre for Politics and Public Policy. “The government will
have to guard against calls for going populist. The economy is
growing a lot slower now than it did when the 2008 global
downturn hit us.”
ly
Journalist TN Ninan in Business Standard says Modi and the BJP
are likely to win 2019 anyway, so they should look beyond
short-term fixes. “The fact is that short-term crisis solutions
create distortions, and are not a substitute for foundational work.
pi Since Mr Modi and his team expect to win the 2019 elections, the
groundwork for improved performance in their second term should
be done now. In other words, go beyond whatever short-term
measures are in the works, and tackle the underlying issues that
ap
hold India back.”
As we see, even the best of minds cannot agree on what is the way
forward. To spend or not to spend? And, if to spend, where exactly to
spend? Of course, how much to spend?
Kn
Knappily’s framework of analysis will come handy for the

government. But they have to ask the right questions first.
How can the FinMin approach its
stimulus plans?
At a time when the capacity utilisation
across sectors hovers between 65 and 75%,
the government cannot expect private
investment cycle to kick-start even if the
interest rates are reduced substantially. Any industry needs to reach

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capacity utilisation of above 90% to start thinking of investing large

amounts in capacity addition.
The options are limited: India needs a fiscal stimulus urgently. ET
recently reported that the government is considering a stimulus
package of a whopping 65,000 crore rupee ($7.7 billion) stimulus.
New Delhi seems convinced that steroids are needed to lift
economic growth. The focus of the stimulus is likely to be on
Exports, MSMEs, Bank Recap and Expenditure in capital guzzlers
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like roads and railways.
The government hopes that this will have a multiplier effect,
generate employment and boost economic activity.
pi However, there are three golden Ts of a fiscal stimulus:

It must be TIMELY (with GDP growth of just 5.7% last quarter,
perhaps, it's time to go for it).
It has to be TEMPORARY with a definite timeline and a wind-
ap
down (else it takes a heavy toll on the government's own balance
sheet).
It should be TARGETED, else the government could spray its
resources thin without achieving the objective.
The stimulus must be largely aimed at the SME sector (over one-
Kn
third of Indian economy) and the informal sector because those

parts of the economy are in grave danger. Though relaxing tax
requirements for these sectors would delay the ‘formalisation’ of
Indian economy, the economy first has to be healthy.
The government must keep the stimulus small, and spend it on the
small firms. And the time to do so is now. The government must be
large-hearted enough to acknowledge what did not work, and move
forward to set things right.
—– | —–

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INDIAN ECONOMY / Growth / Growth returns to

India
1-Dec-2017
ly
pi Reversing a trend of declining growth in five successive quarters that
put the Narendra Modi government in a spot, India’s economy posted
ap
6.3% growth in the July-September quarter (Q2) of the current
financial year. This suggests that the Indian economy may have started
to shake off the effects of ‘demonetisation’ and GST rollout. Knappily
analyses what the report card reads and what it really means for India’s
economy.
Kn
What do the numbers suggest?

The Central Statistics Office (CSO), under
the Ministry of Statistics and Program
Implementation (MoSPI), has released the
estimates of the India’s economic - Gross
Domestic Product (GDP) - growth during
the second quarter (July-September period) of 2017-18.
Economic growth rebounded to 6.3 per cent in the second quarter
(July to September) of 2017-18 from 5.7 per cent in the preceding

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quarter primarily driven by higher growth in manufacturing and

businesses overcoming teething GST troubles.
The CSO report said, “GDP at constant (2011-12) prices in Q2 of
2017-18 is estimated at Rs 31.66 lakh crore, as against Rs 29.79
lakh crore in Q2 of 2016-17, showing a growth rate of 6.3 percent.
Quarterly GVA at Basic Price at constant (2011-12) prices for Q2
of 2017-18 is estimated at Rs 29.18 lakh crore, as against Rs 27.51
lakh crore in Q2 of 2016-17, showing a growth rate of 6.1 percent
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over the corresponding quarter of previous year.”
This halted a five-quarter slide but the government’s monthly
accounts showed that the country’s fiscal deficit at the end of
pi October had hit 96.1 per cent of the full-year budget estimate
for 2017-18, mainly due to lower revenue collections and rise in
expenditure.
Coming days after Moody’s upgrade of India’s sovereign credit for
ap
the first time in nearly 14 years, the growth buoyancy comes as a
shot in the arm for the Modi government fighting off charges that
demonetisation and GST launch disrupted the economy.
However, the growth rate for “agriculture, forestry and
fishing” sector slowed down to 1.7 per cent from 2.3 per cent in
Kn
the previous quarter and 4.1 per cent growth in the second quarter
last year.
The Gross Value Added or GVA growth, which serves as a more
closely watched estimate for quarterly growth, increased to 6.1
per cent in July-September from 5.6 per cent in the previous
quarter but fell slightly from the 6.8 per cent growth recorded in
the July-September quarter last year.
The expansion in GVA in the first half of the current fiscal has
been estimated at 5.8 per cent, down from 7.2 per cent last year. As
per the new methodology followed by the CSO, GDP is

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calculated by adding product taxes to GVA at basic prices and

removing subsidies.
The construction sector recorded a GVA growth rate of 2.6 per
cent in July-September, higher than 2.0 per cent in previous quarter
but lower than 4.3 per cent growth recorded in the second quarter
last year.
The CSO said that the private corporate sector growth as
estimated from available data of listed companies with
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BSE/NSE was 11.4 per cent at current prices during July-
September of 2017-18.
Private corporate sector growth has a share of over 70 per cent
in the manufacturing sector, while quasi-corporate and
pi unorganised segment includes individual proprietorships and

partnerships and khadi and village industries, comprising a share of
around 20 per cent in the manufacturing sector, it said.
ap
Only three of eight sectors — trade, hotel, transport, communication;
electricity, gas, water supply; mining and quarrying — showed a
pickup in GVA growth in July-September from the same period last
year.
The GVA for “trade, hotel, transport, communication” sector
Kn
grew at 9.9 per cent, up from 7.7 per cent last year. GVA growth
for “electricity, gas, water supply” sector increased to 7.6 per
cent in July-September from 5.1 per cent last year. GVA growth
for “mining and quarrying” rose to 5.5 per cent from (-) 1.3 per
cent in the corresponding period last year, data showed.
The GVA for “financial, insurance, real estate and professional
services’” sector grew at 5.7 per cent, down from 7.0 per cent
last year. GVA growth for the construction sector declined to 2.6
per cent in July-September from 4.3 per cent last year.
Gross Fixed Capital Formation, an indicator for private

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investment, grew at 4.7 per cent at constant prices during July-

September as against 3 per cent during the same period last year.
Net exports grew just 1.2% in Q2, despite the fact that the global
trade is now projected by the World Trade Organisation (WTO) to
grow 3.6% in 2017, up from 2.4% forecast in April and only 1.6%
recorded in 2016.
Despite the latest rise in India’s growth, China’s GDP expansion (at
6.8%) has outpaced India’s for a third straight quarter.
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Note: GDP or gross domestic product is a measure of the total value of
a country’s annual/quarterly output of goods and services. Over two
years ago, the CSO introduced a new method to calculate growth
pi numbers. This differed from the earlier method in many ways. Another
key change was to move from factor cost to basic prices. GDP at
factor cost represents what the producers in the economy make from
industrial activity — wages, profits, rents and capital — called ‘factors
ap
of production’. Aside from these costs, producers may also incur other
expenses such as property tax, stamp duties and registration fees before
sale. These are included in the GDP, but not the GVA. Essentially,
GVA captures what accrues to the producer before a product is sold.
Why has the GDP growth rate
Kn
increased?
While Finance Minister Arun
Jaitley took heart from the
growth trajectory reversal being
enabled by a 7% annual
expansion in manufacturing and 4.7% growth in gross fixed
capital formation (investment), the restocking following the roll-
out of the goods and services tax (GST) contributed in some
measure to the former.

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Some of the sheen of the acceleration in investment would be off as

it was skewed towards investments in valuables that have little
bearing on the economy’s productive capacity.
Among the aggregate drivers of growth, the principal one, private
consumption, continued its tendency of losing GDP share that
commenced in Q4FY16 in Q2FY18 as well and “net exports”,
despite a very modest year-on-year increase, still had a negative
effect on growth.
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Investment, uncomfortably placed over the last few years, showed
a marginal uptick.
After the release of the Q2FY18 GDP data by the CSO, chief
pi statistician TCA Anant said Q2 indirect taxes might have been

higher than estimated owing to GST-related uncertainties over
industries’ tax liabilities and could probably be revised later.
Higher taxes would inflate the GDP, which is gross value added
ap
(GVA) plus indirect taxes minus subsidies.
However, while a higher subsidy outgo (up an annual 45%) had
dampened the Q1FY18 figure, it hasn’t hit the GDP as much in
Q2, when annual subsidy growth was just 18.4%., the GST regime
posed some “statistical challenges” leading to a conservative
Kn
estimate of growth in retail trade, which was earlier based on

collections of sales tax, an impost now subsumed by the GST.
Anant said the CSO’s indirect tax estimate for Q2 could not be
“stated to be complete” given the difficulty faced by businesses
in assessing their tax liability on account of the GST disruptions.
As the government gave the industry considerable latitude,
taxpayers might have deferred payments. “Inventory accumulation
(post-GST restocking) doesn’t appear to be a major a source of
value-addition (in Q2),” Anant said, adding that effect of the
accumulation might persist in Q3 as well.

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When do we see fiscal trouble brewing?

The government’s fiscal deficit touched
96% of the full-year estimate at the end
of October, raising concerns of slippage
in the current financial year. Higher
expenditure and lower-than-expected
non-tax revenue contributed to the fiscal deficit widening from 79.3%
at the end of October last year.
ly
According to the data released by the Controller General of
Accounts, the government’s total expenditure was Rs 12.92 lakh
crore at October end, or 60.2 % of the budget estimate. It was
pi 58.2% of the estimate a year ago.

The government’s revenue receipts stood at Rs 7.29 lakh crore in
the seven months ended October, or 48.1% of the budget estimate
of Rs 15.15 lakh crore for the year, according to the data. The
ap
receipts, comprising taxes and other items, were at 50.7% of the
target in the year-ago period.
Capital expenditure during April-October was 52.6 % of the
budget estimate compared with 50.7% a year earlier.
Revenue expenditure, including interest payment, was 61.5 %
Kn
of the budget estimate compared with 59.2 % a year earlier.

Economists expect lower tax revenue to be matched by non-tax
revenue.
“Inching up of the government of India’s fiscal deficit… highlights
the lingering concerns related to the possibility of a fiscal slippage
in the current year…”
“The risk of a slippage relative to the fiscal deficit target for FY
2018 stems primarily from the growing likelihood that tax and
non-tax revenues would undershoot the budgeted level, whereas

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concerns regarding the magnitude of disinvestment inflows have

ebbed,” said Aditi Nayar, principal economist at ICRA.
Economists pointed out that non-tax revenue in the April-October
period has contributed to some extent to a higher fiscal deficit.
“April-October fiscal deficit has been impacted by below-par
performance of non-tax revenue. It declined by 43.4% from the
April-October 2016 figure. This decline is mainly due to low
surplus transferred by the RBI,” said Devendra Kumar Pant, chief
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economist at India Ratings & Research.
Pant said encouraging disinvestment receipts would help the
government move closer to the 3.2% fiscal deficit target in FY18.
pi Note:
Capital expenses are for the acquisition of long-term assets, such
as facilities or manufacturing equipment. Revenue expenses are
shorter-term expenses required to meet the ongoing operational
ap
costs of running an entity, and thus are essentially the same as
operating expenses. In India’s context, one shouldn’t mind capital
expenses (e.g. in building infrastructure) because they would
generate future returns. An increase in revenue expenditure
(e.g. maintenance and salaries) is a cause for concern because it
Kn
wouldn’t generate future returns.

Non-Tax Revenue is the recurring income earned by the
government from sources other than taxes. The most important
receipts under this head are interest receipts (received on loans
given by the government to states, railways and others) and
dividends and profits received from public sector companies.
Various services provided by the government - police and defence,
social and community services such as medical services, and
economic services such as power and railways - also yield revenue

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for the government. Though the Railways are a separate

department, all their receipts and expenditure are routed through
the Consolidated Fund of India.
Where do the industry
concerns lie?
While the rebound in GDP
growth in the second quarter
can act as a ‘confidence
ly
booster’ for the economy, the
slowdown in the services sector, including finance, transport and
hotels, as well as in agriculture is a cause for real concern,
pi according to industry bodies and consultants.

Services
Possible causes for the slowdown in services include the larger
working capital requirements faced by the services sector
ap
(especially export-oriented ones) and teething process issues post-
GST implementation.
Whether the 3 percentage point increase in tax rate on services
— from an effective 15% pre-GST to 18% under GST — is
causing some demand side impact, also needs to be examined.
Kn
Agriculture
Industry body ASSOCHAM Secretary General D.S. Rawat said,
“… agriculture remains an area of concern with a mere 1.7% in
the second quarter against 2.3% in the previous quarter. Setbacks
in the agri performance can have a cascading impact on
consumer inflation.”
Aditi Nayar, principal economist at ICRA, said a back-ended pick-
up in spending by states and a favourable base effect could
contribute to higher growth in gross value added in the second half

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of this fiscal than the first half. “ However, the unfavourable

advance estimates of kharif output of most crops, as well as the
impact of higher fuel prices on earnings, are likely to reverse the
improvement in GVA growth in Q3 FY2018 ,” she said.
Who will determine how India grows
from here?
While a withering of the unfavourable
base effect will aid the GDP growth in
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the second half of 2017-18 — most
analysts now peg the annual expansion
in the range of 6.3-6.5% — key questions are how fast exporters can
pi add value to the economy by exploiting the world economy that is on

an upward trajectory and whether public spending can give the
economy solid support during the period.
Analysts said the pick-up in manufacturing in Q2, which was hit by
ap
pre-GST stock clearance in Q1, signals bright export prospects in
the coming quarters.
The farm sector will continue to be a drag on the overall growth
this fiscal, thanks to lingering disadvantage from an unfavourable
base following a record harvest last year.
Kn
Analysts pointed out that the latest growth figure is in line with the
Reserve Bank of India’s recent assessment and shouldn’t move the
needle on interest rates.
“We expect RBI to remain on pause in December and February,
given upside risks to inflation as well as the fiscal deficit,
exacerbated by rising oil prices and a gradually tightening global
rates environment,” Sumedh Deorukhkar, senior economist at
BBVA, Hong Kong, wrote.
Some analysts expect the upcoming monetary policy commentary

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to be more hawkish (that is, it may hint at increasing interest rates

in the coming months to act on inflation).
Hailing the GDP growth in Q2, NITI Aayog CEO Amitabh Kant
said that investments in private sector will fuel growth in the
country in the coming months.
He said that it is important to push forward the government’s
reforms and the country will go on high trajectory growth rate.
“I think private sector investment will return in the next 4-5 months
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and that will take the country forward,” Kant told ANI.
Kant further said that there has been a major push in construction,
mining and electricity sectors, adding that it is necessary to take the
pi growth to 9-10 percent in the next decade for which the

government has introduced a lot of structural reforms.
Note: Base effect implies that for a fixed increase in numbers, the
percentage increase depends on the denominator (the base) of the last
ap
year. For example, if the GDP is already high, the same increase in
GDP the next year (as in the previous year) will yield a smaller
percentage growth. (say 10/100 & then 10/110). Unfavorable base
effect implies that since India was already experiencing high growth
rates till a year ago, the growth in the current fiscal (till this quarter)
Kn
looked smaller in percentage terms. Base effects are usually discussed

in the context of inflation.
How did the experts respond to
these numbers?
Reacting to the numbers,
Finance Minister Arun Jaitley
declared that “the impact of
demonetisation and GST is
behind us.”

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“The most significant aspect is the fact that this quarter’s positive
result has been impacted significantly by the growth in
manufacturing…fixed capital formation is up to 4.7 (per cent),
which actually means that the investment is moving upwards.
Hopefully, we should go back to higher growth rates in coming
quarters,” he said.
He added, “If you look at the overall picture since May 2014, of the
13 quarters, we have clocked upwards of 7 per cent eight times, we
ly
have fallen below 6 per cent only once and that was last quarter.
Therefore, if you, at all, compare this to any previous figure
preceding that, this looks entirely different. But I think the fact that
it marks a reversal, it’s enabled essentially by manufacturing and
pi that investment has moved up…— are some of the significant

features as far as growth is concerned.”
Chief Statistician Anant said that manufacturing growth gained
ap
support from a pickup in production after the GST rollout.
“Anticipation of GST meant people were delaying production for
the festive season until the GST got launched. It’s possible that
anticipating the need for the festive season, most production
actually went into a still and inventory restocking may happen
Kn
later. My reading of the corporate data suggests that this is

principally for consumption and sales, inventory accumulation
effects may persist in the third quarter as well,” Anant said.
Congress leader and former Finance Minister P Chidambaram said,
“ This a pause in the declining trend of the last five quarters. But we
cannot say now whether this will mark an upward trend in the
growth rate. We should wait for the growth rates over the next 3-4
quarters before we can reach a definite conclusion. 6.3 per cent is far
below the promise of the Modi government and far below the potential
of a well-managed Indian economy.”

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Industry players said that the growth figures reflect restocking

(building up of inventories) by companies and indicate economic
recovery.
Chandrajit Banerjee, Director General, CII said: “What is
encouraging is that manufacturing has emerged as a key driver of
growth indicating that firms have started restocking and recovery
is taking shape. Going forward, economic performance would be
better in the second half as companies move to execute projects
ly
on the back of improved demand.”
FICCI President Pankaj Patel said, “After the massive destocking
undertaken by companies before implementation of GST,
pi production lines are once again coming back on track.”

Analysts also reacted positively to the news.
Vaibhav Agrawal, head of research and ARQ at Angel Broking,
stated the economy is coming back to the growth path. FY18 GDP
ap
growth is likely to be around 7 per cent, he added.
According to CRISIL, the pick-up signals fading impact of
demonetisation and destocking (reduction in inventories) ahead
of the implementation of GST.
However, Suresh Babu, associate professor of economics at Indian
Kn
Institute of Technology, Madras, said it’s too early to rejoice,

pointing out that quarterly blips in numbers are not uncommon.
—– | —–

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INDIAN ECONOMY / GST: Day One
1-Jul-2017
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pi Prime Minister Narendra Modi on Friday midnight launched the Goods
and Services Tax (GST), India’s biggest tax reform in its 70-year
history, as businesses and citizens across the country steeled
ap
themselves for the economic turmoil that’s expected to follow.
Knappily analyses the potential impact and the teething troubles of the
reform that the Prime Minister described as a “Good and Simple Tax”
that would ultimately benefit the people.
What were the highlights of the
Kn
GST launch session of the

Parliament?
At a midnight ceremony in
parliament’s central hall Modi
and President Pranab Mukherjee
together launched the Goods and Services Tax (GST), the biggest tax
reform in India in the 70 years since independence, by pressing a
button.
The Goods and Services Tax (GST) replaces more than a dozen

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federal and state levies and unifying a $2 trillion economy and 1.3
billion people into one of the world’s biggest common markets.
“With GST, the dream of ‘One India, Great India’ will come true,”
Modi said.
He said that the new GST regime is a ‘Good and Simple Tax’ and
its introduction is not just a tax or economic reform but a social
reform that will nudge people to take the path to honesty and
benefit the poor the most.
ly
Modi said the practice of giving out kachcha (informal) bills would
become history as the GST presented an opportunity to stop black
money and corruption, and give people a chance to do honest
business.
pi The GST, he said, was a simpler, modern and more transparent

taxation system that would do away with 500 different taxes levied
across the country’s 29 States and seven Union Territories.
It would end the spectre of tax terrorism and ‘’inspector raj’’
ap
that India’s businesses have had to endure for long. This, he
said, would be an outcome of the technological backing for the
GST implementation, which would do away with grey areas and
the resultant discretion the bureaucracy enjoyed over tax payers.
Just as Sardar Patel had ensured political integration of the country,
Kn
GST would ensure economic integration, Modi said.

President Mukherjee, who as Finance Minister introduced the
Constitutional Amendment Bill for enabling GST in 2011, said the
tax was “no doubt a disruptive change,” but was similar to the
introduction of the VAT (value-added tax) regime, which met
resistance initially.
“There will be teething troubles, which we have to solve swiftly so
that it doesn’t impact the growth of the economy. The GST Council,
the Centre and the States should continuously improve and refine

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the GST in the same spirit that we have seen till now,” he said.
Outlining the benefits of the new GST system, Finance Minister
Arun Jaitley said in his address that the new system has been framed
with the objective of maintaining the principle of equivalence,
revenue neutrality and ensuring that no unnecessary burden is
imposed on the weaker sections of society.
Besides reducing the cascading of taxes, the GST system will
ensure set-off of taxes paid on inputs against the taxes payable on
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output (popularly referred as input tax credit).
Jaitley said the GST system will put a lid on price rise, tax
avoidance will become difficult, it will eliminate delays at state
pi border crossings and give a boost to the country’s GDP.

The significant benefit of GST can be gauged from the fact that as
many as 17 transaction taxes at the level of the Centre and
states put together and 23 cesses have been done away with and
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replaced by just one tax (GST), Jaitley said.
For the first midnight ceremony in the central hall in two decades,
Modi was joined by his cabinet colleagues, India’s central bank chief,
a former prime minister and major company executives including
Ratan Tata. The measure is expected to make it easier to do business
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by simplifying the tax structure and ensuring greater compliance,

boosting Prime Minister Narendra Modi’s economic credentials before
a planned re-election bid in 2019.
What was the reaction of the opposition parties on the launch
event?
Giving a miss to the ceremony and keeping up its attack on the
government on the GST issue, the Congress dubbed its midnight
launch as a “tamasha” (gimmick) saying it was being rushed in a
“half-baked” manner as a “self-promotional spectacle”. While

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Mamata Banerjee feared it would bring back the dreaded “Inspector

Raj”.
Parties like the NCP, the JD-U and the JD-S have broken ranks
with the opposition and would attend the event, which is being
boycotted by the Congress, the TMC, the RJD, the DMK and the
Left parties.
Congress vice president Rahul Gandhi hit out at the government,
accusing it of being insensitive in rolling out GST without
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planning, foresight and institutional readiness, as it did during
demonetisation. “India deserves a GST rollout that does not put
crores of its ordinary citizens, small businesses and traders
pi through tremendous pain and anxiety,” he added.

Anand Sharma said the party is mindful of the sanctity of
Parliament. “We cannot trivialise midnight sessions. The glorious
tradition, history, the freedom struggle and nation’s Independence
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should not be mixed up with festivities for the imposition of a
taxation proposal,” said Sharma. Sharma also said the Centre
should do its home work and listen to the states.
Just days after a lunch hosted by Congress president Sonia Gandhi to
consolidate the opposition ranks, their presence at an event that had
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been boycotted by several opposition parties led by the Congress laid

bare the cracks. Bihar Chief Minister Nitish Kumar had been the only
one to skip the lunch where 17 parties decided to field a common
presidential candidate against the ruling NDA nominee for the July 17
presidential election.
Why are the next few days expected to be chaotic?
Chief Economic Adviser Arvind Subramanian exuded confidence
of resolving teething problems of GST implementation in one-two
months.“There will be some hurdles initially. But we will be able to

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remove them in 1-2 months,”

Subramanian told media after
attending the GST rollout
ceremony held in Parliament.
Supporters of GST think it’s
going to be chaotic in the
short-term, despite a two-month relaxation in initial filing
requirements.
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“There will be disruption,” said Rajeev Chandrasekhar, an investor
and upper house lawmaker who is part of Modi’s ruling coalition
and sat on a parliamentary committee on GST. “There will be
pi plenty of hiccups - part technology, part administration.”

Businesses are confused by a complicated structure, which
includes four tax slabs ranging from 5 percent to 28 percent and
numerous exemptions.
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It’s also not clear what sort of damage the nationwide rollout will
inflict on the country’s fast-growing, $2 trillion economy before
the long-term benefits kick in.
“We are not ready,” said K.E. Raghunathan, a Chennai-based
business owner and president of the All India Manufacturers
Association. “We do expect tremendous chaos.”
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Protests and industrial strikes broke out across the country as the
deadline approached. In the states of Tamil Nadu, Gujarat and
Rajasthan, tens of thousands of textile workers went on strike, while
the association that represents sellers of seeds, pesticides and fertilizers
protested in the agricultural state of Punjab.
Just hours before the launch, the tax rate on fertilizer was
reduced to 5 percent from 12 percent and tractor components
were cut to 18 percent from 28 percent, a government official
told reporters in New Delhi, asking not to be identified citing rules.

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Some large companies have assigned staff full-time to the

transition, while others worry their thousands of small-time
suppliers will find it difficult – if not impossible – to register online
and comply with filing requirements.
Everyone from businesses to the central bank is watching for
the first signs of stress as the tax ripples through India’s largely
informal economy.
The tax will boost the country’s fiscal health in the medium-to-long
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term, according to Eurasia Group analysts Shailesh Kumar and Sasha
Riser-Kositsky.
“Given that literacy and digital knowledge in India varies, proper
pi compliance with the registration and filing process is

challenging,” Kumar and Riser-Kositsky wrote. Businesses “may
temporarily cease to do business with errant filers, disrupting
supply chains and the availability of goods, and fueling near-term
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inflation.”
For larger companies, compliance has meant organizing
training seminars for suppliers and vendors and assembling
dedicated GST teams. Aditya Gupta, head of business
development for logistics firm Drive India Enterprise Solutions
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Ltd., said the firm has assigned four executives to work full-time
on the new tax - and that doesn’t even include international tax
consultants.
“An entrepreneur, instead of running a business is now running
after auditors,” said Raghunathan, president of the manufacturers
association who lobbied to have the GST roll out delayed. He said
chartered accountants across the country are charging as much as
15,000 rupees ($232) to help register small businesses with the
GST’s free online portal.
When did India take up mission GST?

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France was the world’s first country

to implement GST Law in the year
1954. Since then, 159 other countries
have adopted the GST Law in some
form or other.
In many countries, VAT is the
substitute for GST, but unlike the Indian VAT system, these
countries have a single VAT tax which fulfills the same purpose as
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GST.
It has been a 17-year-long journey for the GST, the consultations
for which started in 2000.
pi GST Timeline
2000: On the advice by economic advisory panel of three former
RBI Governors IS Patel, Bimal Jalan and C Rangarajan, Prime
Minister Atal Bihari Vajpayee sets up a committee headed by
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then finance minister of West Bengal Asim Dasgupta to design
a GST model. The committee is also tasked with the responsibility
of putting in place the back-end technology and logistics for
implementing a uniform taxation regime in India.
2003: Vajpayee forms a task force under Vijay Kelkar to
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recommend tax reforms.

2005: Kelkar committee recommends rolling out of GST as
suggested by 12th Finance Commission. Finance Minister P
Chidambaram talks about GST in Union Budget.
2006: Chidambaram sets April 1, 2010 as deadline for GST
implementation.
2009: Finance Minister Pranab Mukherjee, now President,
announces basic structure of GST as designed by Dasgupta
committee. Mukherjee retains 2010 deadline.
BJP opposes GST basic structure.

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2010: Finance Ministry starts mission-mode computerisation of

commercial taxes in states, to lay the foundation for GST rollout.
Dasgupta says in an interview that his committee has completed
80% of GST work by then.
2011: UPA tables Constitution Amendment Bill in the Lok
Sabha for GST.
GST Bill sent to Parliamentary Standing Committee led by
Yashwant Sinha.
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Asim Dasgupta resigns, replaced Sushil Kumar Modi of Bihar and
later by then Kerala Finance Minister KM Mani.
2012: Chidambaram holds meetings with state finance
ministers. Sets December 31, 2012 as deadline for GST rollout.
pi 2013: In Budget speech, Chidambaram says government has set

aside Rs. 9000 crore to compensate states for losses incurred
because of GST.
Parliamentary Standing Committee submits its report on GST.
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GST Bill gets ready for introduction in Parliament.
2013: Then Gujarat CM Narendra Modi opposes GST Bill. He
claims the state would incur losses worth Rs. 14,000 cr every year
due to GST.
2014: GST Bill cleared by Standing Committee lapses as new
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government comes to power.

December 2014: Finance Minister Arun Jaitley introduces GST
Bill in Lok Sabha. Congress objects.
February 2015: Jaitley sets April 1, 2016 deadline for GST
rollout.
May 2015: Lok Sabha passes GST Constitutional Amendment Bill.
Congress demands the Bill be sent to Select Committee of Rajya
Sabha.
August 2016: Congress, BJP agree to pass the Constitution
Amendment Bill.

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September 2016: 18 states ratify GST Bill within 15-20 days.

President Pranab Mukherjee gives assent to the Bill.
Mukherjee forms GST Council to frame separate GST Bills.
January 2017: Jaitley announces July 1, 2017 as GST rollout
deadline.
March 2017: Four Key GST Bills — Central GST (CGST),
Integrated GST (IGST), State GST (SGST) and Union
Territory GST (UTGST) — passed by Lok Sabha and Rajya
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Sabha.
May 2017: GST Council unveils four slab-rates for GST
regimes. Rates fixed at 5, 12, 18 and 28%. Over 80% of goods of
mass consumption either exempted or taxed under 5% slab.
pi June 28, 2017: Mamata Banerjee announces her party’s decision to

skip midnight launch of GST during a joint parliamentary session.
June 29, 2017: Congress, Left too decide to skip launch.
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June 30, 2017 Midnight: GST all set for rollout.
Where do the possible
challenges lie in the adaptation
of GST?
Domestic stock markets have
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come off recent highs in the run-

up to the GST amid some
cautiousness over its implementation.
In the near term, the markets are looking at the implementation of
GST, says Dhiraj Relli of HDFC Securities, which sees Nifty
hitting new highs of 10,300-10,400 this fiscal year.
Analysts say that markets will need some time to adjust to the
GST implementation process, which could partially hurt
corporate earnings in the short term but will boost earnings

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over the long term.

“Theimpact of GST on service sector in the short term could be
inflationary as the tax rate would immediately shoot up to 18 per
cent. However, going forward, it is expected that due to reduced
cost because of availability of GST credit on items hitherto not
available, the price of services will come down which will benefit
the consumers,” said Sandeep Sehgal, director-tax and regulatory
at Ashok Maheshwary & Associates LLP.
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The possible challenges and short-term glitches that businesses and
the economy will face as GST becomes a reality.
Transition from old to the new system
pi According to DK Srivastava, Chief Policy Advisor at EY India,

traders and business owners will face issues on claiming input
tax credit that has been paid under the old regime, in cases
where goods have not been sold off. Additionally, earlier, certain
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goods and services were categorised under a different tax bracket.
“With a multiple rate system, classification of goods and services
can cause temporary confusion,” Srivastava tells FE Online.
Process of filing returns
Priyajit Ghosh, Partner, Indirect Tax at KPMG in India elaborates
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on the challenges. “Where the turnover is less than Rs 75 lakhs,

such businesses have the option to pay tax under a simplified
scheme (called composition) and have to submit a simplified
quarterly return besides an annual return. However, they have to
generate invoices with requisite particulars and many of them may
not be in a position to comply with this requirement.” According to
Ghosh, with electronic filing on the GST portal (GSTN) being the
only option, suppliers will face a big challenge.
Additionally, for suppliers with turnover of over Rs 75 lakh, at

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least 37 returns will have to be filed. “First return of sales by the

10th of the next month, second return a prefilled one that is to be
validated by 15th, final one by 20th and finally an annual one. The
time gap of five days is likely to pose a challenge for a couple of
months before they setup infrastructure for timely filing. Besides
the return, such suppliers would be required to submit an annual
audit report,” Ghosh explains.
Ghosh also foresees challenges in uploading invoice level details
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at the GSTN . “The challenge would also be around uploading
invoice level details at the GSTN for all supplies made to the
businesses, larger grocers selling to the smaller ones. Further, the
online matching of credit, which is similar to the income tax
pi deducted at source (26AS) in concept is likely to result into a

reconciliation exercise unfamiliar to most of the taxpayers,” he
says, adding that for all the pain, the long term impact would be
beneficial for the economy as a whole.
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The grocery shop owners and small service providers would
need guidance to understand and comply with the law on an
immediate basis. Even it if requires the help of the private players,
the government could set up facilitation centres in each
municipality to address queries and help service providers with
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their return filings.

Administration-related issues
Dr Arun Singh, Lead Economist at Dun & Bradstreet India is of the
view that SMEs will face the maximum confusion over the new
tax. Acknowledging that GST is a good reform that will have a
transformational impact on the country’s growth, Singh tells FE
Online, “It’s a new system and small businesses will face initial
glitches, especially with regards to registration under GST.”
Agrees DK Srivastava of EY India, who says, “There are

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administration related issues such asregistration formalities for

the existing dealers particularly service providers and some
dealers whose supplies are in more than one state.”
Price-impact related issues
From a consumption and production perspective, DK Srivastava
sees a setback for the next two quarters. “The relative price of
goods and services is changing and both consumers and producers
are likely to hold back till more clarity sets in. This would impact
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the demand in the economy and hence the GDP growth for a short
term period,” Srivastava feels.
The small scale hosiery industry is worried over the hard days
pi after the Goods and Service Tax (GST) would be imposed.

Value Added Tax (VAT) imposed on branded goods is 6 per cent,
while GST on branded goods will be 18 per cent.
Increase in tax would lead to increase in input cost and hence
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would be passed on to customers in the form of high price of
products, feel traders.
Besides, compliance would increase as they would be required to
fill three returns every month and hence 36 returns in 12 months,
while till now they were filing only quarterly returns.
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Revenue generation related issues

Most studies believe that with the final GST rates, the
government may end up losing out on some revenue, says EY
India’s Srivastava. “The rates of goods and services have been
decided and any revision would have to go through the GST
Council. If the government realises that it is losing some revenue
once GST fully comes in, it may tinker non-GST rates. If not that, it
may be forced to reduce expenditure, which in turn would impact
GDP growth adversely in the short-run,” he says.

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The efficacy of GST, at least in the short to medium run, could

depend upon how effectively the last leg in the supply chain, the
traders and small service providers are on boarded to help ensure
the benefits of GST reaches the masses.
Who should get the credit?
Former Prime Minister
Manmohan Singh, arguably the
man who contributed most to the
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ushering in of the goods and
services tax (GST) didn’t attend
the GST launch owning to the Congress Boycott of the midnight
pi ceremony. Jaitley recalled the contribution of some of his

predecessors, including Yashwant Sinha and Mukherjee, former state
finance ministers Asim Dasgupta and K M Mani, both of whom were
present in the Parliamentary hall, and also Amit Mitra, who was absent
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since his party, the Trinamool Congress, also boycotted the function.
It took collective economic brilliance and acute political acumen to
bring about this fundamental change in tax regime in the country.
Atal Bihari Vajpayee
It was during a meeting between the then Prime Minister Atal
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Bihari Vajpayee and his advisors, including three former RBI

governors IG Patel, Bimal Jalan and C Rangarajan that the
GST was proposed. The idea of uniform tax throughout the
country was discussed at length and approved of.
Convinced with the idea of GST, Atal Bihari Vajpayee government
set up a committee in 2000 headed by CPM leader and the then
finance minister of West Bengal Asim Dasgupta to design a
GST model. Vajpayee personally spoke to the then West Bengal
Chief Minister Jyoti Basu requesting him to spare his finance

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minister for the job.

Asim Dasgupta - The Real Architect
Asim Dasgupta is considered as one of the finest economists in the
country. He is an expert with handling financial statistics. His merit
was acknowledged by two successive prime ministers - Atal Bihari
Vajpayee and Manmohan Singh.
When UPA-I came to power and Manmohan Singh replaced Atal
Bihair Vajpayee as Prime Minister, he refused to remove Asim
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Dasgupta as the head of GST committee.
Manmohan Singh - an economist himself - admitted that Dasgupta
was heading one of the best ever reform processes in the country.
pi After working on a GST model for about seven years,

Dasgupta headed another committee - formed by the then
Prime Minister Manmohan Singh - to structure the GST bills.
Dasgupta held detailed discussions with the industry players, state
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governments and financial institutions to factor in viewpoints of all
concerned.
By the time Asim Dasgupta resigned as the head of the GST
committee, - after the TMC of Mamata Banerjee brought a nearly
four-decade Left rule in West Bengal to an end in 2011 - 80 per
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cent, by his own admission, of the job had been done.

His imprint on the GST is most visible today.
KM Mani
KM Mani, the then finance minister of Kerala, succeeded Asim
Dasgupta in 2011. He continued the work left by Dasgupta.
Mani worked on finalising the GST bills. Mani consulted all the
concerned players to finish the remaining work.
Mani tried to allay fears among states that the GST would end their
financial autonomy and hamper their tax collections. Mani also

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interacted with traders’ bodies to convince them that the GST

would make trading easier in the country.
But, Mani was not the man to finish the GST job. He had to quit
after he was embroiled in a corruption scandal in 2015 but before
that he had addressed several business bodies evolving consensus
among stakeholders.
At one such meeting in June 2015, Mani told the Kerala Chamber
of Commerce and Industry that globalisation was transforming the
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world into a single market, while India was still not a unified entity
for business. The GST would lead to a free trade inside the country,
Mani argued.
pi Amit Mitra
After KM Mani resigned as the head of GST committee, Union
Finance Minister Arun Jaitley turned to West Bengal. Another
Bengal finance minster Amit Mitra was made head of the GST
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committee.
Mitra is an economist and before becoming the finance minister of
West Bengal, he was the secretary general of the Federation of
Indian Chambers of Commerce and Industry (FICCI).
It is to Amit Mitra’s credit that the state governments came on
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the same page for rolling out the GST. Amit Mitra held a series
of meetings with the state finance ministers convincing them about
the benefits of the GST and how the interests of the states are
protected under the new tax regime.
However, as the central government started pushing for July
implementation of the GST, Mitra developed reservations and
advocated more calibrated approach while implementing the
biggest tax reform. He maintains that the GST in its current form is
not acceptable to him. It may be the biggest irony of the GST that
the person who brought most of the states on-board, stays away

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from it now.
P Chidambaram
Based on the recommendations of the 12th Finance
Commission, the then Finance Minister P Chidambaram
committed in 2005 to rolling out GST.
In February, 2006, Chidambaram set April 1, 2010 as the deadline
for introducing GST. Chidambaram retained the April 2010
deadline for implementing the GST in his successive Budget
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speeches.
Chidambaram was replaced by Pranab Mukherjee as finance
minister and approved of the GST structure designed by Asim
pi Dasgupta committee. But, then politics kept GST hanging fire for
rest of the UPA-II regime.
Arun Jaitley
After Narendra Modi government was formed at the Centre,
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Finance Minister Arun Jaitley pushed GST implementation. In
February, 2015, Jaitley set April 2016 as deadline for rolling out
GST. It was later changed to July 1, 2017.
Jailtey ensured that all the four GST Bills are passed by Parliament
by August, 2016. Jaitely held a series of meetings with the states
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convincing them to pass the requisite State GST Bill by respective

Assemblies.
Jaitley further chaired various meetings finalising GST rates for all
the goods and services covered under the new tax regime. Jaitley’s
efforts made sure that the journey that began 17 years ago ended at
the right destination.
How will the GST impact you?
GST appears to be a mixed bag with certain necessities getting
cheaper, while the others are likely to disturb household budgets by

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getting more expensive.

Things that may become cheaper:
Fans, air coolers, lighting, water
heaters, computer monitors, printers
and other entry-level electronic items
FMCG goods such as soaps, hair
oil, toothpastes, over-the-counter drugs etc
Pharma products, Insulin
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Processed food items, Biscuits
Ready-made clothes, including branded apparel ( up to Rs 1,000)
Footwear (those priced below Rs 500 will attract 5 % and those
pi priced above Rs 500 will be taxed at 18 %)

Movie tickets priced up to ₹100 (will be taxed at 18%)
Two-wheelers
Cement, paint and other construction material
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Solar panels, Point of Sale (PoS) machines and fingerprint
scanners
Economy class airfares
Budget hotels and restaurants (Currently, 22 % is levied on hotels
and restaurants)
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Cab rides (Currently, the effective rate of service tax is 6 % which

will get reduced to 5 %)
Kerosene, coal, domestic LPG
SUVs and luxury cars (Currently, they attract an overall incidence
of above 50 %, which would come down to 43 %)
For manufactured consumer goods, the current tax regime means
the consumer pays approximately 24%-26% more than the cost of
production due to VAT (value added tax) and excise duty. So with the
GST rate expected to be 18% for most goods, they are expected to
become cheaper.

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Things that may become costlier:

High-end hotels with Rs 5,000 plus tariff and restaurants that serve
liquor
Appliances like air conditioners, television, fridge, vacuum cleaner,
dishwasher and washing machines
Mobile bills and internet packs
Jewellery and high-end accessories
Rail transportation, air travel and rent-a-cab services
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DTH, Wi-Fi, cable TV and courier services
Small and mid-sized cars (diesel as well as petrol)
Tobacco/Cigarettes, Pan Masala, Aerated drinks
pi Luxury personal care products like deodorants, perfumes,

shampoos, shaving creams, hair dyes
Insurance premiums, banking charges and school fees
Online Shopping (however, this is expected to be balanced by
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lower costs of logistics and smoother inter-state transport because
of a uniform tax rate)
Movie tickets priced ₹100 or more (will be taxed at 28%)
Gold and gold jewellery (will increase to 3 % tax rate. Currently,
most states levy 1 % VAT on gold (except in Kerala, where VAT is
5 % ) and the central government imposes 1 % excise duty on it.
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The effective service tax rate at present is 15% and it applies to

almost all services (except essential ones such as ambulance services,
cultural activities, sports events and certain pilgrimages). Under GST,
this rate will increase to 18% making services by and large more
expensive.
Also, luxury goods and services have been pegged at higher rate (along
with an additional cess), with the rationale being that those who can
afford luxury can afford taxes too.

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—– | —–
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pi
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INDIAN ECONOMY / GST suffering from

backbone pain
18-Sep-2017
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pi A panel of ministers, set up to look into the technical difficulties faced
by the Goods and Service Tax Network (GSTN), has admitted that
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glitches have delayed payments under GST. Administered by Infosys,
the GST portal is the world's largest network, on which 22 crore
invoices were filed over the last two months. However, the tech
glitches of GSTN – the ‘backbone of GST’ - threaten to delay the
progress of GST reforms.
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What has the panel of ministers

admitted?
Technical glitches and procedural
problems galore on the GST Network
(GSTN) have delayed payments and filing
of returns under the new Goods and
Services Tax (GST) regime, a Group of Ministers (GoM) admitted.
The five-member GoM, which held its first meeting in Bangalore,
was set up on September 12 to look into the technical issues faced

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by the GST Network and address them in consultation with all

stakeholders and its vendor, Infosys Ltd.
The decision to form the GoM was taken at the last meeting of the
GST Council in Hyderabad on September 9 after several member
states complained to Union Finance Minister Arun Jaitley, who
heads the Council, that the glitches were causing problems for
taxpayers in filing returns and making payments.
“Technical glitches, procedural problems and absence of some
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forms on the network portal are causing delays in making
payments and filing of returns by traders and dealers under the
new GST regime,” said Bihar Deputy Chief Minister Sushil Kumar
Modi, who is the GoM's convener.
pi “As the new tax regime is being implemented only since July 1,
with filings, posting invoices, making payments and returns entirely
online through the GST Network (GSTN), there are bound to be
glitches in the initial days, which we are trying to address them on
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fast track,” said Modi after chairing the GoM's first meeting.
“Over the last two months, 23,18,000 new traders have registered
for the GST, with 11 lakh dealers under the composition scheme,
taking the total number to over 85 lakh, including 62.25 lakh
traders who migrated from the old VAT and service tax regime,”
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disclosed Modi.
Under the composition scheme, traders or dealers with less than
Rs 75-lakh annual turnover have to file their quarterly returns
though they will not tax their consumers. “Though 47 lakh
traders have filed summary returns under the GSTR3B for July,
only 3.05-lakh of them have filed for August so far while the
deadline is September 20,” Modi added.
The glitches in the network will also impact filing the returns, as
the GST portal will not be able to cope with the load on the system
if traders rush to file at the last minute.

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“The GST portal is by far the world's largest network, on which 22

crore invoices were filed over the last two months from across the
country,” Modi reminded.
Meanwhile, a committee headed by the revenue secretary will meet on
Tuesday to take up the issue of the “inordinate delay in GST refund to
exporters” and the consequent blocking of working capital that is
severely affecting exporters' liquidity and adding to their tax
burden.
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Meanwhile…
Returns for July 2017 can now be filed by October 10, 2017
(GSTR-1), October 31, 2017 (GSTR-2) and November 10, 2017
pi (GSTR-3) with different dates prescribed for other returns.

To start with, it is a genuine breather unlike the 5-10 days’
extensions given earlier. This will help GSTN resolve some of the
general technological glitches, which they are currently facing.
ap
It will also help them address specific technological issues faced by
taxpayers.
However, this extension effectively means that the refunds for
July will only be available in the third week of November at the
earliest. Similarly, export refunds for August will be pushed back
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to December and this is expected to have a cascading impact on the

September refunds.
Note: GSTR-1 contains details of all sales, GSTR-2 has the details of
purchases and GSTR-3 contains the monthly summary of sales and
purchases along with the tax liability.
Why is the delay not surprising?
Two-and-a-half months after its mega launch, the country’s most
cherished tax reform Goods and Services Tax (GST) has hit the wall.
With a lethal combination of a complex and ambiguous set of rules

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and somewhat broken GST Network,

the GST has turned into an awful
experience for Indian businesses.
GST authorities are also finding it
difficult to implement it with a
plethora of structural and compliance
glitches already built in. The warning signals of a potential GST
breakdown had surfaced right before the nation's midnight “tryst
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with GST destiny” in the last week of June. While the government
kept itself occupied with organising the grand spectacle of GST
launch, businesses struggled with the irksome GST network for
pi getting themselves registered under the new tax regime.

The politicos left over 85 lakhs Indian businesses to practice the
Infinite Monkey Theorem (randomly striking keys of a computer
keyboard to produce a desired result eventually) under their
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infuriating GST IT network and often-changing rules. By mid-
August, with the extension of GST return filing dates, it had
become clear that the high-profile GSTN has let down India's most
prized tax reform. However, it was the 21st meeting of the GST
Council in Hyderabad last week where the skeletons tumbled out of
the cupboard. The revenue-anxious states pulled up the GST
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implementation committee on the failure of GSTN and

reportedly demanded a white paper on the GST mess.
Driven by the concerns over rising anger among the traders and
a political backlash, the GST council constituted in no time a
ministerial committee (headed by Bihar deputy CM Sushil Modi)
to scrutinize the functioning of the GSTN.
The GST, burdened with massive compliance prerequisites,
real-time invoice matching, e-way bills and input tax credit,
just can't work without an exceptionally robust IT network.

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The nation was misled repeatedly on the state of GSTN. In fact, the
final procedures of GST, approved only a week before its launch,
were loaded on a naive network without proper trials.
The dysfunctional GSTN has virtually put the GST in a standstill and
forced businesses to take recourse of informal channels of transactions,
that is, without proper billing.
To be fair to Infosys, that GSTN is facing starting hiccups is hardly
surprising. Any new IT system takes six to nine months of trouble-
ly
shooting to get most things right.
When do we see the damage from
this delay?
pi Continuing to press its demands for

relief under the GST regime, the
textile industry is now seeking
refund of the accumulated input tax
ap
credit at the fabric stage, citing cost escalation of the value chain.
Industry representatives have stated that delay in refund of
accumulated input tax credit could lead to increased import of
fabrics, resulting in job losses in the highly vulnerable sectors
like powerloom, handloom, and processing.
Kn
The textile industry fears costs could escalate by 3-5%, which

could further impact capacity utilisation. According to the newly
elected chairman of the Southern India Mills' Association (SIMA)
and managing director of KPR Group, P Nataraj, this percentage
share in cost escalation is proportionate to the range of
accumulation of input tax credit on the sales value, especially
for sectors like powerloom, handloom and processing.
In its recent representation, SIMA cautioned that there were few
major problems and ill-effects due to certain GST anomalies that

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need to be addressed “on a war footing” to bring all the

stakeholders of the textile industry under GST net and enable the
products to remain globally competitive.
SIMA and other textile bodies have appealed to the centre to
refund the accumulated input tax credit at the fabric stage that
had been singled out to avoid cost escalation. As per the industry,
apart from avoiding cost escalation, a timely refund could also
avert high imports of fabrics and fall in capacity utilisation
ly
which could result in job losses. For instance, the weaving
industry in Surat which houses 650,000 such powerlooms, saw
over 40 per cent shut since a month, thereby incurring a loss of
over Rs 1,200 crore so far.
pi The powerloom sector and independent weaving units that produce

over 95 per cent of the woven fabric is burdened with 18 per cent
GST on yarn, while the vertically integrated units do not have
such a problem as they need to pay 18 per cent GST for fibres and
ap
only 5 per cent GST on fabrics and the cost difference works out to
5 to 7 per cent.
Note:
Input credit means at the time of paying tax on output, you can reduce
Kn
the tax you have already paid on inputs. Say, you are a manufacturer –
Tax payable on output (FINAL PRODUCT) is Rs 550
Tax paid on input (PURCHASES) is Rs 350
You can claim INPUT CREDIT of Rs 350 and you only need to
deposit Rs 200 in taxes.
Where are the other issues?
The nagging GSTN is not the only villain in the GST story. The
frequent changes in tax rates have further thickened the plot.
On July 18, the cigarette stocks bore the brunt of the anomaly in

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GST rate fixation. The tax rate and

cess on cigarettes, fixed in May this
year, was lower than the pre-GST tax
incidence. This helped tobacco
companies to reap a windfall and also
pushed their shares sky-high.
After realizing the blunder, however, the GST Council hiked cess
on cigarettes, which led the ITC stock to lose over Rs 45,000 crore
ly
in market cap in just a single day. Cigarette was not the only case,
the GST council has revised the tax rates on over three-dozen
goods and services after GST launch.
pi Mid-course changes and rollbacks are only indicative of the lack of

groundwork and poor preparation on the part of GST council and rates
fitment committee.
Further complications
ap
With the delayed filing of returns, GST's so called infallible
compliance and anti-tax escape model stands derailed. It has
now become impossible for authorities to scrutinize the late
returns and check the veracity of tax credits claims.
Complex rules and troublesome GSTN has written an obituary of
Kn
ease of doing business.

GST's malfunction may take a heavy toll on the revenues of
Centre and states.
The extended GST transition will result in subdued economic
activity and slow GDP growth eventually.
The data requirements are exceptionally high and unrealistic
under GST. This has turned into a nightmare both for
businesses and the network. The government must drastically
scale down the unnecessary compliance requirements to make
GST workable.

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A host of processes mandated under GST, including the much-

hyped invoice matching, may have to go through a change or
postponement.
Who has begun an audit?
While a Group of Ministers met
on last week to address the
mounting complaints about
glitches in the GST Network,
ly
government auditors have begun
an audit of its technical capabilities to assess if it is ready to handle
the massive amounts of transactions.
pi The Comptroller and Auditor General (CAG) of India audit is

expected to look into a host of issues: bandwidth capabilities of the
network, robustness of the software, security aspects, and the
architecture of the entire system. Sources said the CAG had the
ap
professional competence to carry out such a technical audit. “If
necessary, experts from outside could also be roped in,” they said.
The CAG is empowered under the Constitution to audit
various aspects of the GST, and it would have a clear picture by
the end of the financial year after taxes are filed through the new
Kn
system. “That is when we would have a good idea of the GST’s

financial implications,” the sources said. “Teams have been
undergoing training for months now for auditing various aspects of
the GST,” they pointed out.
The network’s capability to tackle the estimated 300 crore invoices
a month is only one of the aspects of the GSTN that has left traders
worried.
Several traders and tax consultants have been complaining about
the cumbersome navigation and the extra work they have to do

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to meet with GST requirements.

Incidentally, in the run-up to the GST launch in July 2017, the
GSTN itself had approached the CAG for a technical audit
certification. However, it was pointed out that such an audit could
be done only after the network was up and running.
How will this be resolved?
More than 25 matters have been
identified that need to be resolved, and
ly
timelines have been set for each. “Overall
we are satisfied with the performance of
GSTN and Infosys is doing its best to
pi make it error free,” Sushil Modi was quoted as saying.

Declining to explain the glitches faced by dealers to comply with
the GST norms, Modi said the GoM had discussed the issues
with Infosys, Commercial Tax officials of the state and central
ap
governments and tax consultants and resolved to fix “about 80 per
cent of them” by October 30.
As each dealer had to register with PAN and Aadhaar numbers
and comply with the norms applicable to them under the GST
regime, they have been also facing procedural problems, as some
Kn
of the forms to be filled were not yet uploaded on the portal. “We
have taken up the issues raised by the stakeholders with the vendor
and instructed it to address each of them on priority to ensure
hassle-free filing of returns and payments by traders or dealers
from November 1,” added Modi.
The Group of Ministers working on resolving IT related issues
pertaining to GST have appealed to the taxpayers not to wait till
last date to file their returns.
Infosys, which is handling the GSTN, was represented at the meet.

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And, the government defended the IT major's role. Revenue

Secretary Hasmukh Adhia said, “Infosys has not failed. They have
been delivering very well. Hiccups will be there which need to be
sorted out.”
The team insisted the glitches were minor and included non-
availability of some forms online or difficulty for the user in
changing some fields.
The GoM will meet again soon - probably in Bengaluru again - as
ly
Infosys is headquartered in the city.
—– | —–
pi
ap
Kn

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INDIAN ECONOMY / Electrifying GST
15-Dec-2017
ly
pi The GST Council may soon bring in another change in the tax rate list
by including electricity, besides real estate and petroleum products,
under the unified tax ambit. While no clear timeline on when the final
ap
decision will be taken has been announced, the likelihood of fiscal
losses suggests GST revenues should stabilize by the end of this fiscal
year, making it the right time for action. Knappily analyses why GST
must be electrified.
What has been announced?

Kn
The GST Council in the coming months

would aim to bring electricity under the
GST ambit, Bihar Deputy Chief Minister
Sushil Modi said on 14 December. He
also said that the council would try to
reduce the number of GST slabs and bring other items like
petroleum and real estate as well under the GST ambit.
“Electricity, real estate, stamp duty and petroleum products should
become part of GST. This would be our endeavour,” the Bihar

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Deputy CM who also heads the Group of Ministers (GoM) set

up to look at the IT challenges being faced under the GST said,
addressing the FICCI Annual General Meeting (AGM).
He said it would be difficult to specify any timeline for this to
happen. Inclusion of these can happen without amending the
Constitution, he said.
If petroleum products are brought under the GST regime, he said,
it will attract the highest tax slab prevalent at that time and states
ly
have the liberty to levy cess on it in order to protect their revenues.
Currently, both the states and the Centre earn 40% of their revenue
from petroleum products.
pi He also hinted at the reduction of tax slabs going forward after tax
collection stabilises.
The current GST regime has five tax slabs — 0%, 5%, 12%, 18%
and 28%. An additional GST cess is also levied on certain
ap
products.
Though final decision would be taken by the Council, he said, “The
possible scenario could be that the current highest tax slab of 28%
could be brought down to 25% and two tax slabs of 12% and 18%
could be merged into one.”
Kn
Why is the taxation of electricity

complicated?
Currently, there is a bewildering
multiplicity of electricity taxes that
vary by states and across user
categories; low for consumers, high
for industrial users. Taxes levied by the states vary from 0 per cent
to 25 per cent.
Besides being a vote winner for governments, it is an important

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source of revenue for states, amounting to about Rs. 31,000 crore

for all the states combined.
On an average, electricity taxes account for about 3 per cent of
own tax revenues of the states, going up to close to 9 per cent in
some states.
Including electricity in GST would reduce or eliminate embedded
taxes in electricity-using products.
That means both the central and state governments would lose
ly
revenues that would now accrue as input tax credits to the private
sector.
In addition, state governments would lose taxes from electricity
pi use itself. So, there would be two sources of losses.

States are, therefore, reluctant to give up the right to levy these taxes.
When does exclusion of electricity from
GST seem anomalous?
ap
While scores of central and state taxes
have been done away to usher in GST —
so as to modernise the indirect tax regime,
end cascading taxes on inputs, with set-offs
provided for taxes already paid in the value chain — a sector as huge
Kn
as electricity has remained outside the GST regime for the foreseeable
future.
Such exclusion makes no sense. Electricity duty can be as high as
25-30% in a few states, but the average is about 8% levied on
consumers. The tax needs to be made amenable for input tax
credit, otherwise it effectively cascades economy-wide.
Keeping something as essential as electricity outside GST is
retrograde, inefficient and perversely denies input tax credits
in a vital sector that is undergoing path-breaking and

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transformative change.
The GST Act defines ‘work contracts’ as services. And the power
sector is essentially a mesh of contracts for engineering,
procurement, construction (EPC) to generate electricity, boost energy
efficiency and shore up renewable power.
Yet, input tax credit is not available on EPC contracts, with
electricity outside the GST regime.
Further, the Finance Act of 1994, in section 66D, lists
ly
transmission and distribution (T&D) of electricity in the
negative list of services. So, no input tax credit is possible for
T&D activity either.
pi Keeping electricity outside GST is not international practice. The

state governments seem wary of giving up electricity duty as they
collect considerable sums on that account, even as they surreptitiously
seek to indulge in fiscally reckless giveaways in power. Including
ap
electricity in GST would actually boost transparency in the sector.
Where are the benefits of including
electricity under GST?
There are four clear benefits from bringing
electricity into the GST realm:
Kn
Reducing the costs for manufacturing;

Improving the competitiveness of exporters;
Reducing the cross-subsidisation of electricity tariffs that further
undermines the competitiveness of manufacturers and exporters;
Eliminating the large biases — and hence restoring neutrality of
incentives — in electricity generation.
There would be costs in terms of foregone revenues but the benefits
would be large and states could be partially or fully compensated.
Indian manufacturing is saddled with costs. Efficient GST policy

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should aim to reduce them.

Note: Currently, there is a large bias in favour of renewables in the
GST policy.
Inputs to renewables generation attract a GST rate of 5 per
cent while inputs to thermal generation attract higher rates of
18 per cent.
Supporting renewables might be a conscious policy (and also good
policy) decision, but India is in a situation where subsidisation is
ly
proliferating across policy instruments, making it difficult to
quantify the overall support.
Complexity in GST rate structure arises because it is burdened with
pi having to meet multiple objectives. Support for renewables

should be direct, conscious, and transparent. GST should not
become the instrument for adding (non-transparently) to that
support.
ap
If electricity were to be included in GST, then there would be
no discrimination between renewables and thermal energy
because all inputs going into both forms of electricity generation
would receive tax credits.
GST would then become neutral between different forms of
Kn
electricity generation as any good tax policy should be.

Who is the biggest loser in the exclusion
of electricity from GST?
The status quo imposes costs that
undermine the government’s Make in
India initiative. The most serious and
obvious one is that costs to industrial
users of electricity are higher because they include the taxes on
inputs that have gone into the supply of electricity.

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These include taxes on raw materials (coal, renewables) and other

equipment (solar panels and batteries).
Not being part of GST means that no inputs tax credit can be
claimed, which results in embedding of the tax in the final price.
For the textile industry, for example, these embedded taxes
amount to about 2 per cent of the price.
This embedding of taxes hurts manufacturers selling to the
domestic market. But they hurt, in particular, exporters of
ly
electricity-intensive products because they are not liable to any
duty drawback — relief for taxes embedded in exports.
But there is a subtler way in which these embedded taxes hurt
pi industrial buyers of electricity, creating a double whammy for them.

Electricity is finally purchased by consumers and industrial users.
Politics, and especially populist politics, has ensured that
consumers (and other users in agriculture) pay either nothing
ap
for electricity or very little.
As a result, and in order to make up for the resulting losses,
discoms (Distribution Companies) cross-subsidise, that is, they
charge higher prices from industrial users to make up for
under-charging others. But the embedding of taxes adds an extra
Kn
layer of cross-subsidisation.
Industrial users must also be charged higher rates to make up
for the embedded taxes that cannot be recouped from
consumers. Totalling up all of these effects could lead to
increased costs and lower margins of between 1-3 per cent for
several industries.
These margins are significant, especially for exporters who face
ferocious international competition and where a 1 per cent extra cost
could be fatal.

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How should the government go

forward?
Several options are available.
One would be for the Centre
and the states to bear the
losses of the embedded taxes
since the benefits would also be shared. The Centre would then
compensate the states only for the direct loss of revenues.
ly
Another would be a half-way solution. This would be to impose a
5 per cent tax on electricity in the GST — allowing inputs tax
credits to flow through the GST pipeline — but then allow state
pi governments to impose a small non-GST cess on top of the GST

rate.
In this case, however, greater the cess the more it would resemble
the status quo with all its problems as described above. So, this
ap
half-way solution must come with some limits on state
governments’ freedom to levy further taxes on electricity.
But in both proposals the central government would lose revenues
both from the loss in embedded taxes and from having to
compensate the states.
Kn
The final question relates to timing. The likelihood of fiscal losses

suggests GST revenues should stabilize by the end of this fiscal year.
The next fiscal year would then seem the right time for action,
requiring the start of discussions in the GST Council for
implementation of the idea.
—– | —–

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INDIAN ECONOMY / GST may acquire Real

Estate
13-Oct-2017
ly
pi Identifying real estate as the ‘one sector where maximum tax evasion
takes place’, Indian Finance Minister Arun Jaitley on October 11 said
ap
there was ‘a strong case’ to bring it under the ambit of GST. The
matter will be discussed in the next meeting of the GST Council on 9
November. Meanwhile, the implementation of RERA remains hostage
to the whims of the states, and the sector struggles with a slowdown.
What did the Finance Minister say?

Kn
The GST was rolled out on July 1,

replacing a large number of indirect taxes
with one unified tax of five rates.
Petroleum, real estate, and alcohol were
kept out of its ambit. Real estate may be
about to be brought under the GST ambit soon.
The GST Council is set to take up the topic of bringing real estate
services under GST’s ambit next month, Finance Minister Arun
Jaitley said. Jaitley went on to acknowledge that real estate is the

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sector where the highest amount of tax evasion and cash

generation occurs.
The matter will be discussed when the GST Council meets for its
next meeting scheduled on November 9 in Guwahati, Jaitley said
while delivering the ‘Annual Mahindra Lecture’ on India’s tax
reforms at the prestigious Harvard University.
“In the next meeting itself, we are addressing one of the problem
areas or at least having discussion on it. Some states want, some
ly
do not. There are two views. Therefore, by discussion, we would
try to reach one view,” Jaitley said.
Jaitley is on a weeklong stay in the US, during which he will
pi participate in annual meetings of the IMF and the World Bank. Both
agencies have recently downrated India’s growth projections.
Jaitley also said
On demonetisation, Jaitley said it was a “fundamental reform”
ap
which was necessary to transform India into a more tax-compliant
society. Jaitley said some people had “misunderstood” the
objective of demonetisation “which wasn’t to confiscate
somebody’s currency”.
“Obviously if somebody has currency and deposits in the bank, it
Kn
does not become lawful holding. They still have to account for it.
Therefore, the anonymity, which was attached to, a cash currency
came to an end and that holding got identified. The government
was able to trace out about 1.8 million people whose deposits are
disproportionate to their normal incomes. And they are all
answerable to the law and pay their taxes,” he said.
“If you see the long-term impact of it, demonetisation brought in
more digitized transactions; it brought the issue to the
centerstage. It expanded the individual tax base. It compressed

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the cash currency by three per cent, which was operating in the
market. Those objectives are for the long-term. No doubt there
are short-term challenges, but necessary for transforming India
from a non-compliant to a more compliant society,” he added.
Banking Sector: Jaitley said the Government of India was
working on a plan to rebuild the capacity of the banking sector so
that it could support growth. “Today, with global growth turning
around, we are working to put up an actual plan in play to deal
ly
with the banking situation, which is top of our agenda. We need to
rebuild the capacity of the banking sector. I inherited a banking
system whose monies were lying in non-performing assets…are
unable to service the debt. We are faced with a catch-22 situation
pi as to how do we improve the capacity of the banks so that they can

support growth,” he said.
So, all these factors together adversely impacted the private sector, he
ap
noted.
Why is the focus now on the real
estate sector?
As of now, a 12 per cent GST is
charged on the construction of a
Kn
complex, building, civil structure or

intended for sale to a buyer, either
wholly or partly. On the other hand, land and other immovable
property have been kept free from the GST.
Tax on buying and selling of lands and complexes is still managed
by the states by the older methods. The stamp duties are the
known ways of taxing on buying and selling properties. Different
states have different rates of stamp duty. Apart from stamp duty,
there are other taxes like registry tax, VAT, Sales Tax, Service

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Tax and other small taxes that are levied by states depending on
states to states.
The first reason presented by Jaitley to bring the sector under GST
is to help consumers pay one “final tax” on the whole product. “As
a result, the final tax paid on the whole product in the GST would
almost be negligible,” the finance minister said.
Jaitley reasoned that GST in real estate would provide an
incentive for consumers to enter the tax net. He added that it is
ly
likely to help reduce the size of “shadow economy”.
The finance minister also said that India has historically had one
of the least efficient tax systems in the world, with a small tax
base. “Frankly, over the last several decades, serious efforts, real
pi efforts to expand this base had not been made. You had marginal
efforts,” Jaitley said. “In the last few years, the bulk of the increase
in tax payers has not been in terms of number of companies but
individuals who are coming into the tax net,” he added. GST in
ap
real estate is one such effort.
It would be interesting to see under which tax slab the real estate will
come. The Indian real estate market is expected to touch $180
billion by 2020. The housing sector alone contributes 5-6 per cent
to the country’s Gross Domestic Product (GDP), according to India
Kn
Brand Equity Foundation, a Trust established by the Department of

Commerce, Ministry of Commerce and Industry.
When have there been concerns?
There aren’t many details on this GST-
Real estate plan. One will have to wait
and see what challenges it poses. The GST
devil, as we know already, lies in the
detail.

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Two challenges can be foreseen

Double taxation: Similar to clothes and cars, there may be a slab
with different rates of GST for different consideration value.
Currently in most of the states, 8-10% stamp duty is collected on
the total consideration amount. A higher GST rate might lead to
double taxation with the likes of long-term capital gain tax in
parallel charged by income tax department on sale of any
property.
ly
GST Backlash: As it is, Prime Minister Narendra Modi is facing
sustained discontent over his economic policies as growth slows,
job losses mount and distressed farmers protest. The flip-flops on
pi GST too are cause for concern. This announcement of GST on

real estate might add fuel to this sentiment.
The overall impact of GST on the buyer will depend on the level of
investment one is going for. The affordable housing segment should
ap
get a boost in the new regime.
Where is the problem with RERA?
The Real Estate (Regulation and
Development) Act, 2016, was passed by
Parliament in March 2016, and a part of it
Kn
came into effect on May 1, 2016.

However, 32 significant sections of the
legislation — from registration of ongoing projects to penalties for
non-compliance — were not notified.
An institutional framework has to be in place first. States were
given a year to set up this framework — namely, the
Regulatory Authority and the Appellate Tribunal. From May 1,
2017, the Act had come into force in its entirety.
However, of the 29 states and 7 Union Territories, only

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Madhya Pradesh has appointed a Regulatory Authority.

Maharashtra, Kerala, Punjab, Rajasthan, Delhi, Haryana, Mizoram,
Chandigarh and Andaman and Nicobar Islands had set up an
interim Regulatory Authority.
In October 2016, the Centre had notified the RERA Rules, which
were applicable to all UTs that don’t have their own legislatures.
The Rules were also meant to serve as the template for states to
notify their Rules. But only 14 states and UTs have notified their
ly
Rules; another 15 have prepared draft Rules.
Sikkim, Arunachal Pradesh, Meghalaya and Nagaland had sought
legal opinion due to issues arising out of community landholding
patterns. There is no information on Goa, Manipur and West
pi Bengal.
Most states don’t even have the website up and running where
brokers and developers can apple for new projects under the
Act. States also tended to understand the law in their own terms,
ap
with reference to cut off dates for example.
States have also significantly diluted RERA before implementing
the rules thereby resulting in reduction in transparency. RERA,
which proposes to make real estate a customer centric industry,
fails to address the most pertinent existing problem of
Kn
customers- the delayed projects - as RERA rules being scripted

by states like UP and Maharashtra cleverly kept ongoing projects
out of the ambit of the law.
Even at a customer level, there is a lot of uncertainty. For example,
in the absence of a centralized database of projects and brokers,
how do customers find out if the project is registered or not?
It needs to be said that the RERA – just like the GST - is probably
facing teething problems, which is natural in case of any legislation of
this magnitude and importance.

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It must be said to the credit of the government that it has taken the
initiative to bite the bullet on the subject of regulating real
estate in a more realistic and meaningful manner.
This was on the cards for a long time but institutionalization of the
real estate was never really happening. From that perspective, India
has surely made a good start in that direction.
Combining GST with an effective implementation of RERA will bring
unprecedented transparency to the sector that has been the favorite
ly
investment destination for India’s ash hoarders.
Who will decide on this?
It is not exactly up to the Finance
pi Minister. The Constitution of India

takes care of that.
In order to implement GST, the
Constitutional (122nd
ap
Amendment) Bill was introduced in the Parliament and passed by
Rajya Sabha on 3 August 2016 and Lok Sabha on 8 August 2016. The
bill was passed by more than 15 states and thereafter the President
gave assent to “The Constitution (101st Amendment) Act, 2016” on
8th of September 2016.
Kn
Since then the GST council has come into existence as the
Constitutional body to decide on issues relating to GST.
On September 16, 2016, the Government of India issued
notifications bringing into effect all the sections of the GST Act
setting firmly into motion the rolling out of GST. This notification
set out an outer limit of time of one year that is till 15-9-2017 for
bringing GST into effect.
The GST council is a representative body that has the Union
finance minister as chairman and state finance ministers as

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members. It has already successfully dealt with the difficult task of

finalizing the design of GST by resolving some contentious issues
between the centre and the states.
It decided on the tax rates under GST that protect the revenue of
the states and the centre, but at the same time do not hurt the
common man.
In the GST council, a decision can be taken by a three-fourth
majority with the centre having a one-third vote and the states
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the remaining two-third.
It is this body will now take the decision on GST in real estate at the
next meeting on 9th November.
pi How many other challenges does the Real

Estate sector face?
Slowdown: India’s construction sector
appears to be facing its worst slowdown
ap
since 2008. For three consecutive quarters,
the stalling rate in the realty sector has
been in double digits, with the total value of stalled realty projects
touching Rs1.27 trillion in the September quarter. The stalling rate
(or value of stalled projects as a percentage of projects under
Kn
implementation), at 12.7%, was at its third-highest level in nine

years, only marginally better than in the June quarter, when the
stalling rate hit a nine-year high of 13.3%. The commercial real
estate sector has been the worst hit, with a fifth of such projects
getting stalled.
Compliance: RERA and GST compliance is expected to remain a
challenge for most developers of residential projects until the end
of this year but commercial leasing is expected to remain firm. In
the first half of 2017, there was a 17 percent decline in the
number of new launches in comparison to the second half of 2016

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with 40,600 new units introduced in the prime cities. Mumbai and
Bengaluru were at the forefront with 35 percent and 33 percent
of total launches, respectively, while Chennai, Pune and NCR
accounted for the remaining 13 percent, 10 percent and 9 percent
share. Commercial leasing remained firm with about 29 million sq.
ft of gross office absorption YTD, it says. The number of
residential launches does not seem to be improving in the second
half of 2017 as most of the developers are engaged in adjusting
ly
their business processes in post-GST and RERA scenario.
Lack of affordable housing: The supply of quality affordable
housing has been very low or limited in India. Most of the private
housing companies have focused on high-end luxury properties and
pi have got good results until recently. The demand of luxury or high-
end housing was always there. Along with the demand of end-use,
HNIs and NRIs who bought these properties in multiple numbers
used them to park their funds. Housing in India became more of
ap
an investment option than necessity. This in return gave huge
profits to builders and their focus was to construct a more luxurious
and expensive housing society than they did ever before. The
dependency on this superficial demand and not the actual demand
of end-use is one of the reasons for the current slowdown and
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remains a challenge.
RBI Crackdown: The Reserve Bank of India’s decision to push
banks to clean their balance sheets by recognising non-performing
assets, resolving bad debts of large defaulters and, failing that,
taking them to bankruptcy court for liquidation, has focused
attention on the crisis in a few sectors. Among those, besides
power, steel and textiles, is real estate, consisting of housing,
commercial real estate and hospitality assets. Banks are pursuing
firms such as Unitech, Jaypee Infratech and Amrapalli and
homebuyers who had paid them advances but not received their

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houses have turned to the courts. They fear they would lose out in
case of liquidation because homebuyers’ claims will be considered
only after those of secured creditors like the banks have been
settled.
—– | —–
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pi
ap
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INDIAN ECONOMY / Demonetisation / Chaos in

India’s cash economy
9-Nov-2016
ly
pi In an unprecedented move, Prime Minister Narendra Modi on Tuesday
added a lethal edge to India’s fight against black money by announcing
ap
that the currencies in the denominations of 500 and 1,000 will become
invalid at the midnight of 8 November. The netizens lauded the bold
move as a “surgical strike” against corruption and terror-funding.
While this is indeed a major step forward, there are reasons to be
cautious.
Kn
What is the big announcement by the

Prime Minister?
Prime Minister Narendra Modi on
November 8 announced that 500 and 1,000
rupee banknotes would be withdrawn
from circulation at midnight to crack
down on rampant corruption and counterfeit currency.
In his 40-minute address, first in Hindi and later in English, the
Prime Minister said the notes of Rs 500 and Rs 1,000 “will not be

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legal tender from midnight tonight” and these will be “just

worthless piece of paper.” The demonetization of Rs 1,000 and
Rs 500 notes is a major assault on black money hoarders, fake
currency, and corruption.
However, he said that all notes in lower denomination of Rs 100,
Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 and all coins will
continue to be valid.
Soon after the address by PM Modi, in another press conference
ly
the Department of Economic Affairs secretary Hasmukh Adhia
said, “New notes of Rs 500 and Rs 2,000 with greater security
features and design will be circulated from 10 November.”
ATM withdrawals will be restricted to Rs 2,000 per day and
pi withdrawals from bank accounts will be limited to Rs 10,000 a

day and Rs 20,000 a week.
Banks will remain closed on Wednesday and some ATMs will also
not function on Thursday, Modi said.
ap
Modi, however, clarified that the citizens will be able to deposit old
notes of Rs 500 and Rs 1,000 at post offices and banks of their choice.
“The public will have 50 days’ time between 10 November and 30
December to deposit old notes of Rs 500 and Rs 1,000 after
Kn
showing a proof of identity (POI),” he said. The accepted POI

documents include Pan Card, Aadhaar Card, Voters ID Card,
Driver’s License and Passport.
The exchange of old notes, however, will be limited to Rs 2,000
between 10 and 24 November, and it will be increased up to Rs
4,000 between 25 November and 30 December.
However, government hospitals, pharmacies in government
hospitals, airline ticket counters, bus ticket counters, railway
ticket counters and petrol pumps will accept old notes for the
next 72 hours, i.e. till midnight 11 November.

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Those unable to deposit Rs 1,000 and Rs 500 notes till December

30 this year can do so in designated RBI offices till 31 March next
year after filling a declaration form along with proof and reasons,
the Prime Minister said.
The Prime Minister emphasized that there is no restriction on any
kind of non-cash payments by cheques, demand drafts, debit or
credit cards and electronic fund transfer.
“Banks will be closed tomorrow. It will cause some hardship to
ly
you….Let us ignore these hardships… In country’s history, there
comes a moment when people will want to participate in the nation
building and reconstruction. Very few such moments come in life,”
pi Modi said.
Why is it unprecedented?
After PM Narendra Modi’s sudden
televised announcement of ban on Rs 500
ap
note and Rs 1000, calling it as a game-
changer, there was shock and curiosity over
the action.
There are about 16.5 billion of 500 rupee currency notes and 6.7
billion of 1,000 rupee notes in circulation, according to central bank
Kn
Deputy Governor R. Gandhi.

A one-time chance to come clean on unaccounted wealth led to
declarations of only about 25 billion rupees in tax last year, while
an income declaration program this year had met with a mixed
response.
This move would deal a body blow to those who didn’t make use of
the opportunity.
The move was taken with such short notice to ensure hoarders of
black money and money launderers do not have any time or option

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to react.
The black economy’s size has variously been estimated but is
widely believed to be about 40% of Indian gross domestic
product (GDP).
This will also push the people towards dealing in white cash in the
future.
With Narendra Modi slowly moving towards digitisation, this
move will also propel people to start dealing more in plastic cash
ly
and further aid digitisation.
It could boost tax collection – evasion will become difficult, boost
logistics and could help increase India’s global competitiveness.
pi Property prices could plunge as a result of the effective curb on

cash transactions.It is an open secret that most of the black cash
gets diverted to the property market.
This will also choke the flow of fake high-value banknotes
ap
militant groups use to fund their attacks against India.
It is going to help curb counterfeiting.
As many as 250 out of every 10 lakh notes in circulation are
fake, according to a study conducted by the Indian Statistical
Institute. The study found that fake notes with a face value of Rs
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70 crore are infused into the system every year, and law
enforcement agencies are able to intercept only a third of this.
The study found that Rs 1,000 notes constitute about 50 per cent
of the total value of counterfeit notes.
India has struggled to curb corruption and slush funds in the economy,
or “black money”, especially in the real estate sector.The country was
ranked 76th among 168 countries in Transparency International’s
2015 index on corruption, which is estimated to cost the country 1-
2% of gross domestic product every year.

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Though the decision could cause some unmerited temporary

irritants for the white money holders too, especially because of its
suddenness, it would ultimately have a wholesome effect on the
economy.
When does the move appear to be well-
thought out?
The move follows Modi’s financial
inclusion scheme, an income declaration
ly
scheme and a special investigation team
aimed at cracking down on black money,
and suggests an actual attempt to deliver on the black money
pi promises.
Around six months ago, the government asked the RBI to prepare for
its latest assault on black money, and told the currency manager to
print more Rs 50 and Rs 100 notes, with PM Modi having decided
ap
to phase out the current lot of Rs 500 and Rs 1,000 notes earlier
this year. After all, the task was humongous: replacing 23 billion
notes. Besides, the information had to be kept confidential at all
costs.
In any case, apart from the PM, only finance minister Arun Jaitley
Kn
knew, and two senior officers each in the finance ministry and the
RBI were in the loop.
The six months were used not just to print enough Rs 50 and Rs 100
currency notes, but also to plan the operations meticulously.
This meant that, on Tuesday, the Reserve Bank of India initiated
the first “public” move when its board met around 6 pm and
recommended the withdrawal of Rs 500 and Rs 1,000 notes.
Soon, the government, which was ready with the notification,
moved the Cabinet, which met at 6.30 pm on Tuesday.

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Moreover, the PM came up with the announcement at 8 pm on

November 8 giving no chance even to convert that money to gold as
many of the jewellery shops starts closing their business by 9 pm.
The timing of the move is crucial as it comes just before key state
elections where parties pump in crores of rupees, often from
dubious sources.
When has India demonetized high-value currency before?
ly
India has pulled select denominations of its currency twice before.
The first was when Rs 1,000, Rs 5,000, and Rs 10,000 notes were
taken out of circulation in January 1946, a year and a half before the
pi country won independence from the British.

The Rs. 10,000 notes were the largest currency denomination
ever printed by the Reserve Bank of India, introduced for the
first time in 1938. All three notes were reintroduced in 1954.
ap
In January 1978, the Indian government again demonetized Rs 1,000,
Rs 5,000 and Rs 10,000 notes in a bid to counter black money in the
economy.
The move was enacted under the High Denomination Bank Note
(Demonetisation) Act, 1978. It was termed as “an Act to provide
Kn
in the public interest for the demonetisation of certain high

denomination bank notes and for matters connected therewith or
incidental thereto.”
Under the law all “high denomination bank notes” ceased to be
legal tender after January 16, 1978. There was a prohibition of
transfer and receipt of high denomination bank notes. Plus, all
banks and government treasuries had to send to the Reserve Bank
the total value of high denomination bank notes held by it at the
close of business on the January 16.
People who possessed these notes were given till January 24 the

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same year – only a week’s time – to exchange any high

denomination bank notes.
The one big difference with the announcement Tuesday is that Rs
1,000 and higher value notes were almost impossible to possess
then for the common man given the value of these amounts then.
Outside India, earlier this year, the European Central Bank said it
was considering demonetization of 500 euro notes.
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Even in the US, there have been calls to stop fresh issuance of $100
bills for a while now. In 2010, 2.6 billion $1 bills were destroyed in
what was one of the world’s biggest currency destruction at that point.
pi Where can things go wrong?

It is essential for the government
now to ensure that the subsequent
fall-out of the announcement does
ap
not create complete chaos.
Banks in India are overstretched
on normal days, and with the kind of traffic this announcement will
create to deposit old notes, and take out money in the new
permissible denominations might create mayhem unless carefully
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structured and guided.Panic is a real possibility and needs to be

guarded against.
Tushar Arora, an economist at HDFC Bank, said that the sudden
step “might lead to some confusion in the near term” and there was
the possibility of short-term cash shortages if the transition were
not handled smoothly.
The short notice too sparked concern among people, and large
queues were reported outside ATMs across India, as people
rushed to withdraw smaller bank notes.The move could also
inconvenience poor people and families planning weddings, the

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season for which starts in days.

It wasn’t immediately clear how businesses and private banks
with large stocks of high-value notes will deal with the transition.
Moreover, given that about 40% of India’s economy is driven by
small- and medium-sized enterprises that largely run on cash
transactions, the decision could have a knock-on effect on economic
growth.
Who will be really impacted by this?
ly
Skeptics point out several flaws in the
move, saying that it is bound to prove
bad news for those who do not have a
pi bank account in the country.

About 49% adults in the country have
no bank account while only 22% accounts are with debit cards,
according to several research estimates.
ap
This move will also deeply impact the working sections of society:
drivers, maids, cooks, electricians, plumbers - in essence anybody who
provides services in the informal sector and depends on monthly or bi-
monthly cash payments.
Kn
Demonetisation will be a huge shock for bankless villages, which

conduct only currency transactions.
India has a little over 10 lakh bank branches. There are 6.8 lakh
villages, most of them without a bank.
Since the 500 rupee note is no more legal tender, and rich landlords
and rural politicians have to rush to banks in the city, village
economies will be hit in the immediate term.
In addition to this, the government move can also turn Indian rupee
less credible for the common people for some time and drive them

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towards gold, raising the demand for and the price of the precious
metal.
It may also spell a short-term blow to real estate developers, but
would also imply that housing across segments would become cheaper.
Real estate as a sector is often seen as one of the biggest areas where
black money is deployed.
How much can this really help in
reducing black money?
ly
Leaders of India Inc. commended the
Centre’s move to ban currency
denominations of Rs. 500 and Rs. 1000 and
pi expressed the hope that proper execution of

the plan would help curb black money.
Individuals and entities that have physically stocked black money
or undisclosed cash will now have to disclose their holdings to
ap
banks if they want to exchange the old notes.
In the case of big transactions, banks will inform the income
tax department, which will verify the disclosures made by the
taxpayer. To some extent, the proposed demonetisation will also
curb hawala transactions and domestic cash transactions that use
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couriers to transport money on a daily basis.

However, the percentage of black money floating in the market is
estimated to be less than five per cent of what is hoarded by
Indians so the impact of the latest move may be limited.
“That’s because people don’t stack black money in cash. Rather,
they stash it in undisclosed accounts in Swiss Banks,” said
Abhiroop Sarkar, a professor at the Indian Statistical Institute. “So
the demonetization won’t affect the biggest fish.”
Apart from cash, Indians also hoard wealth worth over billions of

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dollars in the form of gold.

Therefore, while banning Rs 500 and Rs 1,000 notes will tackle the
black money that is in the form of hard cold cash, it won’t affect
other forms of black money.
Note: Hawala is a method of transferring money without any actual
movement. One definition from Interpol is that Hawala is “money
transfer without money movement.” Transactions between Hawala
brokers are done without promissory notes because the system is
ly
heavily based on trust.
—– | —–
pi
ap
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This GDPI-WAT course can absolutely 'wow' your panel. It

covers everything from economics, trade, world affairs,
budget to management foundations.
Kn
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INDIAN ECONOMY / Demonetisation / Death by

demonetisation
25-Nov-2016
ly
pi It is being claimed that more than 50 people have died in the aftermath
of the demonetisation move of India’s government. While it may be
ap
hard to find a causal relationship between demonetization and all the
cases of deaths so far, it cannot be denied that a few cases are
‘genuine’. In any case, the lack of preparedness by the government
before unleashing such a huge move has led to economic chaos.
What is the current death toll?

Kn
The number of deaths due to

demonetization reported by various
newspapers range from 33-55.
While most deaths are of the
elderly waiting in long bank
queues, even a few suicides have been reported, especially of
housewives.
Virender Basoya, a 25-year-old businessman in Delhi, hanged
himself to a ceiling fan and died. His wife said he was depressed as

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he had not been able to exchange Rs 12 lakh worth of old currency

notes, money he had received as payments.
In Chittoor, Andhra Pradesh, 70-year-old Ratna Pillai died waiting
in a bank queue. Distressed over the long queue, he approached the
bank manager, and collapsed.
Rajesh Kumar, a 56-year-old bank manager in Haryana’s Rohtak
district, died after working three days and nights at his co-operative
bank, handling large crowds. When the security guard opened the
ly
door, Kumar was found dead.
Jagdish Panwar, a 62-year-old tea seller in Rajasthan’s Sikar
district, died of heart attack as he was stressed over not having cash
for his daughter’s wedding. The Sikar administration says local
pi banks haven’t received cash from the Reserve Bank of India for
two days.
Sheik Basheer, 35, an auto-driver in Nizamabad district of
Telangana, immolated himself and died because a financier refused
ap
to accept his old currency notes as loan repayment for his vehicle.
In rural Pune, a bank peon, Tukaram Tanpure, 53, died of a
massive heart attack. His colleagues said he, like everyone else,
was stressed handling large crowds and working 12 hours a day.
Kandukuri Vinoda, 55, a home-maker in Mahbubabad district of
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Telangana, committed suicide because she thought her cash

savings of 54 lakh were now worthless. She had earned the cash
by selling land to pay for her husband’s treatment, daughter’s
dowry and buy a smaller piece of land.
In Howrah, West Bengal, a man tense over demonetisation
murdered his wife Madhu Tiwary because she returned empty-
handed from the ATM. He felt she should have waited longer in
the queue.
Barkat Sheikh, a 47-year-old farmer had a heart attack waiting to
exchange old currency notes in Tarapur in Gujarat. He needed

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money to pay farm labour.

These are confirmed deaths reported in the national and regional
media. The complete list of the 55 deaths has been reported by The
Huffington Post and cannot be independently verified.
Why are the figures not reliable?
There is no disputing the fact that there
have been many instances of people
ly
standing in seemingly interminable queues
for cash or deposit.But, how many deaths
have resulted from these queues and
whether they are directly due to the policy is disputable as it is
pi difficult to know the exact cause of death in certain cases.

This is not to deny the fact that some cases may be genuinely due
to demonetization.However, the opposition has been quoting
random numbers that are higher than most estimates by
ap
various media reports.
But one can’t establish in any credible way a causal relationship
between demonetisation and an individual’s death in many of the
cases.
Kn
For example, a wife was allegedly taunted by her husband for her
“inability” to stand in a queue at an ATM. She committed suicide
and her husband is now the subject of an investigation in abetting
her suicide. Say, a possibly abusive husband taunts his wife for not
waiting in queue at the mandi; it would be ridiculous to blame the
vendor as the cause of what played out subsequently.
Thus, it is also possible that a few of the deaths reported may not
be linked to demonetisation and could have taken place even if
demonetisation did not take place.
While majority of the media has reported cases of deaths due to

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demonetization, there are some that have in fact debunked many of the
cases.
For instance, the case of a 96-year-old man in Udupi, Karnataka
who died allegedly waiting in a long queue in a bank.Apparently,
the man’s son says his father’s death had nothing to do with
waiting in queue at the bank.
When does the government
appear to be lacking in
ly
preparation?
Eighty-six per cent of the total
currency in circulation in India is
pi made up of the bills of Rs 500 and

Rs 1,000 and that meant the economy was bound to get a terrible
shock. The government should have anticipated the chaos the move
would cause before announcing it.
ap
Though the government claimed that this was meticulously planned
and kept under wraps for six months, the evidence on record
suggests otherwise with the new currency notes sporting the
signature of the new Reserve Bank of India (RBI) governor,
Urjit Patel who took charge on September 6.
Kn
While the media has highlighted the plight of many farmers in

parts of Uttar Pradesh and Punjab where the sowing season is on,
the people in the hinterlands have been the worst affected in
this exercise.
The government had exempted some vital services like petrol bunks,
government hospitals and chemists from the new rule, and has
periodically extended the dates of exemption to ensure the supply of
essential goods and logistics.
While it is true that the government has approved the use of old

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currency notes at government hospitals till 24 November, the fact

that some deaths took place because such establishments refused
to accept the old notes shows how ineffective this exemption
actually is.
Moreover, private hospitals have not been given any priority
despite an overwhelming majority of Indians preferring them over
public health centres.
The crisis in rural India has been further worsened by the
ly
government’s decision in conjunction with the RBI to deny
district and rural cooperative banks to transact business and
be a part of the exercise.
pi Where can help not be sought from?

Siya Ram, a 70-year-old man who
stood fruitlessly in a queue for three
days to exchange his notes, collapsed
ap
and died from a hemorrhage perhaps
brought on by the strain of the
exercise. His family has moved the Supreme Court under Article 32
of the Constitution, seeking compensation for his death from the
Union government.
Kn
There are a couple of reasons why Supreme Court should not be the
first place the family should approach.
For one, if things go wrong with the case and you don’t get what
you asked for, there is no higher forum of appeal to set it right.
Second, the Supreme Court has, over the years, adopted an
unwritten policy of refusing to hear Article 32 petitions, directing
parties to approach the jurisdictional high court, unless it’s a
matter of national importance (judicial appointments or high-
level corruption) or a problem across multiple states (female

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foeticide or drought relief). The Supreme Court has, over the

years, interpreted Article 32 to be discretionary, even if the right
to file and be heard is a fundamental right.
There is a pragmatic reason why Supreme Court has adopted this
policy. The Supreme Court’s workload over the years has increased
dramatically, partly due to the court’s own liberal use of its jurisdiction
to hear Special Leave Petitions and partly due to the increasing
population and economic growth in India spurring growth in litigation
ly
overall.
However, that doesn’t mean the court will inevitably dismiss it. It
usually gives the petitioner the option of approach the high court
pi first, and then coming up to the Supreme Court in appeal if she so

chooses to.
There’s another reason why approaching the Supreme Court may not
be a sound litigation strategy.
ap
The Supreme Court is not a fact-finding forum. Where there is a
dispute on the basic facts of the case, unlike in a trial court which is
obligated to conduct a trial and assess evidence, the Supreme Court
may refuse to entertain an Article 32 petition asking the parties to
approach a lower court where such disputed questions of fact can
Kn
be sorted out.
This would be appropriate specifically in a case like this where
the government is likely to deny responsibility for the death,
questioning the attribution of the death to the demonetisation
move.
Who said what on these deaths?
Leader of Opposition in Rajya Sabha Ghulam Nabi Azad accused the
government of burdening the public with “wrong policy” and
controversially said that the deaths due to demonetisation are higher

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those who died in the Uri terror

attack.
“Pakistani terrorists did not
kill even half of our people in
Uri than those who have died
due to Govt’s wrong policy,”
he said.
Union Minister Venkaiah Naidu shot back saying, “Leader of
ly
Opposition is insulting nation by making such remarks, by
comparing this with Pakistan terror attacks, should apologise.”
Supporting Azad, Shiv Sena’s mouthpiece, ‘Saamana’ asked “Will
pi the truth change if Azad apologises?” on its editorial page. The

article says that in the Uri attack, 20 jawans had been killed,
whereas ‘4 brave patriots’ have been killed due to demonetisation,
while standing in queues outside banks and ATMs. The article says
ap
that there as a difference in both the attacks.In Uri, ‘Pakistan’ had
attacked us, whereas demonetisation was created by our own
rulers.
The Congress backed its senior leader. “Why should he apologize?
He is correct. Our own people have died more due to the
government’s policy. The damage inflicted by the Pakistanis on our
Kn
own people in Uri is less then the damage inflicted by Modi

through his policy,” said Congress spokesperson Ajay Kumar.
“People are dying of hunger and heart attacks (in queues); Isn’t
this the most insensitive move by the government? They only speak
for the suited-booted and a few industrialists,” the Congress leader
said.
Congress leader Anand Sharma supported Ghulam Nabi Azad for
comparing demonetisation deaths to the deaths of soldiers in the
Uri terror attack.“Azad said nothing wrong.This government is

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like Mohammad Tughlaq. Who is it to stop people from

withdrawing money from their saving account,” Sharma asked.
Blaming Narendra Modi for the deaths of “over 70 persons” linked to
demonetisation, Mumbai Congress President Sanjay Nirupam said on
Tuesday that the Prime Minister “should be booked for murder”.
“These people have been standing in long queues for so many days,
waiting to deposit and withdraw their own money which is now
stuck in the banks. So far, more than 70 persons have died,”
ly
Nirupam said.
“One and only person is responsible for all these deaths – Prime
Minister Narendra Modi. I demand he should be held responsible
pi and booked under Section 302 (of IPC) for murder,” he added.
How can demonetisation be made less
deadly?
The Department of Economic Affairs
ap
Secretary Shaktikanta Das has said that
micro-ATMs will be set up across the
country to tide over the cash crunch. This
would particularly help address the problems that people are facing in
rural and semi-urban areas, where the ATM network is not as strong
Kn
currently.
Micro-ATMs are Point of Sale (PoS) devices, usually easy to hold
in the hand. Micro-ATMs are ideally meant to allow an individual
to deposit or withdraw funds regardless of the bank in which
their account is.
Varying from bank to bank, the micro-ATM allows for biometric
identification (via Aadhaar), use of debit and RuPay cards, or the
mobile phone number, to access your bank account.
Micro ATMs work with minimal power and connect to central

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banking servers through GPRS, thereby reducing operational costs

while enhancing customer convenience.
Industry body Assocham suggested that banks should hire retired
employees on a massive scale for a speedy currency swap and cash
withdrawal in the wake of junking of big denomination currency
notes.
As a solution to the problem of long queues, certain banks in the
country seem to have come up with a clever solution. Apparently,
ly
photos on social media show that instead of just standing in the line
for long hours, people in Raipur and Kerala are booking their
places using their footwear, or their passbooks.
pi People have also been leaving their names on a piece of paper

under a stone to mark their place on the line as they can relax on
the side. Once images hit the social media, it became a trend as
similar pictures are being posted from several places.
ap
—– | —–
Kn

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INDIAN ECONOMY / Demonetisation / Of Nano

Chips and Currency Notes
10-Nov-2016
ly
pi The government of India has demonetized the current Rs 500 and Rs
1000 notes, to replace these with new Rs 500 and Rs 2000 notes. Even
ap
before the sudden announcement of this change, rumours started
spreading on social media about the 2000 note coming with a ‘Nano-
GPS chip’ that could be tracked through satellites. Knappily
investigates the hoax, the reasons such hoaxes spread and if at all such
technology exists.
Kn
What is the hoax about the new 2000

rupee note?
Pictures of the new Rs 2,000 notes have
been floating around the internet along with
some rather fantastical rumours about these
notes.
According to these rumours which were circulating on WhatsApp
even before the demonetisation announcement, the new notes
would come with what is described as a “micro nano GPS chip”,

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which is supposed to be able to help track individual notes by using

satellites.
The technology even has its own serious-sounding abbreviation,
NGC, and the rumours – some of which made their way to the
mainstream media, like this Zee News post – “the chip has been
fitted in such a way that it can detect Rs 2000 notes even from 120
meters below the ground.”
It also claims the chip will help identify if too many of these
ly
notes are kept in one place and alert the relevant authorities.
Thus the government’s new note will help curb corruption and
discourage people from hoarding black money.
pi Here is what the forward said:

“How does the embeded NGC Technology work?
The unique feature of the NGC is it doesn’t need any power source. It
only acts as a signal reflector. When a Satellite sends a signal
ap
requesting location the NGC reflects back the signal from the location,
giving precise location coordinates, and the serial number of the
currency back to the satellite, this way every NGC embedded currency
can be easily tracked and located even if it is kept 120 meters below
ground level. The NGC can’t be tampered with or removed without
Kn
damaging the currency note.”

How will this help eradicate black money menace?
Since every NGC embedded currency can be tracked, the satellite can
identify the exact amount of money stored at a certain location. If a
relatively high concentration of currency is found a certain location
for a longer period of time at suspicious locations other than banks &
other financial institutions. The information will be passed on to the
Income Tax Department for further investigation.”
That would be astounding, if it were true. Except it isn’t.On

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Wednesday, the RBI dismissed the rumours entirely saying that

such technology does not exist anywhere in the world.
Why did people believe it?
The rumours spread on social media to fill
the vacuum that is created by lack of
information by credible sources. This case
was not different. The government
announced that it will launch 2000 rupee
ly
notes, but did not explain why.
There was no clear justification for introducing a higher-value
denomination which can be hoarded much more easily after
pi demonetizing the Rs 500 and Rs 1000 notes. People, thus, assumed

there must be some security feature that can tackle such hoarding.The
“nano GPS chip” theory provided an explanation to this, and as
with every hoax, people did not verify the source and forwarded it.
ap
It is not just your average layman who was tricked by this hoax.
For instance, when asked how introducing a Rs. 2000 note would
restrict the flow of black money, IIM Bangalore Professor R
Vaidyanathan, an expert on Finance, told that they have heard of
a tracking chip being embedded in the notes.The reason why
Kn
there is so much emphasis on such a ‘tracking system’ is that

without it, Prof. Vaidyanathan conceded, the move to introduce
Rs. 2000 note would be a huge blunder. In his defence, he has
always advocated banning high-value notes to curb the black
money menace; so he welcomed the ban on 500 and 1000 notes
and thought it may be illogical to introduce a 2000 note without
precautions.
In an interview with Citizen Matters, he said, “I welcome the
government’s decision. We had proposed the government to

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abolish high denomination notes to curb black money. However,

the government has decided to introduce a new set of high value
notes. But considering that the new notes will have certain features
like note tracking system, it will help the central intelligence
agencies to track the person who stock the currencies”.
The mention of the Reserve Bank of India (RBI) in the message
also added some legitimacy as most people assumed it must have
been sourced from an RBI notification or press release.
ly
Moreover, most netizens were highly excited (for the right reasons)
about the surprise announcement made by the Prime Minister, so it
was easy for such a hoax to spread without people giving it a serious
pi thought in such an emotionally charged state.

When can social media go really wrong?
This is the era of funny jokes, ‘warnings’
and random amazing ‘facts’ that we are
ap
bombarded with every day on WhatsApp
groups, so much so that we sometimes want
to not just uninstall WhatsaApp but also
throw the ‘smart’ phone away and run to the nearest mountain or forest
to live noise-free forever.
Kn
Social media rumors have been around from the beginning of the
Internet, and hoaxes have spread from email to chat rooms and
networking sites. It only takes a second to click that share button
but how do you know what you are reading and sharing is true?
There have been many fake news reports on the social media which
have time and again warned us against believing everything we see
on the internet.
If you see something on social media that you’re tempted to share,
investigate before you do.Anything you post is coming from you,

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which means you’re responsible for it being accurate, even if

you got it from somewhere else.
A little bit of critical thinking can go a long way. If you see anything
that looks like it might not be true, spend a couple of minutes doing
some research before passing it on. It is easy and if the message you
received is factually wrong, you will feel better knowing that you are
helping debunk a myth. At least you are not helping propagate it.
Our hyper-connectivity with our ‘friends’ and ability to pass on
ly
information in microseconds seems to be decisively meddling with our
ability to think straight. We need to take a few seconds out and try to
not be the first person in the WhatsApp group to share the important
pi message we just received.

Here we are, proudly sitting in the 21st century and forwarding
unverified, sometimes illogical, texts to each other on subjects such as
‘America patenting cow urine to cure cancer’.
ap
Moral of the story: If such hoaxes do surface in future, it would be
prudent to re-confirm its authenticity from official sources before
forwarding it.
Where does the science behind the “nano
GPS chip” technology fail?
Kn
We can barely get a GPS signal in our

rooms, and if you believe the forward, the
RBI has packed every single 2000 rupees
note with a wafer-thin nano GPS chip that
can get a signal even “120 metres below ground level”, which makes
absolutely no sense.
Not to mention the only chips that can be powered by a ‘reflective
signal’ - like RFID chips - can transmit data only over very short
distances, and not across hundreds of thousands of kilometres like

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the forward suggests. The average distance RFIDs can be read

from is 100 ft (30.5 m); additional batteries can boost a tag’s range
to over 300 ft (100 m).
Further, inserting such an RFID tag in a bank note is possible but
completely impractical, and possibly exorbitantly expensive. The
2000-Rupee note with a chip will be worth more than 2000 Rs!
About the GPS chip, the smallest GPS chip is made by an Israeli
company OriginGPS called “Micro Hornet GPS chip” and even that
ly
measures around 10mm x 10mm x 3.8mm. So, it is no way “nano”
(1/10^9 times 1 m or 1/10^6 times 1 mm)!
Thus, at least currently, neither the RFID technology nor the GPS
pi technology can be used on notes to track them that too without a power
source.
Who made fun of the hoax?
The social media users on Twitter poked
ap
fun at the hoax Whatsapp forward about the
new 2000 rupee note.
“The Nano GPS chips in the new Rs 2000
Notes is a brilliant idea to track black
Money. Too bad RBI is not aware about it. ”
Kn
“Apart from Nano GPS Chip, the Rs 2000 Notes will also have Jio
Sim with 4G connection. It will call RBI and inform where it is
stocked.”
“I heard the new Rs.2000 notes have an inbuilt mechanism
whereby if you do something bad, they give you a mild shock. ”
“Just saw the first look of Rs2000 note 2. Has the latest version of
android and slight improvement in camera. ”
How does a micro GPS chip work?
This is about the real micro GPS chip. No kidding.

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A micro GPS chip functions just like a

regular GPS device. It receives GPS
signals from satellites, and using
wireless connectivity, it is capable of
transmitting the data to a controlling
device such as your PC or mobile
phone. A GPS tracking application is usually installed to view the
micro chip’s location.
ly
Micro GPS chips are growing in popularity. These devices are tiny and
are hardly noticeable when attached to an object, but powerful enough
for owners to track their location in case they are stolen or misplaced.
pi GPS technology has been known to play an important part when it

comes to recovering stolen property, but they can also be used in
wearables such as watches, glasses and even connected dog
collars.
ap
Some of the other uses include tracking down a mobile device or
tracking an individual’s every move. These devices come in
small and compact devices, others are no bigger than a rice grain,
but they are capable of detecting even the most intermittent or low
signals.
Kn
GPS microchips can also be implanted in humans using a high-

powered sniper rifle as the long distance injector. They are known
to cause only minor physical pain when they enter the body of an
unsuspecting human.The impact can easily be compared to that
of a mosquito bite, making the whole shot go unnoticed. Once
implanted, the microchip locates the target’s exact position using
GPS coordinates. James Bond stuff.
There are numerous consequences from using implanted microchips on
humans. The intrusion of privacy has to be the biggest issue as micro
chipping does violate multiple legal rights. The same thing can be said

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for rigging mobile phones as there are still laws that constitute the
terms of its usage, including the fact that both parties need to be
aware that a microchip is embedded in the device in the first place.
—– | —–
ly
pi
ap
Kn

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INDIAN ECONOMY / Demonetisation / Poor

farmers vs. Paytm
22-Nov-2016
ly
pi The demonetisation move could well be the tipping moment in India’s
drive towards a cashless economy, changing how money is dealt with
ap
in this cash-happy country. Mobile wallet providers such as Paytm
have seen a spike in the number of transactions. However, lack of bank
branches and absence of broadband are making it difficult for small
rural enterprises and farmers to conduct their daily operations. The
digital divide may be deepening.
Kn
What has given a sudden thrust to

digital money?
While the eradication of black money
may be presented as one of the
principal reasons for demonetisation,
in a wider context, the decision is
portrayed to be multi-pronged. The move will not only falter the
functioning of terrorists, but it will also help expedite the process of
transforming the country into a modern cashless (or less-cash)

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society.
The depletion in cash has pushed digital and e-transactions to the
forefront.E-banking, e-wallets and other transactions through
apps using plastic cards are becoming popular.
The change “will happen fast”, says Nandan Nilekani, former head
of the Unique Identification Authority of India (UIDAI), one of the
founders of Infosys and a big advocate of the merits of a cashless
economy.
ly
“The latest decision to demonetise will accelerate the process as
people thought cash was friction-free. That is no longer the case
and more people are bound to see the value of digital payments.
pi That acceleration is certain to be quicker in urban India because of

better connectivity and the latest disruption will force more people
to get into it,” says Nilekani.
According to Nilekani, what will drive the big shift is the surge in
ap
smartphones and policies that encourage mobile and banking
transactions — India has over 100 million Internet users and over
600 million mobile phone users.“They have understood digital
already,” he says.
The World Bank estimates there are 33 crore internet users in
Kn
India, which makes it the second largest internet market. Mobile

phone subscriptions went up from 23 crore to 96 crore between 2007
and 2015.
Several of these mobile and internet users now have a bank account
under the Pradhan Mantri Jan Dhan Yojana, a scheme to link
every household to a bank account. Under the scheme, 25.4 crore
accounts exist and 19.3 crore RuPay debit card have been issued.
In addition, over 127 crore Indians are enrolled in Aadhaar, a
biometrics-based digital identity database that has become
mandatory for anyone who wants to continue to be part of food or

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pension schemes.
Therefore, as more people start using their RuPay debit cards and
Aadhaar for digital payments, in the long term, this is expected to
facilitate a switch to an economy that uses less cash.
Note: India has one of the highest cash-to-GDP ratios of over 12
compared to bigger economies with a ratio of below 5.
Why this may worsen the
ly
digital divide?
While the absolute number of
mobile and internet users may
pi be impressive, a large part of

India’s population is still not
connected to the digital world.The number of mobile payment
customers of all banks is only a shade below 120 million.
ap
Moreover, India’s unbanked population itself was 233 million in
2015, according to a report by Pricewaterhouse Coopers India for
the Internet and Mobile Association of India (IAMAI) and
Payments Council of India (PCI).
According to the Pradhan Mantri Jan Dhan Yojana website, 85% of
accounts opened were issued debit cards, but beneficiaries got only
Kn
half of these.
Microsave did an assessment of the scheme in November-
December 2015 by interviewing 5,000 bank mitra (banking
correspondents) and over 18,000 clients, at a time when 19.8 crore
bank accounts had been opened and 16.8 crore account holders had
been allotted RuPay debit cards. It found that only 33% of
customers in the sample had activated their RuPay cards, and
that only 26% had used it even once.
While there may be cases (in urban areas) where people leapfrog to

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mobile payments, not all mobile phone users own a smart phone
or have high-speed connectivity (in villages), or are familiarity
with the system.
The government may be eager on making the country dependent on
debit/credit cards and mobile-dependent online transactions instead of
physical cash exchange, but the process should be done slowly and
organically and inclusively; in a manner that does not further
disadvantage the unbanked, non-digital population of the country.
ly
There is a learning curve that takes time. The government shouldn’t
push a forceful switch - 97% of retail transactions are done in cash,
with only 6% of retailers accepting digital payments - from physical
pi to digital, especially without addressing the “accessibility” issue that

still looms large in most parts of rural India.
When do we
demonetisation
see
on
the impact
digitization
of
of
ap
transactions?
Bankers at State Bank of India, the
country’s largest bank, had been trying hard
to market Point of Sales (POS) machines
for debit and credit cards to small businesses and establishments. But
Kn
few were yielding, despite a host of incentives, including lowering the

merchant discount rate and annual rental fee.
After the demonetization announcement, things began to change. A
few days later, the SBI branch in the newly formed Nirmal district
of Telangana, received requests from 250 customers for POS
machines.It was the same story across the country, and SBI
officials said card-based transactions using POS machines
surged almost three-fold.
Digital banking companies have also risen to the challenge, setting up

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shop in more convenient places to allow people to sign up and use their
money as they wish. Paytm, the country’s top mobile payments and
commerce platform, has seen a huge surge in transactions, for example
– even many roadside stalls have started to accept payments through e-
wallet.
Paytm, with over 150 million wallets, reported a 700% surge in
traffic over the last week and 1,000% growth in the amount of
money added, with 5 million transactions.
ly
The removal of the notes has also brought India’s first “digital and
cashless village”, Akodara, which is 60 miles from the northern city
of Ahmedabad, into the limelight. Most of the 1,200 people living in
pi Akodara buy everything from wheat flour to potato chips through

mobile banking and have little to worry about when it comes to the
demonetisation.
Where are the roots of India’s digital
ap
divide?
Despite a strong and fast-growing IT
industry, access to Information and
Communication Technologies (ICTs)
remains very low, particularly in rural
Kn
areas. For any ‘revolution’ to take place, there are certain prerequisites
needed.The digital revolution too requires an enabling
environment that India has not put in place as yet.
The main bottleneck is infrastructure. Access to technology is
constrained by infrastructure parameters like electricity, IT
penetration, teledensity and Internet industry. For example,
electricity is the most basic condition for using ICTs and many
studies have established the relationship between the level of
electrification and digital divide. India still does not have 100%

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electricity coverage. Of 587,464 villages in the country, 12,000 of

them are yet to be electrified. Even those who have access to
electricity have so for only a few hours of the day.
In terms of broadband connectivity, under the National Optic
Fibre Network (NOFN) project, as of 2 May 2016, the OFC (optic
fibre cable) pipe laid was 139,582 km, while optical fibre laid was
111,726 km. OFC pipe is laid in around 61,000 gram panchayats
and optical fibre in 50,500 gram panchayats.Little is known about
ly
how many kilometres of this optic fibre is actually functional or
how many gram panchayats are actually utilizing this
connectivity to access the Internet or how “connected” gram
panchayats will distribute the facility to other village-level
pi institutions and households.Incidentally, after almost four years,

even the pilot locations are not fully functional.
Another important reason of digital divide in India is knowledge
ap
divide. Knowledge divide is directly related with digital divide. More
educated people with computer knowledge and English language are
able to access new technologies.
As per the latest Census 2011 report, only 30% of the literate are
able to speak English which is still the most widely used language
Kn
on the internet. While efforts are being made to make services

available in regional languages of India, the number of such
services is very limited.
Note: NOFN is a government project aimed at providing broadband
connectivity, of say 100Mbps bandwidth, to 250,000 gram panchayats
in an effort to provide last-mile connectivity. Funded with Rs. 20,000
crore from the Universal Service Obligation Fund, Bharat
Broadband Network Ltd was created to implement the project and a
pilot project was completed across 59 locations in October 2012.

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Who cannot be left behind as India

moves forward?
To highlight the benefits of being a digitally
dependent country, the government has
pushed the small village of Akodara in
Gujarat as its posterboy example into the
spotlight. However, this model of digital sophistication is yet to be
replicated in thousands of other villages across the country.
ly
India is almost entirely a cash economy. Over 92% of its workers
belong to the unorganised sector and earn in cash. Cash powers
the rural economy.
pi The problem faced by farmers is highlighted by Morpant

Chaudhary, a banking correspondent in Tarup panchayat, 30 km
from Ranchi. “It is paddy harvesting season and people have to
pay the workers they hire weekly to cut the crop, which comes to Rs
ap
1,400. They are feeling harassed. The bank gave us no instructions
on what to do, and we are not able to help.”
Chaudhary added that though an optical fibre network had been
laid in the panchayat three months ago, it was not yet
functional.“There is only 2G network in the panchayat and it is
Kn
routinely slow,” he said.

Another such instance is seen in Shamli district of UP where the
demonetisation scheme has hit the farmer doubly hard in this fertile
Doab region, coinciding as it does with the harvest and impending
sowing season.
Farmers in Shamli district listed out their everyday expenses –
harvesting plus transportation costs about Rs. 3,500-3,700 per
tractor load. This is in addition to expenses on animal fodder and
maintenance, fertiliser and seeds, farm equipment et al. And this is

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not accounting for everyday household expenses.

Criticizing the Rs. 25,000 limit on withdrawal for farmers,
Jitender Singh Hooda of the Hooda Khap said, “There should be
no limit on withdrawal for the farmer in this season. In fact this
whole exercise makes one wonder whether the Government has any
idea at all about the way we operate and the daily hardships we
face. For the past three years the sugarcane price has come down
and the paddy rate is less than half of what it used to be. There is
ly
no understanding of the fact that we need ready cash, at hand.”
“The farmer has been left to fend for himself.Which farmer uses
these fancy techniques like Paytm to transfer money? We need
cash. This is a critical season,” asked Ajay Pawar, representative
pi of the Battisa Khap.

How are even the urban areas not fully
equipped?
ap
India has one of the lowest card swiping
machine numbers per capita, worldwide.
Data indicates it has some 690-odd
terminals per ten lakh people. Even
among emerging economies this is very low, with China having some
Kn
4,000 terminals per ten lakh people and Brazil having almost 33,000
terminals per ten lakh population.
Over 70 per cent of these swiping machines are located across 14-
15 cities in the country.Hence, over 75 per cent of cashless
transactions are reported from these 15-odd cities. With such a
low penetration of swiping terminals, the possibility of even urban
India becoming a cashless economy soon looks remote.
The cost factor acts as a deterrent for more businesses to adopt
swiping machines. According to data available with Mastercard
and Visa, some 14 lakh merchants across India accept cards. Only

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about 5 per cent of consumption expenditure is transacted on cards.

More low-cost options such as mobile payment wallets like Paytm,
MobiKwik and Oxigen are coming to the market - they require
only a QR code and a sticker for transaction. But there are barriers
to low-cost options too.Most of such payment options available
in the market require a smartphone. India’s smartphone
number is around 25 crore.
Another deterrent to a mass move to cashless economy is the
ly
upgradation needed at the end of banks and payment gateways. As
the currency ban was announced, cardholders across India complained
of sporadic server outages and malfunctioning card swipe terminals.
pi This means tech support is not robust enough to support even the
existing number of cards - some 26 crore credit cards and some
69.7 crore debit cards.
That the country suffered a massive debit card breach in October
ap
2016 that ended up affecting 32 lakh debit cards across several
banks only showed up the vulnerabilities of our banking networks.
—– | —–
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INDIAN ECONOMY / Demonetisation / Modi’s

Benami target
27-Dec-2016
ly
pi After demonetization, Prime Minister Narendra Modi will crack the
whip on benami property holders. PM Modi promised to
ap
“operationalize” the law to deal with ‘benami’ properties as part of the
government’s crusade against corruption in his monthly ‘Mann ki
Baat’ radio address. The Benami Transactions (Prohibition)
Amendment Act, 2016, that came into effect on November 1, prohibits
benami transactions and would also affect the real estate industry.
Kn
What is the
announcement?
In his final Mann Ki Baat
address of the year, PM
Modi referred to illicit
property transactions, often
fuelled by black money and corruption, saying that the Centre would
soon implement the government’s Benami Property Act to “target
other forms of illegally accumulated wealth”.

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“You are possibly aware of a law about Benami property in our

country which came into being in 1988, but neither were its rules
ever framed, nor was it notified. It just lay dormant,” PM Modi
said.
In August, Parliament had passed the Benami Transactions
(Prohibition) Act, with the assurance from Finance Minister Arun
Jaitley that genuine religious trusts would be kept out of the
purview of this new legislation.
ly
The new legislation will make a provision of seven year
imprisonment and fine, replacing the three-year jail term, or fine,
or both.
pi It is considered a decisive Act against curbing the black money

menace of India.
Note: Benami means a “Property without a Name”. Here property
includes movable, immovable, tangible, intangible, any right or
ap
interest, or legal documents, even gold or financial securities could
qualify to be benami. Put simply, Benami Transaction is a
transaction where the property is purchased in the name of the
person who has not paid for it. The person who has rendered the
required money for the said transactions is not named in the transaction
Kn
but the property is held for the immediate or future benefit, direct or
indirect, of the person who has provided its payment. The person on
whose name the property has been purchased is called the benamdar
and the property so purchased is called the benami property.
Why do benami properties exist?
The practice has astrological roots. It
started due to a superstition where some
names or alphabets are considered lucky
and some unlucky.

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Today, there are multiple mal-intentioned reasons for which people

keep benami properties.
In the 1960s, landowners looking to evade the land ceiling acts
passed by many states started holding large scale of land in benami.
Another reason is to hide family affairs from public eye.
It is widely used to evade taxes and creditors.
This concept is also used by con people to do fraudulent
activities. For instance if Mr A is highly indebted, he would
ly
purchase property in the name of Mr Z, so that Mr A’s creditors
could not attach such property for recovery.
This malpractice is also adopted by corrupt Government
pi officials who take bribe in kind such as land, properties, cars,

jewellery etc. Since they cannot directly get these on their or their
family member’s name, the same is done in name of their in-laws,
cousins, close friends etc.
ap
There have been cases of high-profile corruption scandals such
as the one involving a Punjab chief minister whose family held a
huge volume of benami assets, or even cases where industrialists
took control of a company through holding shares in someone
else’s name.
Kn
When were attempts made to curb

benami properties?
Courts, in the days of the British Raj,
looked at the ‘intention’ — if one did
such a deal to hide assets from the taxman
or creditors, they would crack down, but
otherwise it was considered acceptable.
A committee on tax reform first mooted the idea of making
benami illegal altogether in 1960s. Then recommendations of a
1973 law commission report suggested the same.

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The first piece of legislation to target corrupt property transactions

was the Benami Transactions (Prohibition) Act, 1988. It first
started out as an ordinance in May 1988 and then was later
enacted by the parliament and came into force on July 19, 1988.
The Manmohan Singh administration came out with the Benami
Transactions (Prohibition) Bill 2011, which was tabled in
parliament in August 2011 and which was intended to repeal the
previous 1988 legislation. The 2011 bill, criticized for its scope of
ly
exemptions, was however never passed by parliament due to
major disruptions and overall dysfunction.
To curb black money, the Modi government in July 2016 decided to
pi amend the original act. The Benami Transactions (Prohibition)

Amendment Act, 2016 came into force on November 1, 2016.
The PBPT Act defines benami transactions, prohibits them and
further provides that violation of the Act is punishable with
ap
imprisonment of up to seven years and fine.
It prohibits recovery of the property held benami from benamidar
by the real owner.
Properties held benami are liable for confiscation by the
Government without payment of compensation.
Kn
Where do we see challenges in

implementation of such a law?
Despite many efforts, the progress on curbing
benami properties has been slow due to
structural issues in identifying benami
properties, lack of political will, lack of
proper implementation of laws and infirmities in the laws.
“The real issue has always been how to link the benami property
back to the actual owner,” points out a former income-tax official.

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“How do you establish that the money to buy the property has come
from this, or that person? There is rarely documentation which
indicates the real nature of such a deal.”
“According to my estimate, 62 percent of our GDP — that is Rs 93
lakh crore is the black economy. Given the situation, identifying the
benami property holders is a tough job. Will the tax department be
able to do it?” asks Professor Arun Kumar, a noted economist.
The Second Administrative Reforms Commission noted in 2007
ly
that the 1988 Act was never implemented or notified.
“Unfortunately, in the last 18 years, rules have not been prescribed
by the government…. With the result that the government is not in
a position to confiscate properties acquired by the real owner in
pi the name of his benamidars,” the commission said.

The standing committee on finance (2011-2012), which was
headed by former finance minister and BJP leader Yashwant
Sinha, noted that the 1988 benami property law was quite simply
ap
riddled with “procedural infirmities”; legalese for the fact that the
1988 Act was largely a bad piece of legislation.
According to the 1988 law, property bought by one person, but
in another’s name, is only allowed if the property is held in the
name of a person’s wife or unmarried daughter. Thus it was
Kn
illegal for a wife to buy property in the name of her husband or for
a father to buy property in the name of his son, even for genuine
purposes. The 2016 bill tries to address this by widening the
range of relatives in whose names property can legally be held.
Property under the bill can now be held in the name of a spouse, a
brother or sister, or ‘lineal ascendants’ or ‘descendants’ — such as
children or parents. However, it doesn’t seem to be a
comprehensive solution.
Who are exempted from the new law?

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Finance Minister Aurn Jaitley has already

assured that genuine religious trusts
would be kept out of the purview of this
new legislation. Apart from it, the 2016
Benami Transaction Act has provided more
exclusion:
In case of Hindu Undivided Family (HUF), Karta or any other
member of HUF owns or held any property for his benefit or for
ly
the benefit of the family members and the consideration for the
same is paid out of the known source income of HUF.
A person acting within fiduciary capacity for the benefit of
pi another person i.e. transaction involving trustee, executor, partner,

director of a company, a depository or a participant as an agent of a
depository under the Depositories Act, 1996 and any other person
as may be notified by the Central Government for this purpose.
ap
Any individual transacting in the name of his/her spouse or any
of his/her children (excluding married daughter) and
consideration of such property is paid out of the known source of
income of the individual.
In case the property is purchased using known sources of fund as
joint ownership with wife, children, siblings includes brother or
Kn
sister or lineal ascendant or descendant.

If a property is transferred but the contract of transferring the
property is partly executed, the same shall not be considered as
benami property.
If the property transaction is done based on General Power of
Attorney (GPA), through a registered contract and even stamp
duty is paid, such property is not considered as benami property.
Benami Property declared under Income Declaration Scheme
2016 (IDS) will no longer be treated as Benami Property.

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How else can the government tackle the

menace of benami properties?
Government should target sectors where
most of the black money is generated —
such as the property market or trading,
and tackle the problems in those
individual sectors.
Professor Arun Kumar suggested in an alternative budget to levy
ly
wealth tax and property tax on all properties above 25 square
yard (20.9 square metres). This will bring every property under
the tax net.
pi Another measure required is forcing people to pay stamp duty on

the actual market rate, rather than on unrealistically low circle
rates as is the case in many states to bring in transparency in the
property market. Circle rates should be revised upwards to
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reflect the true value of a property. The recent hike in circle rates
in Delhi is expected to go a long way towards increasing the
‘white’ money component of property transactions.
Infusing technology to empower authorities has also helped
immensely.
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For instance, besides 360-degree profiling of people who file tax

returns, the Intelligence and Criminal Investigation wing of the
Income Tax Department receives information from multiple
sources such as Financial Intelligence Unit (FIU), banks, Registrar
of properties, annual information report (AIR) from banks, hotels,
grand weddings, tours and travel agencies, high-value purchases
like house, cars, jewelry, consumer durables, payments made
through cards, and from transactions that attract tax collected at
source (TCS) and tax deducted at source (TDS).

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The database prepared from the information gathered by collating

manual and electronic intelligence goes to the data warehouse unit
for analysis. A new Non-Filers Management System (NMS)
matches the data being obtained from various sources.
These capabilities need to be enhanced further.
—– | —–
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pi
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INDIAN ECONOMY / Demonetisation /

Demonetization: a demon or a deity?
23-Feb-2017
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pi The 2016 Indian banknote demonetization aimed at curbing corruption,
counterfeiting and funding of terrorist activities, and bringing “black
ap
money” into the formal economy. Economic Survey 2016-17 suggests
that a number of follow-up actions such as quick remonetisation, tax
reforms and bringing real estate under GST would minimize the costs
and maximize the benefits of demonetization. Such actions would
allow growth to return to trend in 2017-18, following a temporary
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decline in 2016-17.
What are the benefits of

demonetization?
According to Economic Survey 2016-
17, it is too early to quantify the
direction and magnitude of long
term changes and benefits due to
demonetization. It says, “It will take several years to see the impact of
demonetization on illicit transactions, on black money, and on

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financial savings. But there are some signs pointing to change.”

According to it, some of the benefits of demonetization are:
Tax on black money: Demonetization should be viewed as a tax
administration measure to penalize black money holdings. This
scheme has gone a long way in getting large amounts of money
into the formal financial system. The “black money” holders faced
difficulties in the form of declaring their unaccounted wealth and
pay taxes, and either laundered the money by paying a cost for
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converting it into white or continued to hide it - which means 100%
penalty.
Tax compliance: Demonetization demonstrates the state’s resolve
pi to crack down on black money, showing that tax evasion will no

longer be tolerated or accepted as an inevitable part of life. The
popular support received for this initiative shows that black money
is not tolerated by public either. Both - financial penalty and
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social condemnation – could act as a deterrent for black money in
the future, reduce corruption and increase tax compliance. This will
result in increased tax-GDP ratio and add to the size of the formal
economy.
Tax on informal savings: Along with reducing tax evasion,
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demonetization will channel savings into the formal financial

system. Although there will be an increase in cash withdrawals in
near future when norms are relaxed, but there will be more credit
available with the banks to offer loans at cheaper rates. It will
reduce the equilibrium cash-GDP and cash-deposits ratio in the
economy which will increase financial savings and could have a
positive impact on long run growth.
Redistribution to the Government: Demonetization will also
redistribute resources. Due to laundering done by black money
holders, the cash moved from agents with a low propensity to

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spend to those with a greater propensity to spend. The most

important redistributive effect is that it will shift resources from
the private sector to the government. But the impact on the
overall economy will then depend on how the government
responds.
Impact on fiscal accounts: Demonetization will affect the fiscal
accounts in the following ways
Wealth gain: The RBI/government may receive some gains from
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the unreturned cash.
Short-term flow impact: It is expected that income tax collection
could go up as black money was deposited in bank accounts. There
pi are also reports of increase in tax payments at the state government

levels and accelerated payments to electricity distribution
companies (DisComs).
Why did India opt for demonetization?
ap
The Survey explains just how unique was
this step by Indian government: “All other
sudden demonetizations have occurred in
the context of hyperinflation, wars,
political upheavals, or other extreme
Kn
circumstances. But the Indian economy had been growing at the fastest
rate in the world on the back of stable macroeconomics and an
impressive set of reforms. In such normal circumstances,
demonetizations — such as the one announced recently in Europe —
tend to be phased in gradually.”
But what was the motivation behind such a drastic step?
High currency to GDP ratios: (leads to increased cash dependence)
This ratio declined steadily from around 12% in 1952-53 to about
9% in 1967-68. Thereafter, as the economy grew, this ratio also

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increased. Especially, it began its upward trend in the late 1970s

when growth increased, and then accelerated further during the
growth boom of the 2000s. This ratio declined during the period of
high inflation in the late 2000s and early 2010s but it rebounded
after 2014-15 to 12% when inflation declined again. The value of
high denomination notes (INR 500 and INR 1000) relative to GDP
had also increased in line with rising living standards.
More cash-dependent economy: (leads to more illegal transactions)
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Even though India is a relatively poor country, its economy is cash
rich. This seems to suggest that some of the cash holdings are not
used for legitimate transactions, but perhaps for other activities
pi such as corruption.
Global findings: This presumption is especially strong because
across the globe there is a link between cash and nefarious
activities:the higher the amount of cash in circulation, the greater
ap
the amount of corruption, says Transparency International.
High, even after accounting for corruption: But in India’s case,
its cash in circulation is relatively high even for its level of
corruption. It can obviously mean that perhaps India’s level of
corruption is much worse than the Corruption index shows or cash
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is being used for other, presumably legitimate purposes.

Need for more cash doesn’t mean need for high denomination
notes: Even if high levels of cash are needed, this doesn’t mean
high denominations are needed. It is usually observed that high
value notes are associated with corruption because they are
easier to store and carry, compared to smaller denominations or
other stores of value such as gold.
Comparing “soil rates” of different nations:
How much of them are in use? The most conclusive evidence on

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the extent to which Rs 500 and Rs 1000 notes are used for
transactions comes from the data on “soil rates”. It is the
percentage of notes (of the total in circulation) that are
considered to be too damaged to use and are returned to the
central bank.
RBI data show that in India low denomination notes have a soil
rate of 33% per year. In contrast, the soil rate for the Rs 500 note is
22% and the Rs 1000 just 11%.
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The best method to find black money: The best way to estimate
black money is by comparing Indian data to soil rates in other
countries. In principle, if a rupee-denomination note and a foreign
denomination note fulfill a similar transaction function, then their
pi soil rates should be similar. If the Indian soil rate is instead lower,
this suggests that a fraction of the notes are not being used for
transactions but for storing black money.
India vs. US soil rates reveal black money prevalence in India:
ap
Using relative soil rates for the US $50 and $20 notes and applying
them to comparable Indian high denomination notes yields an
estimate of the amount not used for transactions, and hence
potentially black, of about Rs. 3 lakh crore. This is substantial, as
it represents about 2% of GDP.
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Previous attempts proved less effective: Demonetization

followed a series of earlier efforts to curb such illicit activities,
including the creation of the Special Investigative Team (SIT) in
the 2014 budget; the Black Money and Imposition of Tax Act
2015; Benami Transactions Act 2016; the information exchange
agreement with Switzerland; changes in the tax treaties with
Mauritius, Cyprus and Singapore; and the Income Disclosure
Scheme.
When else was such an exercise carried out in India?

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India’s action is not unprecedented in its

own economic history: there were two
previous instances of demonetisation, in
1946 and 1978.
12 Jan, 1946: First Demonetization
Decision: In Britain, 10 Pound notes
were called back soon after the World War II. This was to check
black market operations and tax evasion, which were known to
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have occurred on a considerable scale.The government of India
blindly followed its colonial master.
Ordinance:High Denomination Bank Notes (Demonetization)
pi Ordinance 1946 was passed by the then Governor General of

India, Field Marshal Archibald Wavell, ceasing Rs. 500, Rs. 1000
and Rs. 10000 to be legal tender.
Outcome: It was almost a failure as most of the notes were
ap
exchanged. Out of the total issue of Rs. 143.97 crores of the high
denomination notes, Rs. 134.9 crores worth notes exchanged. Thus,
just over Rs. 9.07 crores were probably “demonetized”.
During the first demonetization, no new currency was introduced
and exchanges were made with Rs 100 and lower denominations.
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Reintroduction: In 1954, Rs. 1000, Rs. 5000 and Rs. 10,000 notes
were reintroduced.
16 Jan, 1978: Second Demonetization
Background: In the early 1970s, the Wanchoo Committee on
Black Money recommended withdrawing certain banknotes. But
high publicity given to its recommendations resulted in black
money operators getting rid of high-value currency notes. Hence,
these suggestions were not implemented.
Legislation: The High Denomination Bank Notes

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(Demonetization) Act, 1978 was passed in the Parliament ceasing

the usage of high denominations bank notes of Rs. 1000, Rs. 5000
and Rs. 10000. Finance Minister H.M. Patel and RBI Governor I.
G. Patel were considered the key architects in the development and
execution of the policy.
H.M. Patel in his budget speech on 28 Feb 1978 said:The
demonetization of high denomination bank notes was a step
primarily aimed at controlling illegal transactions. It is a part of a
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series of measures which Government has taken and is determined
to take against anti-social elements.
I.G. Patel was not in favor of this exercise because (and his words
seem valid even in 2017) – “The idea that black money or wealth
pi is held in the form of notes tucked away in suitcases or pillow

cases is naive. In any case even those who are caught napping or
waiting will have a chance to convert notes through paid agents
as some provision has to be made to convert at par notes tendered
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in small amounts for which explanation cannot be reasonably
sought.”
Was this constitutionally valid? The Constitutional validity of
1978 Act of Demonetization was challenged, on the claimed
grounds that it violated the then Fundamental Rights of property, in
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the Supreme Court.The apex court rejected the plea and upheld
the Constitutional validity of Demonetization Act, 1978.
Outcome: This exercise was a near-failure, much as 1946’s
demonetization ordinance was.
Key observations
Amendment to 1978 legislation: This act was amended in the
Indian Parliament in 1998. Rs. 1000 notes were reintroduced by
this amendment due to claims of shortage of high denomination
notes and increasing pressure on lower denominations.

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Current demonetization: Old notes of Rs 500 and Rs 1000 are

being exchanged with new Rs 500 and Rs 2000 notes.So, it is a
straight forward conversion. It will have to be seen how many of
these old notes will be exchanged.It is estimated that close to
90% of the old notes had been exchanged till the deadline. If
this is validated, it would mean the Finance Minister’s initial
estimate - that one-third of the existing 500 and 1000 Rs notes will
not be deposited - was way off reality.
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The key idea of all these exercises is to demonetize. But if the past
two exercises and the trends of the current one are put together, the
grand demonetization project is merely reduced to currency
pi exchange programs.
Where does the need for digitalization
of economy come from?
India needs a cash-lite economy: One
ap
intermediate objective of demonetization
is to create a less-cash economy as it
helps in channeling more savings
through the formal financial system and in improving tax
compliance.
Kn
The ground reality: According to the estimates of Watal

Committee, cash accounts for about 78% of all consumer
payments. According to Pricewaterhouse Coopers (2015), India
has a very high predominance of consumer transactions carried out
in cash relative to other countries (68% of total transactions by
value and 98% by volume).
Why is cash preferred in India?
Numerous advantages are provided by cash transactions: Cash
is convenient, accepted everywhere, and its use is costless for

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ordinary people. Transactions in cash are anonymous, and help to

preserve privacy. Cash also helps to hoard the money in large
stocks.
Bottlenecks in digital transactions: In contrast, digital
transactions face significant impediments. They require special
equipment, cell phones for customers and Point-Of-Sale (POS)
machines for merchants, which will only work if there is internet
connectivity. They are also costly to users, since e-payment firms
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need to recoup their costs by imposing charges on customers,
merchants, or both.
Why should digital transactions be preferred?
pi Increases financial connectivity and ensures smooth

administration: They connect people with the formal economy,
thereby increasing financial saving, reducing tax evasion, and
leveling the playing field between tax-compliant and tax-evading
ap
firms (and individuals).
Impacts all sections of the society: Digitalization can broadly
impact the three sections of the society:the poor, who are largely
outside the digital economy (350 million people without cell
phones); the less affluent, who are becoming part of the digital
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economy having acquired Jan Dhan accounts and RuPay cards

(350 million with regular “feature” phones); and the affluent,
who are fully digitally integrated via credit cards (250 million with
smart phones).
The government has taken steps to facilitate and incentivize
digitalization:
Initiative for the affluent: Launch of the BHIM (Bharat Interface
For Money) app for smart phones. This is based on the new
Unified Payments Interface (UPI) which has created inter-

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operability of digital transactions.

Initiative for the less affluent: Launch of BHIM USSD 2.0, a
product that allows even the feature phone (non-smart phones)
users to take advantage of the UPI.
Initiative for the poor: Launch of Aadhaar Merchant Pay
(AMP) aimed at those who do not have phones. This enables
anyone with just an Aadhaar number and a bank account to make a
merchant payment using her biometric identification. AMP will
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soon be integrated into BHIM and the necessary POS devices will
be rolled out.
Other relaxations and incentives: Reduction in fees (Merchant
Discount Rate) paid on digital transactions and transactions that
pi use the UPI. There have also been relaxations in limits on the use
of payment wallets. Tax benefits have also been provided to
incentivize digital transactions.
ap
The impact the initiatives have already had:
On the digitally excluded: The impact on the digitally excluded
category can be obtained via transactions in the Aadhaar-Enabled
Payments System (AEPS). AEPS transactions had been steadily
rising before November 8, 2016 but have accelerated thereafter.
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On the middle category: The impact on the middle category of

the digitally connected can be obtained via Rupay transactions.
Data from the National Payments Corporation of India (NPCI)
show that RuPay-based electronic transactions increased by about
Rs. 13,000 crore in case of POS transactions and about Rs. 2,000
crore in e-commerce, an increase of over 300-400%.
On the digital-haves: The impact on the digital-haves can be
discerned from credit card and debit card transactions excluding
for RuPay cards and ATMs that were affected by cash shortages.
There appears to have been a sharp increase of about 21% after

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November 8, 2016 and it remains to be seen whether this will be

sustained even as re-monetization accelerates.
General observation: It is observed that as people started to use
such e-payment systems, they discovered that it is more
convenient to conduct financial activities electronically. Also, as
more households participate, more firms are participating as well in
digital transactions.
Who else in the world had resorted to
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demonetization?
Major instances of sudden
demonetizations since 1982:
pi Ghana in 1982 demonetized of 50

Ghanaian cedi notes. There was no
exchange facility for long and there was a freeze on bank deposits
too. This step was aimed at controlling excess liquidity and
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inflation. This resulted in loss of confidence in the banking system.
Myanmar in 1985 and 1987 resorted to demonetization. There was
limited exchange facility provided along with introduction of new
currency denominations. The rationale was to fight black money. It
resulted in huge public protests and resulted in increased inflation
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levels.
Brazil in 1990 and 1993: The rationale behind both the
demonetization drives was to fight hyperinflation. While in 1990
the desired objectives were not achieved, in 1993 the economy
stabilized gradually.
Soviet Union in 1991 chose the option of demonetization to fight
organized crime and address money overhang. This resulted in loss
of public confidence, hyperinflation, drying up of cash and job
losses. This resulted in problems for neighboring currencies too
and it weakened Ruble.

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Similarly, Iraq in 1993, North Korea in 2009, Cyprus in 2013,

Greece in 2015 and Venezuela in 2016 resorted to demonetization
exercises but with very limited success.
The K.N. Wanchoo Committee Report mentioned other instances
of sudden demonetization that have occurred historically, including
Belgium, the Netherlands, Greece, France, Romania and Ceylon.
Major instances of Pre-announced/Gradual Demonetization/Sharp
Currency Contractions/Changes
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Euro area in 2016: New €50 banknotes were unveiled in July
2016 and will start circulating from April 2017. European Central
Bank has further announced that issuance of €500 will be stopped
pi by end-2018, when the €100 and €200 banknotes of the Europa

series will be introduced. The primary objective of this
announcement was to make Euro more secure and safe with state-
of-the-art security features. The decision on €500 took into account
ap
concerns that this banknote could facilitate illicit activities.
Pakistan in 2015: In June 2015, it was announced that old design
notes of Rs 10, 50, 100 & 1000 would be non-legal tender from 1st
December 2016. All the banks would exchange old notes with new
ones till the end of November 2016. State Bank of Pakistan and
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Banking Services Corporation field offices would continue to

accept the old notes till end-December 2021. The rationale behind
this announcement was to fight corruption, black money and
terrorism. As of now there is no credible information about the
status of this exercise.
Others: Zimbabwe in 2015, Sweden in 2013 and 2016, Denmark
in 2012, Canada in 2011, Singapore in 1967, 1999 and 2014, Euro
in 1999 and Australia in 1988 and 2015 resorted to pre announced
and gradual demonetization exercises.
How can India maximize the benefits of demonetization?

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The way forward: India should

concentrate on maximizing
demonetization’s long-term
benefits and minimizing its short-
term costs
Minimizing the costs
Faster re-monetization: The faster re-monetization (replenishing
the cash shortage) takes place, the shorter and less severe will be
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the overall impact of demonetization.
Easing of norms: The early elimination of withdrawal limits, no
penalties on cash withdrawals, which would only encourage cash
pi hoarding, will go a long way in restoring confidence.

Re-establishing internal convertibility: The proportion of low
denomination notes should certainly rise at the expense of higher
ones. Supply of currency should follow actual demand and not be
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dictated by official estimates of “desirable demand”.
Maximizing the long-term benefits:
Prefer capital over current expenditures: The government
windfall arising from unreturned notes should be invested in capital
expenditures rather than current ones. As the windfall will be one-
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off its use should be one-off and not lead to entitlements that create
permanently higher expenditures.
Digitization: In the medium term, the impetus provided to
digitalization must continue. But it has to be understood that
digitalization is not always a hero, nor is cash always a villain.
Digitalization must take the following into consideration:
Take a balanced position: Public policy must balance benefits
and costs of both forms of payments.
Gradual and inclusive transition: The transition to digitalization

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must be gradual and it should take full account of the digitally

deprived. Digitalization must be inclusive rather than dictatorial.
Time bound incentivizing of Digitalization: Digitalization must
be incentivized and the cost must be borne by the public sector
(government/RBI) and not the consumer or financial
intermediaries.
Strengthen cyber security: To increase trust in digital payments,
cyber security systems must be strengthened considerably.
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Complementary measures: Government must adopt a five-pronged
strategy in addition to the above measures to reap the benefits of
demonetization
pi Broader GST: A GST with broad coverage to include activities

that are sources of black money creation — land and other
immovable property — should be implemented.
Reduction in tax rates: Individual income tax rates and real estate
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stamp duties could be reduced.
Widen the tax net: The income tax net could be widened
gradually and, consistent with constitutional arrangements, could
progressively encompass all high incomes.
Corporate tax rate: The timetable for reducing the corporate tax
Kn
rate could be accelerated

Improve efficiency of tax administration: Tax administration
could be improved to reduce discretion and improve accountability.
Last but not the least:
Harassment free tax collection: Government must make sure that
the effort to collect taxes on newly disclosed (and undisclosed)
wealth does not lead to tax harassment by officials.
Greater accountability and transparency: There must be a shift
to greater use of data, smarter evidence-based scrutiny and audit,

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greater reliance on on-line assessments with correspondingly less

interaction between tax payers and tax officials.
Coordination between tax authorities and various levels of
administration: Greater information sharing between the direct
and indirect tax departments at the centre, along with coordination
with the states, could lead to greater compliance through non-
punitive means, not just in relation to indirect but also direct tax
collections.
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Data driven improvements: Big Data and the digital age, and the
promise they offer, should also be embraced by the tax
administration.
pi —– | —–
ap
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INDIAN ECONOMY / Demonetisation / Numbers

don’t lie: Demonetisation failed
31-Aug-2017
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pi The ordinary citizens went through the painful demonetisation exercise
because they were ridding the country of black money. The
ap
government declared victory, though analysts awaited robust data. The
Reserve Bank of India has now revealed that almost all of the old Rs
500, Rs 1000 notes made their way to the banking system. When
Michael Jackson sang “it really doesn’t matter if you are black or
white” he was probably referring to Indian currency.
Kn
What is the startling

revelation?
Nearly 10 months after Prime
Minister Narendra Modi
announced demonetisation, the
Reserve Bank of India (RBI) has
finally come out with provisional figures on the count of old Rs 500,
Rs 1000 notes that were returned to the banking system. Evidently, the
number would make neither the government, nor the central bank

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happy. It shows nearly all money has returned to the banks.

Subject to future corrections based on verification process when
completed, the estimated value of SBNs (specified bank notes)
received as on 30 June 2017 is Rs 15.28 trillion, the RBI said in its
annual report released on Wednesday evening.
The total value of invalidated Rs 500 and Rs 1,000 notes at the
time of demonetisation was Rs 15.44 lakh crore or around 86
percent of the currency in circulation. This means 99 percent of
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the demonetised currency has found its way back to the
banking system. Only a little over Rs 16,000 crore of Rs 15.44
lakh crore was not returned.
pi To be clear, this is not the final number. The RBI is yet to count
old notes received at cooperative banks and old notes submitted by
citizens an institutions of Nepal. By the time these numbers too
gets added up, the likelihood is that the final figure will be much
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closer to 100 percent mark. (We can only hope it does not cross
100%. Indian culture of jugaad can even ensure that).
The number of counterfeit notes or fake notes detected during the
exercise is only minuscule, as compared with a year ago.
The government had hoped the move would make it difficult for
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hoarders of undeclared wealth to exchange it for legal tender. The

news that it did not will raise questions about the policy, which
brought chaotic scenes across India.
Banks ran out of cash after the ban on 500 and 1,000 rupee notes.
Police were called in to manage long queues of anxious customers
hoping to change their savings.
Many low-income Indians, traders and ordinary savers who rely on
the cash economy were badly hit.
The long queues were the cost to be paid by patriotic Indians to rid the

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system of corrupt hoarders of ‘black money’. But somehow, the black

money made its way back into the system – almost all of it.
Why do the numbers declare failure
of demonetisation?
“India's demonetisation is
unprecedented in international
economic history, in that it combined
secrecy and suddenness amidst normal
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economic and political conditions. All other sudden demonetisations
have occurred in the context of hyperinflation, wars, political
upheavals or other extreme circumstances.” ~ Economic Survey of
pi India
At midnight, just hours after the announcement on November 8, the
500 and 1,000 rupee notes were worthless. People holding these notes
had to deposit them in their bank accounts. This money could later be
ap
withdrawn, though there were restrictions on the amount of money that
could be withdrawn immediately. The hope was that black money
held in the form of cash wouldn't be deposited into banks, given
that people holding it wouldn't want to be identified - in the
process, a vast amount of illegal money would be destroyed.
Kn
Politicians, analysts and ordinary Indians have argued for months over
whether Prime Minister Narendra Modi's so-called demonetisation
gamble was a success or failure. Now the data finally provides the
answer, on page 195 of the Reserve Bank of India (RBI) annual report.
It says that illegal notes worth 15.28tn rupees ($242bn) had been
deposited in banks up to 30 June. This basically means that almost
99% of the “demonetised” money was deposited into banks.
Hence, almost all the black money held in the form of cash also
made it back into the banks and wasn't really destroyed, as had

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been hoped.
As far as detecting counterfeit currency is concerned, nothing
much seems to have happened on this front either. Data from the
RBI annual report tells us that the total number of fake 500 rupee
(old series) and 1,000 rupee notes detected between April 2016 and
March 2017 was 573,891. The total number of notes withdrawn
stood at 24.02bn. This basically means that as a proportion, the
counterfeit notes identified between April 2016 and March
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2017 represent close to 0% of the withdrawn notes. In the
previous year, the total number of counterfeit 500 and 1,000 rupee
notes detected stood at 404,794. And this happened without any
demonetisation.
pi So the twin objectives of eliminating black money and detecting

counterfeit notes stand defeated. Technically, the Income Tax
department will still look into the sources of income of those who
ap
deposited the amount back. But that exercise will take years, and could
have been done without demonetisation.
The funny thing is that there were no estimates of how much black
money was held in the form of cash. The government admitted as
much, after having announced the policy. Finance Minister Arun
Kn
Jaitley said so in a written reply to a question in the lower house of

parliament, the Lok Sabha, on 16 December 2016.
Raids carried out by the Income Tax Department suggested that
people tended to hold about 5% per cent of their black money
in the form of cash.
But even this lack of data in the public domain did not stop
economists from coming up with their own sets of numbers, trying
to defend the decision of the Modi government, and failing to
explain what logic they based their assumptions on.

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On the flip side

India's large cash economy was badly hit by the policy. Even the
Bharatiya Mazdoor Sangh (the labour wing of the governing
Bharatiya Janata Party) admitted: “As many as 250,000 units in the
unorganised sector were closed and the real estate sector was
badly affected, with a large number of workers losing their jobs.”
Agriculture, the rural economy and property - which rely
largely on cash transactions - were sectors hit by the ban. It also
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contributed to a slowdown in economic growth.
Agriculture, a sector which largely operates on cash, was especially
hit, with farmers not being paid enough for vegetables and pulses
pi they had grown. Many protested and several state governments

waived payments on farm loans.
The RBI’s annual report makes it clear that demonetisation failed to
tackle black money and that the cost of churning the current
ap
government’s political base has eaten off 1% of India’s GDP growth
rate. The fourth quarter GDP fell to 6.1 percent from 8 percent
from the year-ago quarter. The fall in GVA (gross value added) was
even sharper to 5.6 percent in the fourth quarter from 8.7 percent in the
Q4 period of previous year.
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When did the economists go

wrong in their Math?
“Clearly, at least from the
perspective of its effectiveness in
dealing with the black money
issue, success has to be
measured by the sum of tax revenue generated and black money
destroyed. Suppose we accept the estimate that one-third of the
approximately Rs 15 trillion in demonetised notes is black money,”

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renowned economist Jagdish Bhagwati and his co-authors said in a

Mint piece on 27 December.
Based on this assumption, they also worked out the gains the Modi
government would have had if demonetisation exercise is
successful — around Rs 2.5 lakh crore. Here’s how they arrived
at this figure.
“Roughly speaking, the revenue that would have been generated
had that income been taxed in the first place is 30% of that (so, Rs
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5 trillion times 0.3 = Rs1.5 trillion). Perfect detection of black
money should now yield 50% as tax revenue (so Rs 5 trillion times
0.5 = Rs 2.5 trillion), if all black money is returned and identified
pi as such.” Just like that.

But, to begin with, the government never had an estimate of black
money in cash in the system. Perhaps, it was poorly advised. The
flawed implementation of the program only worsened the situation.
ap
Bhagwati can still be proved right if the government ‘identifies’ one-
third of that money as ‘black’. But that seems highly unlikely. An
economist of Bhagwati’s eminence should not have simply assumed
that one-third of the money is black.
Where is the counterpoint?
Kn
It may seem surprising that most of the

experts lauded government's landmark
policy as soon as the RBI revealed that
15.28 lakh crore, or 99 per cent of the Rs
15.44-lakh-crore scrapped currency notes,
had come back to the central bank. But they are betting on the fact that
the IT department will not find it easier to identify the black
money holders, and make them pay for it.
Siddhartha Sanyal, chief India economist at Barclays, said, “Of

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course, immediate gains look miniscule and the disruption in terms

of GDP is significant, but thankfully there has been a
normalisation. We have seen improvement in tax compliance,
both in direct and indirect taxes. It is wrong to nitpick the data
based on just one or two quarters. We need to take into account
long-term effects too. Overall, demonetisation has been positive
for organised sectors.”
Rama Subramaniam Gandhi, retired Deputy Governor, RBI, also
ly
praised the government's policy. “With almost 99% banned notes
returned, it means it has turned from black to white. Now, we
know who should be held responsible for that money. Now,
people will be bound to pay taxes. I would not agree that just
pi because surplus didn't happen, it is not a success. Money has

returned to system. It is now accounted and people have moved to
electronic side, which a good.”
ap
“A significant portion of SBNs (Specified Bank Notes) deposited could
possibly be representing unexplained/black money,” the finance
ministry said in a statement.
Finance minister Arun Jaitley said the objective of demonetisation
was to shift India from a predominantly high cash economy.
Kn
“We intended to give a blow to black money and… expand the tax
base of the country. It is obvious that post demonetisation, the
direct tax base has already started expanding substantially,” he
said.
The minister said government had taken steps to squeeze out cash
from the system and his next step would be stop use of black
money in elections. Demonetisation, he said, had left terrorists
and separatists in Chhattisgarh and Jammu and Kashmir cash
starved. Jaitley said note ban has compelled people to deposit
money into bank accounts.

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“So more tax payers, bigger tax base, both in direct and indirect
tax, more digitisation, lesser cash in the system, integration of the
formal with the informal economy. This was also one of the
principal objects as far as demonetisation was concerned. And I
think there is far greater evidence now that that has started moving
in the right direction,” Jaitley said.
Jaitley also dismissed the impact of demonetisation on GDP. He
said it was only a “transient impact” and when more money
ly
comes into the system, it impacts the formal economy.
The move, he said, was aimed at flushing out black money,
eliminating fake currency, strike at the root of terror financing,
convert non-formal economy into a formal economy to expand
pi tax base and employment, and to give a big boost to

digitalisation of payments to make India a less-cash economy.
Economic affairs secretary Subhash Chandra Garg tweeted in
support, “With RBI disclosing the numbers of returned notes today
ap
and the measure having been successfully implemented, debate
should be over.”
The opposition parties will agree with Garg – they would say the
debate is over but the verdict is against the government.
Kn
Former finance minister P Chidambaram on Wednesday used

Reserve Bank of India figures to lash out at it, saying one per cent
of the demonetised notes not coming back to the central bank was a
“shame on RBI”.
He also questioned the Narendra Modi government whether its
demonetisation decision was designed to convert black money into
white.
He also quipped that the economists behind the demonetisation
move “deserve Nobel prize” as the RBI gained Rs 16,000 crore,
but lost Rs 21,000 crore in printing new notes.

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Congress in-charge of communication department Randeep Surjewala

said demonetisation is nothing but a “disaster” in which 104 innocent
people were killed while ‘corrupt’ made ‘windfall gains’.
He also said that the demonetisation “scam” not only dented
institutional sanctity of the RBI, but also the credibility of India
abroad and demanded an apology from the Prime Minister.
He also said, “Rewind: Modiji’s obfuscation exposed once again.
On Ind. Day, PM claimed to have unearthed Rs 3 Lakh crore black
ly
money post demonetisation.”
The reality, he said, is that the RBI data released today proves only
Rs 16000 crore out of the 15.44 lakh crore money in circulation
pi came back and of this, Rs 9000 crore is still stuck.

Who can save the government’s face
now?
The number of suspicious transactions
ap
reported by banks to the Financial
Intelligence Unit in fiscal year 2017
(FY17) has surged to 361,214 from just
61,361 in the previous year. Add the fact that 98.96% of the high-
value notes returned to the banking system, and it would seem that
Kn
illicit money did find its way back into the system.
It is now up to the Income Tax Department to ruthlessly act on these
numbers. Public statements by the revenue department and other
officials have at best been pithy assurances rather than data or facts.
But the IT men have sprung into action. ‘Operation Clean Money’
was launched on 31 January 2017.
18 lakh accounts which, prima facie, did not appear to be in line
with their tax profile, were scrutinized.
More than 9.27 lakh responses were received giving information on

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13.33 lakh accounts involving cash deposits of around Rs.2.89 lakh

crore.
Advance data analytics tools were deployed which further
identified 5.56 lakhs new cases and about 1 lakh of those cases in
which either partial or no response was received in the earlier
phase.
About 200 high risk clusters of persons were identified for
appropriate action.
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The Income Tax Department conducted searches on various
entities, leading to seizure of cash and admission of undisclosed
income.
Since November 2016 and until the end of May 2017, a total of
pi Rs. 17526 crore has been found as undisclosed income and Rs.
1003 crore has been seized.
Increase in tax collection
ap
As a result, arguably, of demonetization, there is a substantial
increase in the number of Income Tax Returns (ITRs) filed. The
number of Returns filed as on August 5, 2017 registered an
increase of 24.7% compared to a growth rate of 9.9% in the
previous year.
Kn
Advance tax collections of Personal Income Tax (i.e. other than

Corporate Tax) as on August 5, 2017 showed a growth of about
41.79% over the corresponding period in previous financial year.
Personal Income Tax under Self-Assessment Tax (SAT) grew at
34.25% over the corresponding period in F.Y. 2016-2017.
Impact on black money
Transactions of more than 3 lakh registered companies are under
the radar of suspicion while one lakh companies were struck off the
list.

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The government has already identified more than 37000 shell

companies which were engaged in hiding black money and
hawala transactions.
Around 163 companies which were listed on the exchange
platforms were suspended from trading, pending submission of
proof documents.
The Income-tax Directorates of Investigation have identified more
than 400 benami transactions up to 23 May, 2017 and the market
ly
value of properties under attachment is more than Rs 600 crore.
A case can be made that the jury, in spite of the RBI numbers, is still
out. The intent of the government cannot be questions, even if the
pi methods can be.

In the long run the country may benefit from demonetisation. But as
the great economist Keynes put it brilliantly, in the long run we will
all be dead.
ap
How do the numbers stack up against
the government’s claim?
All our grand illusions crumble under
the weight of numbers. Demonetisation
cannot escape the scrutiny of the reality
Kn
check.
Moneycontrol has done a brilliant “debit and credit” of demonetisation
to highlight the differences between the rhetoric of the government and
the reality of the numbers.
Black money
Rhetoric
Demonetisation will result in at least Rs 3 lakh crore not returning
to system as tax evaders won’t be able to account for it

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Reality
99.3% of all old notes have been returned: Rs 15.44 lakh core
demonetised versus Rs 15.28 lakh crore returned
Fake notes
Rhetoric
System is awash with fake notes. Demonetisation would put an end
to this
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New Rs 2000 notes with new security features will replace them
Reality
Number of counterfeit notes caught rose by 20%
pi But total number of counterfeits caught account for 0.0007% of

total notes in circulation
638 new Rs 2000 notes were also found to be fake
Increase in taxes
ap
Rhetoric
Demonetisation was intended to get cash into the banking system
Tax registrations and taxes collected would increase
Reality
Kn
Number of new tax filers increased by 25%. But in the past, they
have also increased by 27%
Total income tax collection rose 20% in FY17. They rose over 16%
in FY15
Digitisation
Rhetoric
Demonetisation would increase digitisation.
Reality

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Technologies such as Aadhaar and UPI and businesses such as

Paytm help increase digitisation without large human cost
RBI said in April there was a fall in pace of digitisation
Growth
Rhetoric
Demonetisation would result in long term tax growth, digitisatiion
of economy
ly
Reality
There were short term costs. January-March 2017 growth fell over
3 percentage points year-on-year
pi RBI spent Rs 7,900 core in note printing in FY17 vs only Rs 3,400

crore in FY16. It spent Rs 17,400 crore mopping up idle cash in
FY17 against earning over Rs 500 crore a year ago
Impact on unorganised sector output and job losses still
ap
unquantifiable
One short-term gain
PM Modi emerges as undisputed crusader against the evil rich.
—– | —–
Kn

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INDIAN ECONOMY / Demonetisation / November

8, 2016: India demonetizes currency notes
9-Nov-2017
ly
pi On this day, one year and five million Google search results ago, the
government of India announced the radical economic decision of
ap
demonetisation that invalidated designated bank notes of denomination
Rs 500 and Rs 1,000. The exercise continues to be the fulcrum of
socio-political discourse in India, with supporters observing November
8 as ‘anti-black money day’, and the opposition deeming it a ‘black
day.’ The notes came to naught, but the debate had just begun.
Kn
What shook India on this day

last year?
On 8 November 2016, Indian
Prime Minister Narendra Modi
announced that high value
currency notes (Rs. 500 and Rs.
1000) would be withdrawn from the financial system overnight. He
said it was part of a crackdown on corruption and illegal cash holdings.
The RBI Press Release declared, “Government of India vide

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their Notification no. 2652 dated November 8, 2016 have

withdrawn the Legal Tender status of ₹ 500 and ₹ 1,000
denominations of banknotes of the Mahatma Gandhi Series
issued by the Reserve Bank of India till November 8, 2016. This
is necessitated to tackle counterfeiting Indian banknotes, to
effectively nullify black money hoarded in cash and curb
funding of terrorism with fake notes.”
In one legal stroke, 86% of the cash in the country was
ly
extinguished overnight and a billion people were impacted. The
“great Indian demonetisation” of 2016 will rank among the
most impactful economic policy decisions of any country in
recent history.
pi The public was given time till 30 December to exchange or deposit

their old currency notes with banks. The government and the
Reserve Bank of India (RBI) imposed limits on withdrawal from
banks and automated teller machines (ATMs).
ap
Initially, specific exemptions were allowed for a few days and use
of the old high-value notes was allowed at government hospitals,
petrol pumps, and buying rail and air tickets, and so on.
In his speech on 8 November, Modi said the primary motives for
demonetisation were threefold - to eradicate black money,
Kn
remove counterfeit currency, and stop terror financing. He

embarked on a three-day state visit to Japan the morning after the
announcement. By the time he returned, all hell had broken loose.
Withdrawal symptoms
With about 86% of currency in circulation no longer legal tender,
people’s lives were thrown out of gear as they queued up for new
currency notes and to deposit old ones.
The government and the RBI were unprepared to deal with the
consequences. A Right to Information (RTI) query revealed later

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that RBI had just one-fourth of the Rs20.5 trillion worth stock
of old notes in new replacement notes.
There were serpentine queues of people to withdraw their own cash
from bank ATMs. Millions of families were left stranded with no
cash. Weddings were cancelled, small shops downed shutters and
economic activity was disrupted. There was a crisis of liquidity.
Stand-up comics were writing new parody scripts.
The government soon unveiled a series of measures to encourage
ly
digital payments. It offered discounts on petrol, railway tickets, toll
payments and insurance policies; asked banks to waive fees on debit
and credit cards; told banks to install an additional one million point of
pi sales (PoS) terminals in three months, and even introduced a lucky

draw for digital payment users.
Why were the consequences massive?
Things did not go according to script.
ap
Within a matter of weeks,
“demonetisation” went from being an
attempt to flush out undeclared wealth to a
magic wand to turn a poverty-stricken
nation into a cashless economy. The bravado was both admirable and
Kn
laughable, according to some. Much attention has been paid to how

demonetisation slowed the economy down, and various anecdotal
reports or surveys about how it caused joblessness.
Negative impact
Demonetization wrecked the primarily cash-reliant rural
economy, adding distress to mounting debts. The agricultural
sector, which is behind in reforms and investment, worsened due
to cash shortages, plunging demand and collapsing prices. Prices of
potatoes, onions and tomatoes were half of what they had been a

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year before in January-February. While this was good for the

consumers, the farmers were left poorer. The outcome was
widespread suffering and farmer unrest in the states of Madhya
Pradesh, Maharashtra, Gujarat, Tamil Nadu and Rajasthan.
The downturn spilled over to other sectors. A survey by India
Development Foundation found that production took a hit,
accompanied by fall in employment, wages and job losses in the
two months after demonetization. In Mumbai, more than 50% of
ly
the power loom units were shut down, impacting around 300,000
workers. Around 1.5 million jobs were lost in the first four
months of this year.
Surveys done by the Punjab Haryana Delhi Chamber of Commerce
pi and Industry, All India Manufactures Association and State Bank

of India showed that the impact was between 50% and 80% on
small and unorganized sectors. The Reserve Bank of India’s
Annual Report (RBI) stated that industry slowed down.
ap
The economy is also still coping with aftermath. In the first
quarter of fiscal 2017-18, growth slumped to 5.7% compared to
7.1% in the same quarter of the previous year.
Although there is no way to be absolutely certain that the cause of
all this is demonetization, there are some telltale signs: Rural loans
Kn
increased by only 2.5% between October 2016 and April 2017; the
growth in industrial output in April was 3.1%; and the construction
sector registered negative gross value added growth.
On top of this, little black money has been brought to light. Of the
$240 billion USD worth of the notes removed from circulation, the
government estimated that as much as a third wouldn’t be
deposited in banks, implying that black marketers would junk their
undeclared cash than risk being found out. But this didn’t happen.
According to RBI’s report, banks received around $220 billion
USD, or 99% of the money.

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Even as RBI stated that there has been a significant increase in

the rate of fake currency note detection, the government’s
freshly minted 2,000-rupee notes, issued after demonetization, are
already being counterfeited. If this was not enough, the RBI
suffered a loss printing new currency notes - the cost of
printing notes was nearly $900 million in 2016-17, which is
double the $450 million spent a year prior.
All in all, demonetization accomplished too little while causing too
ly
much collateral damage.
Demonetization was flawed from the start according to some due to the
following reasons:
pi Demonetisation could not have eliminated black money since it

was well documented by various research studies that only
about 6% of illicit wealth in India was held in cash. So,
invalidating 90% of the stock of currency notes to catch 6% of
ap
illegal wealth was a clear case of using a hammer to kill a fly.
The rationale of a crackdown on counterfeit notes was also
misleading since India’s central bank’s own estimate was that
fewer than 0.02% of all currency notes in circulation were fake.
Counterfeit currency notes are a universal and perennial problem,
Kn
which is best, addressed through periodic design changes, not

through demonetisation.
The third reason cited by Modi for the measure was that India’s
share of high value currency was inordinately large which aided
terrorist financing. This is again fallacious. India’s stock of high-
value currency was growing in line with GDP and the share of
such currency in India’s GDP remained constant at around 9%
for half a decade. Further, there is no evidence that rising stock of
high value currency had increased terror incidents.

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When does the exercise make

sense?
Prime Minister Narendra Modi in a
message, on the anniversary of
demonetisation, expressed
gratitude to the country for
supporting measures taken by the government to eradicate corruption
and black money. Terming the demonetisation exercise as a historic
ly
and multi-dimensional success, the Prime Minister also invited people
to share their thoughts through a survey. In a tweet, he said, “I bow to
the people of India for steadfastly supporting the several measures
pi taken by the Government to eradicate corruption and black money.

125 crore Indians fought a decisive battle and WON.”
PM also shared a 7-minute video. The movie details the various
stages and benefits of the massive demonetisation exercise that was
ap
undertaken by the government last year. Extensive treatment is
being given to the various aspects of the exercise and how it has
been indeed proved to be a watershed moment for the country. The
video lists the immense benefits of the exercise including the
increased taxpayers base, unearthing of many modules of black
Kn
money in circulation, choking of the funding of anti-national

activities in many parts of India, restricting the total value of
high currency notes in India by 1/3rd, surgical strikes on the
shell companies in India and increase in digital transactions in
India.
Demonetisation was designed to flush the system of the
accumulated and hidden black money that tax evaders, nefarious
elements, anti-national elements, hoarders and black-marketers had
accumulated under political patronage. The move forced tax
evaders to deposit their money in regular banking channels. On

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one hand, this reduced the amount of black money available for
nefarious activities, and on the other, it allowed India to track and
investigate suspicious movements of funds in bank accounts that
do not match with the tax profiles associated with those accounts.
Operation Clean Money was launched to nab offenders and it
quickly unearthed several suspect transactions, including 14,000
properties of more than Rs 1 crore each, where persons have
not even filed Income Tax returns. Officials also detected over 3
ly
lakh-registered companies that were involved in suspected
dealings, and registrations of more than 1 lakh shell companies
have been cancelled.
Demonetisation reduced the amount of cash available with the
pi citizens, which in turn increased the bank deposits somewhere

between Rs 2.8-4.3 lakh crore. If we assume Rs 3 lakh and apply
an accepted 6 multiplier, then demonetisation created new
lending capacity of Rs 18 lakh crore, which is 36 times India’s
ap
Central government allocation to primary education.
With the introduction of Demonetisation came the 7.6 crore new
monthly digital transactions. Demonetisation exploded the
number of digital payments on UPI/Bhim apps from 1 lakh in
October 2016 to 7.7 crore in October 2017.
Kn
Demonetisation served as a catalyst for 3 lakh crore new financial

savings. The eight months after note ban was introduced, the
country saw mutual fund inflows of Rs 1.69 lakh crore (up 1700
per cent) and the three months after demonetisation saw Life
Insurance Premiums rising by 46 per cent. With greater
financialisation of savings, a virtuous cycle for formal job
creation was formed.
After the introduction of Demonetisation, interest rates were
lowered by 2 per cent. Expensive loans and the increasing cost of
money in the country had been crippling India’s entrepreneurs.

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Demonetisation was acting as an effective countermeasure against

anti-national activities such as funding of terrorism and Naxalism,
and in inflating the price of major assets classes like real estate,
gold and gambling. The call traffic of hawala agents dropped by 50
per cent and the incidents of stone pelting in Kashmir have
declined sharply post demonetisation. It also reduced the menace of
Pakistan printed high-value fake currency notes.
Real estate prices came down and cheaper homes were being made
ly
available under the Prime Minister’s Housing Scheme, fulfilling
the dreams of many to own their own homes.
Demonetisation is certainly not the panacea for all ills that years of
pi corruption-laden governance has afflicted India with. It is, however, a

major tool that, in combination with the other measures taken by the
government at curbing corruption, not only allows for a cleaner and
more transparent economy, but also strengthens the economic
ap
fundamentals promoting more inclusive growth and bringing greater
prosperity for the people of India.
Where is the way forward?
One year on, there’s little that can be said
in defense of demonetization: It was a
Kn
poorly conceived policy with muddled

goals that was horrendously implemented.
That said, even bad policies can have
good, if initially unforeseen, outcomes.
The Indian government provided multiple different justifications
for its action at various points. The one it has finally zeroed in on,
however, is that by pushing citizens away from cash and toward
digital transactions, demonetization will in the long run benefit
the Indian economy. And, certainly, that’s a worthy goal, even if

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demonetization may not have been the best way to go about

achieving it.
Instead of trying to win a political argument about the manifold
benefits of demonetization, the government would be wiser now to
focus on its positive effects and expand upon them.
One way would be to make digital transfers much easier.
Opening a bank account online, or using it to transfer money,
should be made practically effortless. The problem is that the
ly
government has locked itself through demonetization into a
narrative where the fight against unaccounted cash is paramount.
This means that it’s willing to maintain more bureaucratic
hurdles to online banking than are necessary. Onerous know-
pi your-customer (KYC) requirements should instead be eased and, at

least for relatively low-value digital transactions, be made
frictionless.
In some parts of the world, such as East Africa, local mobile phone
ap
dealers do most of the work that bankers do elsewhere. In China,
opening an online account that provides most of the benefits of a
“real” bank account requires just a smartphone and a few minutes.
Procedures in India are far more cumbersome.
The government should look around the world and adopt the
Kn
simplest procedures that have worked elsewhere, even if this means

that regulatory structures have to shrink. Paranoia about tax
evasion will not serve anybody at this point. The goal must be to
get transactions online and thus visible, and then the tax base will
expand organically.
Furthermore, digital transactions must be made not just easy but
cheap. Remember, cash works because each transaction is,
essentially, free — other than the opportunity cost of interest
foregone by holding the cash needed for that transaction. The cost
of a digital transaction should never be higher than that

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opportunity cost, if people are to voluntarily choose online

payment mechanisms. That isn’t the case at the moment. The
mobile prepaid wallets that became popular after
demonetization, for example, take away between 1 and 3
percent of whatever cash you transfer between your wallet and
your bank account. It’s thus hardly surprising that people
switched back to cash when it became possible to do so.
The Indian government can still salvage something from the wreck of
ly
its signature policy. Digitalization of payments is a goal well worth
pursuing — through steady deregulation and cost cutting, not through
boastful rhetoric and disruptive actions.
pi Who said what?

Prime Minister Narendra Modi’s
government observed it as “Anti-Black
Money Day” and opposition parties
ap
marked it a “Black Day” in protest
against the move.
Following in the footsteps of Modi, several Indian ministers also
took to Twitter to share their thoughts on “Anti-Black Money
Day.” Indian Information and Broadcasting Minister Smriti Irani
Kn
tweeted to thank people for “their trust and continued support”

toward cash ban and also re-posted Modi’s video on “benefits of
demonetization.”
However, the Congress-led opposition parties locked horns with
the government as they observed the “Black Day” by holding
protests across India. Nehru-Gandhi scion and Congress Vice
President Rahul Gandhi hit out at Modi, saying that cash ban was a
“thoughtless act” that affected livelihoods of millions of Indians.
“Demonetization is a tragedy. We stand with millions of honest

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Indians, whose lives and livelihoods were destroyed by PM’s

thoughtless act,” he tweeted.
Another opposition leader and Chief Minister of West Bengal,
Mamata Banerjee, turned her Twitter display picture black to
protest against the move on the first anniversary of the event.
Former Prime Minister Manmohan Singh of Congress party
slammed PM Modi for the sudden unplanned decision to
demonetize higher denomination currency notes, saying it affected
ly
the country’s economic growth.
Soon after that, Finance Minister Arun Jaitley termed
demonetization as a watershed moment in the history of country’s
economy and slammed the Congress party for not supporting the
pi move aimed at curbing black money. About 5.6 million new

taxpayers had been added to the tax net, the finance ministry said.
And Reserve Bank of India data shows transaction volumes
through mobile wallets, such as Paytm and MobiKwik, jumped
ap
after demonetisation to a high of 320.87 million in April, from
99.57 million in October.
Chinta Mani Shivakoti, deputy governor of Nepal’s central bank,
Nepal Rastra Bank, said they were still waiting for Indian
authorities’ response to exchange nearly Rs55 million currency
Kn
notes held by its citizens. Business associations estimate the value

of the notes at Rs10 billion (1000 crore).
How is digitization shaping up?
If demonetisation was a push for a
cashless economy, it has been working
very slowly. Reserve Bank of India
data shows the usage of wallets, non-
UPI banking apps and Aadhaar-
enabled payments has been slow to catch on, while that of debit cards

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has fallen. The UPI payments have been growing, and a significant
chunk of them are mobile-based.
Overall, electronic payments stood at Rs 200 trillion (200 lakh
crore) in August — an increase of 5 per cent over August 2016 but
0.7 per cent lower than at the peak of demonetisation in December
last year (Rs 201 trillion).
Some categories of digital payments have in fact fallen below
their pre-demonetisation levels. Mobile banking saw the sharpest
ly
fall of 30 per cent since August last year, and 46 per cent since the
demonetisation-period high of Rs 1.5 trillion. Debit card payments
also fell by 2.2 per cent to Rs 2,706 billion this August from Rs
pi 2,767 billion in October 2016. This was despite a 4 per cent

increase in the number of debit card transactions. People are
swiping their cards more often for smaller amounts at ATMs as
roughly 10 per cent less cash is in circulation compared with the
ap
pre-demonetisation period.
The most touted benefit of demonetisation was the increase in
mobile banking and wallets. But as of August 2017, mobile banking
formed only 0.33 per cent (Rs 80,000 crore) of total online
payments. Mobile wallets, including Paytm, Mobikwik and those
Kn
from banks, formed only 0.051 per cent (Rs 102.88 billion) of the
total. Their share of the digital pie was virtually unchanged since
August 2016. Mobile banking rose from 0.37 per cent of e-payments in
August to 0.71 per cent in November 2016 before falling back to 0.33
per cent.
—– | —–

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INDIAN ECONOMY / Breaking the shell
21-Aug-2017
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pi The government of India has prepared a list of 16,794 shell companies
which mostly belong to real estate, finance and entertainment sectors.
After the demonetisation drive, many firms accepted cash from
ap
companies that are suspected to have used these firms to launder
money and evade taxes. These firms are unable to justify the income
shown in their books. Knappily analyses the consequences of this and
examines ways to make India more tax compliant.
What are the recent steps taken by the

Kn
government?
The government has prepared a list of
16,794 shell companies with inputs from
all investigative agencies. The list is
mostly comprised of real estate, finance
and entertainment companies.
The list includes the 331 companies flagged off by the Ministry of
Corporate Affairs to the Securities and Exchange Board of India
(SEBI).

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There are more than 700 real estate companies across the country
that are under the scanner of investigation agencies. Following the
government’s demonetisation drive in November last year, these
firms accepted large sums of cash, which are suspected to have
been done with an aim to help tax evaders launder their
undisclosed income.
“These real estate companies are under scanner for unaccounted
money as well as for benami property,” a senior income tax
ly
department official told Moneycontrol, adding that there was a
separate team focused on unearthing ‘benaami’ properties
across the country.
The list of shell companies also includes more than 400 stock and
pi commodity broking firms. Many of these companies are being

probed for helping wealthy individuals evade taxes through fake
long term capital gains.
“Some of the commodities brokers have been misusing the
ap
liberalized remittance scheme under the garb of trading in
overseas markets,” the official said.
More than 20 entertainment companies are also under the scanner
of investigation agencies. These firms are unable to justify the
income shown in their books.
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The government has taken several steps over the years to check tax
evasion through shell companies. For instance, in 2012, it amended the
law to tax share premium in excess of fair market value. In 2017, the
government amended the law to account for other than a quoted share
sold at less than fair market value.
The crackdown on shell companies is part of a bigger process to
contain the menace of black money. The government is on the
right track here.
It has also been reported that the government intends to make the

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Aadhaar of key managerial personnel mandatory for

regulatory filing. This will help track individuals indulging in
illegitimate activities.
For example, a person on the board of a large number of companies
not engaged in any significant economic activity would
automatically raise a red flag. The government also plans to use
Big Data for tracking tax evaders
While these changes have made tax avoidance difficult through the
ly
sale and purchase of shares in unlisted companies, it can still be done
through listed companies as the long-term capital gain tax is nil
and the short-term capital gain tax is just 15%, provided the
pi securities transaction tax is paid.

So it is likely that some operators push prices of smaller companies
in the market and help their clients show capital gain and get
compensated in unaccounted cash. This could be done through
ap
transactions from multiple accounts to make tracking difficult. The
government would need to use information technology more
effectively to track such transactions.
Note: Shell Company is a corporate entity without active business
operations or significant assets. They are often created to avoid taxes
Kn
and many big companies create shell corporations to avoid taxes

without attracting legal actions.
Why should the government be
careful?
While the investigation will reveal
whether these companies were actually
involved in tax evasion or not, the
government needs to be very careful as
an action like this can affect business and market sentiment.

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Many of the listed companies under the scanner were actively

traded in stock exchanges and such an action can destroy value
and affect common shareholders.
There is no clear definition of ‘shell company’ in India. Companies
that are not in operation are commonly put in this category.
However, in the US, shell company is defined as “a registrant
with no or nominal operations and either no or nominal assets,
assets consisting solely of cash and cash equivalents, or assets
ly
consisting of any amount of cash and cash equivalents and nominal
other assets”.
But there is nothing illegal if a company is not engaged in any
pi economic activity at a given point in time.

There could be multiple reasons for that. It is possible that it had
operations in the past and has gone out of business owing to purely
economic reasons. It is also possible that companies were
ap
registered but could not start operations because of some economic
reason — or that companies are created for the purpose of
layering.
It could be done for legitimate corporate purposes, but it could also
be done to evade taxes by showing bogus transactions.There could
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be other reasons as well, such as distancing the identity of owners.

But the government should be careful while taking action against
companies in the listed space as it could affect other stakeholders,
including the normal shareholder, who have done no wrong. In such
cases, the government would do well to first target individuals who
are suspected to be avoiding taxes.
Note: Layering is a strategy in high-frequency trading where a trader
makes and then cancels orders that they never intend to have executed
in hopes of influencing the stock price. For instance, to buy stock at a

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lower price, the trader initially places orders to sell at or above the
market ask price.
When do we find the scale of tax
evasion in India massive?
The size of India's underground
economy and the amount of lost taxes is
widely debated, but even the lowball
figures are immense in a country with a
ly
nearly $2 trillion GDP. In recent studies, experts estimated that
anywhere from 17 percent to 42 percent of the economy operates
beneath the official radar.
pi During the budget this year, Arun Jaitley placed before Parliament data
exposing the gap between tax collection and income and
consumption patterns of the economy even as he announced steps to
widen the tax net.
ap
Among the 3.7 crore individuals who filed tax returns in 2015-16,
99 lakh showed income below the exemption limit of Rs 2.5 lakh
per annum; 1.95 crore showed income between Rs 2.5 lakh and Rs
5 lakh; 52 lakh showed income between Rs 5 lakh and Rs 10 lakh,
and only 24 lakh people declared income above Rs 10 lakh.
Kn
Of the 76 lakh individual assesses who declared income of above

Rs 5 lakh, 56 lakh are in the salaried class.
The number of people showing income more than Rs 50 lakh in
the country is only 1.72 lakh, Jaitley said while placing before
“certain data” to indicate that “direct tax collection is not
commensurate with the income and consumption”.
“We can contrast this with the fact that in the last five years, more
than 1.25 crore cars have been sold, and number of Indian
citizens who flew abroad, either for business or tourism, is 2 crore

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in the year 2015,” he said.

Jaitley informed that as against estimated 4.2 crore persons
engaged in organised sector employment, the number of
individuals filing return for salary are only 1.74 crore.
As against 5.6 crore informal sector individual enterprises and
firms doing small business, the number of returns filed by this
category is only 1.81 crore.
“Out of the 13.94 lakh companies registered in India upto March
ly
31, 2014, 5.97 lakh companies have filed returns for Assessment
Year 2016-17. Of the 5.97 lakh companies which have filed returns
for Assessment Year 2016-17 so far, as many as 2.76 lakh
companies have shown losses or zero income,” the finance minister
pi said.
Only 2.85 lakh companies have shown profit before tax of less than
Rs 1 crore, 28,667 have shown profit between Rs 1 crore to Rs 10
crore, and only 7,781 companies have profit before tax of more
ap
than Rs 10 crore.
In his Independence Day address to the nation from the ramparts of
Red Fort, Prime Minister Narendra Modi declared that the
government has identified 300,000 shell companies, out of which
the registration of 175,000 companies has been cancelled.
Kn
The Prime Minister also highlighted that some 400 companies

were being run from the same address. These numbers give a
broad sense of the scale of the problem of tax evasion through shell
companies.
Where are the reasons it is easy to evade taxes in India?
It is easy to evade taxes in an economy such as India's, where cash has
traditionally been the preferred mode of payment. With no paper
trail, the self-employed doctor, lawyer or factory owner can happily

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under-report income.
Businessmen will perhaps not pay
all the taxes due. But many would
like to “pay a little tax”. Cash
allows them to play that game.
At Delhi's Lajpat Nagar Central
Market, Vinod Gupta, the vice president of the market's traders'
association, confirms that income tax evasion is prevalent among
ly
businesses that rely on cash. He says the small shop owners and
stall vendors who make up about 25 percent of the market
evade paying altogether.
pi When asked how they manage that with tax inspectors

investigating the local businesses, Gupta lets out a knowing laugh.
“Sometimes they hire their services,” he says. “They pay bribes”
to officials to evade taxes, he explains.
ap
At other times, he says, the authorities may penalize the vendors with
small fines or insist they “register with the tax department,” meaning
get compliant.
The bulk of those paying income taxes, experts say, are salaried
employees whose companies are responsible for making their tax
Kn
payments.
While those taxpayers can fudge their numbers to an extent, using
inflated receipts to magnify tax breaks on expenses like housing,
it's extremely difficult for them to completely escape tax
authorities.
But everyone else — from the barons of family-owned
businesses to doctors, lawyers and small traders — operate in
largely cash economies that enable them, if they want, to hide
most of their income.

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Who should we compare India’s tax

compliance with?
At 16.6% India’s tax-to-GDP ratio is
well below the emerging market
economies (EME) and OECD
(advanced economies) averages of
about 21% and 34% respectively.
India's tax to GDP increased from 10.4% in 1965 to 16.6% in
ly
2015-16, the corresponding tax-to-GDP ratio of OECD countries
increased from 21% in 1965 to 33% in 2015.
Even compared to OECD nations with lower GDP (Korea, Turkey,
pi Mexico, Chile, Portugal, Greece, Slovenia and Poland) is still

lower at 16.6% versus average of 24% of these nations.
Among the G-20 Countries, India had the third lowest tax-base,
just above Mexico and Indonesia.
ap
A high tax-to-GDP ratio is also a common feature of countries with
high level of social security measures such as Belgium, Denmark
etc.
The level of tax compliance in most advanced countries is very
high, as high as 90%.
Kn
The tax-to-GDP ratio is the ratio of tax collected compared to

national gross domestic product (GDP). In a simpler language, it
would be tax contribution towards GDP.
The tax-to-GDP ratio gives policymakers and analysts a metric that
they can use to compare tax receipts from year to year. In most
cases, because taxes are related to economic activity, the ratio
should stay relatively consistent. Essentially, as the GDP grows,
tax revenue should grow as well.
Tax and GDP are related, since a higher GDP will

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automatically lead to a higher tax collection (a higher GDP is an

indicator that there has been an increased overall development in
the country and hence a higher per capita income).
Increasing the country's tax-GDP ratio may become important if its
fiscal deficit is high. This is because the higher the fiscal deficit,
the more the gap between the revenue the government is generating
from tax and other sources such as PSUs, investments and exports,
and the expenditure it is incurring in doling out subsidies, running
ly
welfare schemes and running the government.
To close this gap between income and expenditure, the government
needs more revenue, which it can get from tax revenues. However,
countries like India have a low tax to GDP ratio. The problem
pi arises especially in countries where development is low and tax

evasion is high.
India's tax collection as a share of GDP has risen only by 10
ap
percentage points over the past six decades. As per the income tax
data for the last 16 years, made public by the government in 2014-15,
just about 4.87 crore people filed tax returns, making it less than 4% of
the total population of 125 crore. It is estimated that more than 90% of
India’s net national income lies outside the tax net.
Kn
How can the government improve

tax compliance?
In the US, tax compliance is high and
ascribed to strong deterrent effect of
selective, intensive audits. But
punishment leads to resentment,
hostility, avoidance and minimum compliance and, therefore, should
be avoided. In sharp contrast, rewards could be more effective in
motivating people to pay tax dues.

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The reward system could vary in different economies and situations.

Some of the rewards suggested are special schemes like faster
access to special phone lines with shorter wait; or reduced public
transportation fares; free admission to museums and cultural
events.
Also suggested are measures like providing tax-compliance
certificates to firms to help them build an image; and making tax
certificates mandatory to renew certain licenses.
ly
Japan, for instance, offers to have your picture taken with the
Emperor if you were found to be honest. The Philippines puts your
name in a lottery if you were found to be compliant with VAT.
pi South Korea considers allowance to airport VIP rooms, and free

parking in public parking facilities. In Finland, targeted tax
incentives have been used to significantly influence taxpayer
behaviour through tax credits which can be used for different
ap
purposes, including nursing homes.
In India, good financial behaviour needs to be celebrated publicly.
Illustratively, in every commissionairate of direct and indirect
taxes, a public reward ceremony could be conducted. Honest tax
payers can have a privilege of a picture with Governor of the state
Kn
or even the President of India. Other incentives could include

special privilege in government-operated hotels, hospitals, and
airlines; preference in awarding government contract; bonus points
for children in admission to government institutions; etc.
There is also a need to create trust and cooperation between
citizens, corporate/business sector and the Government.
At present the general perception is mutual suspicion among all
three. The Government and citizens suspect that corporate business
is dishonest and accumulating profits at their cost. The private

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sector and citizens suspect that the Government does not use their
tax collection for general welfare of the society and taxes are
wasted.
In fact, in advanced countries, high tax collection and excellent
public services reinforce each other. Poor public infrastructure
cannot compel high tax compliance.
Finally, the Government and private business believe that
citizens are unaware and, therefore, can be ignored. This fear of
ly
each other has only been increasing over years despite the change
in political regime.
The recent episode of demonetisation has, in fact, resulted in clear
demarcation of the rich versus the poor. The class war, or divide, is
pi not very useful for creating mutual respect for different economic
actors in the country, because each one is essential for an efficient
economy.
ap
There is still another fear, mainly among small businesses, that in the
absence of social security, in times of financial stress, there is no
insurance cover.
The businesses, especially in informal sector, have to be self-
dependent and, hence, they save on taxes. To address this
Kn
insecurity, the Government could consider, on lines of

agricultural/crop insurance, instituting an insurance scheme
for business tax payers especially those from informal sector
which would provide financial support in times of distress.
There is also a need to investigate other factors that strengthen tax
compliance. According to global research, women are considered
more tax compliant than men; but unfortunately, not in India.
Logically, it can be deduced that in a country where females are
not secure at work places compulsion of tax compliance would
generally be weak.

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To improve tax collection there is need to create a conducive tax

administration.
This would imply a) incentivising tax collection and tax
intelligence agencies, probably with higher allowances and
compensation; b) electronic surveillance through technology
upgradation; c) quick settlement of disputed cases; and d) ensuring
equity, certainty, convenience and simplicity in taxation.
To support creating conducive tax administration there is a need to
ly
introduce academic courses on ethics and business practices for
business graduates, chartered accountants, company secretaries,
auditors and legal experts.
pi It is difficult to have an oasis of honest financial behaviour in the midst

of general atmosphere of dishonesty in non-financial matters.
Higher tax collections are beneficial for the society, and therefore,
different agencies of the society such as the entertainment industry,
ap
social media, community leaders and non-government agencies should
together contribute to strengthening ethical behaviour in the society —
tax compliance simply reflects general social norms.
—– | —–
Kn

mba.knappily.com
WORLD – BUSINESS / Disney about to tame Fox
14-Dec-2017
ly
pi It cannot really get any bigger than this. Walt Disney Co. has made an
astronomical offer of at least $60 billion to buy film, television and
international businesses from Rupert Murdoch’s Twenty-First Century
ap
Fox Inc. The deal, to be announced anytime now, will end half a
century of unbridled expansion by Murdoch. Disney CEO Bob Iger is
up for his biggest test as Hollywood braces itself for a three-way battle
between Disney, Universal and Warner Bros.
What is shaking Hollywood?

Kn
Walt Disney Co. plans to buy

much of the media assets of
Rupert Murdoch’s 21st Century
Fox. If approved by regulators,
the deal would create an
entertainment powerhouse and transform the Hollywood landscape. If
all goes as the media world expects, at some point this week or next
Disney will announce that it is purchasing a large chunk of 21st
Century Fox in what would be one of the largest media deals in recent

mba.knappily.com
years.
This, verily, is a media and entertainment earthquake.
If the deal goes through, Disney will take ownership of one of
the United States’ largest movie studios, including franchises
like the blockbusters based on the Marvel Universe, as well as
television channels like FX and National Geographic and a
majority ownership of streaming service Hulu, among many
other properties.
ly
It would also be a monumental deal for 21st Century Fox (FOX),
significantly changing the company’s trajectory and chief
executive Rupert Murdoch’s legacy. And, analysts say, the fact
pi that talks have come so far is indicative of the changing media

environment, and that this could be a prescient move by a
company better known for acquiring assets than selling.
Murdoch’s shift to selling assets rather than buying them has come
ap
as a surprise to many who expected him to hand over the
businesses to his sons, James and Lachlan.
Disney also will buy Fox’s stake in the Hulu video streaming
service, giving it majority control (Disney already is a part-
owner) of the competitor to Netflix. Hulu also is partially owned
Kn
by Comcast Corp and Time Warner Inc.

This will be an all-stock deal, valuing Fox at $40 per share
Under the terms of the all-stock deal, Fox assets that will be sold to
Disney, including the Twentieth Century Fox movie and TV
studio, cable networks and international operations will be valued
at around $29 per share, Wall Street Journal reported on 13 Dec.
Fox’s remaining assets, focused on news and sports, will be offered
to existing Fox shareholders in a new company likely to be valued
at more than $11 per share, according to the source.

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Why is Disney chasing Fox?

The Fox deal brings marquee
franchises inside the Mouse House, on
top of Disney CEO Bob Iger’s
previous purchases, including Pixar
Animation Studios, Marvel
Entertainment and “Star Wars” producer Lucasfilm. Disney has
been struggling to bolster its TV business as cancellation of cable
ly
subscriptions is pressuring its biggest network, sports channel ESPN.
Under the deal, Disney will gain access to 46 million subscribers
in three major markets, the United States, Western Europe and
pi India, according to Barclays analysts.

It also diversifies Disney’s revenue as U.S. cable television
subscribers decline. Fox’s Star business in India, for example, is
projected to earn $1 billion before interest, taxes, depreciation
ap
and amortization by 2020, Fox Executive Chairman Lachlan
Murdoch said at a Business Insider conference in November.
Iger is eager for a reason
It’s about scale. Fear is also a pervasive motivator. Netflix’s
success as a streaming service in gathering 100 million global
Kn
subscribers — coupled with its heavy spending, up to $8 billion

next year, on content — is driving rivals into big deals.
Disney has done amazing things with movie franchises it has
acquired in the past like Star Wars. It has a lot of potential use for
some new franchises, along with new ties to Hulu, as it seeks to
market its own ESPN streaming service in 2018, along with a
branded Disney direct to consumer streaming service in 2019 as it
has started breaking ties with Netflix.
Disney’s $60 billion bid will make Fox shareholders extremely

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happy in the short run, and Disney shareholders extremely

happy in the long run. The price that Disney is willing to pay is
more than one would rationally arrive at.
But Disney cannot afford not to buy Fox.
In this case with Fox’s assets, Disney sees a way to make a major
leap to narrow the streaming-video content gap with Netflix, where
video-on-demand has been Netflix’s major source of dominance.
And this dominance has been heightened by consumers’
ly
unwillingness to pay for cable and satellite and bloated bundles
of TV channels they don’t watch. It’s for this reason Disney
stock has risen just 1.5% year to date, versus the 18% rise in
pi the S&P 500 index, while underperforming the market over the
past several years.
This will all change with Fox in the mix. Disney, which already
owns 30% of Hulu, would then — by virtue of Fox’s 30% stake
ap
in Hulu — become majority owner in arguably, the platform
that competes more closely with Netflix. And combined with
Disney’s rich library of content and its own standalone
streaming efforts, Disney would then see significant revenue
growth from its future streaming media services.
Kn
Iger is showing intent, and he isn’t afraid to admit the need to

change tracks. During Disney’s Q3 earnings call with analysts,
CEO Bob Iger — when asked about the pricing of Disney’s
streaming service — mentioned Netflix by name, suggesting a
strategy to undercut Netflix on price. “It will be substantially
below Netflix because we’ll have substantially less volume,” Iger
responded to inquiry.
To be sure, taking down Netflix is not as easy as it sounds. From
Amazon, Apple and Google’s YouTube, Netflix has taken everyone’s
strongest punch and not only has it survived, but thrived. But Disney’s

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got to try, at least to survive.

With Fox, therefore, Disney is buying not just a large chunk of the
conventional entertainment space, but also an opportunity to make
incremental market share gains in a streaming video segment where it
once had no roots.
When does the deal make sense
for Murdoch?
ly
“Well, apparently, hell has frozen
over, and Fox is for sale.”
Ever since the news emerged of
pi Disney’s interest in the assets,

Fox executives had remained adamant that the company has what it
needs to navigate the media industry’s turmoil. “We’ve got a great set
of brands and a great set of assets that we really like,” Chief
Executive Officer James Murdoch, Rupert’s son, had said on a Nov.
ap
8 conference call.
Fox has spent decades living up to its name. Murdoch isn’t known for
selling assets. In fact, he is the most aggressive buyer in the Hollywood
town. Why, then, would he sell now?
Kn
The price and the time is just right.

The change of heart at Fox, which just a few years ago was a buyer
aggressively but unsuccessfully chasing Time Warner, could have
been caused by two factors: a realization that its business is a
declining asset and its peak value is now.
After a lifetime building a media empire, Rupert Murdoch had to
decide whether the changes disrupting the industry were so
daunting that he must tear his creation apart. Murdoch’s 21st
Century Fox Inc. owns a movie and TV studio, a U.S. broadcast
network, a stake in Europe’s biggest satellite provider and cable

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channels such as FX and Star India — but it’s still dwarfed by

Walt Disney Co. and Comcast Corp. Viewers are abandoning
traditional pay TV in droves, putting pressure on Big Media to get
even bigger to survive. Fox, valued at around $54 billion, is
smaller than Disney, Comcast, Time Warner and Sony, and
almost miniscule compared to Facebook, Apple and Google,
which are increasingly calling the shots in the original content
game.
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That’s why Murdoch, 86, is selling some of his assets after decades
of amassing TV and film properties. “The margin pressure on TV
is just starting,” said Laura Martin, an analyst at Needham & Co.
“Fox correctly has come to the conclusion that you need to be
pi bigger to compete with the entrance of the large internet

companies like Apple and Amazon to the content business.”
At the box office, meanwhile, sales are down 5 percent this year in
North America, raising concerns among movie studios that
ap
audiences are tiring of big-budget blockbuster fare.
It is also possible he wants to spend the rest of his life doing what he
did the best and loved the most. News.
Fox would now be left with properties including Fox News, the Fox
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broadcast network and perhaps sports channels, depending on the deal.

Those assets are some of Fox’s most profitable, and Fox News, the
most-watched cable news network, is especially close to Murdoch’s
heart.
Where are the concerns inside
Fox?
As the countdown to the expected
announcement of a $60 billion-
plus acquisition by Walt Disney

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Co. begins, insiders at Fox studio are privately expressing a

mixture of shock, frustration and great concern over what the
future spells for them.
After news of the talks between the two media giants surfaced in
early November, there was a period of disbelief followed by unease
as it became clear that the negotiations were accelerating. Nobody
on Fox’s Century City lot could conceive of Rupert Murdoch
selling the studio and other crown jewels such as FX Networks
ly
and the National Geographic Channels group, the 22 regional
sports networks, Star India, the 39% interest in Sky and the
30% stake in Hulu.
pi But it’s happening. And now, executives are wondering how they
might fit into a reconfigured Disney-Fox film or TV structure.
Producers with deals at 20th Century Fox and sibling units,
including Fox 21 Television Studios and FX Productions, are
ap
wondering how the demand for content will change under
Disney ownership and management.
It’s a cultural mismatch. From “In Living Color” to “American
Horror Story,” Fox has a well-earned reputation for pushing the
envelope on edgy material — shows that might have a hard time
co-existing with the conservative Disney brand. On the movie
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side, with the exception of an occasional franchise instalment, Fox

and its specialty unit Fox Searchlight are known for producing
sophisticated adult movies like “The Post” and “The Shape of
Water” — not the kind of titles that deliver the event-size
audiences of a Marvel superhero film or a “Star Wars.”
Simply put, the big, high-quality scripted shows the Fox network
has long been known for — from decades-old The Simpsons to
newer hits such as Empire — would no longer make much
financial sense. Modern-day TV economics make it essential for

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linear networks, particularly broadcast ones, to fill their

schedule with programs produced within the same vertically
aligned company. That’s because the money generated by
selling ad time on TV series is rarely enough these days to
generate substantial profits; in some cases, advertising revenue
doesn’t even cover the cost of making a show.
So Fox shows such as Bob’s Burgers or Empire become super
profitable only after they move to platforms beyond the network —
ly
like when reruns end up streaming on Hulu. This is why all but 4
of the roughly 20 comedies and dramas Fox will air this season
are produced by its sibling production studio, 20th Century
Fox TV. And it’s why Dana Walden and Gary Newman, the two
pi executives who oversee the Fox network, are also in charge of the
Fox studio. The symbiosis between studio and network is the only
way linear TV still works.
Murdoch isn’t selling everything. Fox News and Murdoch’s
ap
various sports cable networks (and team rights, including Sunday
afternoon NFL games) would remain under the 21st Century Fox
umbrella. Murdoch’s skinnier bundle of assets would also include
local TV stations in most of the country’s biggest media markets.
According to multiple TV-industry the newly orphaned Fox
Kn
network would be forced to radically remake itself in order to

survive.
Without their in-house production house in place, Fox 2.0 will have to
end shows and fire employees. That’s the price that will not be
factored in the Disney-Fox deal. But one’s got to what one’s got to do.
To make the show go on.
Netflix is now killing Hollywood careers.
Who will fight the final battle for Hollywood supremacy?

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Universal/Comcast Corp. announced

yesterday that it was the third studio to
cross the $5 billion mark in global box
office for 2017, coming mere weeks
after Walt Disney and Warner
Bros./Time Warner Inc. did likewise.
The studio, a division of NBCUniversal at Comcast, has crossed
that threshold only one other time in its 105-year history. That was
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2015, fueled by “Jurassic World” and “Furious 7.”
Universal hit the $5 billion mark thanks to a diverse slate this year,
led by “The Fate of the Furious” (the eighth installment of the
pi “Furious” franchise) and “Despicable Me 3.” The action movie

alone made more than $225 million domestically and more than $1
billion internationally for a $1.2 billion total. “Fate” posted the
biggest international and global opening weekends of all time —
ap
even bigger than “Star Wars: The Force Awakens” — and remains
the top-grossing foreign film in China. Meanwhile, “Despicable
Me 3” made $265 million domestically and $768 million
internationally for $1 billion worldwide. The franchise has
grossed $3.7 billion globally including the “Minions” spinoff.
So far this year, Universal is the only studio with two titles that
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grossed more than $1 billion worldwide, though that could change

with the arrival of “Star Wars: The Last Jedi” from Disney this
Friday. Disney’s “Beauty and the Beast” made more than $1.26
billion.
Just concentrating on theatrical moviegoing for a moment, the Dinsey-
Fox deal will solidify the utter dominance of the three biggest studios
in town, partially by taking the fourth biggest out of the equation.
First and foremost, Walt Disney is currently running up 18.4%
of the total domestic box office as Warner Bros./Time Warner

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Inc. leads with 20.1%, Universal (counting Focus Features) is

third with 15.8% and Fox and Fox Searchlight now make up
13% of the 2017 North American theatrical market.
While Disney is now behind Warner Bros./Time Warner Inc. in
domestic market share, it’s close enough that The Last Jedi should
put it over the top. Give or take Jumanji: Welcome to the Jungle
potentially giving Sony a push, these four top studios (Disney,
Universal, Time Warner and Sony) will control around 67.3% of
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the market share in terms of domestic box office in 2017.
Assuming A) this deal goes through and B) Disney doesn’t
drastically reduce the theatrical output from Fox and Fox
Searchlight, the industry as a whole will almost instantly turn into a
pi three-way slugfest with Disney/Fox snagging 30-40% of the

market in a given year while Universal and Warner Bros. go for
their respective 15-20% apiece. Meanwhile, Paramount, Sony and
Lionsgate will do their best with the remaining 20-30% while STX,
ap
A24 and the rest fight for the remaining 10-15%.
In terms of market share domination, this deal will all but surely
turn theatrical filmmaking into a three-ring circus, with those rings
belonging to Time Warner, Comcast Corp. (Universal) and Walt
Disney.
Kn
Again, to be clear, there is a lot more at stake in Hollywood these days

than just theatrical moviegoing. For one thing, it’s likely that Walt
Disney would remake Hulu into their own private streaming
service and thus put Hulu on equal footing with Netflix and
Amazon.
How will Indian assets be impacted?
Through the $60-75 billion deal, Disney would be able to distribute
its programming on Star India, operator of 69 TV channels in
eight languages, as well as the popular Hotstar streaming service.

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AndDisney also would gain global rights

to professional cricket.
“It is an amazing opportunity to get into
the best developing market in the world,”
MoffettNathanson analyst Michael
Nathanson said, “but it is highly
competitive.”
Netflix Inc has been offering its streaming service in India for
ly
nearly two years, and Amazon.com Inc’s Prime Video has been
courting Indian customers for one year. Global expansion is
important to Disney because its largest U.S. network, ESPN,
pi has been losing subscribers as audiences migrate from

traditional television to digital viewing.
India represents the second-largest subscription TV market in
Asia, with 154 million households in 2016, according to
ap
consultancy PricewaterhouseCoopers, which projected that number
will grow to 167 million in 2021. Mobile video traffic, meanwhile,
is booming. KPMG expects it will grow at a whopping compound
annual growth rate of 68 percent between 2016 and 2021.
For Disney, owning Star India could give it an edge over
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competing content providers in the world’s second-most populous

country. New entrants like Netflix will need a lot of time to
recreate” a service like Hotstar because of its sports rights and
head start in producing programming in multiple Indian
languages, Barclays analysts said in a research note.
Star India is also flush with cash.
Fox projects it will earn $500 million before interest, taxes,
depreciation, and amortisation in fiscal 2018, rising to $1 billion in
2020. “Star India alone is by far the most successful TV network in the

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fastest-growing country,” Macquarie Research analyst Tim Nollen

said.
Star’s TV business could bring in new advertising revenue at a
time when U.S. ad spending is growing at a slower pace. In the
first fiscal quarter, Fox saw international ad revenue jump 10
percent, fuelled by double-digit increases in growth through
Star India, while in the United States the company saw 3 percent
growth in ad revenue.
ly
Disney networks including the Disney Channel are distributed now
in India but overall the country is “an egregious area of under-
exposure” for Disney, B. Riley FBR analyst Barton Crockett said
pi in a research note.
Adding Star, which reaches 720 million (7.2 crore) viewers per
month, would vastly expand Disney’s TV presence in India.
Disney could put its content on the Star channels and Hotstar, said
ap
Prem Parameswaran, chief executive of North America for Eros
International Plc.
Global sports rights, particularly cricket which Fox recently won,
should add to Disney’s bottom line, Parameswaran added. In
September, Star paid $2.55 billion for broadcast and digital rights
Kn
of the Indian Premier League (IPL) cricket tournament, beating

Facebook which also bid.
“In India there is religion, there is cricket and there is Bollywood,” he
said.
—– | —–

mba.knappily.com
WORLD – BUSINESS / Netflix vs. Hollywood
27-Mar-2017
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pi Tensions between Netflix and Hollywood are escalating after the
streaming-video company was accused of making attempts to poach
executives from Fox 21 Television Studios. Since 2015, Netflix has
ap
emerged as a major player in original film production, and in doing so
it has shaken the foundations of the studio-driven system which we all
took for granted. Netflix is now aiming to produce its own big-budget,
big-star films to premiere exclusively on Netflix.
What is making Hollywood worried?

Kn
Tension is escalating between Netflix and

Hollywood as the streaming-video
company moves from being an upstart
dabbling in original programming to a big-
spending entertainment powerhouse that
will produce more than 70 shows this year.
It is expanding into new genres such as children’s fare, reality TV
and stand-up comedy specials — including a $40 million deal for
two shows by Chris Rock.

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The shift has unnerved some TV networks that had become used to
Netflix’s original content being focused on scripted dramas and
sitcoms.
Netflix’s spending on original and acquired programming this year
is expected to be more than $6 billion, up from $5 billion last year,
more than double what Time Warner Inc.’s HBO spends and five
times as much as 21st Century Fox’s FX or CBS Corp.’s
Showtime. It spent close to $10 million an episode on “The
ly
Crown,” a lavish period drama about a young Queen Elizabeth II.
Its shock-and-awe spending — combined with that of Amazon and
other new players — is driving up costs industry wide and creating
a scarcity of people and equipment.
pi Netflix in 2014 signed a deal to make four movies with Hollywood

star Adam Sandler, which has so far resulted in Ridiculous 6, The
Do-Over, and the upcoming Sandy Wexler.
“You just can’t compete with someone coming in with fresh money,
ap
low overhead and a lot less baggage than you,” said Darrell
Miller, an entertainment lawyer at Fox Rothschild LLP. One
veteran television executive likened Netflix’s onslaught to Genghis
Khan’s.
TV stars are demanding “movie star” salaries of some $250,000
Kn
per episode when they previously were content with half that,
according to studio executives. Competition for “A” team camera
crews, sound engineers and post production specialists is fierce.
Netflix recently announced the hiring of Scott Stuber to helm its
venture into original, star-driven films. Stuber was formerly vice
chairman of worldwide production at Universal Pictures, and most
recently at Bluegrass Films (which he co-founded), a production
company under the Universal umbrella. Netflix lists eight original
films premiering this year under Stuber's oversight.

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Why is Netflix considered a game-

changer?
Non-streaming TV viewing in the U.S.
fell about 3% last year in terms of hours
viewed. Analysts estimate that Netflix
accounted for about half of that decline.
Netflix has harnessed the shock waves of the broadband revolution,
becoming simultaneously one of the top-performing
ly
techcompanies — its stock rose 134% in 2015, the best return of
any Fortune 500 member — and one of the world’s fastest-
growing entertainment businesses.
pi It spent $5 billion in 2015 on television and film content, a spree

that far outpaces its rivals — and underscores the pressure it’s
exerting on those rivals to rethink the way they operate.
As of the end of 2016, Netflix had 49 million domestic and 44
ap
million international subscribers, and the company has
mentioned a goal of getting to 200 million eventually. Its
pioneering practice of buying up an entire season (or two) of a
series without requiring a pilot is luring writers, actors, and
producers away from traditional television.
Kn
And by releasing full seasons in one fell swoop and streaming them
ad-free, Netflix has trained viewers to binge — and to be
increasingly impatient with once-a-week episodic television and
commercial breaks.
In 2015 nearly a third of the population of North America didn’t set
foot in a theater; another 10% went only once.
Each Netflix membership starts at $8 a month, or $96 a year.
Multiplied by tens of millions, that revenue stream gives Netflix a
huge cushion to support prestige programming.
Thanks to subscriptions, Netflix can forgo commercials.

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Sarandos and Hastings, founders of Netflix, argue that since they

sell no ads, they don’t need to disclose viewership numbers. That
assertion drives competitors nuts.
In January the company announced that it is now available in 190
countries, up from 60 a year earlier. About 42% of Netflix’s
current customers are outside the U.S.
The global growth hasn’t rolled out as fast as investors had hoped,
resulting in some recent yo-yoing of Netflix’s stock price — but
ly
some analysts think the company could still double its customer
base by 2020.
When was Netflix founded?
pi Netflix was founded on August 29,

1997, in Scotts Valley, California, by
Marc Randolph and Reed Hastings.
Hastings, Randolph's mother and
ap
Integrity QA founder Steve Kahn
invested $2.5 million in startup cash for Netflix.
Netflix introduced the monthly subscription concept in September
1999, and then dropped the single-rental model in early 2000.
Since that time, the company has built its reputation on the
Kn
business model of flat-fee unlimited rentals without due dates, late

fees, shipping and handling fees, or per-title rental fees.
In 2000, Netflix offered to be acquired by Blockbuster for $50
million, but the offer was declined. If only Blockbuster knew
how Netflix would change the game in the coming years!
Netflix initiated an initial public offering (IPO) on May 29, 2002,
selling 5.5 million shares of common stock at the price of
US$15.00 per share.
After incurring substantial losses during its first few years, Netflix
posted its first profit during fiscal year 2003, earning US$6.5

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million profit on revenues of US$272 million.

In 2005, 35,000 different films were available, and Netflix shipped
1 million DVDs out every day.
Randolph, a dominant producer and board member for
Netflix, retired from the company in 2004.
Netflix developed and maintains an extensive personalized video-
recommendation system based on ratings and reviews by its
customers.
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In February 2007, the company delivered its billionth DVD, and
began to move away from its original core business model of
DVDs, by introducing video on demand via the Internet. Netflix
grew as DVD sales fell from 2006 to 2011.
pi Netflix now has over 90 million subscribers and continues its disc
rental business at a monthly rate, but the online service remains a
wildly popular offering, continuing to outshine Amazon Prime
with its high quality content.
ap
Where is Netflix surging ahead of its
rivals?
Whether it is hiring the best talent for
management or attracting the most sought
Kn
after actors and producers for content,

Netflix is running ahead of the clueless
others.
About twenty 21st Century Fox employees not under contract
have recently jumped to Netflix. Netflix also recently plucked
away Stacey Silverman, a senior executive at Comcast Corp.’s
NBCUniversal Television, as well as executives from Sony Corp.
and Walt Disney Co., among others.
Faced with spiraling costs, TV chiefs are redoubling efforts to
discover new writers, show creators and less-expensive stars.

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NBCUniversal said it would make shows with BuzzFeed based on

popular web video and news content.
Producers and agents are beginning to talk about the downsides for
talent of being on Netflix shows and movies — for example, by
saying they don’t get the promotion they deserve on Netflix’s
crowded shelf of content — but many Hollywood stars still relish
the chance to be in a Netflix original. Netflix tends to offer more
money up front along with a more flexible filming schedule due to
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fewer episodes, and several of its shows have won critical
accolades and industry buzz.
Some TV industry executives and Wall Street skeptics question
whether the company can add enough subscribers, especially in
pi international markets, to support its breakneck spending pace and

justify a $60 billion market capitalization that values Netflix at
more than 300-times its 2016 earnings. Netflix’s overall
subscriptions grew 25% in 2016 from the previous year to nearly
ap
94 million.
Analyst Michael Nathanson estimates Netflix this year will have
negative free cash flow — a measure of profitability — of about $2
billion due to elevated spending on original shows, which require a
higher upfront outlay than library deals.
Kn
Netflix has financed the spending by borrowing money, increasing

its debt burden more than 17-fold since 2012 from $195.8 million
to $3.4 billion.
Investors and Netflix executives are focused on subscriber growth
over any other metric and have been encouraged by a surge in
international customer additions over the past couple of quarters.
Last quarter, it added 5.12 million subscribers abroad, beating
expectations. Shares are up 44% in the past year.
Netflix’s desire for domination is on display in its push into
comedy. It has gone after big name stand-up comics that used to

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call HBO home, including Mr. Rock, Louis C.K. and Amy
Schumer, with an aggressiveness not seen in decades. Mr. Rock’s
$40 million payday is more than double what he was getting at
HBO.
Even legendary filmmaker Martin Scorsese is coming to Netflix.
His mob drama ‘The Irishman’ starring Al Pacino and Robert De
Niro will release exclusively on Netflix, which has agreed to pay a
whopping $100 million for the rights to the movie.
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Who may be at risk?
Netflix and other streaming services
are a constant in the life of millions
pi of college students. The concept of

unlimited movies and TV shows is
enticing, but it is this limitlessness
that causes streaming services to take up so much of our busy lives.
ap
While using streaming services in moderation may not be
unhealthy, college students often use them too heavily. Binge
watching and addiction to streaming services is preventing many
students from having a healthy social life.
Addiction to Netflix, Hulu, Amazon Prime and other streaming
Kn
services often prevent people from making plans with friends.

Many young boys and girls would rather click “next episode”
than walk down the hall to see their friends.
Netflix causes people to shut their doors, put their headphones on
and not talk to their friends. Streaming services establish the norm
that if you have nothing to do, you should watch an episode of a TV
show instead of seeing a friend or playing a sport.
Facebook took away the time people would spend in the real world by
somehow convincing them that viewing and ‘liking’ images is much

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better than meeting and greeting people. Netflix is taking that

disconnect to the next level – where time is measured by the number of
episodes that it can fit in.
How can Hollywood fight back?
Streaming sites such as Netflix,
Amazon Prime, iTunes and Mubi
represent such a grave threat to
cinema that even the National
ly
Association of Theatre Owners has
waded in.
Last October, the industry body condemned Netflix’s decision to
pi bypass the long-established “theatrical window” by releasing its

war thriller The Siege of Jadotville, starring Jamie Dornan, online
the same day it premiered in a handful of US cinemas.
The theatrical release ensured that the film was eligible for awards,
ap
while the digital release furthered Netflix’s only real commercial
interest: establishing and asserting dominance of this new
distribution model.
Falling box office revenue is evidence that the comfy convenience
of home-viewing is not to be underestimated and, according to
Kn
Netflix’s chief content officer, Ted Sarandos, those who are

holding out and still prefer the cinema experience need to shake
their “romantic notion” about the big screen. “We have to get rid
of the romantic part,” he said in 2016. “I think over time that
these films will get booked into theatres at the same time they’re
on Netflix.”
For film-makers, too, the new way of doing things has its appeal.
Netflix’s refusal to disclose viewing figures promises to liberate
creative minds from box-office anxiety, while its deep pockets take
the pressure off production budgets.

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This, along with its acquisition of trickier-to-market titles, such as

the child soldier drama Beasts of No Nation or Ava DuVernay’s
Oscar-nominated documentary 13th, may create the impression that
Netflix is as serious about disrupting the risk-averse, profit-led
culture of film production as it is about disrupting the distribution
model.
So far, the standard industry response to this threat has been to make
more films of scale: more disaster movies, more monster movies, more
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epic space operas and very little of anything else. They would do
better to remind audiences that spectacle isn’t all cinema can do. It
isn’t even the most exciting thing.
pi Simply put, Hollywood is fighting back by releasing more of the same.

Quite a flop show so far.
—– | —–
ap
Kn

mba.knappily.com
WORLD – BUSINESS / Business is in the air
31-Oct-2017
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pi In its recent blogpost, Airbnb has spilled a few beans about the factors
that can influence a listing’s search placement. Successfully catering to
the algorithm can mean the difference between a top-ranked listing and
ap
an also-ran rental. Though many similar sites have sprung up, the sheer
scale of Airbnb cannot be matched in the near future. Knappily
analyses how Airbnb and its clone-competitors have stolen market
share from the traditional hotels.
What has Airbnb revealed?

Kn
Airbnb is a vacation rental site, which

serves as an online market place for
property owners. The business model of
Airbnb is popularly referred to as sharing
economy or gig economy. The company
helps in mobilizing local economy and make money from unused
property.
The Airbnb site’s search algorithm, therefore, is an invisible
hand that can make or break businesses. Successfully catering to

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the algorithm’s quirks can mean the difference between a top-

ranked listing that is seen by countless travelers, and an also-ran
rental that remains buried at the bottom.
But while some of the factors that go into rising through the
rankings are common sense and fairly well known (it helps to get
good reviews, for example), much of it remains a black box of
which hosts can only guess. And guess they do: Airbnb hosting
forums are filled with tips and tricks that are based on little more
ly
than suspicion and anecdotal evidence.
Which is why the recent blog post from Airbnb itself is both
surprising and incredibly useful. In it, the Airbnb’s in-house team
lays out at least a little bit of the secret sauce that can influence
pi a listing’s search placement.

Here are a few surprising revelations:
Being a superhost doesn’t directly help
ap
Airbnb’s Superhost badge is awarded to hosts who meet a certain
checklist of criteria related to reviews (at least 80 percent need to
be five stars), cancellations (you can’t pull the trigger on any in the
past year), volume (at least 10 guests in the past year), and
response rate (you need to write back at least 90 percent of
Kn
queries).
Constantly tweaking the listing doesn’t help
According to the blog post, “repeatedly changing or tweaking your
listing will neither help nor hurt your Search Ranking.”
The fastest way to improve search placement: turn on instant book
As the blog post put it, “The best way to immediately improve
performance in Search is to enable Instant Book. Our research
shows that guests prefer the booking experience that Instant Book
provides. Even when they don’t filter for Instant Book listings, they

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often choose them over others because booking a place to stay

quickly means they can get on with planning the rest of their trip.”
Inspiring curious clicks helps
Even if a guest doesn’t end up booking a place, the fact that they
bothered to click through to get more info can help your standing.
The wishlist helps
The Airbnb “Wishlist” feature lets users save spaces for later, and
ly
to sort out promising picks for future trips. “One individual
wishlist may not make a visible difference but over several months,
if many guests love your listing and choose to wishlist it, it will
pi rank higher. We also use listings that guests wishlist to better

personalize their search experience, so they’ll be likely to see your
listing again in future searches,” the blog says.
Why has Airbnb become an integral
ap
part of travel?
Airbnb says on its website that it
connects people to unique travel
experiences, at any price point, in
more than 65,000 cities and 191
Kn
countries.
Looking at data collected in 2015 and 2016, Morgan Stanley noted a
significant increase in the number of travelers who have used Airbnb
in the last 12 months. In 2015, only 15 percent of leisure travelers
surveyed had used Airbnb in the last 12 months, while in 2016 that
number rose to 19 percent. Morgan Stanley predicts that number to
rise to 25 percent in 2017. For business travelers, only 12 percent had
used Airbnb in the last 12 months in 2015, versus 18 percent in 2016,
and in 2017, Morgan Stanley predicts that number will jump to 23
percent.

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Airbnb managed to be famous because people loved this model of

business; for hosts it is easy money-making and in case of guests
they spend less money for staying.
Guests have an option of staying in a single room in the suburbs to
mansions or yachts; none of the hotel sites can provide such a wide
range of options.
While competitors have to battle against a strong force like
Airbnb they also need to handle the ever-changing regulatory
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issues. Countries and governments are still not in terms with the
sharing economy and each city and state has been coming up with
its set of rules making business and life really difficult for online
accommodation companies. The regulatory issues are painful
pi even for Airbnb; however, given their large scale they have the
flexibility to handle it.
Among those surveyed by Morgan Stanley, approximately 49 percent
ap
also said they had replaced a traditional hotel stay with an Airbnb
stay in 2016. In 2015, 41 percent had done so. Morgan Stanley
predicts this number will remain steady throughout 2017 and Airbnb’s
cannibalization of hotels business will hover at approximately 50
percent for both business and leisure travel.
Kn
Consumer awareness of Airbnb is also very high, ranging from

62 percent in Germany and France and up to 76 percent in the
U.S. Morgan Stanley estimates only about 25 percent of travelers
who know of Airbnb have used the service at least once, so there is
tremendous growth opportunity for Airbnb as its awareness
continues to rise. Of those surveyed who have used Airbnb, 93
percent reported they were satisfied with the service in 2016, up
from 90 percent in 2015.
The No. 1 reason why respondents are using Airbnb still relates to
price (53 percent), followed by location (35 percent), authentic

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experience (33 percent), and “easy to use site/app” (28 percent).

Morgan Stanley did, however, also note that respondents said
Airbnb was a replacement for bed and breakfasts (37 percent),
staying with friends or family (35 percent), extended stay hotels
(26 percent), vacation rental sites (22 percent), and corporate
apartments (20 percent).
Not only does Morgan Stanley believe the number of Airbnb users
and room nights will continue to grow, but it also estimates that
ly
Airbnb will have a direct negative impact on hotels’ ability to
maintain the same levels of occupancy and nightly rates that they
have in the past year.
pi By 2018, Morgan Stanley estimates overall lodging occupancy in

the U.S. and Europe will fall to 66.8 percent from 67.6 percent in
2016. And because the hotel industry saw its second lowest level of
nightly rate growth in 2016 in 20 years, excluding the recession,
ap
Morgan Stanley also believes Airbnb will be a drag on hotels’
revenues in the years to follow as they lower nightly rates to boost
occupancy. In 2016, Airbnb will have decreased U.S. and European
hotels’ revenue per available room (RevPAR) by nearly 1 percent, and
in 2017 that dent will rise to 1.8 percent, and it will be 2.6 percent in
2018.
Kn
When was Airbnb born?

The Airbnb founder story is one of
persistence, determination, fear and most
of all, hustle. It started way back in 2007,
in San Francisco. Airbnb founders Brian
Chesky and Joe Gebbia just moved from
New York. Without employment, they were having trouble paying
their rent and were looking for a way to earn some extra cash. They
noticed that all hotel rooms in the city were booked, as the local

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Industrial Design conference attracted a lot of visitors.

The youngsters saw an opportunity. They bought a few airbeds and
quickly put up a site called “Air Bed and Breakfast.” The idea was
to offer visitors a place to sleep and breakfast in the morning.
They charged $80 each a night. The idea succeeded and the first
Airbnb guests were born: a 30-year-old Indian man, a 35-year-old
woman from Boston and a 45-year-old father of four from Utah.
Soon after, Harvard graduate and technical architect Nathan
ly
Blecharczyk joined the team as the third co-founder.They faced a
major problem: the site only had two users, and one of them was
Chesky. They initially launched at SXSW, and only received two
pi bookings.
After changing the website, the company launched again in August
2008, not long before the Democratic National Convention in
Denver. The idea was to cater to the thousands of people that came
ap
to the convention, Obama supporters hosting Obama
supporters. Over 600 people stayed at Airbnbs’.
Airbnb raised its first funding, $20,000 from Y Combinator. They
were still making only $200 a week and decided to use the money
to travel to New York, their biggest market, to meet their users.
They discovered that the main problem is that the pictures of most
Kn
listings aren’t good. So they bought a camera and went door-to-

door to take better pictures of the listings.
It was January 2009 and the incubator invited the three founders to
join its winter session for three months of training. At the same
time, Paul Graham at Y Combinator tried to convince venture
capitalist Fred Wilson to invest in Airbnb. Wilson decidedto pass,
missing out on what would have been a huge winner.
After visiting their users in New York, the company finally got some
traction. The focus was changed from shared spaces to all types of

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accommodation. In March 2009 Airbnb had 2500 listings and close to

10,000 registered users.
As they say, the rest is history. In the air.
Where are companies like Airbnb
different?
Convention has it that owning and
leveraging tangible assets makes
ly
companies more valuable. This has
typically led to companies with
business models based on accumulating and exploiting assets such as
fossil fuels, minerals, property and vehicles, rising to the top of global
pi stock indices.
By contrast, the last ten years has seen platform businesses such as
Airbnb and Uber, whose business model is to create platforms
which match suppliers with buyers, start to replace these global
ap
giants as the world’s biggest companies, despite having
relatively few tangible assets.
Alibaba, Airbnb, Facebook and Uber are by no means isolated
examples: a study by the Wharton School’s SEI Centre into 1,500
companies found that organisations with digital platforms and
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virtual networks receive valuations on average two to four

times higher than companies with more traditional business
models. Of course valuations are forward-looking expectations of
future earnings, and lessons from Initial Public Offerings such as
Groupon and Snapchat suggest at least some of these valuations
might be overinflated. Interestingly however, the Wharton study
revealed that platform/network businesses outperformed traditional
businesses across a range of key metrics including profit margins
and revenue growth.

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Digital disruption is trashing traditional sector boundaries -

Facebook and Snapchat have moved into payments yet they are not
financial services companies; Uber is expanding into online meal
ordering and delivery with Uber Eats. “Think the unthinkable” is
the battle cry of the progressive platform businesses which will
swoop into new areas with no warning - as Google looks set to do
with space exploration or Alibaba with its $1.2bn bid for
MoneyGram. The mindset behind this approach is a willingness to
ly
constantly challenge the overall vision for the business to make
sure it stays relevant in a fast moving, fluid digital world.
For platform businesses, the vision questions are less “what
products or services are we offering?” and more “How can we
pi address markets with bigger margins?” and “What

connections/interactions or sales are we enabling?”
The high valuation of platform business such as Facebook and
Alibaba is the result of the value created by the network on behalf
ap
of the organisation. So, Facebook can use advertising to monetize
its huge community through members interacting online, without
investing in a physical space for people to meet up; Alibaba
benefits from connecting buyers and sellers by receiving a
commission on each transaction, without the cost of physical
Kn
stores. The concept is not new but has become far more prevalent
with the Internet opening up mass consumer access to digital
markets. Platform businesses scale quickly because, being tech and
information based, they are not held back by the need to invest
in tangible assets ahead of a planned expansion.
One of the reasons that platform businesses command big
valuations is the potential for monetizing all elements of the
network. Uber, Alibaba and Airbnb currently make money
through fees for the transactions they facilitate between buyer
and seller. However, these businesses are also in the middle of

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massive data flows about consumers’ movements, location and

decisions, which could also be monetized.
Who are the competitors to Airbnb?
Tripping.com
A leading search engine for vacation
rentals, it’s got over eight million
properties in 150,000 destinations,
ly
offering travelers with more than wide
variety of unique accommodations especially for the long-term.
It’s been deemed as the “Kayak for long term rentals,” a one stop
shop for vacay-homes that has partnered up with several major
pi hotshots in the Vacation Rental (VR) business to allow users to

easily compare vacation rentals across providers.
FlipKey
ap
The “vacation rental marketplace,” as it so lovingly calls itself,
has got a growing inventory of over 300,000 properties with
exposure to over 160 countries.
HomeAway
It’s the parent company to quite a few Airbnb competitors,
Kn
including HomeAway itself. HomeAway is a true VR giant that’s

been dominating the vacation rental industry for many years now,
continuing to top the list of Google searches for most popular
rental sites.
It also continues to mother an array of other very successful sites
like VRBO and VacationRentals.com. According to the company,
they claim that on average, owners can earn approximately $12k
per year on their site.
HouseTrip

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Though it hasn’t been around for as long as some of the others, this
one’s definitely an up-and-comer to watch. Headquartered in
Lausanne (Switzerland), it’s known as “the Airbnb of Europe” -
but without the 3% commission. So while Airbnb is popular for
travelers in North America, European getaway seekers are going
wild for this “online holiday rental marketplace.”
VayStays
Based in Chicago, the site specializes in luxury properties in
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Mexico, Central America, the Caribbean, and the U.S, and as a
company, vows to bring a new level of quality and standardization.
VacayHero
pi Previously named Zaranga, this one’s got more than 13,000

vacation rentals all across the United States, with a bountiful
inventory of professionally managed properties in Alabama,
Arizona, California, Colorado, Florida, Hawaii, Montana, Nevada,
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Oregon, South Carolina, Utah and Wyoming.
Roomorama
Originally based out of Singapore, Roomorama has successfully
grown to over 60,000 properties in over 4,000 locations across the
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world since opening in 2009.

According to site stats, it continues generating some 50,000 visitors
a day, making it one of the fastest growing websites in the world.
Roomorama is extremely popular in Europe and has quite a
significant presence amongst business travelers, offering goodies
such as a concierge service.
Wimdu
With over one million registered users and about 300,000
properties in over a hundred countries, this one’s another fierce

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Airbnb competitor that’s doing an impressive job in getting a slice

of the private-rental pie, especially in Europe.
How have hotels responded to the
challenge?
With competitors like Airbnb nipping at
their heels, hotels are rolling out
experiences to their most faithful
customers that go far beyond extra nights
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and room upgrades.
Want to improve your cooking skills? How about a class with a
Michelin-starred chef? Or basketball tips from NBA standout Dwyane
pi Wade?
Marriott, with 30 hotel brands, including Starwood and Ritz-
Carlton, and other hotel companies are marshaling their clout to
attract sports stars, including professional surfers, and even a
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National Geographic photographer to create one-of-a-kind
enticements.
In rolling out such exclusive experiences, hotels are looking to
establish deeper connections with their customers in the face of
growing competition from startups.
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“Hotels have started to feel the pinch from encroachment,” said Gina
Cavato, an analyst for lifestyles and leisure at Mintel. “They are trying
to boost loyalty programs by offering unique rewards options.”
Hotels are also trying to differentiate themselves by focusing on
self-improvement activities, in part because its own research
suggests this is how people will increasingly spend their money
when traveling.
According to Marriott’s consumer research, younger travelers are
willing to spent twice as much — or nearly $300 a month — on

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self-improvement, including bettering their sports or cooking

skills.
Such experiences not only boosted travelers’ self-worth and
satisfaction, the research found, but travelers sought to share the
interactions with experts on their social channels.
Marriott is not just counting on well-known or celebrity experts.
The chain also recently took a stake in PlacePass, which provides
bookings for a variety of activities, like a private tour of Downton
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Abbey’s filming locations or a camel safari on Dubai’s red dunes.
Those are not necessarily connected to staying at a Marriott or one
its properties.
pi Other hotel brands are also changing their offerings. Hyatt, for
instance, is offering for the first time an opportunity for its
World of Hyatt loyalty members to participate in an excursion
in November to Tokyo. The trip will include lessons from experts
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at the Mori Art museum about Japan’s pop culture, as well as from
other experts on the Shinto religion, the progress made in cleaning
up the devastating Fukushima earthquake and even sake.
Hilton Worldwide last year introduced a “Behind the Wheel”
program that allows car-loving guests to drive a Lamborghini —
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with an accompanying instructor — at its Waldorf Astoria hotels

properties.
The large hotel brands are mindful that right over their shoulder,
Airbnb, in particular, is reinventing what travelers expect from a local
stay by rolling out smaller-scale experiences and classes, which people
can bid on through its site even if they are not staying in an Airbnb
rental.
—– | —–

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WORLD – BUSINESS / Monetize it like Facebook
28-Jul-2017
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pi Facebook Inc's mobile advertising business grew by 50% in the second
quarter as the social network continued to establish itself as the venue
of choice for an ever-growing array of online advertisers. Facebook,
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with more than 2 billion regular users, has been squeezing more ads
into its News Feed while adding more ads to its photo-sharing app
Instagram, which has more than 700 million users. Facebook now
intends to monetize Whatsapp and Messenger.
.
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What has Facebook announced?

Facebook reported a solid quarter on
Wednesday, with sales growth that beat
analysts' estimates, thanks to growing
demand for the social network's
mobile ads and the company's ability
to attract new users across its suite of apps.
Revenue in the second quarter, ending June 30, rose 45% to
$9.32 billion, from $6.43 billion in the same period a year earlier,

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topping the $9.2 billion and 43% year-over-year growth expected

on average among analysts polled by Yahoo Finance.
The gains represent Facebook's ninth straight quarterly revenue
beat, buoyed by mobile video ads sales, including those on
Instagram. Mobile ad revenue represented about 87% of total
ad sales in the latest quarter, up from the prior quarter (85%) and
up from 84% in the same period a year earlier.
Facebook’s global ad revenue is expected to total $36.29 billion
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this year, up 35% from 2016, according to forecasting firm
eMarketer, making Facebook the largest ad seller after Google.
With money cascading from Facebook News Feed and its photo-
sharing app Instagram, Chief Executive Mark Zuckerberg said
pi the company was now turning attention to monetizing its two

messaging services, Messenger and WhatsApp, which have
more than 1 billion users each.
The company is also accelerating its push into video, an effort
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aimed at taking advertising dollars from the television industry and
increasing the time people spend on Facebook.
The company posted a profit of $3.89 billion, up 71% from a year-
earlier profit of $2.28 billion, with earnings per share of $1.32, up
69% from 78 cents in the same period a year earlier and beating
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analysts' estimates of $1.13 per share.

The sales growth is “really based on increased engagement” on
Facebook and Instagram, Chief Operating Officer Sheryl
Sandberg said in an interview.
“Facebook and Google are taking virtually all the growth in digital
advertising — they are the easiest place to spend your money,” said
Brian Wieser, an analyst at Pivotal Research Group.
Why is Facebook cautious about future growth?
Facebook Inc.’s investors are salivating over the revenue potential for

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the company’s chat businesses,

Messenger and WhatsApp, after
Chief Executive Officer Mark
Zuckerberg said he would like to
move “a little faster” to make
money from them.
The company has warned that sales growth, fueled primarily by
mobile advertising, will slow because it can’t keep loading ads
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into users’ news feeds on its main social network.
Facebook has continued to attract new users and businesses, even
though it already serves a large portion of the world’s population.
pi More than 2 billion people visit Facebook on a monthly basis,

17 percent more than a year earlier. About two-thirds of those
visitors use the site every day.
David Wehner, the company’s chief financial officer said that
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despite the company’s growth soaring over all, Facebook expected
growth in advertising revenue to continue slowing the rest of this
year as it reaches the limit of the number of advertisements, or “ad
load,” it can place in its news feed without disturbing users.
“This ad load ultimatum has led to a more improved news feed
experience for all users, but obviously takes additional time and
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resources for marketers to deliver compelling ads,” said Andrew

Foxwell, a founder of Foxwell Digital, a social media advisory
firm.
Facebook also warned that it would be spending a great deal of
money for the foreseeable future. The company now has more than
20,000 employees, 43 percent more than a year ago. And it had
more than $1.4 billion in capital expenditures in the second quarter
— a category of spending the company does not see slowing any
time soon.

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Such warnings do not appear to have spooked investors. After a

brief dip in after-hours trading, Facebook’s share price rose to
more than $172, a record high.
Facebook Messenger and WhatsApp, two of the company’s
messaging properties, are just now starting to dabble in generating
revenue. Expanding those efforts could accelerate in the coming
months.
“I want to see us move a little faster here, but I’m confident we’re
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going to get this right,” Mark Zuckerberg, Facebook’s executive,
said on a conference call with investors on Wednesday.
Facebook also continues to spend money building out its video
platform, courting top performers from YouTube and improving
pi Facebook Live to entice more people to use it.

When does the enthusiasm of the
investors appear misplaced?
ap
The Menlo Park, California, company has
been among the stock market's best
performers this year, riding investor
enthusiasm about its continued co-
dominance with Google in delivering commercials, banners and other
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ads onto smartphones.

But Facebook has warned for months that its runaway train of revenue
growth is running out of steam. The company has showed that it is
laying new track as fast as it can.
Facebook's revenue growth has slowed this year, but it remains
strong for a company of its size. The big worry is what happens to
sales growth in coming months.
Executives also added new warnings that it can't stick as many ads
in video, and that new efforts to make money from Facebook's

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messaging apps won't offset the changes it make in the ratio of ads.
All these caution flags should make Facebook investors nervous
about the future. Consumer demand for content such as mini-TV
shows, recipe videos and sports highlights is outpacing Facebook’s
fledgling video advertising business.
The social media giant is increasing the supply of other types of
ads, including in its Messenger and WhatsApp chat apps, but those
are years away from delivering significant income, Zuckerberg
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and other company officials told financial analysts.
There’s no shortage of uncertainty about Facebook’s video efforts.
It’s competing with YouTube, Snapchat and several other apps for
the attention of top producers, from the likes of Walt Disney Co.
pi and the Olympics to start-ups including BuzzFeed and Tastemade.

TV advertisers also remain slow in their shift away from 30-
second commercials.
Facebook views the diversity of its advertising options, and of
ap
course, its huge amount of users, as unrivaled selling points. Still,
Facebook acknowledged its roaring ad machine is in bit of stall as
it sees whether ads alongside videos and Messenger conversations
get users to buy products as effectively as ads in the News Feed.
Though its strong position is far from being disturbed, Facebook’s
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sales growth is coming down from the 50% zone to the 40% range.
The company noted that more than 250 million people use Stories,
one of its newest features, on Instagram and WhatsApp. But
Facebook said nothing about usage of the self-destructing video-
diary feature on its main app, which is believed to have been a
major flop.
Like Google, Facebook will continue to face doubts that its good
times can last. But both companies have demonstrated that they
are adept at finding new ways to sell more ads to companies
that are eager to pitch to their loyal users. And by telegraphing

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its growth slowdown far in advance, Facebook is skillfully trying

to manage Wall Street's expectations.
Where does Facebook make money
from?
Facebook has milked profits by stitching
an online social fabric for interaction.
That fabric consists of an ecosystem of
products, from Instagram to WhatsApp to
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Facebook Messenger, which boast substantial popularity and user
numbers.
The crux of Facebook's source of revenue is digital advertisements.
pi Unlike its rivals, which enable advertisers to serve up ads based

on keyword searches, Facebook's value proposition is targeted
advertising. Advertisers can use the wealth of personal data about
users from Facebook's product ecosystem for ads.
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For its part, the company claims that it makes the data anonymous
and serves the information to advertisers in custom demographic
buckets. Advertisers can further slice and dice the buckets based on
their branding goals.
For example, advertisers can serve up custom ads to Facebook
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users from specific income groups or regions. They can also target
users based on other categories, such as sexual orientation, religion
or political affiliation. Facebook has developed a broad variety of
ad products for different stages of the branding lifecycle.
It's not just big advertisers, either. Almost anyone can walk up
and buy space on the site if they have the cash - and that
includes other Facebook users, who try to direct you to their
profiles, fan pages or elsewhere in order to get you to follow their
cause or buy their product.
There are also the gifts and other virtual property that users can buy

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and give to each other. This still seems like a crazy idea to some
people, but it can prove a highly profitable business in the right
circumstances - virtual goods prop up all kinds of online games
(like Zynga), and nobody ever thought ringtones could be so
profitable.
The company is preparing for the future by broadening its revenue
canvas. It has emphasized videos and live broadcasts from its
Facebook Live platform in its earnings calls in recent quarters.
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Facebook has also invested in emerging technology trends for
future growth. “Over the next 10 years, we are developing
consumer use cases around technology that are a big part of our
future but won't be a big part of our business for a long time,”
pi Zuckerberg said during the social network's latest earnings call.

Included among these use cases is Virtual Reality and bringing
internet to parts of the world without connectivity. Again, these
initiatives translate into future sources of revenue for the company.
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For example, more internet connections translate to greater
usage and revenue for Facebook.
Who is Facebook’s biggest rival in the
online ad selling market?
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The good news for the advertising

industry is that the digital-advertising
industry is growing strongly, with
revenues up sharply. But the bad news is
that virtually all of that growth is going to exactly two companies:
Google and Facebook.
The figures from the Interactive Advertising Bureau during January
this year showed that the third quarter last year was the biggest
ever, with a total of $17.6 billion spent on digital ads. That's a 20%
increase from the same period a year earlier, thanks to growth in

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mobile and video. This growth reflects marketers' trust in the

internet’s power to connect with today’s audiences.
If you look beneath the surface, however, it also reflects the fact
that a majority of those audiences are controlled by Google and
Facebook and if anything, their control is accelerating.
Google AdWords is the world’s largest and most popular PPC
(pay per click) advertising platform. AdWords is so widely used,
it has become synonymous with the term “paid search.” The two
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terms are used interchangeably, even though other platforms such
as Bing Ads work in a similar way.
When it comes to the primary difference between Google
AdWords and Facebook Ads, you can think of it this way:
pi AdWords helps you find new customers, while Facebook helps

new customers find you.
As the world’s most popular and widely used search engine,
Google is considered the de facto leader in online advertising.
ap
Fielding more than 3.5 billion search queries every single day,
Google offers advertisers access to an unprecedented and
unequaled potential audience of users who are actively looking
for goods and services.
One of the main advantages of using Google as an advertising
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platform is its immense reach. Google handles more than 40,000

search queries every second, a total of more than 1.2 trillion web
searches every single year.
As Google becomes increasingly sophisticated – in part to its
growing reliance on its proprietary artificial intelligence and
machine learning technology, RankBrain – this amazing search
volume is likely to increase, along with the potential for advertisers
to reach new customers.
Put simply, no other search engine can offer the potential audience
that Google can. This vast potential source of prospective

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customers alone makes Google an excellent addition to your digital

marketing strategy, but when combined with Google’s increasingly
accurate search results, it’s easy to see why AdWords is the most
popular and widely used PPC platform in the world.
In a recent interview, Pivotal's Wieser said the digital-media
industry has effectively become a giant duopoly in which
Google and Facebook win almost everything, advertisers have to
play by their rules, and other media companies “fight for the
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scraps.”
Facebook and Alphabet Inc own half of the online advertising
market worldwide, and Facebook's revenue growth this quarter
outshone Alphabet, the owner of YouTube and Google.
pi Twitter and Snapchat are trying to compete on the same playing

field as Google and Facebook, but both remain bit players so far.
Note: Paid search focuses on the targeting of keywords and the use of
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text-based advertisements. Advertisers using AdWords bid on
keywords – specific words and phrases included in search queries
entered by Google users – in the hopes that their ads will be displayed
alongside search results for these queries. Each time a user clicks on an
ad, the advertiser is charged a certain amount of money, hence the
name “pay-per-click advertising.”
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How has social media revolutionized

online marketing?
The introduction of new media,
specifically social media, has changed the
world of marketing and how business
professionals communicate with and
market to consumers.
Consumers are no longer passive, and there is a new

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expectation of quick gratification when it comes to searching,

finding, and having information. Traditional methods of
marketing (print, TV, radio, etc.), although not irrelevant, are no
longer enough.
The game has changed and marketers have had to adapt to the new
way people are now communicating, connecting, and consuming
information.
One of the most noticeable changes is that marketing has become
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much more “conversational” in nature. Social media has
enabled people to have a voice and a chance to be heard as much or
as little as they want. This is why it has become important for
advertisers to change the way they view their customer base.
pi With traditional ways of advertising seeming to come across as

impersonal, it has become almost essential for a company to draw
closer to its core audience through open discussion, media sharing
and relationship nurturing.
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In the past, digital advertising may have been seen as an add-on or
supplement to traditional advertising markets, but that is no longer
the case. According to estimates from eMarketer, spending on
digital ads in the U.S. will likely grow this year to the point where
it is larger than the amount spent on television, the former Goliath
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of the industry.
Data on users and their preferences and behavior is the Holy
Grail for most advertisers, and the reality is that Google and
Facebook have orders of magnitude more data than their nearest
competitors, and more ways to slice and dice it.
Today it has come to such a level where one believes that if you
aren’t online, you aren’t advertising. An effective social media
strategy not only builds brand awareness, but also brings a
company closer to its core follower base.

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The value of utilizing major social media networks is in their ability to

intimately connect a company to its audience of current and potential
customers. These platforms are customer relationship management
tools, and are allowing brands to converse with their audience in a
more personal way, which if done right, results is a wider reach and
presence online.
—– | —–
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pi
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WORLD – BUSINESS / Facebook moves to

monetize WhatsApp
6-Sep-2017
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pi Facebook, which acquired WhatsApp in 2014 for a whopping $22
billion, is finally ready with plans to make some real money from
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WhatsApp. Whatsapp today is a ‘free’ messaging service with 1 billion
daily users. Now, Facebook is planning to charge businesses for
WhatsApp services to help them connect with customers. It was
inevitable that Facebook would seek returns on its Whatsapp
acquisition cost. However, if not executed with care, the move may
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back-fire.
What is the plan?

Facebook Inc is gearing up to make money
from WhatsApp, the messaging service
used by more than a billion people every
day, the Wall Street Journal reported on
Tuesday.
WhatsApp will be testing new features to make it easier for
people to communicate with businesses they want to reach on

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WhatsApp, the messaging service said on a blog post. “We’re

building and testing new tools via a free WhatsApp Business app
for small companies and an enterprise solution for bigger
companies operating at a large scale with a global base of
customers, like airlines, e-commerce sites, and banks,” according
to the blog post.
WhatsApp has already started a pilot program that would feature
a green badge next to a business contact, indicating that the
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business was verified by the messaging service. “We do intend on
charging businesses in the future,” Chief Operating Officer Matt
Idema told the Journal in an interview.
Idema declined to describe the paid features or say when they
pi would make their debut, according to the report. “We don’t have
the details of monetization figured out,” he told the Journal.
Features offered in a business version of WhatsApp will include
verified accounts to assure people they are really dealing with
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businesses, and tools for managing text “chats.” Companies will
also be able to create profiles providing descriptions, addresses,
hours of operation and more.
“This is just the beginning of what we want to offer for businesses and
our users, and we’re excited for what's to come,” said WhatsApp,
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which boasts more than a billion daily users.

Why will it be useful for businesses?
WhatsApp Business gives users a verified
green checkmark badge next to their
names. Green will be the colour of
authenticity.
Second, businesses will be able to create
a company profile with information such as address, business

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hours, and description of product or service offered.

Third, WhatsApp Business will help manage consumer chats.
WhatsApp has (correctly) identified the fact that businesses all
over the world – especially in Asia, where the platform is a staple –
use the service as a free way of connecting merchants and
consumers.
Many surveys of users have revealed that when businesses use
WhatsApp, customers feel more comfortable buying from that
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retailer as it establishes a connection between invisible sides of a
digital transaction. The new features could help Facebook start
building up WhatsApp as a stronger business, after it bought the
pi messaging service mostly for its fast-growing user base.

WhatsApp's program for businesses will charge large companies
that want to be verified and have access to a suite of automated
tools for helping and responding to customers, the Facebook-
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owned app announced on Tuesday. A free standalone mobile app
for small businesses will also offer similar features.
The tools and standalone app for businesses were both recently
uncovered in WhatsApp's own documentation and app code.
WhatsApp is testing its business program privately with a
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handful of businesses around the world.

With the new app, the Facebook-owned company hopes that
businesses will be able to establish direct contact with consumers
seamlessly while ensuring authenticity. “The way this happens now
on WhatsApp is pretty rudimentary,” the company said in a blogpost.
“We’ve heard stories of shopkeepers who use WhatsApp to stay in
touch with hundreds of customers from a single smartphone, and from
people who are unsure about whether or not a business on WhatsApp
is authentic. In the coming months, we’ll be testing new features that
aim to solve some of these challenges, and make it easier for people to

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communicate with the businesses they want to reach on WhatsApp.”

“WhatsApp has simplified communication for people around the
world. Now, we want to apply this same approach to bringing
businesses onto WhatsApp in ways that create value for people,”
Idema said in a statement shared with Business Insider. “We're
looking forward to making it possible for people to connect with
businesses in a fast and personal way, and giving businesses the
tools to make that easier to do.”
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WhatsApp envisions letting businesses like airlines and banks
field customer questions and provide updates for things like
flight times, the company said in a blog post on Tuesday.
pi Aside from having an additional route to complain, users will have

a long-running dialogue with customer support that details
everything that has been said. Also, purchasing items within the
chat app and integrating Artificial Intelligence (using Assistant
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to automatically detect airplane tickets - bought in WhatsApp - and
placing a note in your calendar) would be genuinely useful.
By choosing to charge businesses out of the gate, WhatsApp is
taking a different approach to making money than Messenger,
Facebook's other standalone messaging app. Messenger lets
businesses conduct customer support for free but never managed to
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monetize the approach. The app has recently started showing ads.
This could also bring WhatsApp, which has 1.3 billion users
globally of which 200 million are in India, a step closer to enabling
m-commerce.
Several Indian startups were part of early pilots for WhatsApp
Business such as online pharmacy 1mg and ticket site
Bookmyshow.com. Globally, the trials included Dutch airline
KLM and Itau Bank in Brazil.
India is a key market that’s home to WhatsApp’s single largest user

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base of 200 million. “India is very significant,” Idema said.

“That’s part of the reason why we are spending a lot of time there
to understand what people and businesses want from WhatsApp.”
Idema and other members of the WhatsApp global team visited
India several times while developing the business product.
When did Facebook acquire
WhatsApp?
Brian Acton and Jan Koum, the founders
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of WhatsApp, both worked as employees
of Yahoo! before leaving the company.
Shortly thereafter, they both applied for
pi jobs at Facebook — jobs that had they been accepted to would

have likely left them unable to start WhatsApp — but were turned
down. At the time, Koum was living off of his savings from Yahoo,
with little direction as to where his next career path would take him.
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In 2009, though, after purchasing an iPhone, Koum had the vision
to see that an entire industry was about to form based around
mobile apps. Looking to capitalize on this up-and-coming industry,
Koum began to explore the possibility of creating an app that
would let mobile users better interact and engage with their friends,
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family, and business contacts. Teaming up with Acton, Koum

managed to persuade five associates from Yahoo! to fund the
app with $250,000, and in 2009 WhatsApp was launched.
It was a bit of a rocky start for WhatsApp, though. After numerous
crashes and failures, Koum grew frustrated with the app’s
development and reportedly considered giving it up entirely. It was
Acton that encouraged Koum to stick it out “a few more months”
each time the duo hit a setback.
Luckily for the both of them, the duo did indeed stick it out and
saw the app through to its eventual success. By February of 2013,

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WhatsApp boasted 50 staff members and 200 million users.

Shortly thereafter, Facebook bought out the app for a staggering
$22 billion — the second biggest tech acquisition of all time
(behind HP’s acquisition of Compaq in 2001), and the biggest
single venture-capital-backed acquisition of all time.
While WhatsApp had little revenue at the time of the deal, the
purchase price was slightly more than the market value of Sony
Corp.
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Facebook has not focused on making money from WhatsApp so far.
WhatsApp discontinued a subscription charge of $1 per year in
pi January 2016, making the messaging platform free.

Since then it has been trying to monetize the platform, steering
clear of the advertising route.
On November 18, 2014, Open Whisper Systems announced a
partnership with WhatsApp to provide end-to-end encryption by
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incorporating the encryption protocol used in Signal into each
WhatsApp client platform.
WhatsApp was officially made available for PCs through a web
client, under the name WhatsApp Web, in late January 2015. On
February 24, 2017, (WhatsApp's 8th birthday) WhatsApp launched
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a new Status feature that offering similar to Snapchat.

Where is the need for caution with this
monetization plan?
Monetizing has always been a huge
problem for technology products, as
companies have to first educate users
past the notion digital services are
ephemeral and dispensable enough to not warrant a cost. However,
technology companies have employees and bills to pay, making it

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extremely difficult that one of the biggest problems in the industry is

also its most integral.
There is a risk of Whatsapp morphing into a commerce engine.
Idema didn’t want to be drawn on the possibility of the platform
morphing into a mobile-commerce engine. But he said, “We do see
businesses and people use WhatsApp today to talk about products
and make enquiries related to purchases and we do want to make
it easier for people to do that.”
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Business will be able to cold call WhatsApp users. Passive adverts
on social media are one thing, but receiving marketing
messages directly to your phone - complete with a notification -
pi would be a nuisance. The prospect of receiving spam messages

from a never-ending stream of thirsty companies on a daily basis is
not far-fetched.
How will businesses know whom to target for cold calling?
ap
WhatsApp messages are end to end encrypted. Conversations are
only visible to whoever has the right key. Connecting Facebook
(which owns WhatsApp) profiles to phone numbers is one way.
Facebook’s advert network ‘Insights’ is incredibly powerful and
utilizes the vast treasure trove of data the social network holds on
its users. Linking your WhatsApp phone number to your
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Facebook identity means advertisers will have access to various

personality and demographic data on Whatsapp users. Whilst
establishing a new communication line between user and business
will bring some practical benefits, it does appear to mean
WhatsApp users will be opening themselves up yet more
marketing - only this time it comes with a notification.
The exact details of monetization are unavailable and businesses and
consumers should not get over-excited just yet. WhatsApp has been
saying for years now that they would look to non-advertising methods

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of monetizing their business, as they thought that having ads would

disrupt their users’ experience.
At stake here is the privacy of the average user. Also of concern is that
one-way communication from businesses may irritate many users who
want their phone to be – their phone, not an advertising billboard.
Who are the users of Whatsapp?
When WhatsApp came around in 2009,
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it was the first of its kind. If today we
can compare it with others which seem
to have surpassed it on features and
bells and whistles, such comparison
pi could not have been done back then.

At that time, there was Skype, which excelled for its voice and
video calling. But Skype was more for the PC and made a very late
entry into mobile phone. WhatsApp was more for messages; it was
ap
for messaging what Skype was for free calling.
Young people were and still are very much into the message
thing, more than with calls. Viber came only in 2011, and other
VoIP apps present at that time were solely for cutting cost on
international call, which was not at all the market for WhatsApp.
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Yes, at that time, WhatsApp wasn’t a VoIP app as such. It was just
for messaging. So WhatsApp came on the market with a new
communication model, and came among the first.
When WhatsApp came around, people were complaining about the
price of SMS. SMS is expensive, limited, very limited indeed.
WhatsApp came to solve this. You could send messages without
counting words, without being deprived of multimedia content, and
without being restricted to the number of contacts, for free.
When the app was launched, it was not for calling. It was for

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texting. So, instead of being perceived as an alternative to the then

popular apps like Skype, where people would have to choose, it
was welcomed as a new way of texting that could be there along
with Skype.
It started what was a new model of identification, and one that is
more accessible and easy. It identifies people though their phone
numbers. No need to ask for a user name.
WhatsApp has managed to get an app to users of all popular
ly
platforms, ranging from Android and iOS to Nokia phones, the
latter being the most common phone in developing countries back
then.
As is the case with nearly all VoIP apps and services, you
pi communicate for free with other people who are using the same
service and app. So, you want to use the app that carries the
largest number of users so as to increase your chance of finding
people you can communicate with for free. As a result, what
ap
happened to Skype some years before happened to WhatsApp too.
You could carry WhatsApp in your pocket or bag, which was
hardly possible with the others. More importantly, WhatsApp was
made for mobile devices and not for computers. So it had the
advantage of not having to adapt to the mobile environment, like its
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competitors that were PC natives. Moreover, as mentioned above,

it could run on so many platforms. This came at a time, which saw
a boom in smartphone adoption and an unprecedented shift from
the computer to the tablet PC and smartphone. This also came in a
context where 2G and 3G data were getting more accessible
and cheaper in many places.
WhatsApp launched at a time when people needed what it had to
offer, and offered it somewhat unchallenged for a couple of years
before real competition came around. By then the snowball effect
had already started, which is the most important factor in its

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success.
How does Facebook get its revenue?
Facebook does not just make money. It
milks money. From you.
WhatsApp’s continuing decision to shy
away from ads stands in stark contrast to
its parent company, Facebook, whose
ly
entire business is funded by huge advertising revenues. Facebook
began introducing sponsored posts in its Messenger app in July of this
year as it seeks new ways to engage users of its messaging service with
advertising clients.
pi Facebook has made huge profits by stitching an online social

fabric for interaction. That fabric consists of an ecosystem of
products, from Instagram to WhatsApp to Facebook
Messenger, which boast substantial popularity and user numbers.
ap
The crux of Facebook's source of revenue is digital advertisements.
The company makes close to $8 billion from advertising in just one
quarter. Along with Alphabet Inc. subsidiary Google, Facebook has
emerged as one-half of a dominant duo in digital advertising.
Unlike its rival, which enables advertisers to serve up ads based
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on keyword searches, Facebook's value proposition is targeted

advertising. Advertisers can use the wealth of personal data about
users from Facebook's product ecosystem for ads.
For example, advertisers can serve up custom ads to Facebook
users from specific income groups or regions. They can also target
users based on other categories, such as sexual orientation, religion
or political affiliation. Facebook has developed a broad variety
of ad products for different stages of the marketing lifecycle.
For example, Facebook's Dynamic ads product enables advertisers

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to upload their entire product catalog and target customers at

specific income levels. Similarly, Lead ads help advertisers in lead
generation. These products have cemented Facebook's position in
digital ads.
The company is preparing for the future by broadening its revenue
canvas. It has emphasized videos and live broadcasts from its
Facebook Live platform in its earnings calls in recent quarters.
According to the company, the daily watch time for Facebook
ly
Live broadcasts has grown by more than four times in the past
year.
So, it’s plain to see that Facebook is now pushing for WhatsApp to
pi make its acquisition worthwhile.

In addition to ads, Facebook enables payments from its users to its
platform developers. The company receives a fee from its platform
developers when users make purchases using the payments
ap
infrastructure.
The other fees revenue consists primarily of ad serving and
measurement products and the delivery of virtual reality platform
devices. Facebook said that such revenue has been immaterial in
recent periods.
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Whatsapp is steering clear of the advertising route as its seen as too

intrusive or commercial messaging that might infringe on privacy and
put off users. WhatsApp cofounder Jan Koum has long been a
staunch opponent of traditional advertising and has promised that
the app will never show ads.
But Jan Koum now reports to Mark Zuckerberg, the money-making
machine.
—– | —–

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WORLD – BUSINESS / Facebook goes after

original videos
25-May-2017
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pi Facebook has roped in news and entertainment creators that target the
millennial-audience to make shows for Facebook’s upcoming video
ap
service. Facebook’s monetization strategy requires new spaces for
advertisements and given its well-established record as a video
advertising platform, this move is not surprising. Netflix and Amazon
are strong players in the domain Facebook forays into and a lot
depends on how it can reach out to its niche audience.
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What are the latest deals

Facebook has made?
Facebook has made deals with
Vox Media, BuzzFeed, ATTN,
Group Nine Media among other
news and entertainment creators
focusing on millennials.
This group has been signed on to make shows for Facebook’s
soon-to-be-launched video service, which will showcase long

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and short-form content, of course with ad breaks, according to

several informed sources.
Sources seeking anonymity due to the confidential nature of the
deals told Reuters Facebook has planned to entertain through
shows of 20-30-minute scripted episodes which it will own and
5-10-minute unscripted episodes not belonging to the social
media giant.
The giant will adopt a strategy successfully implemented by
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Amazon.com Inc and Netflix Inc, and is thus set to shell out up
to $250,000 for the longer, scripted shows which it will have
complete rights over.
For the shorter shows, Facebook will pay $10,000 to $35,000 per
pi show. Creators will also get 55 percent of the revenue ads bring in.
Ads will run between long-form shows as well as short-form shows.
Short-form shows can first be seen only on Facebook but after a
ap
stipulated period, content creators can use their own platforms to
host the shows.
Facebook has targeted those creators that have a phenomenal
presence on Facebook.
Facebook is yet to make an official statement, a spokeswoman for the
Kn
company refused to comment, said Reuters.

Why is this push not surprising?
With Facebook’s monetization strategy
centers on advertising, the company is
in no mood to let go of any potential
avenue.
CEO Mark Zuckerberg had told
investors earlier this month that Facebook was seeing how it
could use what it called “anchor content” that would anchor

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the audience to the video tab on Facebook app.

In December 2016, Facebook made it known that it would
purchase original scripted and unscripted programs to
showcase through its video service. It had signed on former
MTV executive Mina Lefevre as the leader for this project.
Banking on current trends which show advertising dollars
flowing away from television, Facebook’s foray into original
video is a further effort to attract the dollars its way.
ly
Facebook has also said its News Feed is becoming too filled up to
accommodate more ads, putting pressure on the company to
hunt out new profitable platforms. In its latest earnings call, the
company warned that peaking ad load (how many ads are served
pi up to users) would result in slower growth in the second half of

2017.
The company has dabbled with live sports video in recent months
and will continue its experiments with this medium. It also presents
ap
live video sourced from several news publishers and Facebook
users.
SINCE when has FB been
focusing on videos?
Kn
Facebook’s potential as a video

hub was apparent by 2010; the
audience for video and its usage
was noticeably growing. A study
reported at that time said that for video advertisements on Facebook
attracted greater engagement from the audience.
In 2012, the year Facebook went public and explored new
commercial opportunities; in February it also introduced a series of
changes in advertising strategy to put bigger ads in more places and
run video ads – larger ones on the side of Facebook’s home page

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first visible on logging in; ads inside News Feed; ads on mobile
devices; and ads shown when user logs out.
In 2014, Facebook bought LiveRail, a video advertising tech
startup that provided premium publishers with technology to sell
video inventory across the entire spectrum of devices. The
company predicted that video was going to rule in the near-
future of online advertising and worked on catering to
advertisers’ need to reach out to niche audiences. “When we
ly
started talking to the team at Facebook about how we could work
together, it quickly became clear that we shared a vision for the
future of digital advertising. They believed, as we do, that
publishers deserve a new generation of audience-aware
pi advertising technology. We realized that by joining forces we’d be

able to draw upon our respective strengths to move even faster
towards our shared vision of creating the advertising platform of
the future” said LiveRail co-founder Mark Trefgarne. That year, it
ap
also launched its 15-second auto-playing video ads.
Last year, Facebook extended two new types of video ads to its
Audience Network. In-stream ads – video ads that are played
pre, mid, or post-roll while viewing partner content – and In-
article ads – video ads that would appear between paragraphs in an
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article and be triggered when at least half the pixels could be

viewable – would appear on desktop and mobile.
In 2015, Facebook introduced its plan to monetize videos and
share the earnings with creators. Earlier this year, Facebook said
it was testing mid-roll ads, putting ads in the middle of publishers’
videos and sharing the revenue with them. It also added provisions
for any US publisher with a user base exceeding a threshold to
insert video ads into their livestreams.
Facebook has been consistently opposed to pre-roll ads, a
practice commonly followed in the industry.

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Where will its competition come from?

Netflix and Amazon are firmly established
players and their original shows strongly
compete with one another
Both went global last year, with Netflix
setting up base in 130 new markets and
Amazon too revealed Amazon Prime Video would be launched in
at least 200 new markets for $6 per month.
ly
Both added to their list of original or exclusive titles throughout
2016.
Netflix let go of an assertion it had long clung to and
pi acknowledged that to expand into developing markets, it would

have to offer download services in 2016. Amazon had done this the
previous year.
Amazon Video launched last year let creators use it as their
ap
platform to sell or rent their videos. Through Amazon Video
Direct, it sought to multiply the amount of content it could make
available. Netflix meanwhile launched its Recommended TV
program globally.
Both currently own some of the content they sell to subscribers,
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a strategy Facebook is also said to have adopted.

Commenting on Facebook’s deal, Shawndra Hill, senior fellow at the
Wharton Customer Analytics Initiative said, “Although Facebook has
not historically been a media company, it makes sense that they want
to [prevent] their massive user base from moving to other online sites
that have scripted show offerings. Therefore, they are capitalizing on
a very ‘hot’ area right now—online scripted shows”
Wharton marketing professor Peter Fader opined Facebook should
consider going in the direction of Amazon Prime and offer a

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premium service.
On the chances of Facebook’s success in this domain, “It is anyone’s
guess. Consumers have enough options for video today. For social
video, there is YouTube. For premium content, we have Hulu and
Netflix. So it’s unclear what niche Facebook can occupy in that
market. Unless Facebook identifies a clear niche … it’s not clear it
will have mass market success”, said Wharton professor of operations,
information and decisions Kartik Hosanagar.
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Who have shown keen interest
in Facebook’s deal?
For advertisers, Facebook’s
pi new offering presents an

opportunity to reach the growing
audience watching their shows on
smartphones and tablets, said Monique Lemus O'Brien, a media buyer
ap
at The Media Kitchen.
Last year Facebook showed through statistics that it is one of
the best platforms to promote videos – video watch time per
day on Facebook was 100 million hours, the company
announced.
Kn
Advertisers have gained from using Facebook’s advertising

features such as specific targeting, cost-effectiveness, and
flexibility.
Facebook for its part has consistently rolled out features to
incentivize advertisers and enable them to reach out to their
audience,
Advertisers will therefore watch with interest, Facebook’s move to
buy and license original content.
How adaptive is Facebook?

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Smart businesspeople usually take what

works and apply it in other areas, and
that’s what CEO Mark Zuckerberg is
doing , observes an article in Recode.
If you can’t beat them, buy them. And
if you can’t buy them, crowd them out
by copying them into all you have bought, seems to be
Facebook’s strategy.
ly
An article in Quartz points out that Facebook’s product
announcements this year such as Facebook Camera (read Snapchat
Stories), Live location in Messenger (Apple’s Messages App’s
pi sharing location feature), Reactions and Mentions in Messenger

(read Reactions and @-mentions on Slack), Streaming videogames
live (read Twitch), Messenger Day (read Snapchat Stories) have all
felt too familiar.
ap
Notwithstanding criticisms, Facebook has managed to gain
foothold over the past decade and keep its users addicted. And
all this success seems to owe largely to its ability to effectively
copy good ideas.
This has worked very well for Facebook till now. Now with
offerings of actual innovations like Oculus and internet drones, the
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course Facebook’s takes and the returns it reaps will show if there
is a new dimension to Facebook’s strategy.
—– | —–

mba.knappily.com
WORLD – BUSINESS / The curious case of Snap

IPO
22-Feb-2017
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pi Snap Inc, owner of popular messaging app Snapchat, is busy
conducting investor roadshows to persuade investors to back its initial
ap
public offering (IPO) in the face of concerns about its growth,
valuation and corporate governance. Though this is the biggest tech
listing in recent years, the inability of Snap to lay down a clear
roadmap to profitability is discouraging investors. That the shares
come with no voting right is, frankly, weird.
Kn
What is keeping the Snap management

busy?
Snap, the parent company of photo-
sharing app Snapchat, is set to make its
stock exchange debut in the first week of
next month in what is the biggest US
technology initial public offering (IPO) since Facebook went public
in 2012.
The U.S. company, which has yet to make a profit, is targeting a

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valuation of between $19.5 billion and $22.3 billion from listing

on the New York Stock Exchange, after cutting its initial target of
$20 billion-$25 billion last week following investor feedback.
The Snap management is busy conducting roadshows to address
investor concerns. They began with a London roadshow.
The presentation was introduced by Barclays CEO Jes Staley in an
effort to woo local investors.Barclays is one of a slew of firms
underwriting the deal, along with lead bankers Morgan Stanley
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and Goldman Sachs Group Inc.
Investors attending the event said Snap’s 26-year-old Chief
Executive Evan Spiegel gave a sleek presentation. However, they
pi were disappointed there were no projections on the company’s

future revenues or advertising share - an indication of how
quickly Snap thinks it can make money from its huge user base.
Some were disappointed that it was just a question-and-answer
ap
session with no demonstration of Snapchat’s product ‘Spectacles’,
launched in the United States late last year, which come with a
built-in camera.
Snap has hired hundreds of hardware engineers, built a secretive
product development lab and scoured the landscape for acquisitions
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as it pursues its newly stated ambition to be “a camera company.”

Few U.S. firms aside from Apple have made big profits on
hardware, and camera and wearable gadget makers have much
lower valuations than Snap is seeking.
Los Angeles-based Snap also plans roadshows in New York, Boston
and San Francisco. It expects to price its IPO after the U.S. market
closes on March 1.
Note: An initial public offering, or IPO, is the first sale of stock by a
company to the public. A company can raise money by issuing either

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debt or equity. If the company has never issued equity to the public,
it’s known as an IPO. An IPO is a tool that companies use to secure
capital through investments for future use. In most instances, this
investment is used to expand or improve their business, purchase
assets, or provide a dividend to investors.
Why is this IPO splitting opinion?
Snap’s is one of biggest - and easily the
most important - tech IPOs in years.
ly
Depending upon how it goes, it could pave
the way for other ‘unicorns’ (privately
held tech startups valued at over $US1
pi billion) to finally follow suit, or prompt a rethink among investors

piling into risky unlisted tech.
Snap Inc’s IPO prospectus contains plenty of eyebrow-raising
material:deep (and growing) financial losses. A complex voting
ap
structure that will give ordinary shareholders precisely zero
control over the direction of the company (upsetting some big
potential investors). And a user base that is smaller than not just
Facebook, but also Twitter.
Yet, perhaps the most striking thing to emerge from the IPO filing
Kn
is the company’s surprisingly muted ambitions.

In the IPO filing, the company candidly admits that it doesn’t
expect to generate rapid user growth in emerging markets. It
also indicates that it is squarely focused on the world’s top 10
advertising markets, which account for the bulk of global ad
spending.
As the company explains, its products are designed to be used in
places where there is high-quality mobile coverage, and where
smartphones are dominant. But it’s still a different pitch to what
tech investors have become accustomed to lately. Which is why

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this IPO is so interesting.

And its different approach could be interpreted a few ways: a
refreshing change, a sensible attempt to under promise and over
deliver, or a worrying sign of a lack of ambition.
Though they have compromised on their ambition (or what they write
of it in print), they have still asked for a valuation that only the
companies that deliver on the most ambitious targets command. This is
the real puzzle.
ly
When does the IPO structure appear
weird?
What has angered the investors is Snap’s
pi decision to deny them a say in running

the company, completely.
Snap has already said the IPO will be
the first to offer shares with no voting power which makes it a
ap
little weird.
Snap co-founders Evan Spiegel, chief executive, and Bobby
Murphy, chief technology officer, will control the company
even if they step down from their roles. Spiegel and Murphy
each own 21.8 percent of Snapchat Class A stock for a total of 43.6
Kn
percent.
The prospectus states that a founder’s voting power would be
diluted only if he cuts his stake substantially or ‘nine months after
his death’.Snap aims to raise $3 bn in the IPO, valuing the
company at up to $22 bn.
Snap has raised a total of $2.63 billion in VC funding since 2011,
the most recent being a $1.8 billion Series F funding round in May
2016.
A dozen of the biggest US institutional investors have expressed anger

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and dismay at Snap’s decision.

The Council of Institutional Investors (CII), which represents
pension funds and asset managers, sent a letter calling for Snap’s
co-founders to reconsider the structure, signed by members that
control more than $3 trillion of assets.“Some companies lacking
effective accountability to owners soar for a time but others crash
and burn, and still others pursue mistaken strategies for far too
long,” the letter notes.
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Other technology companies, including Google and Facebook,
have concentrated control in the hands of their founders, creating
different classes of stock.But none has gone public with a class
pi that has no votes at all.

If either Spiegel or Murphy sells more than 70 percent of his stake,
his whole stake will be converted into class B shares, which have
the voting rights of existing pre-IPO investors.
ap
Ken Bertsch, CII’s executive director, says Snap’s listing would
encourage stock markets outside the US, such as Singapore, to
reconsider their ban on dual-class listings in order to win IPO
business.“What is distressing is that a lot of the world’s exchanges
have been able to hold the line, but this could open the floodgates,”
he says.
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Note: Class A shares refers to a classification of common stock that is

accompanied by more voting rights than Class B shares, usually given
to a company’s management team. For example, one Class A share
may be accompanied by five voting rights, while one Class B share
may be accompanied by only one right to vote.
Where do the numbers lead to?
Snap reported that its ephemeral messaging service had 158 million
daily active users at the end of 2016, and an average of 2.5 billion

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snaps are created on Snapchat every

day.
Snapchat, an app in which users send
and view snaps, makes money from ads
on the platform and content created
by third-party channels such as news
organizations.
It also recently introduced a hardware product, Spectacles, and has
ly
a payment feature called Snapcash.
Snap reported growing revenues and increasing losses.
Snap recorded $404.5 million in revenue in 2016, compared with
pi $58.7 million in 2015.Net losses grew to $514.6 million in 2016,

compared with a net loss of $372.9 million in 2015.
Like many burgeoning tech startups, Snap warned that it “may
never achieve or maintain profitability.”
ap
Growth in daily active users has been pressured of late, though,
growing by only 7% between the second and third quarters of
2016 and relatively flat growth in the final quarter.
User growth is important for attracting advertisers and,
consequently, the majority of Snap’s revenue.The majority of
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Snapchat users are 18-to-34 years old, a coveted advertising

demographic that the company has reportedly been luring away
from sites like Facebook.
Users younger than 25 are among the most active on Snapchat,
visiting the app more than 20 times a day and spending more
than 30 minutes a day, as of the quarter ended December 2016,
Snap said.
Still, Snap noted that the teen demographic is not “brand loyal”
and could shift attention to another platform. Already the numbers
show seasonality, with engagement lower in summer months,

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according to the prospectus.

Also, Snap may struggle to grow its user numbers in countries or
areas without the high-bandwidth-capacity cellular networks the
app requires, it said.
Who does this IPO resemble?
Slate has run an interesting
comparison. The first blockbuster
initial public offering of the Trump era,
ly
it says, actually resembles Trump in
characteristics. The timing has some
poetry to it.
pi President Trump may be a Twitter fan, but he’d likely find a

kinship in Snap’s product, corporate culture, and mode of corporate
governance. And it’s the most Trumpian qualities of Snapchat and
its IPO that make them fascinating.
ap
Snapchat’s core business model and its claim on the fickle attention
of the low-information consumers depends on enabling people to
send impulsive, often vulgar ‘snaps’ that then disappear.
Snapchat users, in other words, exercise their right to
communication at all hours of the day while avoiding
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accountability — Trump’s modus operandi for years.

His greatest trick as a politician might be to make his transgressive
tweets and outrageous statements disappear in the minds of his
supporters, even when they are captured on tape.
Like Trump, Snap founder Evan Spiegel has his own history of
unfortunately recorded locker-room talk — sexist texts and emails
sent as a Stanford student, which he has since apologized for.
The shares Snap wants to sell to the public will carry no voting
power whatsoever.Spiegel is effectively setting himself up as
CEO for life. And the control of his voting shares will persist for

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nine months after his death.

It’s as if the company’s leaders view people’s election to
participate in the IPO as the only moment of accountability which
may sound familiar to the way US presidential elections went for
Trump.
However, the IPO has one thing different from Trump. The
company acknowledges that the IPO could ultimately be a zero-
sum game — a deviation, to be fair, from Trumpian promises of
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greatness. The prospectus notes that those who invest on the
assumption that doing so will be profitable might be disappointed.
There’s one last thing Snapchat and Trump may have in common: In
pi the prospectus, Snapchat notes that in both 2015 and 2016, despite
being worth billions of dollars, it didn’t pay a cent of income tax.
How will the world change for Snap
founders and employees?
ap
For beginners, Speigel is not your ordinary
tech founder guy who started his company
in a garage. A party-loving member of
Stanford University’s Kappa Sigma
fraternity, Spiegel formed what would eventually become Snapchat
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with the aid of fellow party-goers Bobby Murphy and Reggie Brown.
Also, Speigel had started rich - and now he will be super-rich.
Remember also that Snapchat had said an unbelievable ‘no’ to
Facebook founder Mark Zuckerberg’s offer of an all-cash buy-out
offer of $3 billion in 2013. Instead of coveting instant riches, the
Snapchat man admirably opted to pursue the dream of building a
successful business. Spiegel is engaged to supermodel Miranda Kerr
who is seven years older to him.
So it is unlikely that Spiegel will be swayed by the money Snap is

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about to make. However, a lot of money will be made by a lot of

people at Snap, which has its headquarters in the Los Angeles area.
At that valuation, Snap’s two young founders, Evan Spiegel and
Bobby Murphy, would walk away with holdings worth more
than $3 billion each.
Timothy Sehn, Snap’s senior vice president for engineering, would
own shares valued at as much as $110 million.And dozens of
other Snap employees could become overnight millionaires.
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To capture some of these soon-to-be wealthy techies, Los Angeles real
estate agents, lawyers and wealth managers have bought targeted
search and Facebook ads, they said.
pi Others are trying to spread word of their services through their

networks of contacts.
Tech employees are feeling the effects — some said they had been
bombarded with LinkedIn messages from companies that find
ap
clients for these service providers.
Snap is trying to help its 1,900 employees prepare for the money
they are about to make.
One Snap employee, who asked to remain anonymous because the
details were confidential, said the company had discussed
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bringing in academics from Stanford University to explain the

impact that the I.P.O. could have on their lives.
Howard Rowen, a financial adviser at Bank of America in Los
Angeles who manages money for entrepreneurs and tech workers,
said techies who made fortunes at a start-up might think they
would hit the jackpot again. Instead, he said, that often doesn’t
happen and coders, engineers and others should regard the
I.P.O. as a once-in-a-lifetime event.
—– | —–

mba.knappily.com
WORLD – BUSINESS / Snap numbers disappoint

investors
12-May-2017
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pi Snap’s first-quarter earnings report has disappointed investors despite
the company’s assurances. A poorer performance on all fronts fuels the
ap
concern that Snapchat is unable to fight off competition from copycat
Facebook. Snap’s decision to go public had investors worried as the
company had not given a clear roadmap for profitability. The next
Facebook might as well turn out to be the next Twitter. But Snap
seems to know what it wants.
Kn
What do the latest numbers on Snap

suggest?
It seems to be on the verge of snapping
Daily Active Users
This metric, which answers the
question “How many unique product
users visit the product daily?” is one of the measures of a product’s
success.

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Snapchat’s base of daily active users has slowed down its

growth. Starting off with 46 million in Q1 2014 – a 472 percent
growth over Q1 2013 – the rate of growth continuously declined –
80 million in Q1 2015, 73 percent growth from the same period the
previous year; 122 million in Q1 2016, 52 percent growth – and as
of Q1 2017, the number of daily active users stood at 166
million, 36 percent growth. StreetAccount estimated this number
to be 167.3 million.
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Investors had further reason to worry as first-quarterly-revenue
estimates of $158 million were not achieved, with Snap reporting
$149.65 million in revenue for Q1 2017.
pi In Q1 2016, the revenue was $38.8 million and the loss $104.58
million. This time, the net loss stood at $2.2 billion. This resulted
in shares plummeting by nearly 23 percent in after-hours
trading.
ap
Incentives to employees following Snapchat’s IPO accounted for
nearly $2 billion of the $2.2 billion loss.
Revenue per user stood at 90 cents in Q1 2017, noticeably higher
than 32 cents in Q1 2016 but disappointingly down from Q4 2016
when it was $1.05.
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While revenue fluctuation from season to season is normal,

Snapchat’s monetization strategy was young enough for investors
to forecast steady growth.
Snap share price dropped 20% early Thursday to around $18.26 in
premarket trade.
Some heartening news for Snap
Users spent over half-an-hour per day on Snapchat and on each
day created more than 3 billion snaps.
Why else are investors worried?

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One of the causes for concern is the

impact of Facebook’s replication of
Snap’s features. Investors are anxious
despite Snapchat’s assurances, that
Facebook’s copycat behavior will hit
user growth for Snapchat and the
contracted growth in user base fuels concerns.
The user growth was estimated to be a double-digit value in 2017,
ly
according to Cathy Boyle, mobile analyst at eMarketer. The
settling into single-digit range – 5 percent over last quarter – is
much quicker than expected, and suggests competition has
pi already tightened, she said.

The disappointment seems even more conspicuous in the face
of strong results from other companies, Rich Greenfield, the
BTIG Research analyst told FT. “Even Twitter, with low
ap
expectations, outperformed.”
Since its IPO, investors remain skeptical of Snapchat’s ability to
carve out its space in the advertising domain, given the extent of
Facebook and Google’s dominance. The decline in revenue per
user from the last quarter could give further reason to worry.
Kn
When did Snap go public?

Snap Inc.’s stock began trading
on the New York Stock Exchange
on March 2, 2017. According to
sources, the IPO was 12 times
oversubscribed – the orders for
shares were 12 times the number of shares offered.
Investors had expressed skepticism over the decision to go public. A
few analysts had recommended selling of shares at a target price as low

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as $10.
Far away from profitability with net loss exceeding revenue,
Snap’s user growth had tapered in Q4 2016.
Investors did not have – and still do not have, according to reports
– a clear picture of Snap’s roadmap for profitability and CEO Evan
Spiegel’s reserve evoked mixed responses.
Analyst Jessica Liu had told Bloomberg Facebook’s success is an
exception, Snap needs to focus on increasing user growth and
ly
prove the worth of its ads. “Its TV-like revenue pursuit is new and
untested” Advertisers had expressed concerns over the narrow
audience their ads could reach and were in the stage of
pi experimentation, seeing if long-term commitment was worth it.

One of the analyst who gave Snap a sell rating told Bloomberg, “Snap
presents investors with the opportunity to invest in the company behind
an innovative, large-scale, and distinctively young-skewing platform.
ap
Unfortunately, it is significantly overvalued given the likely scale of its
long-term opportunity and the risks associated with executing against
that opportunity.”
Note:
An overvalued stock is one with a current price illogically exceeding
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the company’s earnings. Emotion-driven demand or decline in a

company’s financial prowess could be the causes for overvaluation.
Execution risk is the risk that a transaction won’t be accomplished
within the range of recent market prices or within the buy/sell limits
imposed by the investor.
Snap was the first company in the US to list non-voting shares,
according to its deal filing. This rendered stockholders incapable of
voicing their opinion in matters like executive compensation and
director nominations. The credit or blame for Snap’s fate would be

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borne by Spiegel and Murphy.

In marketing its worth to investors, Snap stood apart from
Facebook or Twitter. The company did not use the tag “global brand”
in its roadmap for the future, stating it would focus on developed
markets. It also said user engagement and potential revenue rather
than user growth should be the metric to measure its worth. One
investor noted, “The Company has done a good job setting
expectations at the right level”
ly
Since then:
“SNAP stock has seen huge volatility, rising from its IPO price of
$17 to close its first trading day at $24.5 per share. After closing at
pi a high of $27.09 on March 3rd, the stock fell all the way to sub-$20
levels before rising back to nearly $24. And, Snap stock price now
hovers around the $20 mark, closing the last trading session at
$20.8 per share (April 7)”, an article in Amigobulls observed.
ap
After the Q1 2017 report, stock dropped from $22.98 to a little
above its IPO price of $17.
Where are the real concerns?
Snapchat’s CEO easily dismisses concerns
of competition; some opine this is
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excessive confidence and can turn

dangerous
Instagram under Facebook could draw
more number of users in about eight months to a section of its app
that almost mirrors Snapchat Stories, where users can post short
videos and photos that vanish after one day. Instagram’s Stories
section now has 200 million users.
Facebook (whose earlier attempt Slingshot did not succeed) and
WhatsApp have also zealously copied Snapchat’s main features

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and as far as users are concerned, it’s not who came first, it’s who
offers the most convenience and that happens to be Instagram.
As investors see it, Facebook has an established business model –
selling its users’ data as “value” to advertisers – while Snapchat is
still feeling its way around.
The company’s operating costs exceed its revenue
Snap said its server and other data-management fees exceed the ad-
driven revenue. In addition, it spent $805 million on research and
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development (for comparison, the highly profitable Apple spends
less than $3 billion on R&D).
Who makes up Snapchat’s user base?
pi From the beginning, Snapchat has

mainly served as a platform for the
millennials. Data from eMarketer,
showed 59 percent of 12- to 17-year-olds,
ap
68 percent of 18- to 24-year-olds and 42
percent of 25- to 34-year-olds use the app at least once per month each
month throughout the year.
Snapchat’s ephemeral nature raised concerns that teens could be
using it for sexting. With the advent of Stories, and users’
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fascination to tell their 24-hour-lasting stories through images and

quick videos, this feature gained popularity. But Snapchat’s role in
mainstreaming sexting is still brought up as a concern.
Observers have pointed out that Snapchat’s user base offers it a
distinction. “The issue with Facebook and even Instagram and
Twitter is that your mom and your grandma are also on it, perhaps
making it a less cool place to directly market to the young.
Facebook has 33 percent of people 65 and over regularly using
the app whereas Snapchat has under 2 percent of that

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demographic .”
A 2017 article in Pocket-Lint said the user base is expanding with
Viners, YouTubers and celebrities joining the list of subscribers to
use Snapchat as a channel to communicate with their followers.
North American audience brought in the highest revenue.
Snap’s Spectacles brought in around $4.5 million in revenue in Q4
2016, and over $8.3 million in revenue in Q1 2017, according to
TechCrunch. Over 5 million snaps have been created by Spectacles till
ly
date, the company said.
How can Snap save itself from
becoming another Twitter?
pi First, how can one interpret the Q1

results? An article in The Wired
explains why we should not hastily
conclude that “Snap seems to be on
ap
the verge of snapping.”
Comparing Snap with Facebook and Twitter gives rise to the
observation that it is going the way of Twitter. Media analyst Brian
Wieser however noted, “Snap is a niche platform. It’s not an
alternative, but a complement.”
Kn
Snap has built its audience on an approach where it determines

what is featured on its platform and how that content is
circulated. At a time when Internet is also a hotbed of fake
news and hate, such an approach is noteworthy.
Three months isn’t sufficient to know with certainty how Snap’s
alternative approach will play out.
Have earnings reports always been meaningful indicators of progress
or decline of the company?
Facebook’s IPO was followed by a 12 percent dip in shares but

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today it is within the top ten globally in terms of market

capitalization (product of total number of shares and present share
price). In contrast, Twitter has never been able to recover its
loss of market value following the first report.
Investors have concrete reasons to worry that Snapchat seems
nothing like the next Facebook, is instead saturated and will turn
out to be the next Twitter.
Snapchat’s online advertising strategy however seems to present
ly
unique opportunities. Snap offers TV-like qualities that could
make it the desired choice of TV and digital advertisers.
“Similar to television, Snap is an infinitely better platform than
pi Facebook and Google for building brands,” said Jason Kint, CEO of
publishing industry trade group Digital Content Next. “Facebook and
Google’s duopoly is built off their data collection and direct
marketing.”
ap
Snap’s TV-like authentic content for its most engaged users and
the immense attraction to media companies (including Wired )
its Discover section could possibly turn profitable for
publishers and incentivize content of improved quality on the
platform.
Kn
The readiness to take responsibility for content created and

sustained on its platform might enable Snap to carve out its own
space despite huger, more successful competitors.
If Snap does succeed in doing so, it would challenge the notion that
quality control hampers growth. Else it would be a case study
worth learning from.
As to how Snap must proceed:
Snap’s hardware ambitions need to extend beyond Spectacles,
Bluetooth-enabled sunglasses that allow users to take short,

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immersive videos and upload them to Snapchat. This product has

not “generated significant revenue” acknowledged Snap.
It has been said that Snap might take up a 360-degree camera as
its next project. An article in TC said this would be a perceptive
move. People often stick their camera phones in the air and do a
slow pan to show off where they are. A 360 camera could do a
much better job of making friends feel like they’re there with you.
—– | —–
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pi
ap
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WORLD – BUSINESS / Playboy goes nude again
14-Feb-2017
ly
pi “Naked is Normal”, declares the new cover of Playboy. The magazine
is bringing back nudity, reversing a decision made a year ago. After
decades of titillation, Playboy is struggling to survive. The Playboy
ap
mansion was sold for $100 million last August. The magazine became
non-nude to boost sales, but that has clearly not worked. The
magazine’s readership is dwindling and the company’s valuation
slipping. The naked truth is that Playboy is past its prime.

Kn
It seems that not many men read Playboy

for the articles, after all.
A year after Hugh Hefner’s legendary
men’s magazine dropped the nude pictorials
that defined its brand for six decades,
Playboy has now reversed the decision, calling off the experiment to
return to its (naked) roots with a March/April issue bannered, “Naked
is normal.”
“I’ll be the first to admit the way in which the magazine portrayed

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nudity was dated, but removing it entirely was a mistake,” read a

statement by Cooper Hefner, who took over as Playboy’s chief
creative officer in October 2016.“Nudity was never the problem,
because nudity isn’t a problem. Today, we’re taking our identity
back and rediscovering who we are.”
In a lengthier editor’s letter posted on Playboy.com, Hefner details
his father’s role in America’s sexual revolution before seemingly
equating the magazine’s celebration of nudity to other cultural
ly
norms being threatened in the modern climate, like religious
tolerance, healthcare rights, and preserving the First Amendment.
To make this sound business-like, let us just say Playboy is going
pi back to the core business proposition - nudity.

Ex-CEO Scott Flanders had spearheaded the magazine’s non-nude
makeover in an effort to reach younger audiences.“You’re now one
click away from every sex act imaginable for free,” Flanders had
ap
told The New York Times, contemplating Playboy’s place in an
increasingly digital world.“And so it’s just passé at this juncture.”
Early returns had indicated that the decision to remove nudity was
a prudent one; single-copy sales jumped 28 percent in the first six
months of 2016 over the same period the year before, according to
Kn
data from the Alliance for Audited Media.Unfortunately for

Playboy, subscribers account for the overwhelming majority of
its circulation, which tumbled 23 percent in the same period, to
816,926.
What is wrong with Playboy’s business?
Playboy’s revenue has been falling due to a steep drop in readership
and also consequent drop in advertisement earnings. The recession of
2009 worsened its woes.
As the company could not fulfill Wall Street’s mandatory capital

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requirements for listing, founder Hugh Hefner took the company

private in 2011, along with private equity firm Rizvi Traverse
Management, in a deal that valued the company at $207 million.
To put the numbers in greater context, Playboy sold 7.2 million
copies of its November 1972 edition, and its monthly circulation
topped 3 million as recently as 2006. Now it is struggling to
touch a million.
With Hefner’s Playboy Enterprises media empire facing
ly
mounting losses and plunging revenues, the ageing publisher sold
his Playboy Mansion in Los Angeles for $100 million, at half of his
asking price. He has however been allowed to stay in the mansion
till death, which may not take many years considering he is 90
pi now.
The big question though is - will his company die with him?
Note: The January/February 2016 issue (supposed to be the last nude
ap
issue), featured Pamela Anderson on its cover, drawing a close to 62
years of nudity. The March/April 2017 issue, on newsstands now,
features cover model Elizabeth Elam who brings nudity back to
Playboy.
Why is Playboy readership
Kn
dwindling?
The circulation of Playboy, an erotic
magazine with a faded pedigree, has
dropped to around 800,000 in recent
years.
The shrinkage of readership is surely due not just to competition
from the bold and free porn found online, but also to the fact
that the lifestyle celebrated by the magazine is no longer even a
plausible fantasy.

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The magazine first appeared in the early days of the great post-war
economic boom with a goal of teaching millions of upwardly
mobile men how to spend their money.
The rich white men of today do not have that kind of time to
indulge in fantasies and perhaps the fantasies have evolved too.
The playboy bunnies do not titillate the current generation as they
did the previous many.
That the magazine has lost relevance became clear when it came up
ly
with the first non-nude issue of Playboy. To think of it, the decision
– which reversed all that Playboy stood for – actually made sense.
The upside of having nude photography in the magazine was
negligible and the downside was that it brought a kind of stigma to
pi the brand that they don’t need.

Playboy has become a victim of the internet.Despite high brand
recognition Playboy does not appear to have a ready way to access a
ap
younger generation of consumers.
Playboy is no longer an appropriate channel for sex and sex advice,
and nobody today refers to themselves as a Playboy man – the
designation no longer exists.
That the magazine itself exists is testimony to its brand strength.
Kn
But the brand has been stretched to its limits.

When was Playboy born?
Playboy is an American men’s lifestyle and
entertainment magazine. It was founded in
Chicago in 1953 by Hugh Hefner and his
associates.
Notable for its centerfolds of nude and
semi-nude models (Playmates), Playboy played an important role
in the post-war American sexual revolution and remains one of the

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world’s best-known brands, having grown into Playboy

Enterprises, Inc., with a presence in nearly every medium.
In addition to the flagship magazine in the United States, special
nation-specific versions of Playboy are published worldwide.
The magazine has a long history of publishing short stories by
notable novelists such as Arthur C. Clarke, Ian Fleming,Vladimir
Nabokov, Saul Bellow, Chuck Palahniuk, P. G. Wodehouse etc
Playboy features monthly interviews of notable public figures, such
ly
as artists, architects, economists, composers, conductors, film
directors, journalists, novelists, playwrights, religious figures,
politicians, athletes and race car drivers.
The magazine generally reflects a liberal editorial stance, although
pi it often interviews conservative celebrities.

When did Playboy achieve success?
It was successful from its very first edition.
ap
This first edition of Playboy was 44-pages long and had no date on
its cover because Hefner wasn’t sure there would be a second
edition.
In that first run, Hefner sold 54,175 copies of Playboy magazine at
50 cents each. The first edition sold so well because Marilyn
Kn
Monroe was the “Sweetheart of the Month” (which was

thereafter termed “playmate”).
On the front cover, Marilyn Monroe appeared waving her hand.
Inside, Monroe bared it all in the centerfold. (Monroe did not pose
nude specifically for Playboy; Hefner had purchased the picture
from a local printer who made calendars.)
Where did Playboy play it wrong?
It is not that the men of this world have lost their basic instinct. It is
just that they are no longer walking up to the next magazine store to

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access it. There is just so much

nudity online that it is difficult to not
see it. Nudity is not provocative
anymore.
Till the late 80s, Playboy was the
forbidden pleasure for men. It was
something to be treasured but hidden away. This is almost
laughable now, as we live in a world where porn is widely
ly
available for free on the net and produced widely for free by
“amateur” companies.
At the heart of it all, however, is yet another story of the old guard
pi failing to innovate in response to changing consumer and customer

behavior.
Playboy failed to adapt to the disruption that has taken place in the
media and publishing world and the power of social networks as a
ap
publishing platform.
The number 1 source of traffic to most websites are social
networks: Facebook, Twitter, Instagram and LinkedIn. Facebook is
the largest source of news and drives more traffic to media sites
than Google. And here’s the catch for Playboy - none of those
Kn
social networks allow nudity.

Playboy may soon join the likes of Kodak and Blockbuster in the
graveyard of the companies that had enough time to catch up with the
changing times but refused to do so.
Note: Kodak invented the digital camera in 1975, but it was so focused
on its film and printing domination, it missed every opportunity in
digital. The company filed for bankruptcy in 2012. Blockbuster created
a desire to rent and stay in to enjoy movies from the comfort of our
homes, and passed on the opportunity to buy Netflix, not once, but

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three times. It went bankrupt in 2013.

Who is the founder of Playboy?
Hugh Marston Hefner, aged 90, is the
founder of Playboy, and is himself a
well-known playboy.
Hefner is a native of Chicago,
Illinois and a former journalist for
ly
Esquire. He is also a World War II veteran.
A self-made multi-millionaire, he is now worth over $43 million.
Hefner is also a political activist and philanthropist active in
several causes and public issues.
pi Hefner was always determined to start his own publication. He

raised $8,000 from 45 investors — including $2,000 from his
mother and brother Keith combined — to launch Playboy
magazine. Hefner had planned to title the magazine “Stag Party”
ap
but was forced to change the name to avoid a trademark
infringement with the existing Stag magazine. A colleague
suggested the name “Playboy,” after a defunct automobile
company. Hefner liked the name, as he thought it reflected high
living and sophistication.
Kn
Hefner remade himself as a bon viveur (the one who lives well), a
lifestyle he promoted in his magazine and two TV shows he hosted,
Playboy’s Penthouse (1959–1960) and Playboy After Dark
(1969–1970).
America in the 1950s was attempting to distance itself from nearly
30 years of war and economic depression. For many, the magazine
proved to be a welcome antidote to the sexual repression of the era.
In the 1960s, Hefner became the persona of Playboy:the urbane
sophisticate in the silk smoking jacket with pipe in hand. He
adopted a wide range of pursuits and socialized with the famous

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and the wealthy, always in the company of young, beautiful

women.
Over the years, Hefner’s Playboy Enterprises also built hotel
resorts, started modeling agencies and operated a number of media
endeavors.
By the 1970s, Hefner set himself up at the Playboy Mansion West
in Holmby Hills, California, remaining editor-in-chief of the
magazine he founded. In more recent years he has starred in the
ly
reality TV series The Girls Next Door.
Once upon a time he was acknowledged as a marketing genius and
he was usually marketing his own lifestyle.
pi His mansion has now been sold, but he has been allowed to stay in it
with his wife (who is 64 years younger to him) for the rest of his life.
Hefner has played it well.
How does Playboy make money?
ap
Playboy Enterprises Inc. may have gained
notoriety for its magazine and celebrity
centerfolds, but it is licensing fees that pay
for Hugh Hefner’s fancy lifestyle these
days.
Kn
The magazine’s U.S. edition loses about $3 million annually, but it

is what former Chief Executive Scott Flanders called a “marketing
expense.” The company capitalizes on its logo, the iconic bunny
in profile, by licensing multiple products with the Playboy
brand.
Those products are especially popular in China, which makes up
40% of the company’s business on items like jewelry, fragrances
and liquor. The magazine is not available in conservative China.
Playboy has done business in China for 20 years, and has generated

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$5 billion in retail revenue there over the last decade. In 2014, the
company generated $1.5 billion in retail sales around the world.
More than half a billion of that sum came from China.
—– | —–
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pi
ap
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WORLD – BUSINESS / Well played, Hugh Hefner
28-Sep-2017
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pi Hugh Hefner, the founder of magazine Playboy - that helped spur the
American sexual revolution of the 1960s - has ended his play on earth.
Founding Playboy in 1953, he built a multimillion-dollar entertainment
ap
empire around it. Claiming to have “slept with more than 1000
women”, the prophet of hedonism was both envied and ridiculed as a
relic of a sexist era. Sex sells, and this ‘dirty old man’ was its most
successful salesman.
What comes to an end?

Kn
“I am a kid in a candy store. I

dreamed impossible dreams, and
the dreams turned out beyond
anything I could possibly
imagine. I’m the luckiest cat on
the planet.”
The luckiest cat has now left the planet.
Hugh Hefner, the founder of Playboy, has died at age 91. Playboy
Enterprises said in a statement that Hefner “peacefully passed away

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today from natural causes at his home, The Playboy Mansion,

surrounded by loved ones.”
Hefner had many loved ones, but more on that in a bit.
He was the founder of Playboy, and he remained a playboy till his
death.
Hugh Hefner created a fantasy world for millions of men but unlike
most of his readers, actually got to live the dream from the money
ly
he made by selling that dream.
He successfully tapped into a new generation of Americans who
were enjoying rising standards of living in the boom years of
the 1950s and 60s. Playboy was not just a magazine, but a whole
pi lifestyle.
In 1960s and 70s, the huge sales of Playboy were certainly driven
by glossy colour pictures of nude “playmates”, but it also
developed a reputation for fine writing, with Norman Mailer,
ap
Kingsley Amis, Kurt Vonnegut, James Baldwin, Vladimir
Nabokov, Margaret Atwood and Ray Bradbury among its
contributors. Their contributions allowed men to say they did not
buy the magazine only for the pictures. But the men, it is not
difficult to imagine, were not buying it for the writing.
Kn
Hefner’s trailblazing magazine helped make nudity respectable

in mainstream publications, despite emerging at a time when US
states could legally ban contraceptives. It also made him a multi-
millionaire, spawning a business empire that included casinos and
nightclubs.
And in Playboy’s famous bow-tie-wearing rabbit Hefner
launched one of the most recognised brands of the 20th Century.
He claimed to have slept with more than 1,000 women, and credited
the impotence drug Viagra with maintaining his libido. The claim, for

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obvious reasons, cannot be independently verified. But such claims did

help him build a persona around his brand.
Why does ‘Hef’ leave behind a
controversial legacy?
TIME wrote a cover story on
Hefner in 1967, which called
Hefner a “prophet of pop
hedonism” and described
ly
Hefner’s particular genius in launching Playboy:
The magazine has many things to offer, but the basis of success is the
nude or seminude photograph that Hugh Hefner has made respectable
pi in the U.S. prints. America was undoubtedly ready for it anyway, but
Hefner seized the moment. He was the first publisher to see that the
sky would not fall and mothers would not march if he published bare
bosoms; he realized that the old taboos were going, that, so to speak,
ap
the empress need wear no clothes. He took the oldfashioned, shame-
thumbed girlie magazine, stripped off the plain wrapper, added gloss,
class and culture. It proved to be a surefire formula, which more
sophisticated and experienced competitors somehow had never dared
contemplate.
Kn
Hefner revolutionized publishing and helped usher in the sexual

revolution with a vision of beauty, sophistication and the libertine
lifestyle that reflected the desires of the postwar generation who
would rather make love than wage wars.
At its peak in the 1970s, Playboy had more than 7 million
readers. Now, the magazine has a circulation of about 800,000 but
its iconic logo showing a rabbit head wearing a bow tie is still one
of the most recognizable in the world.
Playboy’s clubs also influenced the culture, giving early breaks to

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such entertainers as George Carlin, Rich Little, Mark Russell, Dick

Gregory and Redd Foxx. The last of the clubs closed in 1988, when
Hefner deemed them “too tame for the times.”
“Well, if we hadn’t had the Wright brothers, there would still be
airplanes,” Hefner said in 1974. “If there hadn’t been an Edison, there
would still be electric lights. And if there hadn’t been a Hefner, we’d
still have sex. But maybe we wouldn’t be enjoying it as much. So the
world would be a little poorer. Come to think of it, so would some of
ly
my relatives.”
But not everyone was enjoying Playboy.
Though he portrayed himself and his magazine as defenders of
pi women’s rights, his critics have called him anything but, pointing to
his rotating cast of girlfriends, multiple divorces and general
objectification of women in the pages of Playboy (“They are objects,”
he once told Vanity Fair).
ap
A widely-publicized memoir by one of his many former girlfriends,
Holly Madison, described a life of manipulation and constant
fighting at the Playboy Mansion. Hefner was also accused last year
of paving the way for Bill Cosby to drug and sexually assault a
women at the famed mansion in 2008. Hefner denied the
Kn
allegation.
Women were warned from the first issue: “If you’re somebody’s
sister, wife, or mother-in-law,” the magazine declared, “and
picked us up by mistake, please pass us along to the man in your
life and get back to Ladies Home Companion.”
One ‘bunny’ (he called his models bunnies, and dressed them like
bunnies) turned out to be a journalist: Feminist Gloria Steinem, in
an article for Show magazine, described the Playboy clubs as
pleasure havens for men only. The bunnies, Steinem wrote, tended

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to be poorly educated, overworked and underpaid. Steinem

regarded the magazine and clubs not as erotic, but
“pornographic.”
“I think Hefner himself wants to go down in history as a person
of sophistication and glamour. But the last person I would want
to go down in history as is Hugh Hefner,” Steinem later said.
Hefner’s son is convinced that his late father has earned a place in
history.
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“My father lived an exceptional and impactful life as a media and
cultural pioneer and a leading voice behind some of the most
significant social and cultural movements of our time in advocating
pi free speech, civil rights and sexual freedom. He defined a lifestyle and
ethos that lie at the heart of the Playboy brand, one of the most
recognizable and enduring in history. He will be greatly missed by
many, including his wife Crystal, my sister Christie and my brothers
ap
David and Marston, and all of us at Playboy Enterprises,” said
Cooper Hefner, his son and Chief Creative Officer of Playboy
Enterprises.
When did Hefner start playing?
Hugh Marston Hefner was born in
Kn
Chicago on 9 April 1926, the son of

two teachers with strong religious
views. After serving in the US Army as
a writer, he graduated with a degree in
psychology before going to work as a copywriter for the men’s
magazine, Esquire.
Hefner received a bachelor’s degree in psychology from the
University of Illinois at Urbana-Champaign.
He took a semester of graduate courses in sociology at

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Northwestern University where he studied the findings of Alfred

Kinsey, a pioneer in human-sexuality research and the author of
the famous Kinsey Reports, two books on sexual behaviour that
shocked American society. “Kinsey was the researcher,” Hefner
later remarked, “I was the pamphleteer.”
In 1953 he borrowed $8,000 to produce the first issue of Playboy.
His mother contributed $1,000. “Not because she believed in the
venture,” Hefner later said, “but because she believed in her son.”
ly
He’d originally planned to name the new publication Stag Party, but
changed his mind at the last minute.
Hefner was so worried that the magazine would not sell that he left the
pi date off the cover. But he got the cover right.

The first edition featured a set of nude photographs of Marilyn
Monroe that Hefner had bought for $200. They had originally
been shot for a 1949 calendar.
ap
Whether by destiny or design, Hefner’s timing was just right.
This was the time in America when conventional beliefs about
sexuality were being challenged.
It was an unqualified success, selling more than 50,000 copies
within weeks. Hefner had found a niche in the market for men’s
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publications, which was then dominated by hunting, shooting and

fishing periodicals.
The second issue saw the appearance of the bow-tie-wearing rabbit,
which was designed by the magazine’s art director Art Paul. It
would appear on a host of products over the following decades.
For the next 20 years, Playboy dominated its market.
Its circulation peaked at over seven million in the early 1970s,
when a survey suggested that a quarter of all male college
students in America were buying the magazine.

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At the time it also contained some of the finest contemporary

writing in the magazine market, with Saul Bellow, Arthur C
Clarke, Norman Mailer and Gore Vidal among the regular
contributors. The articles appeared sandwiched between the
obligatory nude photographs of beautiful women, although far
more tastefully shot than many of Playboy’s more downmarket
competitors.
They were dropping it for him. The “centre spread” entitled
ly
Playmate of the Month featured some famous names including
Jayne Mansfield and Pamela Anderson, while other celebrities,
including Bo Derek, Kim Basinger, Farrah Fawcett and Madonna,
have been happy to pose for the magazine.
pi Hefner had good business sense. He set out to exploit the success
of his magazine with the opening of the first Playboy club in
Chicago in 1960, which introduced the Playboy bunny
waitresses.
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The relaxation of gaming laws in the UK opened up another
opportunity and Hefner opened three casinos in the UK. By 1981
they were contributing all of Playboy’s worldwide profits.
At this time Hefner was living a life of luxury and indulgence in his
two Playboy mansions, accompanied by an ever-changing cast of
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celebrities and decked-up girlfriends.

TIME’s cover story said of Hefner’s lifestyle:
Bacchanalia with Pepsi. Orgies with popcorn. And 24 girls—count
’em, 24—living right overhead! Not to mention all those mechanical
reassurances, like TV and hifi. It is all so familiar and domestic. Don
Juan? Casanova? That was in another country and, besides, the guys
are dead. Hugh Hefner is alive, American, modern, trustworthy,
clean, respectful, and the country’s leading impresario of spectator
sex.

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Where did the Playboy business

struggle?
The casinos were shut
Hefner’s fortunes went into a major
decline during the 1980s. The British
authorities shut down the UK casinos
following a series of irregularities, effectively cutting Playboy’s
income. A year later a casino in Atlantic City, New Jersey, was
ly
closed after Hefner was judged by the state gaming board to be “an
unsuitable person” to hold a licence.
The boys got older
pi Playboy magazine too was failing as more sexually explicit

competitors competed for space on the newsstands and traditional
Playboy readers got older and moved on.
Playboy was rather modest compared to what its competitors were
ap
showing. By the 1980s, the Playboy franchise had lost much of its
popularity.
Health is not just about sex
After Hefner suffered a minor stroke in 1985, he stepped down
Kn
as CEO and turned over all Playboy business operations to his

daughter, Christie, who guided the company’s fledgling cable TV
channel but closed its foundering Playboy Clubs.
Hefner, meanwhile, had - in his own words - discovered Viagra,
and spent his days in his mansion, dressed in silk pyjamas and
surrounded by a half-dozen or so live-in female companions.
The man is the brand
By the 2000s, the rise of internet pornography and “lad mags”
such as Maxim, which featured scantily clad starlets, had eroded

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much of Playboy’s subscriber base.

But Hefner’s own profile grew again thanks to “The Girls Next
Door,” a reality TV series about his life with three of his young
blonde girlfriends. The show ran for five years.
Cutting to the present…
The circulation of Playboy has dropped to around 800,000 in recent
years.
ly
The shrinkage of readership is surely due not just to competition
from the bold and free porn found online, but also to the fact that
the lifestyle celebrated by the magazine is no longer even a
plausible fantasy.
pi The rich white men of today do not have that kind of time to
indulge in fantasies and perhaps the fantasies have evolved too.
The playboy bunnies do not titillate the current generation as
they did the previous three.
ap
That the magazine has lost relevance became clear when it came up
with the first non-nude issue of Playboy in 2016 (a decision
which was reversed within a year). To think of it, the decision –
which reversed all that Playboy stood for – actually made sense.
The upside of having nude photography in the magazine was
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negligible and the downside was that it brought a kind of

stigma to the brand that they don’t need.
Playboy has become a victim of the internet.
Despite high brand recognition Playboy does not appear to have a
ready way to access a younger generation of consumers.
Playboy is no longer an appropriate channel for sex and sex advice,
and nobody today refers to themselves as a Playboy – the
designation no longer exists.
That the magazine itself exists is testimony to its brand strength. But

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the brand has been stretched to its limits.

Who said what on his demise?
High-profile figures from the media world
and beyond are paying tribute to Playboy
magazine founder Hugh Hefner. And not
all of them are talking about his sexual
revolution.
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“Hugh Hefner was a strong supporter of the civil rights
movement,” tweeted the Rev. Jesse Jackson. “We shall never
forget him. May he Rest In Peace.”
“One of the nicest men I’ve ever known. Godspeed, Hugh Hefner,”
pi said Nancy Sinatra, a former Playboy bunny.

Belinda Carlisle, who appeared nude for the August 2001 edition
of the famous magazine at the age of 40, said she had been to the
Playboy Mansion “many times” thanks to her husband’s close
ap
friendship with Hef, who she described as “the nicest man”.
However, the 59-year-old did admit that there is one room that you
must “stay out of” when visiting. No, it was not for the reason you
just thought. The infamous grotto (artificial cave), which features a
series of whirlpools, was investigated by the LA County
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Department of Public Heath in 2011 after over 120 guests of the

mansion became ill. They discovered they contained the bacteria
responsible for causing Legionnarie’s disease, which is a severe
form of pneumonia.
Kim Kardashian, who appeared on the cover of Playboy in 2007 to
promote her show Keeping Up With the Kardashians, tweeted:
“RIP to the legendary Hugh Hefner! I’m so honoured to have been
a part of the Playboy team!”
Jenny McCarthy, another former Playboy bunny, tweeted: RIP
#Hef Thank you for being a revolutionary and changing so many

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people’s lives, especially mine. I hope I made you proud.

Twitter is never devoid of humour. Most of the digs were at the ‘real
reason’ why people ‘read’ Playboy.
My Dad just told me that Hugh Hefner died doing what he and my
Father loved doing best, reading the articles in Playboy magazine,
wrote someone on Twitter.
I really liked him for his articles, wrote another while posting a few
pictures of Playboy models.
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I read Playboy for the articles. Seriously.
Hugh Hefner a revolutionary and uncompromising force… RIP.
Thanks for the material. I enjoyed the articles.
pi He left a legacy behind that everyone will continue to read just for
the articles. They swear.
How will Hef be remembered?
“We recognize pleasure as the first good
ap
innate in us, and from pleasure we begin
every act of choice and avoidance, and to
pleasure we return again, using the
feeling as the standard by which we judge
every good.” ~ Epicurus, ancient Greek philosopher
Kn
Hedonism is the philosophy that pleasure is the most important

pursuit of mankind, and the only thing that is good for an
individual. Hedonists, therefore, strive to maximise their total
pleasure (the net of any pleasure less any pain or suffering).
In 2016, even the Playboy Mansion sold for $100 million, about
half of Hugh Hefner’s original asking price. But it was still the
most expensive home ever sold in Los Angeles and came with a
special caveat - Hefner got to stay there for the remainder of his
lifetime.

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He lived his life in pleasure. That is his biggest legacy. And yes,
that is an achievement, for we all seek pleasure after all.
If you disagree, consider this example:
If you tell us that you are heading for the convenience store, we might
ask: “What for?” This is a reasonable question, for when you go to the
convenience store you usually do so, not merely for the sake of going
to the convenience store, but for the sake of achieving something
further that you deem to be valuable. You might answer, for example:
ly
“To buy soda.” This answer makes sense, for soda is a nice thing and
you can get it at the convenience store. We might further inquire,
however: “What is buying the soda good for?” This further question
pi can also be a reasonable one, for it need not be obvious why you want
the soda. You might answer: “Well, I want it for the pleasure of
drinking it.”
Hefner drank it all.
ap
But he was not just about pleasure.
In creating Playboy, Hefner was at the right place at the right
time, according to Lois Banner, a professor in the University of
Southern California’s Gender Studies Program.
“He was very bold,” Banner said. “Much of his brilliance is as a
Kn
marketer. A lot of his brilliance is not necessarily as the creator of

a cultural icon, because that cultural icon is women … He simply
raised it up to a kind of epic phenomenon in culture.”
In recent years, Playboy has made most of its money from
licensing its brand and familiar rabbit logo around the world for
fragrances, jewelry and other products.
Hefner’s enduring publication - he holds a Guinness World Record
for the longest career as an editor-in-chief for the same magazine,
more than 60 years - and his swinging-bachelor persona left an

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indelible mark on the culture.

“Love him or loathe him, no one doubts Mr. Hefner’s influence in
American cultural history,” The New York Times wrote in 2009. “As
a magazine publisher, he essentially did for sex what Ray Kroc (the
founder of McDonalds) did for roadside food: clean it up for a rising
middle class.”
—– | —–
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pi
ap
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WORLD – BUSINESS / Google adds muscle to its

hardware
21-Sep-2017
ly
pi Alphabet subsidiary Google announced on Thursday that it has signed
a $1.1 billion agreement with Taiwanese smartphone maker HTC to
ap
bolster its smartphone and emerging hardware business. The move
formalizes a long-awaited tie-up that could further Google's ambitions
in the mobile phone and virtual reality industries and may rescue
HTC's flagging business. The deal shows that Google is not just
serious about becoming a hardware company; it is going to war against
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the iPhone.
What has Google bought?

Alphabet Inc.’s Google said it
would buy part of struggling
Taiwanese smartphone maker
HTC Corp. for $1.1 billion in
cash, as it accelerates its efforts to
crack the handset market.
Google said an HTC team that helped develop Google’s flagship Pixel

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smartphone will join the company. The Mountain View, California,

company will also get a nonexclusive license to HTC intellectual
property.
HTC was hired by Google to be the contract manufacturer for the
Pixel, a high-end smartphone that was launched last year, in part to
better compete with Apple Inc.
Google will not take a stake in the firm, but some HTC staff will
join the Silicon Valley giant. The HTC team transferring to
ly
Google, whose size the companies did not disclose, will work
under Rick Osterloh, the veteran executive that Google brought in
about 18 months ago to lead a new hardware unit responsible for
pi the Pixel phones, the Google Home smart speaker and other
devices.
“It's still early days for Google's hardware business,” Osterloh said in
a blog post on Google's website.
ap
“These future fellow Googlers are amazing folks we've already been
working with closely on the Pixel smartphone line,” Osterloh said.
Ironically, Osterloh had been the top executive at Motorola, the
smartphone maker which Google bought in 2012 and sold in 2014,
after deciding it didn't want to be in the phone-making business
Kn
after all. Until it did again a year or so later.

Google expects the deal to close by early 2018, provided it gets the
all clear from regulators. Shares in HTC were suspended in Taiwan
on Thursday.
Google and HTC have been longtime partners. The Taiwanese
company made the very first Android device, the HTC Dream,
in 2008, just months after Apple introduced the iPhone.
HTC is not getting out of the hardware business. The company

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plans to continue making its own HTC-branded phones, virtual reality

headsets and other devices.
Why is this significant?
HTC once held a commanding position
in the handset market. Its global market
share peaked at 9% in 2011, when it
shipped about 45 million units of its
branded phones, according to
ly
Counterpoint Research. By last year, that share had plummeted to less
than 1%, or 12.8 million phones.
Its market share data doesn’t include the Pixel phones, which sold
pi about one million units last year, Counterpoint added.

It’s not clear how many HTC employees will join Google. HTC is
retaining the remainder of its handset business, including its
manufacturing and research and development teams. It is also
ap
retaining the division that makes its virtual-reality headset Vive,
which is one of the top sellers in the nascent category. HTC plans
to use the proceeds from the sale to invest in its virtual-reality
and own handset businesses.
Google has made an aggressive push into hardware over the past
Kn
18 months, including its Pixel efforts, a voice-controlled home

speaker and a virtual-reality headset.
Google doesn’t disclose its hardware-sales figures, but the segment
that includes the business grew by 42% to nearly $3.1 billion in the
second quarter from a year earlier. That segment also includes its
fast-growing cloud business.
The deal shows “Google is very serious about building its own
hardware,” said Jan Dawson, chief analyst at Jackdaw Research.
Google realized that if it wanted to improve the Android software

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experience, it needed more control over the hardware, Dawson

said.
When did Google show
interest in hardware before?
In 2011, Google Inc. forged a
$12.5 billion deal to buy
Motorola's cellphone
business, a move that could
ly
reshape the Internet giant's fortunes in the mobile world while also
giving it an arsenal of patents for legal warfare with Apple Inc. and
others.
pi The Motorola deal gave the search giant a trove of more than
17,000 patents to defend itself against a rash of lawsuits against its
Android software — which back then powered more than 150
million devices world-wide, including Motorola's line of Droid
ap
smartphones.
The deal saw Google step out of its comfort zone as a software
maker. It had to run manufacturing plants, manage inventory
and nurture relations with carriers and retailers. One of
Google's motivations, in addition to the patent trove, was its desire
Kn
to design not just the way gadgets work, but also how they look,
giving it the sort of control over software and hardware that
archrival Apple enjoys with its iPhone.
Google Chief Executive Larry Page, in an interview back then,
believed that companies such as HTC Corp. and Samsung
Electronics Co., which all flocked to Android as a way to compete
with Apple, will likely “hedge their bets” by creating more devices
using Microsoft Corp.'s mobile-operating system.
The Google experiment making Motorola phones ended 22

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months later, with the company unloading the handset business

to China's Lenovo Group Inc. for $2.91 billion but keeping a
valuable trove of patents, after Motorola racked up a cumulative
pretax operating loss of $2.7 billion. The deal unwound the Internet
company's costly move into smartphone hardware after it acquired
Motorola Mobility for $12.5 billion in May 2012.
Last year, Google hired Motorola’s former president, Rick Osterloh, to
run its hardware business, which will include the HTC unit.
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Google tried to run Motorola as an independent business, but that
increased tensions with other phone makers that use Google’s Android
smartphone software. Those companies didn’t like relying on
pi Google for software while also competing with it in the hardware

market.
The HTC deal could re-inflame those tensions. Google’s Pixel
competes with Android-using devices like those from Samsung
ap
Electronics Co.
Where will this benefit Google?
If nothing else, Google’s deal with
HTC should settle the question of
whether it is serious about making its
Kn
own phones. Not that $1.1 billion is a

heavy sum for a company with
nearly $91 billion in net cash on hand. To put this in perspective, the
previous deal to buy Motorola Mobility cost 12 times as much.
The deal with HTC announced Thursday is very different — and
less risky. For its $1.1 billion, Google is getting the large HTC
team that helped develop Google’s first branded smartphone,
the Pixel, launched late last year.
The Pixel drew strong reviews, but its success has been constrained

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by production problems. IDC estimates Google has sold about 2.8

million of the smartphones globally, which would translate into a
market share of about 0.2%.
Hiring a couple of thousand engineers from HTC won’t solve that
problem right away. Though once a strong No. 2 to Samsung in
smartphones running on Google’s Android operating system, HTC
— like Motorola before it — has been steamrollered by
Samsung’s manufacturing and marketing prowess.
ly
But Google doesn’t need to match Samsung’s numbers to be a success.
Increasing the Pixel’s share of just the premium segment would benefit
the features and services Google is looking to deploy for all Android
pi phones — such as its artificial-intelligence-powered Google Assistant

software — and so help keep Android users on board.
Who is Google taking on?
This is going to be one
ap
fascinating fight.
Of the three most influential
companies in smartphone design,
Nokia fragmented into a million
pieces after being bought out by Microsoft, Apple is still going strong,
Kn
and Google just bought the third with this HTC deal.
Google’s Pixel is about to declare war against Apple’s iPhone.
It sounds preposterous given the number and quality of apps that
Google produces for Apple’s iOS ecosystem, but the iPhone is a
direct threat and counter to Google’s overarching goal of being
ubiquitous on every internet-connected device.
Apple’s voice assistant Siri searches the web using Bing rather
than Google, and Apple Maps was created explicitly to shake off

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Apple’s dependence on Google Maps.

As Apple works to become independent of Google through the
provision of its own services like Apple Music and iCloud,
Google is moving to become independent of Apple by trying to
make a better smartphone. One company is getting serious
about services, the other is getting serious about hardware, and
the end result will be an escalation and exacerbation of the
conflict between them.
ly
The striking thing about Google’s transition to being a formidable
competitor on the hardware front is how swift it has been and will
be. The first time that Google put the “Made by Google” label
pi on a phone, the Pixel turned out to have the best smartphone

camera of its time — and it arguably still does. On day one,
Google’s Pixel had already won one of the biggest battles against
the iPhone: that of having a better camera.
ap
Yes, Google has had major stumbles in its efforts to supply enough
phones to satisfy Pixel demand, but those are problems that can be
overcome with time, experience, and a thoughtful scaling up.
This war was always coming. If Google were to leave the battle to
forever be between the iPhone and Android, between an integrated
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piece of modern tech and a mere operating system, Apple’s device

would always win.
Apple’s not-so-secret advantage is in having tight control over
every aspect of the iPhone user experience. Google can’t be out
there filing down the sharp edges of the USB-C port on its
hardware partners’ devices. But it can design its own, premium-
tier device that can go right up against the iPhone.
The HTC deal makes sure of that.
In a blog post announcing the HTC deal today, Rick Osterloh used

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words that could just as easily have come from Apple CEO Tim
Cook’s mouth: “Our team’s goal is to offer the best Google
experience—across hardware, software and services — to people
around the world.”
How does Google leverage its search
power?
Google runs the world’s largest
advertising business, selling space atop its
ly
search results. Google is also among the
biggest buyers of those ads, promoting
products from its music service to its app store.
pi These days, Google often pushes its growing list of hardware

products, from Pixel phones to Nest smart thermostats, in the
top ad spot above its search results.
A Wall Street Journal analysis found that ads for products sold by
ap
Google and its sister companies appeared in the most prominent
spot in 91% of 25,000 recent searches related to such items. In 43%
of the searches, the top two ads both were for Google-related
products.
The analysis, run by search-ad-data firm SEMrush, examined 1,000
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searches each on 25 terms, from “laptops” to “speakers” to “carbon

monoxide detectors.” SEMrush ran the searches Dec. 1 on a
desktop computer, blocking past web-surfing history that could
influence results.
The results show how Google uses its dominant search engine to
boost other parts of its business and give it an edge over
competitors, which include some of its biggest advertising
customers.
But this is not a sustainable strategy for Google, as it has probably

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understood this year.

The European Union in June fined Google $2.7 billion for giving
preferential treatment of its own content – which EU found illegal
and anti-competitive. It also ordered Google to change the way it
displays search results from its online shopping tool.
The EU began its investigation in 2010, after British price
comparison site Foundem, French legal search engine eJustice.fr,
and Microsoft-owned Ciao from Bing complained that Google's
ly
practices put competitors at a disadvantage. But the regulators
didn't formally accuse the Google of an antitrust violation until
2015.
pi The commission analyzed the results of 1.7 billion real Google

search queries — around 5.2 terabytes of data — and concluded
that, on average, the company placed results from competing
online shopping services only on the fourth page of its results.
ap
“Google has come up with many innovative products and services
that have made a difference to our lives,” EU Commissioner
Margrethe Vestager said in a statement. “That's a good thing. But
Google's strategy for its comparison shopping service wasn't just
about attracting customers by making its product better than
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those of its rivals. Instead, Google abused its market dominance

as a search engine by promoting its own comparison shopping
service in its search results, and demoting those of competitors.”
—– | —–

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WORLD – BUSINESS / Google moves ‘fast’ in

India
15-Sep-2017
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pi Google is about to plunge into the localised digital payment service in
India. The payment service, called Google ‘Tez’, will offer payment
ap
options beyond the existing ones like Google Wallet and Android Pay.
Tez, meaning ‘fast’ in Hindi, will include support for the government-
backed Unified Payments Interface (UPI) and other consumer payment
services such as Paytm. The increasingly crowded Indian digital
payments space is expected to cross $500 billion per year by 2020.
Kn
What is the development?

According to The Ken, on September 18,
“Google, Alphabet Inc's subsidiary, will
make an entry into India's fast growing
and super competitive digital payment
ecosystem”.
Google is launching a payment product, which is likely called Google
‘Tez’ (which means fast in Hindi). Tez is largely fashioned on the
company’s global product — Android Pay (earlier called Google

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Wallet).
Google ‘Tez’ will reportedly offer a comprehensive set of payment
options beyond existing products like Google Wallet or Android
Pay. Tez, for one thing, will include support for Unified
Payments Interface (UPI) — a payment system backed by the
government — and other consumer payment services including
Paytm and MobiKwik. Apparently it will be a dedicated app when
it arrives.
ly
Google, of course, hasn’t made anything official yet, but the report
suggests that the company “is expected to deploy a multi-pronged
strategy for its payment push with device, content, data, and
pi applications at the heart of it.”

Google first hinted at a UPI-based payments service in January, when
CEO Sundar Pichai toured India.
He said that Google was exploring ways to introduce UPI-based
ap
services in the wake of demonetization that had left 86 percent of
the country’s cash useless almost overnight.
“Google is understanding what UPI is and the power of the stack
built here… [and we] may bring services from Google on top of
UPI which will make things better for users in India,” Pichai had
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told the local media.

Note: UPI is a payment system launched by the National Payments
Corporation of India (NPCI) and regulated by the Reserve Bank of
India, which facilitates the instant fund transfer between two bank
accounts on the mobile platform.
Why can Google be expected to do well in India?
This is a big deal because Google hasn’t made a big push into
payments outside of the U.S. and, while it has a strong consumer
presence in India, revenue from the country is nothing to write

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home about. Yet.

There’s plenty to be bullish on.
Beyond India’s fast growing internet
user base and phone sales, which have
already made it the world’s second
largest smartphone market, the digital
payments space is tipped to rocket to $500 billion per year by
2020. That potential has already attracted tech companies like
ly
Flipkart, WhatsApp and Truecaller, which are moving into, or have
already entered the space. But a more thorough product,
combined with its reach through consumer services and
pi Android — India’s dominant operating system for

smartphones — could give Google an upper hand.
With the majority of Indians accessing the Internet through their
smartphones, India leapfrogged the desktop generation, following a
ap
similar trend in China where the majority of Internet users surf the
web on their mobile phones. Of India’s 300 million Internet
users, nearly 50% of them are mobile-only Internet users. That
300 million Internet population is expected to grow to 650 million
by 2020 according to Google and BCG’s Digital Payments 2020
report. This mobile-centric Internet population is expected to
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drive India’s mobile wallet space.

In addition, and rather interestingly, it looks there could be
international expansion plans, too, since the search giant has
registered trademarks for Tez in at least Indonesia and the
Philippines.
Google has spent significant resources developing its services in
India and more recently Southeast Asia via its Next Billion Users
(NBU) program. That includes free public/train station Wi-Fi, a
data-optimized version of YouTube, and the Android One and

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Android Go operating systems for affordable devices. It also made

talent acquisitions in India and Singapore to develop its NBU
teams and sharpen local tech chops.
A formal announcement on Tez is expected as soon as September 18.
That is fast.
When was Android Pay
launched?
ly
Android Pay was released at
Google I/O 2015. It is a successor
to and builds on the base
established by Google Wallet
pi which was released in 2011. At launch, the service was compatible

with 70% of Android devices, and was accepted at over 700,000
merchants. Google Wallet still powers web-based Play Store purchases
and some app-based peer-to-peer payments, for instance in Gmail. It
ap
was not introduced in India. As of 2017, it is currently available in
the United States, UK, Canada, Ireland, Poland, Singapore, Australia,
Hong Kong, Taiwan, Belgium, Japan, Russia and New Zealand.
Android Pay is a digital wallet platform developed by Google to power
in-app and tap-to-pay purchases on mobile devices, enabling users
Kn
to make payments with Android phones, tablets or watches.

Android Pay uses near field communication (NFC) to transmit
card information facilitating funds transfer to the retailer. It
replaces the credit or debit card chip and PIN or magnetic stripe
transaction at point-of-sale terminals by allowing the user to upload
these in the Android Pay wallet. It is similar to contactless
payments already used in many countries, with the addition of two-
factor authentication. The service lets Android devices wirelessly
communicate with point of sale systems using a near field

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communication (NFC) antenna, host-based card emulation (HCE),

and Android's security.
Android Pay takes advantage of physical authentications such as
fingerprint ID where available. On devices without fingerprint ID,
Android Pay is activated with a passcode. When the user makes a
payment to a merchant, Android Pay does not send the credit
or debit card number with the payment. Instead it generates a
virtual account number representing the user's account
ly
information. This service keeps customer payment information
private, sending a one-time security code instead of the card or user
details
Users can add payment cards to the service by taking a photo of the
pi card, or by entering the card information manually. To pay at

points of sale, users hold their authenticated device to the point of
sale system. The service has smart-authentication, allowing the
system to detect when the device is considered secure (for instance
ap
if unlocked in the last five minutes) and challenge if necessary for
unlock information. CEO Alan Tisch said Android Pay improves
mobile shopping business by supporting a “buy button” powered
by Android Pay integrated within vendor's creative design.
New markets are mobile wallets’ path to growth.
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Finding ways to rapidly scale into new markets is the biggest path
to growth for mobile wallets as adoption stagnates. As per BI
Intelligence, launches in new markets, rather than growing
engagement in existing markets, were the catalyst for Apple’s
450% annual growth last quarter.
By scaling into markets with many users and strong engagement
potential, Android could catalyze both short- and long-term growth. So
it is hardly surprising that Google now aims at India, though not with
Android Pay but its desi avatar.

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Where is there a need for caution?

True, India’s demonetization effort in
November last year along with the Indian
government’s push for a cashless economy
is expected to drive mobile wallets.
The government is aiming for 25 billion
digital transactions to be conducted in the current fiscal year
ending March 2018 and results have so far been largely
ly
encouraging.
The government’s ban of INR 500 and INR 1,000 notes which
made up 86% of the country’s currency forced the cash-reliant
pi economy to turn to alternative modes of payment such as mobile

wallets and credit cards.
Agreed, the supporting environment is improving.
Improved banking/technological infrastructure and coverage,
ap
higher disposable incomes, convenience of use, enhanced cyber
security measures, and increasing popularity have been triggers for
the growth of cashless transactions in Indian retail over the years.
Alongside debit/credit cards and Internet banking, e-wallets
grabbed some spotlight in recent times, especially in the aftermath
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of demonetisation.
However, despite active promotions undertaken by digital wallet
providers (Paytm, Citrus Pay, Freecharge, JioMoney, Oxigen,
amongst others) to ensure adequate visibility, spends from wallets
aren't growing fast enough.
Reasons for this ironical trend
Reluctance to go digital: The reasons range from fears of online
monetary/data fraud, hesitation to adopt new methodologies owing
to the difficulties involved therein (especially when reloading and

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transferring account balances), and lack of adequate knowledge. In

rural and most semi-urban regions across the country, where basic
banking facilities aren’t up to the mark, use of online wallets
remains a distant dream.
Closed-loop characteristics: Unlike cards, which are frequently
accepted for a diverse range of applications within and outside
India, the reach of e-wallets, in comparison, is considerably
restricted to specific areas/outlets/products/services. Digital wallets
ly
are most commonly used for booking event/movie tickets and cabs,
recharging cellphones, and paying for utilities/groceries.
Furthermore, conditions associated with eligibility, validity period,
withdrawal of balance, and transaction size makes it immensely
pi difficult for users to optimize the use of online wallets.

Unviable for most merchants: Sellers incur higher charges for
accepting amounts through e-wallets compared to cards. This is
because digital wallet providers pay a certain percentage of the
ap
amount spent by a customer through such wallets to banks.
Consequently, it is difficult for them to offer competitive rates to
retailers. As opposed to using card swiping machines at the Point
of Sale (POS), the procedures pertaining to integration of e-wallets
with bank accounts is relatively more intricate, which discourages
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merchants.
Too many options: India’s digital wallet realm is flooded with
numerous options. Umpteen benefits and discounts offered by
countless wallet providers have only added to the confusion of
users. Though most people wouldn’t mind carrying a set of
debit/credit cards along when shopping, the inclination to use a
myriad of online wallets (besides keeping a track of schemes
available in each), in contrast, is very low due to the cumbersome
processes. A fairly complex user interface in e-wallets only makes
matters worse.

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High demand for cash: In spite of the advancements in digital

platforms, cash rules supreme in terms of consumers’
preferences. Till date, a considerable chunk of India’s population
heavily relies on physical currency, particularly as far as purchase
of consumption items and high value goods is concerned.
Secondly, very few stores in the country are technologically well
equipped to manage online wallet trades since working capital
requirements on this front are high. Additional challenges to
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initiate and monitor terminal operations make it impractical for
most outlets to consider e-wallets. Instead, they would much rather
stick to cash.
pi Who is the other big player

eager to enter the market?
Waiting to join India's growing
digital payment market is
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Facebook-owned WhatsApp.
WhatsApp has been in the news
for working towards a UPI-based interface on its platform.
According to media reports, the leading messaging platform is
already in talks with the NPCI and a few banks to facilitate
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financial transactions via UPI.

According to the blog website “WABetaInfo”, WhatsApp is
giving shape to its plans towards bank-to-bank transfer using
the UPI system. Some mobile messaging platforms like WeChat
and Hike Messenger already support UPI-based payment services.
There is no shortage of mobile wallets in India, the majority of which
are currently homegrown. With a 57% market share, Alibaba-
backed, PayTM currently dominates in a market crowded with
over 40 mobile wallet players such as Tencent-backed Hike

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Messenger, MobiKwik, FreeCharge, Oxigen, Citrus Pay, Phone Pe,

PayU, ItzCash, Jio Money and Ola Money.
The fact that the market is relatively crowded has not deterred
global technology giants from jumping into the ring – Google,
Amazon, Uber, PayPal, Apple, Samsung and WhatsApp are
some of the major companies working to grab a slice of India’s
growing mobile wallet pie. Apart from the potential for top-line
growth, entering India’s mobile wallet space also could bring
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greater access to far more user data.
As competition heats up among homegrown and international
players, WhatsApp can adopt WeChat’s strategy. Building on its
pi position as China’s most popular messaging app WeChat launched

its mobile wallet (WeChat Pay) which is now the second-most
popular mobile wallet in China.
WeChat, owned by Chinese tech giant Tencent, was a late entrant
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to China’s mobile payments landscape which was dominated by
Alibaba affiliate Ant Financial’s AliPay. WeChat’s strategy
involved leveraging on its formidable advantage of 900 million
monthly active users (compared with half of that for Alibaba),
which spent a greater amount of time on its services compared to
Alibaba, which did not have a comparable platform of social media
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services. This advantage allowed WeChat to rapidly gain market

share to emerge as the second most popular mobile wallet in China.
WhatsApp enjoys a similar position in India. With about 200
million users in India, WhatsApp is the most popular messaging
app in India, which is the world’s second biggest market for
messaging apps and WhatsApp’s biggest market.
How is the digital payments sector placed in India?
According to a recent report on Digital Payment in India 2020 by
Google, the total payment via digital instruments is expected to touch

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$500 billion by 2020.

Experts are quietly optimistic of
payment companies making the best
of India’s growing mobile Internet
population. And the fact that people
won’t be allowed to do cash
transaction to a greater extent should work in favour of digital
payment.
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India has the third-largest Internet user base in the world with
300 million users. And this 300 million is estimated to become
650 million by 2020, as highlighted in Google’s Digital Payment
pi 2020 report. In addition, the Indian Fintech segment is forecast

to touch $2.4 billion in 2020.
India currently has around 85 million unique active mobile wallet
users. Only 60 million prefer mobile banking nowadays.
ap
According to NITI Aayog, the volume of all digital transactions
increased by about 23 times with 63,80,000 digital transactions for a
value of Rs 2,425 crore in March 2017, compared to 2,80,000 digital
transactions worth Rs 101 crore till November 2016. This growth
symbolises that collaboration of the government and Fintech start-
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up sector can help India move at light-speed in realizing its digital

ambitions.
Digital payments have also become a user’s entry point into the
formal financial system. The millennial generation is fuelling this
growth, spending an average of 17 hours per week online and 40%
of them transact online.
With digital payments becoming ubiquitous, mobile wallets are
deepening financial inclusion by offering micro credits to
customers. Within a few years, users would be able to avail of
insurance, loans, investment and mutual funds, in addition to

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executing basic payment functions through their phones.

There is no doubt that India will be a digital superpower within the
next decade, leading digital payments revolutions in Asia. The advent
of financial literacy and mass disbursement of financial services
will ensure that a billion Indians will be able to realise their financial
aspirations, removing the under-banked from India’s economic
phrasebook.
—– | —–
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pi
ap
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mba.knappily.com
WORLD – BUSINESS / Google forays into food

delivery
17-Apr-2017
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pi Google has quietly launched a utility app named Areo on the PlayStore
and is presently available only in India, particularly Mumbai and
ap
Bengaluru. The app is an attempt by Google at being the interface
between the buyer and the seller, through an Android smartphone. 18
years since its launch the company has journeyed so far that it inspires
both awe and concern.
What is Google’s new app about?

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Internet giant Google Inc. has quietly

launched an app aggregating food
delivery and home services in India,
categories that have been particularly
affected by a slowdown in funding
and seen multiple start-ups shut down for want of funds in the
recent past.
The Mountain View, California-headquartered Company on 13th
April launched the Areo app—currently operational in Mumbai and

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Bengaluru—that aggregates food delivery and home services start-

ups in India. Google has partnered with companies such as
Box8, Freshmenu and Faasos for food delivery and UrbanClap
and Zimmber for home services.
“We are constantly experimenting with ways to better serve our users
in India. In this case, Areo makes everyday chores and ordering food
easier by bringing together useful local services like ordering food or
hiring a cleaner in one place,” a company spokesperson.
ly
Google has been exploring such partnerships for the past 8-10
months. The company had rolled out a pilot for its employees about
three months ago.
pi Google will not deploy delivery executives or home services

professionals of its own to service the orders. The partners will
handle fulfillment of the services, while Google will charge them a
commission.
ap
At present, the app features restaurants, chefs, local electricians,
plumbers, beauticians and painters among others and people can
also pay for the services on the app through all payment modes
right from Cash on Delivery to eWallets.
Why has Google entered food
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delivery?
Google is aggregating some of the
existing start-ups instead of getting
into fulfillment on its own, which
implies that it will bear only
customer acquisition costs. Most start-ups in these segments end
up losing money on every order fulfilled, apart from incurring
customer acquisition costs.
Whenever there is a large search volume around specific

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things, Google starts aggregating it and building a product

around it. It has done it for the likes of travel, weather and even
cricket scores.
For Google, the customer acquisition cost is minimal because
most of these services are built on top of their own property-
Google owns the Play Store, it owns the search.
On average, hyperlocal platform operators in India receive 4,000-
6,000 orders daily. Existing platform operators charge 10-30%
ly
commission from service providers for every transaction.
Analysts say that while Areo may not be a direct competitor to end-
to-end service providers early on, but it can threaten
“middleman” apps such as Zomato and Swiggy that aggregate
pi restaurants and delivers on their behalf, in the long run.

If Google builds massive distribution, then the food delivery
businesses will get impacted.
ap
Why has it raised eyebrows?
Google’s entry into the food delivery and home services segments
comes at a time when investments by venture capital firms in
Indian start-ups have dropped.
As per a report by KPMG and CB Insights, Indian start-ups
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raised $3.3 billion in 2016 across 859 deals, as against $8.2

billion across 890 deals the previous year.
Food delivery and home services have been particularly hit,
with a number of cash-starved start-ups shutting shop. For instance,
food delivery companies such as Dazo, Eatlo and Spoonjoy
closed down after failing to raise funds as did home services
companies such as Doormint and Taskbob.
However, it is a big question if the app strategy will work, because
Google usually integrates these services within its search.

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When did Google first get into food

delivery?
It’s not Google’s first foray into
scheduling food deliveries — back in
2015, the company added an option
to request takeout via delivery apps
when searching for nearby restaurants.
Google continues to operate its rapid-delivery service Google
ly
Express in the U.S., which delivers items from stores like Costco,
Walgreens, Toys R Us, Petsmart, Whole Foods and several others.
Google Express enables fast delivery of household items, apparel,
pi electronics, pantry staples such as bread and cereal, and more. The
service is available throughout the continental United States.
The service was first announced in March 2013. At launch, Google
waived the subscription fee for testers and for the first six months
ap
after sign-up. In the testing phase, retailers were also not charged
or paid only a nominal fee. Customers pay $5 per shopping stop
and receive deliveries within a three- to five-hour window.
Where is the opportunity?
Ken Research announced its latest
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publication on “India Hyperlocal

Market Outlook to 2020 - Driven by
Rising Startups Firms and Fluctuating
Investments” which provides a
comprehensive analysis of segments such as Logistics, Food,
Groceries, Horizontal and Health Hyperlocal space in India.
The report covers various aspects such as market size of India
hyperlocal market, segmentation on the basis of regions, orders and
revenue, by time of delivery, trends and developments, pre-requisites

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to enter the market and success and failure case studies of various
Hyperlocal companies in the country.
According to the research report, the India Hyperlocal market
will grow at a considerable CAGR rate thus exceeding INR
2,306 crore by 2020.
Increasing urbanization, personalization of affinities along with
ability of curating products that appeal to the aesthetic sensibilities
or aspirational desires of the person will lead to the rise in the
ly
Hyperlocal market in India.
The Hyperlocal market in India has largely been driven by rising
number of startups and “on-demand delivery preference” of the
pi consumers.
Collaboration with merchants and customers through a flexible
application acts a business model for Hyperlocal firms in India.
Hyperlocal firms in India are largely backed by technology and
ap
have been able to connect several local retailers with consumers in
the Hyperlocal space.
Who else went the Hyperlocal way?
Social networking giant Facebook
Inc. also launched a hyperlocal
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service in India last year.

Facebook’s services site didn’t just
allow one to browse various services
from the directory of “Facebook Professional Services”, but
provides reviews and ratings.
Customers can use the search box to find businesses within their
locality, based on search preferences.
There were over 80 services such as plumbers, event planners,
pet groomers, spas, painters, and financial services, among
others, under 10 broad categories.

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There were over 530 local services companies and 132 home
services companies that have cumulatively raised over $180
million in funding, according to data from start-up tracker Tracxn,
last year.
The potential in the largely unorganized sector has attracted
blue-chip investors such as Amazon.com Inc., Tiger Global
Management Llc., Lightspeed Venture Partners, SAIF
Partners, Accel Partners, Bessemer Venture Partners,
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Omidyar Network and IDG Ventures, among others.
How has Google transformed our
lives?
pi Google, which is a little over 18 years

old, has changed life as we know it. It
has done so by foraying into and
transforming the following territories:
ap
Search
Ranking high in Google search results is serious business and can have
a profound effect on the success of companies, media outlets, and even
politicians.
E-mail
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Gmail was invented a decade ago, before bottomless inboxes were a

sine qua non. It's hard even to remember those dark ages when storage
space was sacred—and deleting emails was as tedious-but-necessary as
flossing.
Collaboration
Back in 2006, Google acquired the company behind an online word
processor named Writely. With that bet, Google created a world where
it's taken for granted that people can collaborate on virtually any type

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of document.
Smartphones
Since the first Android phone was sold in 2008, Google's mobile
operating system has bulldozed the competition. Today it claims nearly
85% of market share.
Travel
Google Maps (and Earth) has become much more than a tool for
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measuring travel routes and times.
The phrase “to Google” is so popular that the company is actually
worried about losing trademark rights if the term becomes generic, like
pi “escalator” and “zipper,” which were once trademarked.

—– | —–
ap
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mba.knappily.com
WORLD – BUSINESS / Ocean in a Dropbox
6-Jul-2017
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pi Data-sharing business Dropbox Inc is seeking to hire underwriters for
an initial public offering that could come later this year. The IPO
would put Dropbox’s worth to test after it was valued at almost $10
ap
billion in a private fundraising round in 2014. Knappily analyses
Dropbox’s growth and compares it to tech businesses that are pursuing
an IPO, and those that have already gone public.
What is Dropbox preparing for?

After quite a lot of time, a business pivot,
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two different credit lines, buckets of

capital and a refocus on cost-control,
Dropbox may be finally on the path to
going public.
The cloud storage company is seeking to hire underwriters for an
initial public offering (IPO) that could come later this year.
Earlier Dropbox had raised $600 million from venture
investors. Its investors include JPMorgan, BlackRock, Innovation
Department, QueensBridge Venture Partners, Salesforce Ventures,

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T. Rowe Price, Index Ventures, Accel Partners, AFSquare,

Benchmark, Glynn Capital Management, Goldman Sachs,
Greylock Partners, Institutional Venture Partners, RIT Capital
Partners, Sequoia Capital, SV Angel, Valiant Capital Partners, Ali
Partovi, Amidzad Partners, Bobby Yazdani, Hadi Partovi, Pejman
Nozad, Signatures Capital, and Y Combinator.
Its valuation skyrocketed to $10 billion in January 2014. But
over the last year, valuations have become more realistic. By the
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end of 2015, T. Rowe Price and Fidelity both reduced their
valuation by nearly half.
Dropbox started as a free service for consumers to share and store
photos, music and other large files. That business became
pi commoditized though, as Alphabet Inc’s Google, Microsoft

Corp and Amazon.com Inc started offering storage for free.
Dropbox has since pivoted to focus on winning business clients,
and Andrew Houston, the company’s CEO, has said that Dropbox
ap
is on track to generate more than $1 billion in revenue this
year.
The company has expanded its Dropbox Business that requires
companies to pay a fee based on the number of employees who use
it.
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The service in January began offering Smart Sync, which allows

users to see and access all of their files, whether stored in the cloud
or on a local hard drive, from their desktop.
Why has the move raised eyebrows?
When Dropbox last raised money, in 2014,
it was valued at a hefty $10 billion. But
large investors such as Fidelity and T.
Rowe Price slashed the value of the
Dropbox shares on their books by as much

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as 50 percent in 2015.
The key concern: could a company whose free file storage service
is used by hundreds of millions of people find enough paying
customers to make a great business?
Investors may be in for a pleasant surprise. According to people
familiar with the company’s finances, sales are running at more
than $750 million a year, up from around $400 million in 2014.
That’s thanks in part to growing sales of Dropbox Business, a
ly
souped-up version of the free app that costs $150 per employee per
year.
The company has been cash-flow positive since early 2016, even
pi as it has made heavy investments in engineering, sales, and IT

infrastructure.
Now CEO and co-founder Drew Houston is leading a new strategic
charge. In addition to selling utilities to keep digital files safe and
ap
accessible, Dropbox intends to offer software that businesspeople
use for hours each day to create content and get work done.
That doesn’t mean Dropbox will live up to that heady $10
billion valuation, which even at the time was widely seen as a sign
of a bubble about to burst.
Even if annualized revenue hits $1 billion by the time Dropbox
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goes public, investors would still need to think the company is

worth 10 times its current sales. These days, the average cloud
software company trades at just 4.7 times revenue, according to
Bessemer Venture Partners.
When was Dropbox founded?
At a Boston bus station in early 2007,
Drew Houston opened his laptop to finish
some work while waiting for his bus. As
he turned on his computer, he froze. “I

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could see my USB drive sitting on my desk

at home, which meant I couldn’t work,” the 28-year-old says. “I sulked
for 15 minutes and then, like any self-respecting engineer, I started
writing some code. I had no idea what it would eventually become.”
What it became was the foundation for Dropbox, a free cloud-
based file-syncing service that allows users to access and share
their digital files, photos, and videos from almost any mobile
device or computer.
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By June of 2007, Houston had teamed up with fellow MIT
computer science student Arash Ferdowsi to start the company.
The two hit the ground running. Though Houston had recently
pi graduated, Ferdowsi dropped out of school his last semester to

fully commit to the project. The pair worked tirelessly for three
months in a cramped office in Cambridge, waking up everyday at
noon and working till dawn the next day.
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“I think we started like most of these tech companies begin. Just a
couple of guys in their boxers coding in a dark room,” Houston
says. “We just kept our heads down and built.”
By September, the team moved Dropbox to San Francisco. The
company llanded a total of $7.2 million in funding from Sequoia
Capital, Accel Partners, Y Combinator, and a handful of individual
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investors, which Houston says was an important milestone for the

team. But it wasn’t until an instructional video on how to use
Dropbox went viral on Digg that he realized the potential of the
start-up.
“At the time, Dropbox was closed. After the video went viral, our
beta waiting list went from 5,000 people to 75,000 in a few hours.
We got a bunch of press and it was clear that we were working on
something that people were interested in,” Houston says.
Though the founders won’t reveal specific numbers, Dropbox’s

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revenue comes from their premium plans. The service is free for up
to 2 GB, of storage, but users can purchase 50 GB of space for
$9.99 per month or 100 GB for $19.99 per month.
Users include individuals, small businesses, event-organizers, and
even large companies like Red Bull. With half of their users living
overseas, the company launched the service in four more
languages: Spanish, French, German, and Japanese.
Where do the other tech companies
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stand?
When Snap went public in early March,
it opened up the floodgates after what
pi had been a stagnant period for tech IPOs.

The warm investor reception for the
Snapchat parent helped pave the way for MuleSoft, Alteryx,
Elevate, Okta, Netshoes, Yext, Cloudera and Carvana, which
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all debuted in March or April.
Considering the Nasdaq and S&P are at record highs and the latest
batch of IPOs performed pretty well, every late-stage venture
company that’s ready should be trying to go public right now.
So where are they?
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Experts say that more are coming, but it might not be the
blockbuster year that some were hoping for.
“We will see a few, but I believe the predictions of a very robust first
half of the year will prove to have been way too optimistic,” said Lise
Buyer, an IPO consultant and partner at Class V Group. “The
combination of plenty of cash in the bank and a disconnect between
last year’s private and comparable public valuations will, in my
opinion, keep the market plodding, but not galloping along.”
She’s referring to all the money thrown at “unicorns” over the past

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few years. While some investors have been more cautious over the
last year or so, many of these late-stage startups still have enough
runway to stay private for now.
Some companies are also dreading the possibility of a “down
round IPO,” where there’s a disconnect between the public
market cap and the pre-IPO valuation. Early investors and
employees still make money in this scenario, but the investors and
employees who came along later can get burned. The stigma of
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losing people’s money can be hard to recover from.
Several big U.S. technology companies such as Uber
Technologies Inc and Airbnb Inc have resisted going public in
recent months, concerned that stock market investors, who
pi focus more on profitability than do private investors, would

assign lower valuations to them.
Snap, owner of the popular messaging app Snapchat, was
forced to lower its IPO valuation expectations earlier this year
ap
amid investor concern over its unproven business model. Its
shares have since lingered just above the IPO price, with investors
troubled by widening losses and missed analyst estimates. It has a
market capitalization of $21 billion. Still, for many private
companies, there is increasing pressure to go public as investors
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look to cash out.

Note: A unicorn is a startup company valued at over $1 billion. The
term was coined in 2013 by venture capitalist Aileen Lee, choosing the
mythical animal to represent the statistical rarity of such successful
ventures. Canadian tech unicorns are known as narwhals. A decacorn
is a word used for those companies over $10 billion, while hectocorn is
the appropriate term for such a company valued over $100 billion.
According to TechCrunch, there were 223 unicorns as of March 2017.
The largest unicorns included Uber, Xiaomi, Airbnb, Palantir, Dropbox

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and Pinterest. Snap, Inc. is the most recent decacorn that turned into a
public company on March 2, 2017.
Who is driving the growth of Dropbox?
There have been two pillars to growth at
Dropbox.
The first, Dropbox’ freemium model
based on word-of-mouth referrals, is
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something that most of us have
experienced if we count ourselves among the company’s 500 million
users.
pi The second driver behind Dropbox’s growth to hit the 500 million user
milestone is something that’s less visible many of its core users.
Dropbox relied on a user-driven and virality-based approach to
growth, rather than a strategy driven by sales or marketing.
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According to Houston, referrals increased Dropbox signups by
60%. Dropbox makes it really easy for users to tell one another
about the product; even giving them incentives. For example, when
one person who has Dropbox refers another, they both get a
500MB increase, pending signup.
At Dropbox, international growth was happening organically
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even before product localization, which posed an opportunity and

a challenge for deciding if and when the company should pursue a
more structured and dedicated international growth strategy.
Dropbox started in 2007, and the product was not localized into
any additional languages beyond English until 2011. But, by the
time that first round of additional language versions launched,
the international user base was already substantial.
People need to access their products from anywhere at any time.
Being available everywhere is key for Dropbox, according to Co-

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Founder & CEO Drew Houston.

There are an estimated 20 million Ubuntu (Linux) users worldwide.
Dropbox released their Linux program as soon as they
launched to the public. These millions of Linux users did not have
a free cloud storage solution at the time. By adding Linux support
and continuing to this day to be on as many platforms as possible,
Dropbox is making it easy for anyone who wants a Dropbox
account to have one.
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There are an estimated 2.0% of Dropbox users who use Linux
exclusively. There are a million Linux Dropbox users. These are a
million people who can spread the product by sharing galleries,
referring friends, adding them on social media, and all the other
pi growth hacks Dropbox has done.

Beyond Linux, Dropbox has maintained Blackberry support
despite their shrinking market share. It’s also supported on even
the least popular devices such as the Symbian.
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How have this year’s tech IPOs fared so
far?
Snap - IPO Price: $17
Snap’s been a big whiff since going
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public. It saw a huge opening on its first

day of trading but that ended abruptly
(and in dramatic fashion) after it posted a whiff for its first
earnings report. Snap was a big indicator of future advertising-driven
IPOs that are trying to differentiate away from Google and Facebook,
and it looks like any follow-ups — like Pinterest — may face some
challenges. Since Snap’s stock has also fallen off a cliff, it may have
tempered expectations for new IPOs.
Okta - IPO Price: $17

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Okta’s last earnings report was pretty decent, with the stock jumping
around 5% on that day. It’s still down on the year, but marginally so.
Okta provides identity-management software, which going forward
will likely be a must-need for corporations. It’s one of many enterprise
unicorns that went public this year, which tend to make up the majority
of returns for a lot of portfolios.
Yext - IPO price: $11
Yext literally filed for its IPO on the same day as Okta. Like Okta,
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Yext’s bet was that it would provide mission-critical software —
making sure location data and other pieces of information are the same
across all platforms like Google Maps — for companies. Yext passed
pi its first earnings test with a highly non-offensive report. Like Okta,
however, the company is down a tiny bit since going public earlier this
year.
Cloudera - IPO price: $15
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Cloudera had a strong showing on its first day, but since then has
dropped around 13%. Its valuation is significantly below the
valuation it had when it did its last venture financing round (around
$4.1billion). It just shows how challenging the enterprise market can
be as priorities shift over time.
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MuleSoft - IPO Price: $17

MuleSoft has also been a remarkably non-offensive IPO. It saw a huge
pop, and it has remained pretty much stable since then. MuleSoft’s
stock has been flat. The company was the first enterprise IPO to get out
the door after Snap and pretty much showed that the IPO window was
wide open at the time, giving other companies an opportunity to get
out the door.
Carvana - IPO Price: $15

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Carvana’s a site for buying and selling cars, but it did not look that
great when it went public. To be sure, Carvana was able to maximize
the amount of money it was able to raise even if investors must have
been wildly displeased with the outcome.
—– | —–
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pi
ap
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WORLD – BUSINESS / The ‘exploding phone’

returns
4-Jul-2017
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pi The troubled Galaxy Note 7 that caught fire causing damage to people,
property and Samsung’s reputation, is returning to the market this
ap
week as the Galaxy Note Fan Edition. Samsung says the Note FE has
“perfect safety” and will cost two-thirds of the original asking price for
Note 7. It is difficult to imagine that, in spite of Samsung’s
reassurances, the consumers will not take note of the deadly history of
Note 7.
Kn
What is the news from Samsung?

Samsung's infamous Galaxy Note 7 is
making a comeback.
A refurbished version of the handset,
which previously had a tendency to
catch fire, will return to market this
week as the Galaxy Note 7 FE, the electronics giant said 2nd July.
But the phones will use batteries different from those that caused
fires last year.

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Note 7 was made available at a price tag of Rs 59,990, however,

the new refurbished Note 7FE is launched at a price of $611, which
is roughly around Rs 39,534. The refurbished unit is launched in
four colour variants - black onyx, blue coral, gold platinum, and
silver titanium and will be available to consumers starting July 7,
but only in the Korean market.
FE is rumored to stand for “Fan Edition” and it would make sense
for Samsung to avoid the Note 7 name, even though it’s
ly
refurbished. It's important to note this phone isn't the Galaxy Note
8 - that's expected to be an entirely new phone that will come out in
August or September this year.
The refurbished device, made of recalled, unsealed Note 7 handsets
pi and unused components are outfitted with new batteries, Samsung

said in a statement. The new battery on the refurbished Fan Edition
is 3200mAh, which is an 8.5% reduction from the 3500mAh cell
employed on the OG Galaxy Note 7.
ap
The Galaxy Note 7 (FE) features a 5.7-inch Super AMOLED
display with a 1440 x 2560 resolution. The Snapdragon 821 chipset
is under the hood with a quad-core CPU and the Adreno 530 GPU.
4GB of RAM is inside along with 64GB of native storage. A
fingerprint scanner is on board as is an iris scanner, and the device
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sports an IP68 certification rating. That means that it can be

submerged to as deep as nearly 5-feet of water for as long as 30-
minutes and emerge unscathed. The S Pen is included. Apart from
that, the new Note 7FE comes with same software that is on the
new S8 and S8+, along with the physical Bixby button. The South
Korean smartphone manufacturer is expected to sell over 400,000
units of the Fan Edition in Korea.
The firm said it would decide whether to sell the refurbished Note
7s in other markets at a later date. It has said it does not plan to
offer the device in the United States or India.

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Why was the Note 7 a

disaster?
To recall, Note 7, though
being a pretty good device
suffered a major fall-out due
to the innumerable battery
explosion incidents across the globe.
The world's biggest smartphone maker by volume was forced to
ly
halt sales of the Note 7 in October, roughly 2 months after its
launch, due to fire-prone batteries from two different suppliers.
The debacle dealt a blow to Samsung’s corporate image. Aviation
pi authorities around the world banned the phone on flights and

photos of scorched Note 7s circulated on social media.
The incident cost Samsung over $5 billion in operating profit and
damaged its reputation, though the firm has since recovered with
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the successful launch of the Galaxy S8.
Samsung recalled roughly 3 million Note 7 phones after numerous
units caught fire, leaving Samsung with the predicament of what to
do with all those returned phones.
The firm said earlier this year it planned to sell refurbished Note 7s
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after investigations by Samsung and independent firms concluded

the batteries were solely responsible for the fires.
Selling refurbished phones would be one way Samsung could help
soften the financial loss from the Note 7 recall.
This isn't a glorious comeback, to put it another way - it's more about
clearing inventory by selling to fans still suffering from
withdrawal.
When was the reason for explosion found?
Battery failures are exceedingly rare. Even though they are

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exceptionally rare, any kind of fault

does garner a lot of media attention and
can really affect the reputation of a
product that relies on the battery.
Like many rechargeable devices, phones
use lithium-ion cells. But what makes
these batteries great at powering gadgets also makes them
vulnerable to catching fire, they are so energy-dense — they
ly
contain so much power and electricity — they do combust in a
particularly catastrophic way.
Overheating is obviously driven by temperature rise. This can be
due to the environment, such as a hot car in summer, or through
pi heat transferred to a battery from another component inside the

phone. Heating can also begin within a battery itself, which is
behind the “battery cell issue” in Samsung’s Note 7.
One cause of combustion is a problem with the “battery
ap
management system” that monitors the electrical current and
normally tells a chip inside the phone to stop the current once a
battery is fully charged. If the system or chip is faulty, a battery can
enter a state of “overcharge”.
Phones don’t contain fans or the liquid cooling mechanism you will
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find in a gaming PC or electric vehicle, so heat must radiate out

into the surroundings. And if that doesn’t happen, heat is generated
faster than it can be dissipated or lost. When a battery reaches
about 100 degree C, its materials start to break down, triggering a
chemical chain reaction that releases its own energy. This
accelerates the warming and leads to a snowball effect — a process
called “thermal runaway”.
Specific lithium battery issues
Lithium-ion batteries burst onto the scene in the early 1990s when

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they first appeared in hand-held video cameras. Since then they

have been used to power everything from jets' electrical systems to
cars to the smartphones carried by billions. They have also caused
fires and mass recalls, from last year's hoverboard flameout to the
grounding of Boeing 787s.
The batteries are attractive to device makers because they can
store relatively large amounts of energy in a small space.
Without Li-ion, there very likely would be no smart phones,
ly
tablets, laptops
Lithium-ion batteries are no more inherently dangerous than any
other battery, but they are more energy dense. And the more energy
stored, the potentially more dangerous a battery becomes. That
pi means lithium-ion batteries are increasingly called upon to hold

more energy. The vast majority does it safely, but poorly-designed,
faulty or counterfeit batteries can sometimes burst into flame,
explode or simply overheat.
ap
After months of investigating, Samsung is pinning all the blame on
two separate battery flaws, insisting nothing was wrong with the
phone itself.
For the first battery, Samsung says a design flaw in the upper right
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corner of the battery made the electrodes prone to bend and, in

some cases, led to a breakdown in the separation between positive
and negative tabs, causing a short circuit.
With the second battery, which came from a separate supplier,
Samsung believes there was nothing wrong with the design itself,
but says a manufacturing issue led to a welding defect that
prompted that battery to also short circuit and ignite.
Where is the problem with this push from Samsung?
As it stands, the revived phone may be a tough sell if except for a

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serious Note 7 devotee. You do

not want the child of an exploding
phone in your pocket.
Also, remember that the Note 8 is
likely weeks away.
According to the leaks,
Samsung Galaxy Note 8 will feature a 6.3-inch 2K Super
AMOLED curved display, and 18:5:9 aspect ratio. The smartphone
ly
will be powered by Snapdragon 835 processor along with 6GB
RAM.
Samsung Galaxy Note 8 will sport dual rear cameras
pi (12MP+12MP) with optical image stabilization (OIS). It will come

with support for S Pen and DeX as well. The battery is said to be
3,300mAh, which is slightly smaller than 3,500mAh in Galaxy
S8+.
ap
Further, Galaxy Note 8 is expected to be available in Black, Blue,
and Gold colour options. Of course, the information need to be
taken with a pinch of salt given there’s no official confirmation.
Samsung Galaxy Note 8 will be available in 64GB and 128GB
storage variants. The memory will be expandable up to 256GB via
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a microSD card. The leaked reports quote a Samsung Electronics

official, who told the site that Galaxy Note 8 could cost $1000 to
$1100 depending on markets.
Samsung Galaxy Note 8 is rumoured to feature the same design
language as Galaxy S8, with a few cosmetic changes. The dual rear
cameras will be stacked horizontally. Flash along with heart rate
sensor are said to be present to the right of rear camera lens.
Galaxy Note 8 might be the company’s most expensive
smartphone.
Who are haunted by ‘the ghost of Note 7’?

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Not only did the Galaxy Note 7 fiasco

cost Samsung billions of dollars, but
the exploding Androids also cost
them their reputation. The Note 8 will
be judged like no other Note was
judged before. The buyers need to be
reassured.
A survey has revealed that Samsung sits at 49th place in this
ly
year's Reputation Quotient Rations, which ranks American's 100
most visible companies – in 2015, the firm came in third.
Samsung has secured a spot in the top 10 for the last three years,
pi but it appears the failed handsets and arrest of the heir-apparent

Lee Jae-yong on bribery charges has tarnished the firm's character.
Samsung’s relatively swift recall of the Galaxy Note 7 and
announcement of stricter battery safety protocols likely mitigated
ap
what could have been an even greater public relations crisis.
As the company gears up for the launch of its upcoming Note 7 FE
it has repeatedly assured prospective customers that it has learned
from its mistakes and immediately taken those lessons to heart in
developing future products.
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Note: After the recall of millions of Note 7 phones, environmental

activists have pressured the South Korean tech giant to reuse the
electronics parts to reduce waste. Samsung said the Note FE is part of
its effort to minimise waste.
How is Samsung assuring
quality?
Following the Note7 incidents,
Samsung has developed strict
quality assurance protocols across

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its entire development process in an effort to renew its commitment to

safety. The new and enhanced safety measures are as follows:
Samsung’s enhanced 8-Point Battery Safety Check addresses
safety from the component level to the assembly and shipment of
devices. Included in the check are enhanced tests (Durability Test,
Visual Inspection, X-Ray Test, Disassembling Test and △OCT
Test), as well as newly applied measures (Charge and Discharge
Test, TVOC Test and Accelerated Usage Test).
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Samsung’s enhanced multi-layer safety measures protocol will
implement strict safety standards on every element of the
company’s devices including the overall design and materials used,
pi device hardware strength and capabilities, and improved software

algorithms for safer battery charging temperature, current and
duration.
Samsung formed a battery advisory group of external advisers
ap
made up of academic and research experts to ensure the company
maintains a clear and objective perspective on battery safety and
innovation. Members include Clare Grey, Ph.D., Professor of
Chemistry, University of Cambridge; Gerbrand Ceder, Ph.D.,
Professor of Materials Science and Engineering, UC Berkeley; Yi
Cui, Ph.D., Professor of Materials Science and Engineering,
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Stanford University; and Toru Amazutsumi, Ph.D., CEO, Amaz

Techno-consultant.
—– | —–

mba.knappily.com
WORLD – BUSINESS / UberLOSS but

UberHOPE
18-Apr-2017
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pi Uber has figured out a way to provide cleaner, hassle-free, faster rides
at lower fares. The company has convinced investors to give it $11
ap
billion to continue pursuing a cash-burning, growth-pursuing business
model, and is currently the world’s most valuable start-up. But as the
company reported its financials last week, amid dodging other daggers
aimed at the company, it sparked a new debate around the viability of
its business model.
Kn
What is the news?

The ride-hailing giant more than
doubled its gross bookings in 2016 to
$20 billion, according to financial
information Uber shared with
Bloomberg.
Net revenue was $6.5 billion, while adjusted net losses were
$2.8 billion, excluding the China business, which it sold last
summer.

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Uber Technologies Inc. isn’t required to report its finances

publicly, but the privately held company has decided to forgo that
luxury for the first time.
Uber said its revenue growth is outpacing losses, hoping to show
the business is on a strong trajectory as it attempts to address a
recent cascade of scandals.
Uber declined to report first-quarter numbers, saying they were in
line with expectations but that the company hasn’t yet presented
ly
them to investors. The company said it’s pleased to see revenue
growth far exceeding losses last year and that its business is still
performing well this year even as it faces unyielding controversy.
pi “We are fortunate to have a healthy and growing business, giving us

the room to make the changes we know are needed on management
and accountability, our culture and organization, and our relationship
with drivers,” Rachel Holt, who runs Uber’s U.S. ride-hailing
ap
business, wrote in an emailed statement.
Note:
In August 2016, Uber Technologies Inc. sold its China operations
to fierce local rival Didi Chuxing, ending an expensive price war
(Uber had lost $2 billion till then) and freeing it up to focus on
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other markets and possibly an initial public offering. As part of the

arrangement, Didi will invest $1 billion in Uber’s global company.
When gross revenue is recorded, all of the income from a sale is
accounted for on the income statement. When you book a Uber
cab, all that you pay for it would fall under ‘gross bookings’. Net
revenue is usually reported when there is a commission that needs
to be recognized and/or when a supplier receives some of the sales
revenue. Assuming Uber takes a 20% commission from the total
booking amount, that commission would be fall under ‘net
revenue’. The profit (in this case loss) is calculated after

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subtracting all expenses from the net revenue.

Why is Uber burning cash?
Investors have access to detailed
financial data, which we as public don’t.
And as a privately-held company, Uber
isn’t under any obligation to publish
these details. However, we can make a
reasonable case around why Uber is choosing growth over profitability
ly
at the moment.
The bull case
pi Uber operates in a classic two-sided market as the company links

the drivers and the riders by providing a platform for them to
connect. This in turn creates a network effect – the more the
drivers are on the road, the less time the riders wait and the
better the service they get. This in turn gets more drivers to join
ap
Uber, ad infinitum. And for this model to work, Uber needs to
reach critical mass.
The company’s pursuit of growth is largely the reason behind its
rapid cash burn. For companies to reach critical mass under these
circumstances, they need to subsidize both sides of the market
Kn
— pay them to join the system.

Uber is looking at a very long time frame. During this time, Uber
is looking to expand rapidly, saturate markets across the world
and block out competitors.
Uber needs leverage, money and legitimacy in order to get
regulators to accept its service even though it threatens the
entrenched taxi industry in many cities. By subsidizing rides at
first, Uber gets more people to use and like the service. That’s a
major advantage when the company goes in front of regulators.

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The bear case

The bear case for the cash burn is that Uber’s tactic of lowering
prices to get more riders, even if it means taking a loss, is
problematic in the long run. Uber is counting on dominating the
markets after the incumbent operators exit.
Apart from rapid global expansion, another source of Uber’s cash
burn are its investments outside of its core ride-hailing service for
consumers. In the US, Uber has launched UberEATS, a food
ly
delivery service, UberCHOPPER for requesting a helicopter and
UberFreight for long-haul trucking, among others.
However, at a minimum, Uber’s core business probably isn’t as
pi disastrously money-losing as its top-line numbers suggest. Uber is

investing heavily in geographic expansion as well as research and
development — and those investments will tend to pull down profits in
the short run even as they set the company up for potentially larger
ap
profits in the long run.
Note: Bear and bull are used to describe how stock markets are doing -
appreciating or depreciating in value.
A bull market refers to a market that is on the rise. It is typified by
a sustained increase in market share prices. In such times, investors
Kn
have faith that the uptrend will continue in the long term.
On the other hand, a bear market is one that is in decline. Share
prices are continuously dropping, resulting in a downward trend
that investors believe will continue in the long run, which, in turn,
perpetuates the spiral.
When did Uber’s journey begin?
Uber follows the same start-up founders’ story template that we have
got used to now. One or two or three people facing a practical problem
in their daily routine and deciding to “do something about it”.

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The idea for Uber came to co-founders

Travis Kalanick and Garrett Camp in
2009 on a snowy evening in Paris when
they could not get a cab.
Camp’s first idea was to start a “limo
timeshare service” where riders booked
cars on-demand through a smartphone app to fill the down time of
car services. And they wanted to ensure that people don’t have to
ly
flag down or call cabs, and then fumble with cash and credit card
payments.
Consumers use Uber’s smartphone app to summon a ride and
pi pay the fare with their phones in a cashless system. The app lets
them track their drivers as they approach; they can even see driver
identification photos and ratings.
The higher income potential attracts many drivers, and the
ap
service’s convenience brings in passengers.
Uber expanded its options to add lower-price rides, and carpooling
rides with UberPOOL.
Uber now operates in more than 500 cities and 70 countries.
Uber’s innovation did not stop there. It applied the concept of
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“surge pricing” to its service — prices would go up when demand

for cars in an area outstripped supply due to peak demand,
including during rush hour, holidays and bad weather. The idea
was that higher prices would prompt more drivers to come out until
demand and supply reach equilibrium.
While the practice of surge pricing isn’t new — airlines have been
using it for years — it was new to car services. Uber got riders to
accept the practice.
Where are the challenges?

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Keeping pace with the losses

Uber has raised $11 billion from
venture capital investors to pay the
bills so far, and the company says it
has $7 billion in cash on hand and
can tap into a $2.3 billion credit line.
But if losses continue at their recent pace, even that massive war
chest will only last for about three more years.
ly
Uber has been repeatedly touted as a new model for urban
transportation. But if Uber never becomes profitable, that will
suggest a different interpretation: that Uber hasn’t really
pi transformed the transportation market at all. It’s just convinced

some gullible investors to subsidize a lot of peoples’ taxi rides.
Crisis in the board room
On March 19, Jeff Jones, the company’s president, stepped down
ap
after six months, declaring that “the beliefs and approach to
leadership that have guided my career are inconsistent with what I
saw and experienced at Uber.”
At least six key executives and high-ranking employees have
left in the past nine weeks. They include Uber’s head of mapping,
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a former head of self-driving car technology, and an artificial-

intelligence (AI) expert who had been put in charge of the firm’s
AI research lab only three months ago.
Business structure
At the moment, an Uber ride still requires a car, a driver, and some
fuel just like a conventional taxi ride. So there isn’t much room for
Uber to undercut its competitors.
The cost structure has labour contributing close to 60% and fuel
about 10%. So the cheaper rides are possible only due to the

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subsidies funded by Uber’s investors.

Making up for tapping out in China
Over the past several years Uber has lost a fortune competing in
China with Didi Chuxing, an inventive local rival, and its
forerunners.
In August, Uber agreed to hand over its Chinese operations to Didi,
in return for a 17.7% stake in the combined company’s equity.
Uber, though, will get only 5.9% of the voting rights in the new
ly
entity.
Some of the reasons why Uber failed in China include being late to
the market, refusal to adapt to China’s payment systems, and (no
pi surprise here) being restrained by government regulations.

Who can Uber be compared to?
Uber could be positioning itself to
thrive in the long run. It’s important to
ap
remember that Uber’s results during
its first eight years look a lot like
those of Amazon during its early
years.
Every year from its founding in 1994 until 2000, Amazon lost more
Kn
money than the year before, leading skeptics to wonder if the

company could ever return a profit.
Amazon splurged money because it knew it would always be able
to make money. It sold books differently than a conventional book
store, using a website and warehouses instead of expensive retail
locations staffed by hourly sales clerks.
As a result, Amazon’s costs per book sold were always lower than
those of Borders or Barnes and Noble. And thanks to economies of
scale in software and warehousing, Amazon’s costs per book kept

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going down as the company grew.

Much like Uber, Amazon’s unprofitability during the 1990s was an
illusion created by Amazon’s aggressive investment in growth.
Amazon was spending a lot of money on things like
warehouses, new software, and new product categories that
were going to take a few years to pay off.
The company could have become profitable earlier by spending
less on these things, but founder Jeff Bezos convinced Wall Street
ly
that it was worth prioritizing growth over profits (indeed, when
investors briefly soured on tech companies after the 2000 stock
market crash, Amazon shifted to a lower gear and turned a modest
profit in 2001).
pi The optimistic case for Uber says that it’s just pursuing an even
more ambitious version of Amazon’s strategy. Perhaps all that new
spending is simply offsetting the profits of the more mature parts of
ap
Uber’s business.
How is Uber preparing for the
future?
Making the market more efficient
Uber’s pickup times have gotten even
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shorter as the company’s fleet has

grown. The more drivers a ride-
hailing company has on the road, the closer the nearest car will be
to any given customer — and hence the less time customers have to
wait to get picked up.
This creates a virtuous circle: More drivers improve the customer
experience, which attracts more customers. And more customers
attract still more drivers. In short, Uber is not just taking business
away from traditional taxicabs, It is expanding the market for

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taxi services.
A similar virtuous circle operates on the driver’s side of the market.
As Uber gets more customers, it reduces the average distance a
driver must drive to reach a customer — and hence the amount of
time they waste driving without getting paid.
A larger market also helps to smooth out demand, reducing the
average time a driver spends waiting for the next customer call.
The result: As Uber grows, its drivers are able to complete more
ly
fares per hour of work.
If Uber can use driver time more efficiently, that really could lead
to a sustainable cost advantage. Suppose the greater density of
Uber’s network allowed the average Uber driver in a city to
pi complete three fares in an hour, compared to two for a

conventional taxi driver. In that case, Uber could charge customers
30 percent less than conventional taxicabs and its drivers would
still be able to earn 5 percent more per hour.
ap
In economics jargon, this is known as a network effect.
There might be an argument that Uber is trying to create a taxi
monopoly. But if Uber’s dominance is cemented by lower costs
made possible by network effects, it would imply that Uber could
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become profitable without ever raising fares to pre-Uber levels.

An Uber-dominated market might be a lot more efficient than a
competitive one, leaving room for lower fares, higher driver
compensation, and healthy profits for Uber shareholders.
Self-driving cars
Ultimately, it might not matter all that much who wins the
conventional ride-hailing market, because that market is likely to
be transformed by self-driving cars within the next decade.
Uber’s potential cost savings if self-driving technology becomes

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available are huge. Considering how driver compensation

accounts for more than half the cost of a typical cab ride, a self-
driving car company could charge half of what conventional taxis
charge and still make a healthy profit.
It is likely that self-driving cars will be hailed on demand
rather than owned by individual drivers. In such a case, having
the most popular ride-hailing app will be a huge strategic
advantage in the self-driving car market.
ly
Given how Uber is investing heavily in self-driving technology,
even if it doesn’t turn a profit charging its current fares with human
drivers, the company will definitely be able to turn a profit renting
self-driving cars at those rates.
pi The challenge however, rests in if the company can translate its

dominance in self-driving technology. If Waymo — Google’s self-
driving car subsidiary — or one of the carmakers gets usable self-
ap
driving car technology before Uber, it might not be very difficult for
them to build a rival ride-hailing app.
The self-driving project of Uber has run into manual problems. At
least 20 of the company’s engineers have quit since November. One
source says a “mini civil war” has broken out between those who
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joined Otto (the company Uber acquired last year to boost its self-
driving tech) in search of the independence of a startup, and those who
joined Uber’s Advanced Technology Group (ATG), Uber’s self-
driving unit, with ambitions to solidify the company’s place in the
future of transportation.
If Uber wins, it will win everything. If it loses, it will lose everything.
Uber, in essence, is business at its best. And at its worst.
—– | —–

mba.knappily.com
WORLD – BUSINESS / Uber drives out its CEO
15-Jun-2017
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pi The inevitable has happened at Uber. CEO Travis Kalanick has taken a
‘leave of absence’, while his deputy has resigned, and Uber will now
be run by other executives. With Susan Flower outing the culture of
ap
sexual harassment at Uber, the company’s head of Asia seeking a rape
victim’s private records from India, Brazilian drivers getting killed
after Uber allowed anonymous payments, the world’s most valuable
startup is also seen as the least ethical.
What is the big news from

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Silicon Valley?
Uber Technologies Inc Chief
Executive Officer Travis
Kalanick told employees he will
take time away from the company
he founded, one of a series of measures the ride-hailing company is
taking to claw its way out from under a mountain of controversies.
Kalanick's move comes after a months-long investigation led by
former U.S. Attorney General Eric Holder, who was hired by

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Uber to look into its culture and workplace practices after a female
former employee publicly accused the company of what she
described as brazen sexual harassment.
Uber commissioned the inquiry and report following the
publication of a viral blogpost by the former engineer Susan
Fowler, who described her experience of sexual harassment and
gender discrimination at the company.
Uber released the recommendations from that report, which include
ly
reducing Kalanick's sweeping authority and instituting more
controls over spending, human resources and the behavior of
managers.
The fraternity boy culture at the top of Uber is still going strong,
pi making the company weak. Even during the all-hands meeting

presenting the report to Uber employees on Tuesday, David
Bonderman, an Uber board member and partner at private equity
firm TPG, interrupted his fellow board member Arianna
ap
Huffington with a sexist remark.
After Huffington mentioned the addition of a second female board
member, she said that data showed that once a company had one
woman on its board, it was more likely to have a second.
Bonderman interjected: “Actually, what it shows is that it’s much
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more likely to be more talking.”After apologizing in an email to

the staff, he resigned from the board later Tuesday.
Kalanick's departure, even if it is temporary, is a thunderclap for
the Silicon Valley startup world, where company founders in recent
years have enjoyed great autonomy and often become synonymous
with their firms.
It also marks a pivotal moment for the world's most valuable
venture-backed private company ($68 billion after the last round
of funding), which has been largely defined by Kalanick's brash

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approach.
Why is Kalanick taking an
indefinite leave?
CEO Travis Kalanick will take an
indefinite leave of absence as the
embattled company released a
damning report on its workplace
culture that called on the company to “review and reallocate”
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Kalanick’s responsibilities.
Kalanick decided to take a leave while also coping with the death
of his mother, whose funeral he attended last week.
pi “I need to take some time off of the day-to-day to grieve my

mother, whom I buried on Friday, to reflect, to work on myself, and
to focus on building out a world-class leadership team,” Kalanick
wrote in an email to staff on that referenced the death of his mother
ap
last month in a boating accident.
“The ultimate responsibility, for where we’ve gotten and how
we’ve gotten here, rests on my shoulders. If we are going to work
on Uber 2.0, I also need to work on Travis 2.0 to become the
leader that this company needs and that you deserve”, he added.
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According to a source familiar with the matter, Kalanick can return

to the company whenever he would like.
Kalanick’s leave comes at a time of considerable turmoil for the
ride-hail app. Earlier this week, the board of directors voted
unanimously to adopt the recommendations of a workplace review
led by the law firm of the former US attorney general Eric Holder.
The company also shared with its staff 47 recommendations for
management and policy changes that were unanimously adopted
by the board. Kalanick was not at the meeting, said a source who
was present.

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The recommendations from Holder's firm, Covington and Burling,

include adding an independent director to the board and
considering an independent chair; mandated manager training; and
a bigger and more independent audit committee to oversee
spending and management.
Other recommendations prohibit romances between bosses and
their subordinates and create clearer guidelines on the use of drugs
and alcohol.
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The review and reallocation of Kalanick’s duties was accompanied
by recommendations for hiring a chief operating officer (COO) to
function as a “full partner” with the CEO, adding more
independent seats to the board of directors, and establishing an
pi oversight committee.
When did the trouble begin for Uber?
Uber grew to a valuation of $68 billion
ap
in seven years amid non-stop
controversy. It has toppled the tightly
regulated taxi industry in many
countries and changed the
transportation landscape, but has run into legal trouble with a
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rough-and-tumble approach to local regulations and the way it

handles employees and drivers.
In just a few months, Uber always a controversial company, due to
its hostile approach to governmental regulations around taxi
businesses and labour laws has reached new scales of crisis,
sparked by a tell-all blogpost from former Uber engineer Susan
Fowler.
She wrote that she had been propositioned by her boss in a
series of messages on her first day of work and that superiors
ignored her complaints.

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In addition to her sexual harassment allegation, Fowler’s nearly

3,000-word post chronicled day-to-day humiliations women
faced at the startup. In one instance, female employees were told
they would need to pay for their own leather jackets even though
men were getting them for free; a manager explained to her that
there weren’t enough women to justify buying them in bulk, she
wrote.
Fowler’s accusations ignited uproar inside the company and
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throughout the tech industry. Many women shared their own
horror stories, and the controversy prompted companies
throughout Silicon Valley to reexamine their diversity
practices.
pi In an internal investigation launched following Fowler’s post,

separate from the external one led by Eric Holder, Uber set up a
hotline for complaints: more than 200 were registered, leading to
more than 20 employees being terminated.
ap
Those terminations came just three weeks after Uber’s head of
Human Resources, Liane Hornsey, had told USA today that sexual
harassment “didn’t come up as an issue”
The investigation report doesn’t address Fowler’s individual
claims, but the board-approved changes could offer a path to make
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Uber a more hospitable workplace for women and minorities. The

company intends to raise the profile of the head of diversity, adjust
executive compensation to incentivize good behavior, institute
mandatory leadership training and establish an employee diversity
advisory board.
Holder’s interviews with current and former Uber employees
eventually became far broader than Fowler’s initial complaints,
including a look at a trip to a Korean karaoke bar in 2014 that was
the subject of an HR complaint, the use of software called Greyball
to help drivers avoid government officials and the mishandling of a

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2014 India rape case.

Where else has Uber faced protests?
Uber has had a bumpy ride in India
since its launch in the country in August
2013, first facing regulatory hurdle with
its offshore payment gateway and then,
following the Delhi Uber rape case,
safety concerns about its no-liability aggregator model.
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The Delhi woman who was allegedly raped by the driver sued Uber
in a San Francisco court. The unnamed woman sought unspecified
damages and demanded that Uber upgrade security measures to
pi tamper-proof in-car cameras and a 24-hour emergency hotline.

Uber had acknowledged that its safety measures needed more work
and said in the mail to Indian users that it would roll out additional
safety features in other cities and countries in the coming months.
ap
The driver, Shiv Kumar Yadav, was convicted of rape and
sentenced to life in prison. At the time of the attack, he was
facing charges in four other criminal cases, including another
rape case, prompting anger at Uber’s failure to perform
effective background checks on drivers.
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Uber came under Indian government scrutiny after the incident.

Police in New Delhi considered whether to criminally charge the
ride-hail company over its lax background checks and questioned
the city’s general manager, Gagan Bhatia. Ultimately, Uber was
banned from operating in Delhi shortly after the incident, a
stricture which wasn’t lifted until June of 2015.
In the same case, a top Uber executive who allegedly obtained
medical records of the woman who had been raped during a
ride was fired by Uber.
Eric Alexander, President of Business in Asia Pacific for Uber, did

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not believe the incident to be true and investigated the event by

obtaining the documents, though it is not clear whether it was an
order from above or done of his own accord.
He showed them to the company CEO Kalanick and Senior Vice
President Emil Michael, along with other senior officials of the
company. All three men believed Ola, Uber’s biggest rival in
India, had orchestrated this incident to tarnish the image and
business of the company.
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However, Redcode rubbished this claim by saying “None of this is
even remotely true (and, yes, it’s also offensive), but it can be
traced to the sometimes paranoid, frequently frantic and always
high-octane tone of the car-hailing startup, which is now valued at
pi $70 billion.”
In Brazil, Uber responded tragically slowly when several drivers were
robbed and killed after it allowed passengers to pay anonymously in
ap
cash.
Uber first started accepting cash in India in May 2015. The move
was a success and the company decided last year to roll out cash
across Asia and Latin America as Uber raced to make the most of a
first-mover advantage.
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However, Brazil, whose murder rate is nearly 10 times that of

India, was “somewhat of a unique challenge.” Uber mindlessly
implemented the cash option in Brazil.
Despite local protests from drivers, and internal pressure from Uber
executives who were horrified by what was happening, it only
imposed identity checks for riders this February, five months after
the first murder occurred.
Who is to be blamed for Uber’s sorry situation?
Were Uber a conventional public company, the disgraceful way in

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which its chief executive has behaved

for too long would leave its board with
no alternative. He would be fired and
the directors would hire an outsider
who could put in place a stronger
leadership team and restore moral
authority.
Since Uber is neither public nor has a board with the ultimate
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power to sanction Travis Kalanick, this has not happened. Emil
Michael, his second-in-command, has resigned and Mr Kalanick
has taken a leave of absence while Uber is run by other executives
pi and it recruits an independent chairman.

Uber is not one bad apple, led by a CEO whose behavior has
uniquely bordered on the unacceptable. There is plenty of blame to
go around. We have all created this monster.
ap
The public, the press, the people who work, invest in and care
about technology are all to be held a reason for what Uber is
today.
No matter how many high-profile scandals there are at Uber and
the like, don't bet on this founder power changing. That's because
the unchecked power of some tech founders isn't a moral
Kn
failure. It's a rational economic act.

So much money sloshes around in Silicon Valley and other tech
hotbeds because most people who have at least a little money to
invest want a shot at the growth potential of the next Google.
In Uber's case, its hiring and management practices and public
behavior have exposed its values in a very public way. Not only
have they introduced lawsuits (Google has sued Uber for allegedly
stealing its self-driving technology) and government investigations,
they have caused customers to defect from the brand.

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While the ridesharing industry continues to commoditize, it will be

crucial for Uber to take good care of its brand, or it may forever be
known as a cautionary tale about Silicon Valley bro culture.
Uber may move past the latest of its many crises without much of a
scar. Or it might not. But let’s remember that what happened at Uber
isn’t an accident. We allowed it to happen.
How does Uber intend to drive itself
now?
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Upon Kalanick’s return, Uber will strip
him of some duties and appoint an
independent chair to limit his
pi influence, according to an advance

copy of a report prepared for the board.
Chief Human Resources Officer Liane Hornsey, who joined Uber
in January, said the company will reform.
ap
Uber is looking to improve its HR practices and daily life for
employees, including flexible hours, clearer guidelines for attaining
promotions, a revised performance review process and earlier on-
site dinners so that the “benefit can be utilized by a broader group
of employees, including employees who have spouses or families
Kn
waiting for them at home,” according to the report.

Uber will also create stricter guidelines for what’s acceptable in
the office. Several rules outlined in the report deal with alcohol,
controlled substances and sexual relationships. “Uber should
consider limiting the budget available to managers for alcohol
purchases,” according to one recommendation in the report.
The company hopes to “ensure the mistakes of the past will not be
repeated,” Hornsey said in a statement. “While change does not
happen overnight, we’re committed to rebuilding trust with our

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employees, riders and drivers.”

Despite recent turmoil, Uber’s business is growing. Revenue
increased to $3.4 billion in the first quarter, while losses narrowed -
though they remain substantial at $708 million. But Lyft Inc. has
stolen some market share in the U.S., and Uber’s internal strife
could open opportunities for competitors globally to lure
partners, raise funds or poach talent.
Kalanick was captured on video this year berating an Uber driver for
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evading responsibility, and complaining that people “blame everything
in their life on someone else”. If he reflects hard enough on what has
occurred at Uber, he will know where responsibility lies and use his
pi power as a controlling shareholder to dismiss himself.

—– | —–
ap
Kn

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WORLD – BUSINESS / The end of the end of

Yahoo
13-Jun-2017
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pi Telecom giant Verizon will cut 15% of the combined workforce of
Yahoo and AOL in a merger expected to close on 13 June. The deal
ap
with Verizon is valued at $4.48 billion, far cry from its peak market
value of some $125 billion in 2000. The part of Yahoo that goes to
Verizon and combines with AOL will be called Oath. What remains
will be called Altaba. There will be no Yahoo anymore.
What does Verizon plan to do with

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Yahoo?
Verizon this summer is expected to
launch a new subsidiary that’ll
combine the core businesses of AOL
and Yahoo into a single, cohesive unit
called Oath.
Verizon has confirmed its plans to cut down 2,100 employees who
represent about 15% its workforce at AOL and Yahoo.

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As of today, the total workforce across the combined units of

Yahoo and AOL is approximately 14,000. Verizon proposes to
use the workforce of Yahoo and AOL to form the new Verizon
Business Unit.
Yahoo has already gone through a rough time in recent years and
there have been plenty of job cuts under the leadership of its ex-
CEO, Marissa Mayer. As of March 31, Yahoo had a workforce of
approximately 8,600 full-time employees.
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Marissa Mayer has announced a huge round of cuts during her 5
years of tenure as the Chief Executive of Yahoo and the workforce
was reduced by 46% in this time span.
AOL was also having an equally bad time and it announced 500
pi job cuts recently as part of its restructuring process in November

2016. During his interview with media, AOL CEO Tim
Armstrong announced that the cuts were mostly in corporate units
and the employees will be shifted to video, data and mobile
ap
offerings in future.
Both companies declined to comment on the layoff plans. But the
steady shrinking of Yahoo and AOL underscores the major
challenges faced by both companies as they compete against the
two behemoths of the internet, Google and Facebook, for
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advertising dollars.
Why are the layoffs not surprising?
AOL and Yahoo have operated as
independent companies for decades.
That means that each entity has its
own executive team, marketing
division, finance department, human
resources team and so on. When they come together, there’s going to
be a lot of overlapping jobs and many of them will be eliminated.

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Mergers and acquisitions are a way for some companies to improve

profits and productivity, while reducing overall expenses. While good
for business, in some cases they are not good for employees.
The layoffs mark the latest series of cuts for both Yahoo and AOL,
which have both been shedding employees in anticipation of the
deal.
Job cuts aren’t a surprise — cost-cutting has been framed as a
benefit of the Verizon-Yahoo deal. Laura Martin, senior analyst
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of entertainment and Internet at Needham & Co., said the pending
layoffs imply that Verizon has handed the remaining 85% of the
business with the biggest upside.
pi Yahoo’s share price rose by $5.16 after the vote last week to
close at $55.71. That will raise the payouts to Yahoo employees
who are terminated.
Based on the increased stock price, Ms. Mayer will depart with
ap
$264 million for her five years of work at Yahoo, up from $239
million at the beginning of this month.
Other senior Yahoo executives who are laid off will also get big
severance packages, including up to two years of pay and
accelerated vesting of all stock compensation.
Kn
On a philosophical note
With a merger and acquisition come the requisite layoffs, leaving
many employees worried about their positions or the changing
culture of the company.
When corporations combine, there are usually instances of
redundancy. In these cases, the acquiring company has a mandate
to reduce the number of employees performing similar jobs.
Managers are not immune. They too face the same challenges,
where redundancy leads to a layoff, or may require taking on a
lesser role within the organization, sometimes at a reduction in pay.

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When did Verizon agree to buy Yahoo’s

search engine and web portal?
After a months-long bidding process and
many layoffs, Yahoo found a buyer in
Verizon which officially agreed to acquire
Yahoo’s core business for $4.83 billion in
cash, including Yahoo’s advertising, content, search and mobile
activities back in July 2016.
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Verizon Chairman and CEO Lowell McAdam said back then “The
acquisition of Yahoo will put Verizon in a highly competitive
position as a top global mobile media company, and help
pi accelerate our revenue stream in digital advertising.”

But in September 2016 Yahoo confirmed that 500 million
accounts had been compromised, leaking names, emails,
telephones numbers, and hashed passwords. Also in December
ap
2016 the company acknowledged a separate hack that affected
over a billion users, exposing much of the same kind of
information.
In fact the impact was so bad that Verizon had formed a legal team
to explore a reduction in the purchase price or killing the deal
Kn
altogether. But in February this year the two companies ultimately

agreed to a discount of $350 million, or about 7 percent.
Some analysts assumed the epic hacks in 2013 and 2014 that
affected hundreds of millions of Yahoo accounts gave Verizon
license to ask for a massive discount from the initial $4.8 billion
price tag.
The reason Verizon didn't do that was because its internal
investigation showed that only a “minimal” number of Yahoo's
monthly active users had abandoned the company after it
disclosed the data breaches.

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“We wanted to know how many customers walked away from

Yahoo,” one of the people said. “Were there a few? Yeah, but there
wasn’t enough to make it worth a billion-dollar dip in price or
worth walking away. We still think this is a good deal for us.”
Verizon spent months weighing the impact of the incidents and
whether they should be considered a deal breaker. The telecom
giant still faces pitfalls with Yahoo, some analysts say. Even after
it closes the deal, Verizon has to assume that it may discover more
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data breaches, said Laura Martin, an industry analyst at Needham
& Co. And that could mean further reputation damage or even
litigation risk for the company.
But Verizon in a statement said it will split liability with Altaba,
pi the remaining portion of Yahoo that is not being sold to

Verizon. Altaba will assume 50 percent liability from any future
lawsuits related to the data breaches arising from state attorneys
general, the Federal Trade Commission (the nation's top consumer
ap
watchdog) or international regulators.
It will also assume 50 percent liability for lawsuits stemming from
Yahoo's users or commercial partners, said Craig Silliman,
Verizon's general counsel.
Where are things headed next?
Kn
After the deal’s close on 13th June, the

remainder of Yahoo will be renamed
Altaba and will hold the cash from the
sale as well as Yahoo’s significant stock
holdings in Alibaba Group and Yahoo
Japan.
AOL and Yahoo will retain their own brands and products, but
internally the unified firm will be called Oath. It will be led by AOL
Chief Executive Tim Armstrong. The new name behind a combined

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Yahoo and AOL is about linking brands and values, AOL CEO Tim
Armstrong told.
“We wanted something that would be a name that would connect
all the brands — Yahoo, AOL, Huffington Post, TechCrunch,
Gadget,” Armstrong said in an interview on “Squawk Box.”
Verizon has a simple goal in buying Yahoo: It wants to challenge
Google and Facebook in the huge and lucrative field of digital
advertising. But Verizon faces its own challenge in doing so,
ly
given that it will be competing against a slew of other companies
also looking to break in.
Verizon wants to become a strong third choice for advertisers by
pi adding Yahoo's popular sites and billion users to its own media
business, which includes AOL and Verizon's homegrown go90
video service.
It can place ads on those sites, and can also combine data from
ap
visitors to those sites with AOL's ad technologies and sales teams
— and possibly also personal data from Verizon mobile customers
such as location and other information — in order to better target
ads at individuals.
Who will lead ‘Oath’?
Kn
AOL CEO Tim Armstrong sent

out a memo earlier this year titled
“Moving Forward” to the staffs
of AOL and Yahoo about who
will be the leaders of the
combined company after Verizon’s acquisition of Yahoo is complete.
It’s no surprise that just four executives from the troubled
internet giant will fill top roles.
Many big guns of Yahoo including its CEO Marissa Mayer will be

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leaving the company with a hefty paycheck. The other names in

this list include CFO Ken Goldman, CRO Lisa Utzschneider and
Swiss-Army-knife guy Adam Cahan.
Also the nice-guy at Yahoo Jeff Bonforte will lead
communications, data and search; smart-guy Simon Khalaf will
head media brands and products; also-smart-guy Atte Lahtiranta
will head technology; and happy-guy John DeVine will head global
sales and customer operations.
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These are key jobs going forward at AOL-Yahoo — which is under
the Oath umbrella — with critical consumer-facing roles and also
revenue. But most of Mayer’s leadership has left.
In Armstrong’s memo, he also notes that Yahoo co-founder David
pi Filo — once a big Mayer backer — and techies Laurie Mann and
Jay Rossiter will serve on a tech council to do tech things. Also
staying is Asia head Rose Tsou, who will get a bigger international
portfolio in that region.
ap
At AOL, Armstrong has been instrumental in bringing about a
marked change in the company, propelling them into a market
leader in advertising with state-of-the-art technology, and
shifting its focus towards digital journalism, at the benefit of
local communities.
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Under Armstrong, AOL has moved beyond its legacy as an internet

service provider to become a major player in advertising.
Armstrong has been instrumental in its rebranding as a content
company, focusing on original material, and making the decision
to cut the number of ads generated by the firm to make advertising
more exclusive and appealing to the most prominent advertisers.
His expertise will be most required for the new venture to take off
successfully.
How does Verizon hope to make money from Yahoo?

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Yahoo and AOL are “positioned to do

better together than apart,” Pivotal
Research Group analyst Brian Wieser said.
But he is setting the bar low. While
Verizon talks of growth from the deal,
Wieser said “not declining would be a
success. Five years from now, if the combined entity were the same size
as it is today, I would consider that to be successful.”
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Verizon sees online ads - particularly targeted ads based on
user data - as a potential new source of growth as the wireless
industry fights for US users with lower prices and other discounts.
pi Verizon has “essentially turned into a no-growth business,” said

CFRA Research’s Angelo Zino. The ad business would be a “big
deal” for Verizon if it goes well, he said.
Tim Armstrong has for years wanted to combine AOL with the
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long-declining Yahoo. Although AOL has big-name properties
such as HuffPost and Engadget, AOL hasn’t been as big of an
online destination as Yahoo’s mail, finance, sports and other
properties.
The combined business, to be called Oath, will expand its news,
sports, entertainment, finance and lifestyle coverage. Like
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everyone else, Oath will focus on video and mobile, where

consumers increasingly spend their time online.
Armstrong says he wants Oath properties to be a place consumers
“come and visit every day” and predicts users growing to 2 billion
from 1.3 billion by 2020, with annual revenue of $10 billion to $20
billion from roughly $7 billion today.
Facebook and Google together draw about half the world’s
spending on digital ads, and in the US, they are even more
dominant. They are also where the majority of mobile-ad dollars

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go, eMarketer data show.

Still, AOL and Yahoo together provide a much-smaller No. 3 in the
US for advertisers looking to reach lots of people. And the combined
company will also have to compete for people’s attention, and not just
with other services that rely on ad dollars to survive. That will depend
on Verizon being able to convince marketers that they know more
about consumers than anyone else.
—– | —–
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pi
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mba.knappily.com
WORLD – BUSINESS / The 100 billion dollar IPO
24-Feb-2017
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pi Oil giant Saudi Aramco is reportedly considering offering shares to
citizens of Saudi Arabia as it prepares for an initial public offering that
could be the biggest the world has ever seen. Aramco has been
ap
exploring how to structure the IPO so that Saudi retail investors get a
better deal than international investors. Aramco is worth more than $2
trillion, enough to consume Apple twice, and still have room for
Google parent Alphabet.
What is the plan?

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Oil giant Saudi Aramco has asked

JPMorgan Chase & Co and
Morgan Stanley to assist with its
upcoming mammoth IPO and
could call on another bank with
access to Chinese investors.
The U.S. banks have joined boutique investment bank Moelis & Co
in being tapped for coveted roles in what is expected to be the
world’s biggest initial public offering worth some $100 billion.

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HSBC Holdings Plc has emerged as the leading contender for a

role among a list of five banks that could provide a pipeline to
Chinese investors - an important part of the offering, the source
said, adding that the other four are Chinese banks.
Up to 5 percent of the world’s largest oil producer is likely to be
listed on both the Saudi stock exchange in Riyadh and on one or
more international markets. This would value Aramco at $2 trillion.
The IPO plan has been championed by Deputy Crown Prince
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Mohammed bin Salman, who oversees the country’s energy and
economic policies. Last year, he said he expected the IPO would
value Aramco at a minimum of $2 trillion, and that the figure
pi might end up being higher.

Why is Saudi Arabia getting
Aramco listed?
The IPO of the company that
ap
manages the world’s largest proved
oil reserves of roughly 260 billion
barrels comes as Saudi Arabia’s
senior leadership seek to modernize the kingdom and reduce its
reliance on oil for the majority of its revenues.
Kn
When Prince Mohammed announced to The Economist (in January

2016) that they are thinking of listing Saudi Aramco on the Saudi
stock exchange, he lit up the finance world, with experts attempting
to value the worth of Saudi Aramco since it is a very secretive
company.
The Saudi government is making steps to privatize certain sectors
of the economy such as healthcare and education, but Saudi
Aramco forms the backbone of the Saudi economy; it is
responsible for nearly 90% of the total Saudi exports.

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The idea of listing Aramco has clearly been caused by the tumbling
oil prices, which has led to the Saudi government budget deficit
of nearly $100bn. The worsening Saudi revenue is the main reason
for the trend towards privatizing some of the main components of
the economy. This is more evident due to the fact that Saudi Arabia
has already cut back subsidies on energy, lifting the price of
gasoline by two thirds.
Oil producers such as Saudi Arabia are also facing a challenge
ly
from renewable energy technologies and a peak in oil demand over
coming decades.
British super-major BP forecasts oil demand may peak in the
mid-2040s, and its recently released Energy Outlook said that
pi towards 2050 cumulative global oil demand amounts to less than

half of today’s technically recoverable oil resources.
The IPO is the centerpiece of the Saudi government’s ambitious plan,
ap
known as Vision 2030, to diversify the economy beyond oil.
Aramco’s IPO moves come as sentiment towards the oil industry
has improved with a recent rally in crude prices.
When was Saudi Aramco
established?
Kn
Saudi Aramco, officially the Saudi

Arabian Oil Company, most popularly
known just as Aramco formerly
Arabian-American Oil Company, is
a Saudi Arabian national petroleum and natural gas company based in
Dhahran.
Saudi Aramco’s origins trace to the oil shortages of World War I
and the exclusion of American companies from Mesopotamia by
Great Britain and France under the San Remo Petroleum

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Agreement of 1920.
In 1933, when Saudi Arabia allowed Standard Oil of California
(SOCAL, now Chevron) to come in and explore, SOCAL
assigned the job to a subsidiary it established, the California
Arabian Standard Oil Company (CASOC). In 1936, the Texas
Company (later Texaco) bought half of that subsidiary, and in
1944, the partnership renamed itself “Aramco.”
In 1948, the predecessor companies of today’s ExxonMobil joined
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the partnership. This four-company consortium made up Aramco
until 1980, when the Saudi government completed a gradual
buyout of Aramco’s assets.
In 1988, the successor company was established as the “Saudi
pi Arabian Oil Company (Saudi Aramco)” to recognize both its

binational history and its good reputation.
Headquartered in Dhahran, Saudi Aramco operates the world’s
largest single hydrocarbon network, the Master Gas System.
ap
Its 2013 crude oil production total was 3.4 billion barrels
(540,000,000 cubic meters) and it manages over 100 oil and gas
fields in Saudi Arabia, including 288.4 trillion standard cubic feet
(scf) of natural gas reserves. Saudi Aramco operates the Ghawar
Field, the world’s largest onshore oil field, and the Safaniya
Kn
Field, the world’s largest offshore oil field.

Note: The San Remo conference was an international meeting of the
post-World War I Allied Supreme Council, held at Villa Devachan in
Sanremo, Italy in 1920. This conference was the basis for the Sykes-
Picot Agreement which proposed an independent Arab state or
confederation of states.
Where do we see the efforts to diversify the Saudi economy?
Saudi Arabia has an oil-based economy with strong government
control over major economic activities. Oil prices rose from US$30 a

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barrel to $110 between 2003 and

2013, allowing the kingdom to
squirrel away about $700 billion of
assets from the sale of oil.
But now, with investment banks
predicting that oil may not see those
heights again, Saudi Arabia is hoping that efforts to diversify the
economy away from dependence on the oil industry and the public
ly
sector will allow it to continue to grow.
Saudi Arabia’s National Transformation Plan (NTP), which outlines
the key elements to shift the kingdom’s economy away from its
pi dependence on oil, is the centrepiece of the “Vision 2030” reforms set

out earlier last year by Saudi deputy crown prince Mohammed bin
Salman, who is looking to change the country’s public sector-
dependent ethos into one that promotes and fosters private sector
ap
entrepreneurial spirit.
At the heart of Vision 2030 is a plan to float less than five percent
of state oil firm Saudi Aramco on the stock market. The proceeds
would become part of the world’s largest state investment fund,
with $2 trillion in assets.
Kn
Profits from the investment fund would help economic

diversification and provide an alternative to oil revenues that
have fallen by about half since 2014.
The 112-page NTP document is a five-year roadmap that lays out
targets to be met by each government ministry, and their cost.
The NTP will be implemented through 543 initiatives across 24
government bodies at a cost of 270 billion riyals ($72 billion)
over the next five years.
Under the program, the ministry plans to build an international
complex for marine industries that will provide 80,000 jobs and cut

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imports by $12 billion annually. A number of industrial cities are

also planned and slated to generate 150,000 jobs.
Other diverse targets under the NTP range from the tourism
commission’s development of the Farasan Islands in the Red Sea,
the licensing of halls for women’s sports, and privatizing the Saudi
Postal Corp.
Among its wide-ranging goals, the Vision aims to reduce
unemployment, increase women’s participation in the workforce,
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boost private sector economic contributions, and develop cultural
and entertainment activities in the kingdom.Cinemas and theatres
are currently banned in Saudi Arabia.
The broad vision has been blessed by a wide array of independent
pi commentators, including the International Monetary Fund last

month, but it still lacks key details that are now to be fleshed out
by the heads of the relevant government departments.
ap
Who are excited about the
Aramco IPO?
Very rarely do monopolies get listed
on stock exchanges. And rarer still
are the listings of giant profit
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making corporations like Aramco.

This is a mouth-watering proposition for those who believe greed is
good.
Even with the low oil prices, there is a good reason for optimism
amongst potential investors, being the world biggest oil producer
with production capabilities of 12m bpd means substantial
revenues.
Assuming oil prices remain stable within the region of $50 in
future years, that is an annual revenue of about $219 billion;
factoring in that Saudi Arabia has the second lowest oil

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production costs at around $10 per barrel, this translates to a

profit of around $175 billion per year.
However, the major downfall here is that Aramco is taxed at
85% which means that the profit after tax is around $27 billion
per year. That is nearly half of Apple’s net profit.
On the other hand, Aramco’s massive reserves could mean a stable
revenue stream for years to come, but how much would actually go
into the shareholders’ pockets remains a mystery. This distorted
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view of Aramco is probably the biggest challenge facing potential
investors, since it does not release any information regarding
revenue or reserves.
This issue (lack of transparency) is highlighted by the similar cases
pi of Gazprom (Russia) where shareholders complained of the un-

transparent nature of the company, and Petrobras (Brazil) which is
embroiled in a huge corruption scandal.
ap
How much does Saudi Arabia really
depend on oil?
Since large quantities of oil were
discovered in the then-nascent Saudi
kingdom in 1938, the oil industry has
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come to dominate the country’s economy.

Revenue from the industry earned the Saudi government billions
and enabled the ruling royal family to offer generous benefits to
Saudi citizens.In recent years, the oil industry had accounted
for an estimated 90 percent of the government’s income.
Saudi oil reserves are the second largest in the world, and Saudi
Arabia is the world’s leading oil exporter and second largest
producer.
Proven reserves, according to figures provided by the Saudi
government, are estimated to be 260 billion barrels, about one-

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quarter of world oil reserves.

Petroleum in Saudi Arabia is not only plentiful but under pressure
and close to the earth’s surface.This makes it far cheaper and
thus far more profitable to extract petroleum in Saudi Arabia
than in many other places.
The petroleum sector accounts for roughly 92.5% of Saudi budget
revenues, 97% of export earnings, and 55% of GDP.
During much of the 2000s, high oil prices enabled the government
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to post budget surpluses, boost spending on job training and
education, infrastructure development, and government salaries.
More than 95% of all Saudi oil was produced on behalf of the
Saudi Government by Saudi Aramco, and the remaining 5% by
pi similar state-owned companies

However, as oil prices plunged from $100 a barrel in 2014 to
less than half that amount in 2015, the kingdom’s coffers have
been hit badly. In 2015, the country ran a deficit of $98 billion,
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about 15 percent of its gross domestic product.
There are widespread fears that without reining in its profligate
spending, Saudi Arabia risks financial disaster: A report from the
International Monetary Fund released in October 2015 warned that
the government could run out of money within five years,
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prompting the government to come up with new economic policies

to strike balance once again.
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WORLD – BUSINESS / The future that is taking

forever
26-Apr-2017
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pi Shale oil and gas were once heralded as the keys to a new era in fossil
fuel production. Extracting shale oil can be difficult and expensive, but
ap
it is considered a worthwhile option in light of the finite nature of the
world’s liquid oil supply. The sustainability of ‘shale revolution’ is up
for debate as crude oil prices remain low and water stress continues to
grow. Knappily explores the setbacks that have stolen shale’s sheen.
What has RIL decided about its

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investments in shale gas?

Reliance Industries Ltd (RIL), which
invested $600 million more equity in US
shale gas operations in the quarter ended
March 31, has said it will have to take ‘an
impairment hit’ on these assets over the next five years because of
falling crude oil prices. Impairment is described as a reduction in the
recoverable amount of a fixed asset below its book value.
RIL has invested a staggering $9 billion (Rs 59,400 crore) in

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shale gas assets in the US but is getting negative returns owing

to low crude oil prices, which have made shale gas production
unviable. According to analysts, crude oil should trade at a
minimum of $60 a barrel to turn economical. As on Tuesday,
crude was trading at $50 a barrel.
RIL said the shale gas revenue fell by 14 per cent on a year-on-
year basis and on the back of 21 per cent drop in volumes offset by
five per cent higher unit realisation. The opex (operating expense)
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trends remained encouraging but could not offset the impact of
lower prices, it added.
RIL’s shale business reported 22 per cent increase in revenues to
$112 million and 33 per cent quarter-on-quarter increase in its
pi earnings before interest, tax, depreciation and amortisation

(Ebitda) to $40 million in the March quarter of FY17 due to an
increase in gas production volumes and higher realisations but
overall numbers were modest compared to significant investments
ap
of US$9 billion till date, Kotak Institutional Securities said in a
report on Tuesday.
RIL, which has three joint ventures (JVs) in the US in the shale gas
sector, was one of the early investors in the industry. Reliance
admitted that the business environment of its gas operations was
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challenging, but said it expected the current calendar year to be better

than last year.
“The shale gas business is taking a cautious approach to resuming
development. The zero rig strategy continues at Marcellus JV,
while limited activity is planned in Eagle Ford JV. Thrust remains
on preserving long-term value through high-grading of land and
development portfolio, improving efficiency and well cost, as well
as optimisation of well spacing and completions for enhanced
recoveries,” the company said.

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Note: Earnings before interest, tax, depreciation and amortization

(EBITDA) is a measure of a company’s operating performance.
Essentially, it’s a way to evaluate a company’s performance without
having to factor in financing decisions, accounting decisions or tax
environments.
Why did shale generate great
interest a few years ago?
It’s no secret the prospect of
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diminishing energy supplies is
high on the agendas of various
global powers. The introduction
pi of hydraulic fracturing saw unprecedented gains in the energy

sector offered an alternative in the form of shale. The US in
particular has benefited from a so-called shale revolution.
Shale gas is natural gas that is found trapped within shale
ap
formations. It has become an increasingly important source of
natural gas in the United States since the start of this century, and
interest has spread to potential gas shales in the rest of the world.
In 2000, shale gas provided only 1% of U.S. natural gas
production; by 2010 it was over 20% and the U.S.
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government’s Energy Information Administration predicts

that by 2035, 46% of the United States’ natural gas supply will
come from shale gas.
Because shales ordinarily have insufficient permeability to allow
significant fluid flow to a wellbore, most shales are not commercial
sources of natural gas. The gas production in commercial quantities
requires fractures to provide permeability.
Shale gas has been produced for years from shales with natural
fractures; the shale gas boom in recent years has been due to

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modern technology in hydraulic fracturing (fracking) to create

extensive artificial fractures around well bores.
When did shale run out of steam?
Around the world big expectations
for fracking (more on the process
later) have not been realised. One
example is Argentina where shale
oil reserves were thought to rival
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those in the USA.
It is a country where there has been local opposition while central
government pushed the industry in alliance with multinational
pi companies and its own company YPC. However, profitability has

been elusive. To have any hope of profitability shale development
has to be done at scale to rapidly bring down costs enough to make
a profit.
ap
That requires huge capital investments and companies will not
make this capital available without being sure that they are going to
make a lot of money – but they cannot be sure until they have done
tests for up to two years.
It’s a sort of chicken and egg dilemma – or a vicious circle, if you
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like. Without profits, the estimated $20 billion a year needed to

develop the play won’t come. And without this investment in
drilling tens of thousands of wells, the economies of scale won’t be
reached on the fields to cut costs and boost profitability.
The situation in Argentina highlights the underlying problem for
the economics of shale oil and shale gas. Unconventional oil and
gas fields have much higher costs than conventional ones.
Tapping “conventional” oil and gas from permeable geological
strata is cheaper in that the oil and gas flows underground and can

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be pumped out with less engineering. In contrast an

“unconventional gas field” has to release the gas from
impermeable rock and therefore needs up to 100 more wells for the
same amount of gas (or oil).
A field must achieve economies of scale to have any chance of
making a profit. It needs more activity underground to fracture the
rock and it needs more activity on the surface to facilitate that. That
is why it is more dangerous to the environment and public health
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– and also why it is more financially expensive.
It requires more ongoing capital equipment too. Without a high
gas (or oil) price all of these activities cannot be made
profitable. The current price of crude - $52 per barrel – is well
pi below the price that can make shale viable.

Looked at in this way “unconventional oil and gas” is not the magical
answer for peak oil (or later for peak natural gas) that it might have
ap
once seemed to be.
To be long term viable the fracking sector requires three things:
favourable geology, high oil and gas prices and easy and cheap
credit.
All three have proven elusive, making for disappointing results in
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all of the locations around the world where it has been tried.
Unconventional gas is struggling to get off the ground outside of
the USA and Australia. And in the USA, where the shale march
started, although it managed to get the credit to pay for the capital
expenditure there are now grave doubts that a mountain of credit
will ever be paid pack.
Shale gas production has been declining because of low prices
especially since 2014 and shale gas companies are in deep financial
trouble because in the real world, price and cost matter.

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Chesapeake Energy, the biggest shale gas producer in the

world, had negative cash from operations. That means that oil
and gas sales didn’t even cover operating costs much less capital
expenditures like drilling and completion.
Other shale gas-weighted companies including Anadarko,
Comstock and Petroquest also had negative cash from operations.
Goodrich and Sandridge are in bankruptcy and Exco and Halcon
will soon follow. Ultra, Forest, Quicksilver, Swift and Talisman
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were lost in action last year.
On average, surviving companies out-spent cash flow by two-to-
one both in 2015 and 2016 but many normally strong companies
greatly increased negative cash flow in 2016.
pi U.S. dry gas production has declined almost 1 bcf (billion cubic
feet) per day since September 2015 largely because of low gas
prices.
Shale gas made sense in the first decade of this century when
ap
real gas prices averaged almost $7/mmBtu. That was because
there was a supply deficit as conventional production declined
before shale gas supply increased to replace it.
Falling gas prices have exposed the delusion of shale gas as the savior
of the oil and gas-deprived nations. Production growth was funded by
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debt. Capital in search of yield continued to flow and over-production

pushed prices below $2 by the end of 2015.
Where have the biggest discoveries of
shale gas been made?
China is thought to have the world’s
largest technically recoverable shale gas
resources, as well as the third-biggest
supply of recoverable shale oil — more
than 30 trillion cubic meters (1,115 trillion cubic feet) of shale gas

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— nearly twice what the US claims.

However, North America leads the worldwide production of
shale gas, with the US and Canada having significant levels.
Beyond the US and Canada, shale gas is so far produced at a
commercial scale only in Argentina and China.
The US Energy Information Administration (EIA) believes that
India’s technically recoverable shale gas reserves are about 95
trillion cubic feet (tcf). Technically recoverable resources represent
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all the oil and gas that can be produced with current technology,
industry practice and geologic knowledge.
Basins of preliminary interest identified by Indian geologists are
pi the Cambay Basin in Gujarat, the Assam-Arakan basin in

northeast India, and the Gondwana Basin.
But the shale gas estimates vary substantially according to various
sources. One estimate by Indian scientists places potential reserves
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at as high as 527 tcf. Other estimates have pegged India’s shale gas
reserves at over 200 tcf, thereby making it difficult to gauge how
attractive the resource really is and how to plan policy around it.
While the shale gas potential of many nations seems promising, there
are several obstacles spanning several economic, environmental,
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technical and social issues grouped in major categories such as access

to resources, infrastructure and governance.
Shale gas production has been blocked in many countries largely
because of the environmental risks involved. These risks and
social concerns have resulted in legal restrictions on hydraulic
fracturing, which have prevented a more extensive development of
shale gas worldwide.
Who predicts what?
In the U.S. Energy Information Administration’s International

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Energy Outlook 2016 (IEO2016)

and Annual Energy Outlook 2016
(AEO2016), natural gas production
worldwide is projected to increase
from 342 billion cubic feet per day
(Bcf/d) in 2015 to 554 Bcf/d by 2040.
The largest component of this growth is natural gas production
from shale resources, which would grow from 42 Bcf/d in 2015 to
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168 Bcf/d by 2040. Shale gas is expected to account for 30% of
world natural gas production by the end of the forecast period.
Although currently only four countries — the United States,
pi Canada, China, and Argentina — have commercial shale gas

production, technological improvements over the forecast period
are expected to encourage development of shale resources in
other countries, primarily in Mexico and Algeria. Together,
ap
these six countries are projected to account for 70% of global
shale production by 2040.
However, not everyone is as enthusiastic. With some analysts
predicting the global price of oil to see another drop, many oil majors
have deployed their parachutes and jumped from the hydraulic
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fracturing (“fracking”) projects rapidly nose-diving across the

world.
As The Wall Street Journal recently reported, the unconventional
shale oil and gas boom is still predominantly U.S.-centric, likely
to remain so for years to come.
Though the fracking boom has taken off in the U.S. like no other
place on Earth, the U.S. actually possesses less than 10 percent of
the world’s estimated shale reserves, according to The Journal.
As Post Carbon Institute has pointed out in two major reports,

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estimated reserves often prove over-inflated compared to the actual

ultimate productivity of fracking fields.
While Post Carbon’s sample data focused on U.S. shale fields, the
new EIA data appears to back up the organization’s long-standing
thesis, albeit on a global scale. That is, the global fracking boom
has in large part been based on false premises and
accompanying false promises.
EIA’s role here is crucial, serving as an American entity which often
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initially trumpets the estimated reserves of shale basins and then
quietly back-pedals with downgrades months or years later.
“A view filled with false premises is bound to generate promises,”
pi Asher Miller, executive director for Post Carbon Institute said in an

October 2014 press release announcing his orgnazation’s report
titled, “Drilling Deeper.”
“The Department of Energy’s oil and natural gas forecasts
ap
prepared by the EIA are failed attempts to paint a picture of the
country’s energy future for government policymakers and
businesses…We should not confuse oil and gas industry
salesmanship with the accurate information the country needs to
provide a sound basis for U.S. energy policy.”
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Fracking may eventually go global in a major way. But unlike in the

U.S., it doesn’t look like there will be any books to write about a
global shale boom anytime soon.
How is shale gas extracted?
Shale gas occurs frequently at depths
exceeding 1,500 metres (5,000 feet).
Extraction is done through horizontal
drilling through the shale seam, followed
by hydraulic fracturing, or fracking, of

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the rock by the injecting of fluid at extremely high pressure.

After deep vertical drilling, there are techniques to drill
horizontally for considerable distances in various directions to
extract the gas-rich shale.
A mixture of water, chemicals, and sand is then injected into
the well at very high pressures to create a number of fissures in
the rock to release the gas.
The process of using water for breaking up the rock is known as
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‘hydro-fracturing’ or ‘fracking’.
The chemicals help in water and gas flow and tiny particles of sand
enter the fissures to keep them open and allow the gas to flow to
pi the surface.
How can ‘water stress’ act as a major hurdle in utilizing the
potential of shale?
Right now, dozens of countries around the world are deciding whether
ap
or not to develop their shale gas and tight oil resources (tight oil
deposits are trapped in fine-grained sedimentary rock, including shale).
It’s easy to understand why: shale gas could boost the world’s
recoverable natural gas resources by 47 percent, cut
greenhouse gas emissions compared to coal, create new revenue
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and jobs, and raise national energy supplies.

However, extracting natural gas and tight oil from shale poses
environmental risks, especially when it comes to water. Hydraulic
fracturing requires up to 25 million liters of fresh water per
well, meaning shale resources can be hard to develop where
fresh water is hard to find — including in some of the world’s
fastest-growing economies and populations.
A new World Resources Institute (WRI) report, Global Shale Gas
Development: Water Availability and Business Risks, analyzes water

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availability across all potential commercial shale resources worldwide

for the first time, and shows that limited water availability could pose
challenges to shale resource development on six continents.
In the 20 countries with the largest shale gas and tight oil
resources, WRI analyzed the level of water stress across every play
in each country. For shale gas, they found plays in 40 percent of
those countries face high water stress or arid conditions:
China, Algeria, Mexico, South Africa, Libya, Pakistan, Egypt,
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and India.
But water availability and shale resources vary from country to
country, making hydraulic fracturing’s promise and peril unique in
pi almost every location.

For instance, China has the world’s largest commercially viable
shale gas resources. But over 60 percent of those resources are in
areas with high water stress or arid conditions — a worrying
ap
fact given the country’s existing environmental concerns.
Compare China to other countries, and the complexity of this
water-energy trade off becomes clear. Argentina is shale rich, with
the world’s second-largest technically recoverable shale gas
resources. And we found only low to medium stress for 72 percent
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of its shale resources.

In countries like the United Kingdom, it’s more complicated. The
U.K. is Europe’s third-largest natural gas producer, but it’s densely
populated, and 34 percent of its shale resources face high water
stress.
In general, shale-energy production is vulnerable wherever surface or
groundwater is limited. As water demands increase, other water
users like farms and homes around these plays face higher
competition for water. This could potentially spur water conflicts for

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the 386 million people who live on land above shale plays, particularly
in regions where changes in precipitation and temperature could alter
water supplies.
Note: Water stress is primarily caused by a water deficit, such as a
drought or high soil salinity. Each year, water stress on arable plants in
different parts of the world disrupts agriculture and food supply with
the final consequence: famine. Hence, the ability to withstand such
stress is of immense economic importance. Plants try to adapt to the
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stress conditions with an array of biochemical and physiological
interventions.
—– | —–
pi
ap
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WORLD – BUSINESS / Apple’s Siri takes on

Amazon’s Alexa
11-Jun-2017
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pi At Apple's Worldwide Developers Conference (WWDC) in San Jose,
California, the tech giant unveiled its new HomePod system, a voice-
ap
activated, internet-connected speaker that would create a new digital
pipeline into people's homes. Apple replaced record collections with
the iPod and earned front pocket real estate with the iPhone. Now
Apple is trying to go big by targeting people’s homes as a potential
market for their newest product. Can Siri dismantle Alexa?
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What has Apple launched?

Apple wrapped up WWDC 2017 by
showing off the HomePod, its brand new
smart speaker. The stout, cylindrical
gadget packs in seven tweeters, six
microphones, and a four-inch woofer that
delivers impressive sound.
The HomePod is very much a speaker, but for Apple, it also
represents something more: a way to bring Siri into your home at

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a time when virtual assistants are smarter than ever.

The “HomePod” is similar to devices from rivals, some of which
have been on the market for years. Like the Amazon Echo and
Google Home, the HomePod will play music while also helping
people to manage their lives and homes. Siri will be voice activated
to respond to requests for information and other help around the
house.
Using the wake command “Hey Siri”, the much-hyped device can
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play music as well as answer queries and control other smart home
appliances.
It works with HomeKit, as Siri does, meaning you can say
something like “turn my lights on”, for instance, and it will do so.
pi It will also be able to answer questions like, “Hey Siri, who’s the
guitarist in this?”
Chief executive Tim Cook, referencing the company’s iTunes
service and iPod, said, “Just like portable music, we would like to
ap
reinvent home music.”
The HomePod will use its internal microphones to pick up voice
commands and uses the same processor chip as the iPhone to pump
out “spatially aware” sound, Apple said.
It is the first new device Apple has announced in almost three
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years. It unveiled the Apple Watch in September 2014.

Apple “can't afford to yield valuable real-estate in the heart of
people's homes to Amazon, Google and others,” said Geoff Blaber,
research analyst at CCS Insight. That's especially important
because people are starting to access information, entertainment
and search in a more “pervasive” way that's less dependent on
smartphones, he said.
The speaker will sell for about $350 in December in the U.S., U.K. and
Australia. Amazon sells the main version of the Echo for $180;

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Google's Home speaker goes for $130.

Why is HomePod much more expensive
than its competitors?
Apple is responding to the runaway
popularity of Amazon’s Echo smart
speaker with a Siri-based competitor.
Amazon introduced the Echo way back
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in 2014, and Google started shipping its competitor, Google Home,
last year. The HomePod won’t start shipping until December 2017,
and at $350, it’s about twice as expensive as the Echo ($180)
and Google Home ($130).
pi In his talk introducing the device, Apple’s Phil Schiller positioned

the HomePod as a smart speaker for music lovers. He bragged
about the sophisticated hardware in the device. It has a ring of
seven small “tweeter” speakers arranged in a ring around the
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bottom of the unit and a large 4-inch woofer in the middle.
In contrast, reviewers have criticized the sound quality of both the
Google and Amazon speakers. The Echo has just two speakers,
including a 2.5-inch woofer that doesn’t compare favorably to
the one in the HomePod.
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Amazon and Google’s smart speakers play a supporting role in the

companies’ larger business strategies. Amazon’s goal is to make
the Echo ubiquitous to help sell Amazon Prime subscriptions and
other digital content.
Google wants to get users hooked on as many different Google
services as possible to support its advertising business. For both
Google and Amazon, the priority is to attract as many
customers as possible, without worrying too much about
making a profit from each one.
In contrast, making devices is the main thing Apple does. Apple

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needs its users to be excited enough about the product to pay a

hefty premium. It doesn’t care that much if marginal customers
wind up going to Amazon or Google, any more than it cares about
customers who buy dirt-cheap Android phones.
Amazon is betting that universal presence is the key to success in
this market. It is not only selling a $49 mini speaker called the
Echo Dot, it is also encouraging third parties to put Alexa, the
Echo’s intelligent assistant, into everything from lamps to washing
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machines.
Apple, in contrast, is betting that the “smart” part of the
speaker doesn’t matter that much. The company hopes that
making a speaker that does a great job of playing music and
pi podcasts will be sufficient to earn it a loyal customer base.

Siri is never going to be as widely present as Alexa, but Apple believes
it can be a highly profitable business anyway.
ap
When was the first Voice Assistant
launched?
The first modern digital virtual assistant
installed on a smartphone was Siri, which
was introduced as a feature of the iPhone
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4S on October 14, 2011.

Apple Inc. developed Siri following the 2010 acquisition of Siri
Inc., a spin-off of SRI International, which is a research institute
financed by Defense Advanced Research Projects Agency
(DARPA) and the United States Department of Defense.
Back then, Siri boasted an even more rude tone and a more robust
set of skills. The Siri that Apple introduced in October 2011, 16
months after acquiring the technology for a reported $150 to $250
million, had expanded its linguistic range from one to multiple

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languages. It was scaled to serve millions of people and

programmed to operate internationally. It had acquired a voice with
which to speak its answers, where before it had offered only
written responses.
As conceived by its creators, Siri was supposed to be a “do
engine,” something that would allow people to hold conversations
with the Internet. While a search engine used stilted keywords to
create lists of links, a do engine could carry a conversation, then
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decide and act.
Siri has now become an integral part of Apple's products,
having been adapted into other hardware devices over the
years, including newer iPhone models, as well as iPad, iPod
pi Touch, Mac, and Apple TV.

In the latest attempt to fulfill sci-fi movie fantasies, tech firms have
been lining up to provide us with a virtual assistant. Today, Apple
has Siri, Amazon has Alexa, Microsoft has Cortana, and
ap
Google has the new and refreshed Google Assistant.
The tech has come a long way, but all of these companies openly
admit that it's very early days for this proposed future. As such, all
of these assistants are far from polished.
Where does the smart home fit
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into Apple’s HomePod?

The way Apple is trying to set the
HomePod apart from direct
competitors like Google's Home and
Amazon's Echo, the HomePod ends
up positioned oddly far from what seems like such an obvious goal.
There are three things Google and Amazon do with their smart
speakers that Apple doesn't: they make products that are
understated, they sell them at a more affordable price, and they

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put a heavy emphasis on what their digital assistants can do.

With their lower prices — $130 for the Home, $50 for the Dot,
$180 for the full Echo — it's also much more realistic for someone
to buy a few and place them throughout the house.
At $350, putting a HomePod in multiple rooms of your house
isn't a very appealing prospect. And while Apple has quite
possibly made the most attractive speaker of the bunch, its speaker
also takes up a bit more room. The Echo is a utility, designed to
ly
be ignored. But the HomePod is a speaker, meant to stand out
as one.
There also aren't as many reasons to spread the HomePod
throughout many rooms. Yes, it can be a hub for controlling smart
pi home equipment. But Apple seems to be making its digital

assistant a secondary focus, unlike its competitors.
Siri will be limited to specific categories that Apple thinks make
sense for the HomePod — weather, reminders, unit conversions,
ap
and so on — which means you aren't going to be ordering a
pizza, hailing a cab, or making a dinner reservation all by
voice.
Apple is trying to tap into its heritage as the iPod company to make a
product that's music first, assistant second, despite the name giving
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the two equal billing.

And while there are plenty of good reasons to like the HomePod if
you are looking for a speaker, there are a lot fewer rooms in the
house that need one, which means fewer places for Apple to sell
them into.
That makes Apple's smart home play a bit more distant than it
initially seemed. The HomePod can deliver the same type of home-
controlling functions as Google's Home and Amazon's Echo, but it
isn't priced or sized to wind up in every room. Like every

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element of Apple's smart home strategy so far, the function is there

if you want it, but Apple doesn't really expect you to use it.
Who is open to running Siri on their
device?
Amazon's head of products in a
surprise statement said he could allow
other voice assistants, such as
Apple's Siri or Google Assistant, on
ly
the Amazon Echo.
The Echo currently only runs Alexa, Amazon's smart voice
assistant. David Limp, Amazon's senior vice president of devices,
pi said he's open to talking with Apple, Google or other firms

about loading up other voice assistants, too.
Amazon's Echo (Alexa) and Apple's Siri are quite distinctly
different products that ultimately diverge in directionally distinct
ap
arcs in both use case and utility.
“We're open to that,” Limp said, according to CNET. “If Apple or
Google want to come call, my phone number is out there. They can
call. I hope there is a day when that happens. I don't know if I can
envision it, but I hope it happens, on behalf of customers.”
Kn
Apple doesn't typically integrate its services with other products,

so the odds are slim that Tim Cook ever takes Limp’s offer. On the
other hand, Google and Microsoft do work with third parties.
The Google Assistant is built into smartphones and smartwatches
built by its partners, for example. Microsoft is also teaming up with
firms such as Harmon Kardon on speakers that run its Cortana
assistant.
How well has Amazon Echo fared in the market so far?
If you don’t own an Amazon Echo yet, you are still in the majority –

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but there are now at least 11 million

people who have embraced all the
amazing benefits that the Echo has to
offer.
The great majority was purchased in
the U.S.; the analysts estimate that
some 400,000 were sold in Germany and 300,000 in the U.K. in
that period.
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Morgan Stanley says Amazon had sold more than 11 million Echo
devices even before the holiday season hit its peak last year and
likely sold millions more during the shopping frenzy.
pi The numbers mean Echo probably has brought in quite a bit of

revenue — perhaps $900 million just for the fourth quarter, or 2
percent of Amazon’s sales.
What is even more remarkable about this sales milestone is that it
ap
was achieved in such a short period of time. Although members
of the tech community have long been singing the praises of this
useful gadget, the recent increase in sales of the Amazon Echo is
thanks to a general increase in awareness of the utility and
efficiency of this device.
Newer homes are increasingly built with smart device capabilities
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included and are being designed around the functions of the

Amazon Echo. One of the most commercially appealing things
about the Amazon Echo is that it is priced at such an
affordable rate that it accessible to a wide range of customers.
This means that even if an Amazon Echo customer is not able to
afford all of the luxuries of a smart home or smart car, he or she
can still enjoy all of the functions of an Amazon Echo without all
of the additional possibilities.
The general consensus among the tech and retail communities is

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that the Amazon Echo has incredible potential to increase its share
of the market as the most accessible and universal smart device for
homes.
It is likely to replace the function of many other home gadgets and
is compatible with a long list of other devices. There is still quite
significant room for general recognition of the Amazon Echo
because there are still plenty of consumers who have yet to learn
about the many uses of Amazon’s fastest-growing electronics.
ly
—– | —–
pi
ap
Kn

mba.knappily.com
WORLD – BUSINESS / Cryptocurrency / The

return of Bitcoin
4-Jan-2017
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pi Digital currency Bitcoin has seen its value top $1,000 for the first time
in three years after it ended as the best-performing currency of 2016.
ap
Analysts are attributing this jump to increased demand from China,
which is where most Bitcoin trading takes place. India’s
demonetisation may have also played some role in this hike. Bitcoin is
a cryptocurrency invented by an unidentified programmer, or
programmers, under the name of Satoshi Nakamoto.
Kn
What was the performance of Bitcoin in

2016?
Bitcoin prices continue to push higher,
benefiting from strong market sentiment,
and have ultimately broken through the key
resistance of $1,000 just after the New Year
began.
In 2016, the digital currency rose to a nearly three-year high of
$982.87 on 29th December, CoinDesk USD Bitcoin Price Index

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(BPI) data reveals, before declining to a press time value of $960.

The cryptocurrency was trading at $1,021 on 3 January 2017,
according to CoinDesk data, at a level not seen since November
2013, with its market capitalization (price x number of coins)
exceeding $16 billion.
Bitcoin has been on a steady march higher for the past few months,
driven by a number of factors such as the devaluation of the
yuan, geopolitical uncertainty and an increase in professional
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investors taking an interest in the asset class.
“We are seeing the aftermath of zero interest rates run amok. So
bitcoin is a healthy reminder that we don’t have to hold on to
dollars or renminbi, which is subject to capital controls and loss of
pi purchasing power. Rather it’s a new asset class,” Bobby Lee, chief
executive of BTC China, one of the world’s largest bitcoin
exchanges, told.
While Bitcoin prices have encountered resistance lately, the digital
ap
currency is still benefiting from a combination of robust demand
and strong market sentiment.
“Bitcoin is on a tremendous bull run and, despite the pullbacks,
that run is still very much in play,” said Petar Zivkovski, COO of
leveraged bitcoin trading platform Whaleclub.
Kn
Why are cryptocurrencies in demand?

A cryptocurrency is a new form of currency
that is entirely digital – meaning that it
exists solely on its own network.
Cryptocurrencies operate solely peer-
to-peer, meaning that they are completely
global and are not controlled by any sort of government. In a sense,
they are like virtual money that can be spent on items or services,
or even exchanged for real cash.

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Because anyone can create their own cryptocurrency, there are

over 100 different cryptocurrencies currently in existence.
However, there are only a few that are widely accepted.
Bitcoins are created by a process known as “mining”.
This involves people using computers to solve complex
mathematical puzzles in order for a bitcoin transaction to go
through. When this problem is solved, the miner is awarded with
bitcoins.
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At the beginning, the reward for mining was 50 bitcoin per
“block” – which is a group of transactions. It then fell to 25
bitcoins in 2012. It is now set to half again, thus reducing the
pi supply growth of bitcoin. The process is known as “halving” and

was written in the original code for bitcoin. Since the supply of
bitcoin is being reduced, the price of each coin will rise even more
if the demand remains steady.
ap
Cryptocurrencies have numerous advantages which can make them
more desirable to use under certain situations.
Complete anonymity – transactions made with cryptocurrencies
can be made completely anonymously also you have complete
control over the transactions you make. This means that no
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company can sneak additional fees on you, there is no way to

automatically withdraw from your cryptocurrency wallet.
You can quickly and easily send cryptocurrencies around the
world – no waiting for deliveries or holidays.
Transactions made through cryptocurrencies are secure and
irreversible. This prevents chargeback scams that sites such as
Paypal are notorious for. Transactions also do not contain the
customers’ personal information, making identity fraud a non-
issue.

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When was the last time Bitcoin saw such

demand?
Bitcoin has seen its value cross $1000 for
the first time in three years after it ended as
the best-performing currency of 2016.
The jump is being attributed to increased
demand from China, which is where most Bitcoin trading takes
place - primarily to skip the tough governmental regulations.
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Bitcoin rose 125% in value in 2016, which makes it the world’s
best-performing currency when compared with its central
bank-issued peers.
pi Bitcoin has been historically volatile since it was first launched in

2009, and many experts have questioned whether the crypto-currency
will last.
The last time Bitcoin was trading above $1000 was in late 2013.
ap
But later that year the currency experienced daily price swings of
as much as 40% after the Tokyo-based Mt. Gox exchange was
hacked and saw the currency plunge to under $400.
However, this time around, experts expect Bitcoin to continue its bull
run.
Kn
“As asserted by analysts, 2017 is expected to be a banner year, one

that could finally lead the price to pass its all-time high of $1,216.7
set in 2013,” CoinDesk said.
There are also more Bitcoins in circulation than ever before and it
is estimated 12.5 are added to the system every ten minutes.
It is estimated the crypto-currency’s total worth is now above a
record $16bn.
Where were the reasons for its fall?

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“It’s been declared dead 115 times

and is still the best way to send value
directly from person to person without
anyone being able to prevent that
transfer.” ~ a Bitcoin analyst
Bitcoin was dubbed the worst
investment of 2014. And in 2015 it had seen a continuous fall in
value of the currency that was supposed to fuel the digital age.
ly
Hacks of Bitcoin exchanges have come to characterize the Bitcoin
world. It isn’t something that is necessarily inherent in Bitcoin
itself, but more of a feature of the types of companies that have
pi sprung up around the troubled technology.

A more ominous problem has cast its shadow on the future of Bitcoin.
Bitcoin relies on people to engage in “mining” to validate every
exchange of the virtual currency.
ap
Miners do some agreed calculations, and if they are fast or lucky
enough, they succeed in winning some newly produced Bitcoins in
exchange for adding the transaction onto the Bitcoin ledger called
the Blockchain.
The strategy of mining has become Bitcoin’s Achilles’ heel. The
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design of Bitcoin dictates that the difficulty of mining will

increase as more Bitcoins are produced and more miners get
involved.
This has led to mining being dominated by companies that can
scale to the point where they can guarantee to earn a certain
percentage of Bitcoins created each day. As Bitcoin’s value
dropped, the economics of the mining operation changed, to the
point that mining ceased to be economically viable.
The underlying protocol of Bitcoin does allow for the relative
difficulty of mining to be eased if it becomes too hard for miners to

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stay in operation.
Bitcoin’s value relies purely in the trust of the people who buy and sell
it. There is no central bank or government around to support it in
the case of its value crashing to zero. Once that belief is questioned,
Bitcoin becomes unsustainable.
In the event of a crisis of confidence, even if the price of Bitcoin
doesn’t go to zero, the chances the Bitcoin community convincing
the wider public, governments, and industry that Bitcoin really
ly
represents the future of the world’s digital economy will become
extremely unlikely.
Who are the users of Bitcoin?
pi There are many assumptions about Bitcoin

users – that they are weirdo, fantasists,
nerds, criminals, idealists and so on.
ap
Some of the assumptions listed above are
technically true in some cases, but the
reality is never as simple as that. Of course, one of the simplest, but
nonetheless effective, means of ascertaining who uses Bitcoin is to
analyze Google Trends.
Kn
Although an imperfect method, we can identify four types of broad

Bitcoin users: computer programming enthusiasts, speculative
investors, libertarians (those who believe in free will) and
criminals.
This very much fits the “expected” profile of Bitcoin users, and it
also closely fits the results of a 2013 survey of 1,000 Bitcoin users
that found n“the average user is a 32-year-old libertarian male”.n
From the perspective of these four types, the major reasons for
Bitcoin’s appeal are, for computer programmers: the rewards
for mining, for speculators: the volatility, for the libertarians:

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the perceived lack of regulation, and for criminals: the

perceived anonymity.
Libertarians are well-represented in Bitcoin’s non-academic
literature, with themes concerning the potential of the technology
to alter the prevalent social and economic orders.
Another prominent community, criminals came to be associated
with Bitcoin via the story of the Silk Road marketplace.
Silk Road was an online marketplace for drugs operating on
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what is known variously as the Dark Web, the Dark Net or,
erroneously, the Deep Web. The latter covers all the parts of the
web that search engines do not index, but the “dark” aspect refers
to sites that feature user anonymity and are, by default, difficult to
pi access. Unsurprisingly, these markets are popular among this

subset.
How has India contributed to the spike in
ap
Bitcoin value?
Indian Prime Minister Narendra Modi and
Venezuela’s President Nicolas Maduro
have very little in common - except they
have pursued policies recently that replace
Kn
large notes in circulation with new notes (India) or with coins

(Venezuela).
For a good purpose, of course. Prime Minister Modi has been
trying to fight corruption, a widespread problem in India. And
President Maduro has been trying to fend off capital flight from the
ailing Venezuelan economy.
While both policies have had some success in achieving their
objectives, they have had a serious side effect too: undermining
public confidence in national currencies as a store of wealth.
With India’s recent demonetization, the volume of Bitcoin being

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traded in the country has substantially increased to nearly two

times its prior levels, pushing its value to new highs.
Since the early days of demonetization, Bitcoin prices in India have
been hovering in an upper range of $866 to $896 apiece; in a mere
18 days after the demonetization speech of Prime Minister Modi,
the price of bitcoins on Zebpay, which claims to have over 130,000
users, had surged from $757 to $1,020 (per Bitcoin), whereas in the
U.S. (the benchmark market for most cryptocurrencies), Bitcoins
ly
were trending at $770 apiece, marking a clear premium on the
Indian Bitcoin exchanges.
Some part of this price buoyancy in Bitcoin can be attributed to
market-making initiatives of Indian exchanges. In order to maintain
pi a tight order book, exchanges increased the Bitcoin price when

there was high demand.
—– | —–
ap
Kn

mba.knappily.com
WORLD – BUSINESS / Cryptocurrency / Ether

takes on Bitcoin
20-Mar-2017
ly
pi A cryptocurrency called ether has been hitting all-time highs,
prompting its market capitalization to exceed $3.5 billion, a feat only
ap
Bitcoin has managed to achieve in the digital currency world. Ether
runs on an underlying technology called Ethereum, which is a different
blockchain to the one that powers Bitcoin. Ether, the currency which
owes its existence to Bitcoin, is seeing its price level zoom upwards to
challenge the digital dominance of Bitcoin itself.
Kn
What has Ether achieved?

The price of ether, the token that
powers the smart contract-based
blockchain platform ethereum,
continues to hit fresh all-time
highs, prompting its market
capitalization to exceed $3.5 billion, inching closer towards Bitcoin,
the leader of cryptocurrencies.
Ether runs on an underlying technology called Ethereum, which is

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a different blockchain to the one that powers bitcoin. Each

blockchain – or decentralized ledger – has their own property, but a
recent rally in bitcoin has prompted traders to look at other
cryptocurrencies to invest in. Bitcoin is being seen as over-valued
by many traders and Ether as the rising star.
As of today (19 March), the value of Ethereum is $39.71277223. It
has a current circulating supply of 89.9 Million coins and a total
volume exchanged of $134,512,739.0. This puts its market
ly
capitalization at $3.5 billion.
Ether’s market cap had even surpassed four billion dollars, as it hit
highs above $47 on 16th of March, up 282% over the last seven
days. Ether trading is largely conducted in bitcoin, with the US
pi dollar, Chinese Yuan, and Korean Won following at an accelerated

pace.
Note: Bitcoin is a cryptocurrency and a payment system invented by
ap
an unidentified programmer, or group of programmers, under the name
of Satoshi Nakamoto. The system is peer-to-peer, and transactions take
place between users directly, without an intermediary. These
transactions are verified by network nodes and recorded in a public
distributed ledger called the blockchain, which uses bitcoin as its
unit of account. Bitcoin is often called the first cryptocurrency,
Kn
although prior systems existed, and it is more correctly described as

the first decentralized digital currency. Bitcoin is the largest of its
kind in terms of total market value.
Why is Ether rising?
One major reason for the rally in ether is
traction among big corporates for the
underlying technology Ethereum.
An organization called the Enterprise

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Ethereum Alliance was recently set up to connect large companies

to technology vendors in order to work on projects using the
blockchain. Companies involved in the launch include JPMorgan,
Microsoft and Intel.
This provides legitimacy to the cryptocurrency but also requires
ether to be transferred and stored in order to access applications
using Ethereum, according to Aurélien Menant, founder and CEO
of Gatecoin, a blockchain assets exchange based in Hong Kong.
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“This provides more reason to value ether at a higher price than
its recent levels,” Menant told
Alternative digital currency bitcoin in comparison has a market
capitalization of over $17 billion and one bitcoin is worth $1,041 at
pi the time of publication. But it has been around for longer and has
had a chance to mature.
But ether is the only cryptocurrency other than bitcoin that has
managed to cross the $2 billion market cap. In comparison,
ap
alternative digital currency Dash has a market capitalization of
$556.9 million, while Monero is worth $248 million, according to
price tracking website Coinmarketcap.com.
Some experts have suggested that bitcoin could hit $3,000 this year
but the market seems to be betting on ether now.
Kn
When was Ethereum launched?

Ethereum was initially described
in a white paper by Vitalik
Buterin, a programmer involved
with Bitcoin, in late 2013 with a
goal of building decentralized
applications.
More specifically, Buterin had argued to the bitcoin core
developers that the platform needed a more robust scripting

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language for developing applications. Failing to gain agreement,

he proposed development of a new platform with a more
general scripting language. Buterin believes that many
applications could benefit from Bitcoin-like software.
The Ethereum software project was initially developed in early 2014
by a Swiss company, Ethereum Switzerland GmbH (EthSuisse).
Subsequently, a Swiss non-profit foundation, the Ethereum
Foundation (Stiftung Ethereum) was set up as well. Development
ly
was funded by an online public crowdsale during July–August
2014, with the participants buying the Ethereum value token (ether)
with bitcoin.
pi While there was early praise for the technical innovations of

Ethereum, questions were also raised about its security and
scalability
Ethereum's live blockchain was launched on 30 July 2015. The
ap
initial version of Ethereum — called “Frontier” — uses a proof of
work consensus algorithm, although a later version is expected to
replace that with a proof of stake algorithm.
The value token of the Ethereum blockchain is called ether.
It is listed under the diminutive ETH and traded on cryptocurrency
Kn
exchanges like any other cryptocurrency; it is also used to pay for

transaction fees and computational services on the Ethereum
network.
Tokens can be volatile per circumstances, such as ether's plunge
from $21.50 to $8 when an exchange was hacked on June 17, 2016.
Smart contracts are applications with a state stored in the
blockchain. They can facilitate, verify, or enforce the negotiation or
performance of a contract. Ethereum contracts can be implemented
in various Turing complete scripting languages.

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The Ethereum platform has multiple proposed uses. Bloomberg

describes it as “shared software that can be used by all but is
tamperproof.”
Ethereum is used as a platform for decentralized applications,
decentralized autonomous organizations and smart contracts, with
“dozens of functioning applications built” on it by March 2016
according to the New York Times.
The intended scope of applications include projects related to
ly
finance, the internet-of-things, farm-to-table produce,
electricity sourcing and pricing, and sports betting.
Decentralized autonomous organizations may enable a wide range
of possible business models that were previously impossible or too
pi costly to run.
Note: Blockchain is a digital ledger in which transactions made in
bitcoin or another cryptocurrency are recorded chronologically and
ap
publicly.
Where are the differences between
Ether and Bitcoin?
While Bitcoin has long been dominant in
the cryptocurrency scene, it is certainly
Kn
not alone. Ethereum has attracted a lot of

hype because of its additional features and
applications.
Bitcoin’s average block time is about 10 minutes, while
Ethereum’s aims to be 12 seconds. This quick time is enabled by
Ethereum’s GHOST protocol. A faster block time means that
confirmations are quicker. However, there are also more orphaned
blocks.
Another key difference between them is their monetary supply.

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More than two-thirds of all available bitcoin have already been

mined, with the majority going to early miners. Ethereum raised
its launch capital with a presale and only about half of its coins will
have been mined by its fifth year of existence.
The reward for mining Bitcoin halves about every four years
and it is currently valued at 12.5 bitcoins. Ethereum rewards
miners based on its proof-of-work algorithm called Ethash, with 5
ether given for each block. Ethash is a memory hard hashing
ly
algorithm, which encourages decentralized mining by individuals,
rather than the use of more centralized mining as with Bitcoin.
Bitcoin and Ethereum also cost their transactions in different ways.
In Ethereum, it is called Gas, and the costing of transactions
pi depends on their storage needs, complexity and bandwidth usage.

In Bitcoin, the transactions are limited by the block size and they
compete equally with each other.
Ethereum features its own Turing complete internal code, which
ap
means that anything can be calculated with enough computing
power and enough time. Bitcoin does not have this capability.
While there are certainly advantages to the Turing-complete, its
complexity also brings security complications, which contributed
to the June hack.
Kn
Who are the major players in the battle

of cryptocurrencies?
Ether is rising to challenge Bitcoin. Dash,
Zcash and Monera are the other widely
used cryptocurrencies.
Dash, formerly known as Darkcoin and
XCoin, is an open source peer-to-peer cryptocurrency that offers
instant transactions (InstantSend), private transactions
(PrivateSend) and token fungibility. It was rebranded from

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“Darkcoin” to “Dash” on March 25, 2015, a portmanteau of

“Digital Cash”.
Zcash is a decentralized and open-source cryptocurrency
developed by the Zerocoin Electric Coin Company that offers
privacy and selective transparency of transactions. Zcash payments
are published on a public blockchain, but the sender, recipient, and
amount of a transaction remain private.
Monera is an open-source cryptocurrency created in April 2014,
ly
which focuses on privacy, decentralization and scalability.
With a market value of $326 million, Dash has become the third-
largest crypto-currency, behind bitcoin and ether. Other digital
pi currencies are on the move, too, including monero and zcash, to name
some of the 700-plus out there. Investors who feel they missed out on
bitcoin are seeking a different path to crypto-riche
How does the future of
ap
cryptocurrencies look now?
When bitcoin broke into public
consciousness in 2013, it couldn’t
have been sexier: a digital currency
being used to buy everything from
Kn
drugs to cupcakes. Now there’s a new wave of excitement about an

aspect of bitcoin that is a bit less sexy: public online ledgers.
The blockchain — the technology used for verifying and recording
transactions that’s at the heart of bitcoin — is seen as having the
potential to reshape the global financial system and possibly
other industries.
After years of volatility, the price of bitcoins reached a new high in
early 2017, a surge tied in part to growing global political
uncertainty and to increased interest in China, where bitcoins

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are seen as protection against currency controls.

But efforts to bring investing in the digital currency into the
mainstream were set back when the US Securities and Exchange
Commission (SEC) rejected an application to open a bitcoin-
based exchange traded fund.
Meanwhile, more than 50 banks including Barclays and JPMorgan
Chase have joined the R3 consortium, created to find ways to use
the blockchain as a decentralized ledger to track money transfers
ly
and other transactions. R3 plans to make its software code publicly
available, which could speed its broader adoption. Nasdaq Inc. is
already using the blockchain — with help from start-up Chain.com
— for trading securities in private companies.
pi The blockchain is also being tested by retailers like Wal-Mart for

ensuring food safety, as industries ranging from healthcare to
natural-resource management are exploring what advantages the
technology might hold over traditional databases.
ap
Since bitcoin first boomed, there’s been no shortage of critics to call its
rise a bubble and to argue that the currency has no intrinsic value.
But entrepreneurs in the field say that focusing on the price of
bitcoin is missing the point—its value is a proof of concept for a
Kn
new kind of payment system not reliant on third parties like

governments, big banks or credit-card companies.
Promising applications of the blockchain system include moving
money abroad, signing contracts, clearing complex financial
transactions and as a medium for micro-payments in emerging
countries.
—– | —–

mba.knappily.com
WORLD – BUSINESS / Cryptocurrency / The

video game of our times
8-Dec-2017
ly
pi Bitcoin rallied more than $3,000 in a day, with its price more than
doubling in 10 days, as the cryptocurrency crossed its own crazy
ap
benchmarks. The latest rally comes on expectations that new bitcoin
derivatives products will boost demand. This ‘speculative frenzy’ has
boosted its market value so much that it’s now worth more than 488 of
the 500 U.S. companies in the S&P500 stock index. This is a video
game, and we are all players. But…
Kn
What is Bitcoin up to currently?

It is charging like a train with no
brakes. And there are millions of
global citizens riding on it.
Bitcoin today (8 December) briefly
crossed through the $17,000 mark
in volatile Asian trading, extending its record breaking run. In a
choppy Asian session, the digital currency breached new highs
before falling back around the $15,000 level. The cryptocurrency

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has soared around 70% in the last five trading days – and close to
100% in the last seven, according to Coindesk.com, despite fresh
warnings of a dangerous bubble.
In fact, bitcoin had actually rocketed above $19,000 on 7
December on the Coinbase exchange. The digital currency hit a
high of $19,340 on that platform before notching a huge decrease.
The price on Coinbase, one of the major cryptocurrency
exchanges accounting for a third of bitcoin trading volume, is
ly
often at a premium over other platforms.
The latest swing higher came as bitcoin topped $12,000 on Dec. 5
in a rapid recovery from a 20 percent drop last week. A fluctuation
of plus or minus 20 percent is a normal day in Bitcoin’s life.
pi Meanwhile, the financial press has been in a flutter over the launch of
bitcoin futures trading on not one but two reputable, regulated
and liquid exchanges: CME and CBOE.
ap
CME Group, the largest derivatives exchange in the world, as well
as one of the oldest, will launch bitcoin futures trading on Dec. 18,
while CBOE Global Markets, which owns the Chicago Board
Options Exchange (the largest U.S. options exchange) and BATS
Global Markets, plans to beat CME to the punch by opening its
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own trading on Dec. 10.

In theory, this opens the doors to institutional and retail
investors who want exposure to bitcoin but for some reason
(internal rules, or an aversion to risky and complex exchanges
and wallets) can’t trade actual bitcoin. And that expected flood
of interest is, the logic goes, part of the reason that bitcoin’s price
recently shot past $15,000 (which, considering it started the year at
$1,000, is phenomenal).
This is a truly, truly volatile game at this point; the swings didn’t
appear as consequential when the market cap rested in the low

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billions, but as institutional pocketbooks push that cap to nearly

$300 billion, the stakes are raised considerably.
Why is this raising concerns
still higher?
Bitcoin long ago stopped
being useful for actually
buying things (partly because
of its rocketing value and
ly
partly because of the achingly-slow transaction times), so the questions
facing speculators are (again): Is this a bubble? And if so, when will it
burst?
pi What goes up will inevitably come down. The only question is –

when?
Some traders figure Bitcoin is getting closer to the peak, and are
preparing to short Bitcoin; that is, make bets that its value will
ap
decrease in the future. “It’s one of the greatest shorting
opportunities ever,” cryptocurrency expert Lou Kerner told
Bloomberg earlier this week. “You have a lot of zealotry, and a lot
of people, including me, who think it’s the greatest thing to ever
happen in the history of mankind. You have a lot of people who
Kn
think it’s a bubble and a Ponzi scheme. It turns out both of them
can’t be right.”
Although the general trend for Bitcoin’s valuation is only up, the
cryptocurrency has been extremely volatile. On November 29,
for example, its value fell 20 percent in less than an hour and half;
dropping from over $11,000 a tick above $9000. For true believers,
such blips are only temporary, but skeptics caution that any of
these plunges could end up being permanent.
We can be assured that 100 years from now, the frenzy around

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Bitcoin would find a mention in the textbooks on History and

Economics (and, probably, Psychology). Financial experts are
struggling to make sense of the phenomenon as a whole. One
analyst quoted by the Financial Times, Walter Zimmerman,
suggests that the best way to look at Bitcoin is as an absurd
video game with no boundaries. “Users of other currencies find
utility in a stable value. But not here in Bitcoin world,” writes
Zimmerman. “The reality of Bitcoin is that users are also players.
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And the objective of this game is the highest possible score.”
But how much higher can it go?
When will the peak be reached?
pi Bitcoin has gained millions of percent

since it started trading in 2010. An
investment of $1 at the beginning
would now be valued at more than $1.4
ap
million (go ahead, bang your head on
the nearest wall). But can you still invest?
Sorry to disappoint you, but what happens next is anyone’s guess,
and most analysts are united only in their uncertainty over the
cryptocurrency’s future. If the behaviour was rational, the peak would
Kn
have been achieved long ago. New levels of the game are being
developed as the highest levels are being crossed.
Alright, let us hazard a guess. The fall is coming fast – and while 2017
will go down as the year when Bitcoin went up, 2018 will be known as
the year the bubble burst. If you are already sitting on a pile of
Bitcoins, give yourself a New Year gift by encashing the investment in
December. One development can put the brakes on this unstoppable
train.
But, first some basics of how greed affects the traders.

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If you are sure the price will go up in a week from now, you will
buy more Bitcoins today itself. And there are millions more like
you. So the price that was supposed to go up in a week (say on
10 Dec. and 18 Dec. when the futures will be introduced) has
already gone up today.
And the same can be said of a fall. If you are sure the price will fall
in a week or so, you will see your coin today. So will many other
investors. That fall will happen sooner than you thought it would.
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It will become easier to short the coin now
The planned introduction of bitcoin futures contracts at CME
Group Inc., CBOE Global Markets Inc. and NASDAQ Inc. will
pi make it much easier to bet on a decline. Hedge funds, which

have largely stayed on the sidelines, are waiting for the Chicago
Mercantile Exchange (CME)’s futures market to open for a fresh
opportunity to bet against the cryptocurrency, according to more
ap
than a half dozen people trading the assets. [If you haven’t got the
meaning of a ‘short’, it basically involves ‘selling now, buying
later’. So you will make money if you buy cheaper]
“The futures reduce the frictions of going short more than they do
of going long, so it’s probably net bearish,” said Craig Pirrong, a
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business professor at the University of Houston. “Having this

instrument that makes it easier to short might keep the bitcoin price
a little closer to reality.”
So, if you have the guts and the money, here is how you can multiply
your dollar many times in the next one year: bet on the fall, for fall it
shall.
Agreed, it’s possible that the demand for bitcoin futures and the
general optimism that seems prevalent in the sector will push up
futures prices (in other words, there will be more demand for

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contracts that commit to, say, buying bitcoin at $20,000 in a year’s

time than those that commit to buying at $12,000). This will most
likely influence the actual market price (“Hey, the futures market
knows something we don’t, right?”).
And the launch of liquid futures exchanges increases the likelihood
of a bitcoin Exchange Traded Fund (you benefit from the growth
without actually investing in the asset) being approved by the U.S.
Securities and Exchange Commission (SEC) in the near future.
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That would bring a lot of money into an already crowded space.
But… it’s also possible that the institutional investors that are
negative on bitcoin’s prospects (and there’s no shortage of
those) may use the futures markets to put money behind their
pi conviction. It’s much easier to sell a futures contract with a lower-

than-market price than it is to actually short bitcoin.
So, while the market appears to be greeting the launch of not one but
ap
two bitcoin futures exchanges in the next two weeks (with two more
potentially important ones on the near horizon) with enthusiasm, we
really should be regarding this development as the end of the
beginning (not the beginning of the end – Bitcoin will survive the fall
and grow rationally thereafter).
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Where is the psychological explanation

for this game?
JPMorgan Chase CEO Jamie Dimon
recently called bitcoin a “fraud” and
suggested people who buy it are “stupid.”
Warren Buffett called bitcoin a “mirage”
in 2014 and warned investors to “stay away.”
And yet bitcoin has climbed more than tenfold since Buffett’s
warning. It is not uncommon today to meet a college friend who

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causally tells you over drinks he has made tens of thousands of

dollars investing in a cryptocurrency. People are planning their
next house and the next car based on the future earnings from these
coins. It seems like the global favourite for an early retirement.
A key reason the price of bitcoin keeps going up is, well,
because it keeps going up. Small investors have a ‘fear of
missing out’ (FOMO) on a chance to get rich quick. And when the
value of your bitcoin doubles in a week, as it did for many recently,
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it’s easy to think you are a genius.
And there are many experts who are incredibly bullish. Arthur
Hayes, CEO of Hong Kong bitcoin exchange Bitmex, predicts
prices could hit a mind-boggling $50,000 by the end of next year,
pi driven by the flow of money when institutional investors “pull the

trigger” on investing in the digital currency. Octagon’s Chapman
is willing to stick his neck out even further. He thinks it will go
above $100,000 before 2018 is over. [We disagree – time will tell.]
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Anybody can have a Bitcoin – or a part of it. When you invest in
bitcoin, you don’t have to buy a whole unit. According to research
site BitInfoCharts, the vast majority of bitcoin accounts contain just
0.1 bitcoin or less. Just 3% of more than 20 million bitcoin
accounts hold one bitcoin or more.
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Bitcoin is also being driven higher by the hands-off approach many

financial regulators seem to be taking toward the digital currency.
Japan’s government, for example, gave bitcoin the seal of
approval and started licensing bitcoin exchanges earlier this
year. The only black mark has been China, which has been
cracking down on some uses of the virtual currency.
People love to watch bubbles build. And then the emotion of “fear of
missing out” kicks in. And this appears to be one.
So let’s get this straight: you should have been a bitcoin millionaire

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right now only you are not because you a) sold too soon b) bought
too late c) disregarded your mate’s advice d) went all in on anther
cryptocurrency. Welcome to the club of the could-have-beens.
If you are late to the bitcoin party – or worse still, if you left before
the party got truly started – the regret can be devastating. Every
new all-time high drives another dagger into your stricken
heart, while the sight of young upstarts who have not even
heard of ‘blockchain’ (while you can write a paper on it)
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declaring their astronomical Bitcoin returns is sickening.
We aren’t going to console you for the (notional) loss. Rather, we
throw a challenge at you.
pi In a year from now we predict there would be many new

millionaires arising from the fall of Bitcoin. All you need to do is
short the coins in the next two months. Will you?
The one rule in life that always works is the one rule that works in
ap
trading. No risk, no return. Never forget that those who invested a
good chunk of their savings in Bitcoin in 2010, and held on to it
even through the worst days, were contrarian and rebellious in their
outlook. At that time you would have called such an investor a
fool. Are you foolish enough to short the coin today?
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Right; now go back to your desk job and stop cribbing. [Sorry!]
Who dare refuse to worship the coin of
our times?
Most of the world’s top billionaires are
consistently and clearly against investing
in Bitcoin. It is not clear if any of them
has regretted that their one billion dollars
could have become 1.4 million billion or 1.4 trillion in the last seven
years (putting them at the tenth position overall in the list of world

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economies).
Here’s their take on whether they should invest in Bitcoin:
Billionaire Carl Icahn, the legendary activist investor that has the
longest and best track record in the world (yes, better than Warren
Buffett): “I don’t understand it… If you read history books about
all of these bubbles…this is what this is.”
Billionaire Warren Buffett, the best value investor of all-time:
“Stay away from it. It’s a mirage… the idea that it has some huge
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intrinsic value is a joke. It’s a way of transmitting money.”
Billionaire Jamie Dimon, head of JPMC, one of the biggest global
money center banks in the world: “It’s not a real thing. It’s a
pi fraud.”
Billionaire Ray Dalio, founder of one of the biggest hedge funds in
the world: “Bitcoin is a bubble…It’s speculative people, thinking
they can sell it at a higher price…and so, it’s a bubble.”
ap
Billionaire investor Leon Cooperman: “I have no money in
bitcoin. There’s euphoria in bitcoin.”
Billionaire distressed debt and special situations investor, Marc
Lasry regrets not buying it at $300: “I should have bought bitcoin
when it was $300. I don’t understand it. It might make sense to try
Kn
to participate in it, but I can’t give you any analysis as to why it

makes sense or not. I think it’s real, as it coming into the
mainstream.”
Billionaire hedge funder Ken Griffin: “It’s not the future of
currency. I wouldn’t call it a fraud either. Bitcoin has many of the
elements of the Tulip bulb mania.”
Now, these are all Wall Streeters. And they haven’t participated. But
this all started as another disruptive technology venture. So what do
billionaire tech investors think about it?

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Billionaire Jerry Yang, founder of Yahoo: “Bitcoin as a digital

currency is not quite there yet. I personally am a believer that
digital currency can play a role in our society, but for now it seems
to be driven by the hype of investing and getting a return, as
opposed to transactions.”
Mark Cuban: He first called it a “bubble.” He now is invested in
a cryptocurrency hedge fund but calls it a “Hail Mary.”
Michael Novagratz, former Wall Streeter and hedge fund
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manager, once was a billionaire and may be again at this point,
thanks to bitcoin: “The whole market cap of all of the
cryptocurrencies is $300 billion. That’s nothing. This is global. I
have a sense this can go a lot further.” He equates it to an
pi alternative to, or replacement for, the value of holding gold –

which is an $8 trillion market… “over the medium term, this thing
is going to go a lot higher.” But he acknowledges it shouldn’t be
more than 1% to 3% of an average person’s net worth.
ap
Now with all of this in mind, billionaire Thomas Peterffy, one of the
richest men and founder of the largest electronic broker in the U.S.,
Interactive Brokers, has warned against creating exchange traded
contracts on bitcoin. He says a large move in the price could
destabilize the clearing organizations (the big futures exchanges)
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which could destabilize the real economy.

Note: The tulip bulb mania
In 1593 tulips were brought from Turkey and introduced to the
Dutch. The novelty of the new flower made it widely sought after
and therefore fairly pricey. After a time, the tulips contracted a
non-fatal virus known as mosaic, which didn’t kill the tulip
population but altered them causing “flames” of color to appear
upon the petals. The color patterns came in a wide variety,
increasing the rarity of an already unique flower. Thus, tulips,

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which were already selling at a premium, began to rise in price

according to how their virus alterations were valued, or desired.
Everyone began to deal in bulbs, essentially speculating on the
tulip market, which was believed to have no limits. Somehow, the
originally overpriced tulips enjoyed a twenty-fold increase in value
- in one month.
Needless to say, the prices were not an accurate reflection of the
value of a tulip bulb. As it happens in many speculative bubbles,
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some prudent people decided to sell and crystallize their profits. A
domino effect of progressively lower and lower prices took
place as everyone tried to sell while not many were buying. The
price began to dive, causing people to panic and sell regardless
pi of losses.
Dealers refused to honor contracts and people began to realize they
traded their homes for a piece of greenery; panic and
pandemonium were prevalent throughout the land. The government
ap
attempted to step in and halt the crash by offering to honor
contracts at 10% of the face value, but then the market plunged
even lower, making any restoration impossible. No one emerged
unscathed from the crash. Even the people who had locked in
their profit by getting out early suffered under the following
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depression.
The effects of the tulip craze left the Dutch very hesitant about
speculative investments for quite some time. Investors now can know
that it is better to stop and smell the flowers than to stake your future
upon one. The Bitcoin frenzy is frequently compared to the Tulip
mania. The results, it is hoped, will not be the same.
How lost is the original purpose?
Alright, answer this first: Why was Bitcoin created?

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No, not so that you can make

quick money.
When Bitcoin was
introduced in 2008, the title
of the paper written by its
creator, the mysterious
Satoshi Nakamoto, called the currency an “electronic cash
system.” The Bitcoin software created a decentralized network of
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computers that anyone with internet access could join, making it
easy to send Bitcoins between addresses. And Bitcoin first gained
public notice because of its use as anonymous digital cash on
pi black-market websites like the Silk Road.

But the number of people using Bitcoin to buy things was always
small compared with the number of speculators buying it because
of its scarcity. This was something the original software behind
ap
Bitcoin had also encouraged, by setting a limit of 21 million on
the number of Bitcoins that would ever be released.
The increasing value of Bitcoin made it even less attractive as a
way to pay for things. Most people don’t want to pay now with a
dollar that could be worth twice as much next week.
There are also limits on the Bitcoin system’s capacity. A rule
Kn
written into the Bitcoin software had established that the network
could process only around five transactions per second —
compared with the 25,000 transactions handled by Visa each
second. This bottleneck led to a fight between people looking to
use Bitcoin for different purposes.
Many early followers believed the system could expand to handle
more transactions without sacrificing its status as a virtual
commodity. This camp proposed a change to the Bitcoin rules that
would have doubled the capacity of the system in November. But

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the other set of programmers worried that quickly expanding the

Bitcoin network would threaten Bitcoin’s independence.
Decentralization is a result of Bitcoin’s unusual design, which
allows users to keep and monitor the records of every single
Bitcoin transaction, without any central authority. If the number
of transactions quickly increased, many Bitcoin aficionados
believed, only large companies would be able to keep the
records.
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What’s more, they believed the design of Bitcoin wasn’t well
suited to competing with PayPal and Visa, because every
transaction has to be recorded on thousands of computers
around the world. “Anyone who looked at Bitcoin and saw ‘cheap
pi payments’ likely doesn’t have much background in computer

science,” said Ben Davenport, a co-founder of the virtual currency
start-up BitGo and an opponent of doubling the network.
ap
This argument prevailed, and in early November the plan to double the
network capacity was called off.
“If people can’t engage in commerce, it’s hard to imagine why
they’d want to store their money in Bitcoin in the first place,”
Stephen Pair, the chief executive of Bitpay, a start-up that helps
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companies take virtual currency payments, says.

Pair believes it is irresponsible to suggest that a virtual currency
that has been around for less than a decade could pose a
credible challenge to gold. The conceit of Bitcoin as a good place
to store money, he added, will be less convincing when the price
of Bitcoin goes down, as it has in the past.
We don’t know who the real Satoshi Nakamoto is. What we do know
is that he (could even be a she) was never interested in money (he
would be one of the richest men now if only he encashed the coins he
owned. Sorry, created). He wanted to create a decentralized digital

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system that would end the tyranny of the banks. What a sad irony then
that the banks themselves are now considering investing in Bitcoin….
—– | —–
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pi
ap
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mba.knappily.com
WORLD – BUSINESS / Cryptocurrency / Bitcoin:

the fall is here
23-Dec-2017
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pi Just like we predicted a week ago, Bitcoin has hit a rough patch. The
cryptocurrency tumbled almost 30% on December 22 in frantic trading
ap
that brought one exchange to a standstill. After reaching an all-time
peak of $19,666 on December 17, this dive was the biggest since the
currency began its ascent from $1,000 at the start of this year. Worse,
many investors discovered that while buying Bitcoin is easy, selling it
is less so.
Kn
What spread panic among the

faithful?
Bitcoin plunged by a quarter to below
$12,000 on Friday (Dec. 22) as
investors dumped the cryptocurrency
in manic trading after its blistering
ascent to a peak close to $20,000 prompted warnings by experts of a
bubble.
It capped a brutal week that had been touted as a new era of

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mainstream trading for the volatile digital currency when bitcoin

futures debuted on CME Group Inc, the world's largest
derivatives market on Dec. 17.
Friday's steep fall bled into the U.S. stock market, where shares of
companies that have recently lashed their fortunes to bitcoin or
blockchain - its underlying technology - took a hard knock in
early trading.
The biggest and best-known cryptocurrency had seen a staggering
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twentyfold increase since the start of the year, climbing from
less than $1,000 to as high as $19,666 on Dec. 17. Bitcoin has
fallen each day since, with losses accelerating on Friday.
In the futures market, bitcoin one-month futures on Cboe Global
pi Markets were halted due to the steep price drop, while those
trading on the CME hit the limit down threshold. This basically
means that the number of investors expecting the price to drop
further a month from now is higher than those who expect it to rise.
ap
In a sign of the tumult, Coinbase, the most popular US exchange,
“temporarily disabled” buying and selling midway through the
American trading day, citing “today’s high traffic”. It warned
customers trying to withdraw funds into accounts denominated in
euros to expect delays of up to 10 days owing to the “extremely high
Kn
volume of transactions”. Many panic-struck investors, therefore,

couldn’t exit the mayhem.
Other digital currencies also fell on Friday, according to
coinmarketcap.com which tracks them. Ethereum, the second-largest
cryptocurrency by market capitalisation, was 22.9 per cent lower at
$624.10, while bitcoin sibling “bitcoin cash” fell 27.5 per cent.
Why did this happen?
Heightened investor interest in recent months prompted the Financial

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Industry Regulatory Authority, Wall

Street’s self-regulator, to warn
investors on Dec. 21 to be “cautious
when considering the purchase of
shares of companies that tout the
potential of high returns associated
with cryptocurrency-related activities”.
But this is a risk Bitcoin people have learnt to live with. So what went
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wrong this time?
The season is for spending
Setting aside speculation and the general fervor around blockchain
pi technology, few cryptocurrencies currently serve a purpose that

benefits the average consumer more than cash does. With a few
exceptions, cryptocurrencies are more difficult to use for everyday
transactions, meaning many in the market are there for speculative
ap
investment.
Speculative buyers do not necessarily equate to market stability —
as many will seek to cash out on early gains rather than ‘hold’
through the waves of market volatility.
The end of the year marks the time when these investors would
Kn
be most likely to convert their winnings to cash, and yesterday

— conveniently just a few days before Christmas — might have
been the day that experienced the greatest impact of this behavior.
Altcoin abundance
Following the initial surge in Bitcoin, most of the major gains we've
seen in cryptocurrency this month have been in altcoins like Cardano,
Qtum, Ripple, TRON, and Verge.
This has undoubtedly felt amazing to the investors motivated to
leave the safe haven of Coinbase for the further reaches of the other

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exchanges — one might even say too good to be true. In the

process of diverting funds from BTC, enthusiastic crypto
traders may have also temporarily destabilized the Bitcoin
market.
If Bitcoin were just another coin, that would be all well and good,
but Bitcoin is the “gold” of the cryptocurrency world — the
standard by which all other coins are measured. So whether we like
it or not, every altcoin is hedged (in some way) along Bitcoin's
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success — or at a minimum for the foreseeable future, its
maintenance.
Foul play?
pi A recent report in Bloomberg revealed that a group of 1000

investors own 40 percent of all Bitcoin. This means that — if
even some among that number were acting in concert, they would
have the potential to manipulate the market to their whim.
ap
These “whales” — investors, hedge funds, and otherwise with
enough stake in the crypto market to tip the scale — could easily
have engaged in “painting the tape” (creating the appearance of
high transaction volume by simply selling and re-selling back-and-
forth on small margins) to inflate the value of Bitcoin.
Kn
How would they benefit by this? By selling off at record highs,

dropping the market to record lows, then buying back in. This
is made even more appealing with the launch of bitcoin futures
trading on Cboe and CME, which sets these players up to short
the market.
The winter is coming
Of course, we've seen this degree of volatility in Bitcoin all
throughout 2017 (and even prior). The difference now is that the
sheer volume of players is a full exponent greater than it's ever

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been — and many new participants have no experience navigating

these types of markets, making them more sensitive to the down
moments.
Those stuck with unwanted bitcoins may take some comfort in the
knowledge that Bitcoin is not new to free falls. This week’s 30-
percent dive will be Bitcoin’s worst since only 2013, according
to Reuters. For comparison, when the S&P 500 dropped 9 per cent
at the height of the financial crisis on Oct. 15, 2008, it was its
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second-worst day since the 1940s.
But now more investors are asking how long Bitcoin can continue
bouncing back.
pi When do we see
corrupting the crypto?
A look through the Bitcoin rich
greed
list this year, using the Wayback

ap
Machine (a non-profit digital
archive of the web), shows an
explosion in the number of huddled masses holding fractions of the
digital token. But the ranks of the Bitcoin-wealthy have thinned.
There are more minnows, but fewer whales. Everyone's richer in dollar
Kn
terms, but the balance of new ownership is shifting to the little guy.
In recent days, members of the cryptocurrency old guard have
announced they are bailing out. Some, like Emil Oldenburg, claim
to be switching to Bitcoin Cash - a spin-off that's better at the
whole payments thing than the more rigid original. Others, such as
Litecoin founder Charlie Lee, are selling rival tokens to
supposedly avoid conflicts of interest in what's a fiercely limited
market.
The common thread here is the effort to portray selling as a noble

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act, not a cash grab. Maybe in these cases, it's true. But it's
remarkably fortunate timing. At the time of their selling, Bitcoin
had soared to $17,000 from $950 this year, and Litecoin to $330
from $4.
There seems to be a broader trend here. There's been a drop in
the number of ultra-fat Bitcoin holdings, owned by the market
whales, at exactly the time when Wall Street is desperate to play in
the Bitcoin casino and ordinary punters are mortgaging their house
ly
to bet on a hot crypto tip.
In any other market, charges of hypocrisy would be leveled at those
heading for the exit, given their evangelizing about the Bitcoin
future. But this is crypto-land, where wealthy geeks argue for days
pi on end about block sizes, consensus algorithms and the spirit of the
original Bitcoin white paper, without ever mentioning more
obvious motivations like making money.
So, in fairness, it is possible that some of those ditching Bitcoin are
ap
doing so because they'd rather reallocate crypto-capital to other
tokens - such as Bitcoin Cash - instead of just cashing in their chips
and retiring on a pile of U.S. dollars. Still, if this trend continues,
it will be hard to ignore the niggling feeling that the latecomers
piling into Bitcoin at the end of 2017 aren't quite as shrewd as
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the early birds who are getting out.

Wall Street's best and brightest think they can outsmart the market
using technical analysis, exchange arbitrage and derivatives. The
ordinary us, meanwhile, reckon word-of-mouth tips on the next big
thing will help us afford early retirement. But maybe the true risk-
takers, who've been compensated handsomely for making a brave bet,
will make fools of us all.
Where is Bitcoin headed now?
What a year it has been for the crypto-currency, which started 2017

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worth less than $1,000 and by last

weekend had climbed to within a
few dollars of the $20,000 mark.
For all of that period, sceptics
have been predicting that the
bubble would burst and in the
past 24 hours it has seemed at times that this was happening.
The price, which had been sinking all week, is now below $12,000.
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Though as someone commented, it is moving so fast, any Bitcoin
article/knapp is out of date five minutes after it is written.
What is worrying is that we are at the stage in a bubble where
pi people have been rushing in without much thought and with

little understanding either of how Bitcoin works or the risks
involved. These wild swings in Bitcoin's value are making it ever
more evident that it is not really a currency - there are very few
ap
places that accept it and why would you spend it if you thought it
would be worth more tomorrow?
The frenzy is now spreading from Bitcoin to other “currencies” and
to the blockchain technology that underpins them. This week the
drinks company Long Island Iced Tea saw its shares soar by
more than 400% after it changed its name to Long Island
Kn
Blockchain - proof, surely, that the crypto-craziness is now

reaching terminal velocity.
That is certainly the view of David Gerard, whose book Attack of the
50 Foot Blockchain is a very convincing takedown of the whole
phenomenon. He is worried about the people who have got caught up
late in the day: “This is how economic bubbles work - people buy
because other people are buying and they assume they can sell and
get rich. When the bubble pops - and it's when not if - it's going to be
a disaster for a lot of people.”

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Who is Bitcoin going down

with?
Bitcoin and other major
cryptocurrencies tumbled on
Friday along with the shares of
several companies in the space.
Some of these companies recently announced they were changing
their core businesses to focus on cryptocurrencies. Others added
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“blockchain” to their names and saw triple-digit-percent surges in
their stock prices.
But some companies that have traditionally been associated with
pi bitcoin, such as the GPU-maker AMD, were also weaker on Friday

amid the heavy crypto selling.
“What we're seeing in Bitcoin in recent days is what many people
have been anticipating for a while which is speculators getting
ap
burned by a sharp and aggressive correction,” said Craig Erlam, a
senior market analyst at Oanda, in a note. “The rally over the last
couple of months has left bitcoin vulnerable to this kind of move
and it seems the run up to Christmas has triggered some profit
taking on the rally and even a shift into some alternative coins.”
Kn
A number of blockchains launched this year, with interoperability

being the key issue they want to solve. Three of these projects (ICON,
AION and Wanchain) saw the need for co-operation in the crypto
scene and founded the Interoperability Alliance. This alliance will
focus on the common goal of connecting blockchain protocols.
ICON aims to interconnect individual blockchains without any
extra intermediaries. They will be supported by 5 leading South
Korean consortiums, including securities, banks, universities,
hospitals and insurance companies.

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AION strives to become the common protocol these blockchain

use and they signed a deal with defense contractor Moog.
Wanchain will be a distributed financial platform that facilitates
the execution of private cross-blockchain smart contracts. They
have the closest ties with the Chinese market.
Other projects that aim to connect blockchains include COSMOS
and Polkadot, but the latter will only hit the market in two years.
Note: While the term “blockchain” may sound abstract, it’s quite an
ly
accurate description of the components behind the technology. A group
of users forms a network or “chain.” A transaction record within the
chain is called a “block” and each block is assigned to a specific user.
pi The chain is a program designed to execute tasks exactly as specified

at the onset, without a designated moderator or manager. Instead, the
chain is validated and monitored by each user within the network. The
blockchain records transactions and duplicates them instantly across
ap
each user point. It’s this deceptively simple concept that serves as the
foundation for expedited and trustworthy transactions.
How is blockchain revolutionizing
finance?
The financial industry is buzzing
Kn
about how blockchain will change

the world, but many don’t realize
that the transformation has already
begun.
Much as Uber revolutionized the private-transportation industry
and Airbnb the travel industry, blockchain is revolutionizing
finance. Digital assets are reinventing traditional financial and
social structures while connecting the world’s billions of
“unbanked” individuals with a new global economy. This new

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technology combines the peer-to-peer approach to computing

developed in Silicon Valley with the traditional money-
management techniques of Wall Street.
The unprecedented openness and accessibility of blockchain
technology are extremely attractive to “digital natives”, Millennials
who grew up during or after the explosion of digital technology.
These “re-wired investors” want to play a more active role in the
services they buy, and banking and fund management are no
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exceptions.
The Internet-based development of cryptocurrencies and the
resulting huge store of publicly available information allow these
do-it-yourself-oriented investors to be much more personally
pi involved than they can be when working with traditional fund

managers. This self-determination — combined, of course, with
expert investment advice — is what this generation craves; and if
the world of finance wants to thrive, it should give it to them.
ap
Blockchain makes this more achievable than ever before.
All signs point to blockchain becoming mainstream. Since
January 2015, the total market capitalization of
cryptocurrencies has increased more than 4,000 percent. An
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explosion of digital-asset exchanges has massively increased

liquidity.
Elite firms such as Goldman Sachs are already investigating
setting up departments to take advantage of this new asset class.
Governments are also taking notice: India and Sweden are
considering creating national cryptocurrencies, and Japan has
officially recognized bitcoin as legal tender.
Blockchain has also started making inroads into the traditional
finance world: CME Group recently launched a bitcoin futures
product. In the future, many successful blockchain companies will

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likely provide token-holders with equity-like rights and seek to

comply with standard securities regulations.
In essence, blockchain is opening up world markets, much as the
Internet revolutionized open access to information. The artificial
barriers currently in place — both geographical and financial —
will be dissolved. The potential is limitless. The ability to access any
service, physical asset or tool you need, when and where you need it,
will prove transformative and more egalitarian for both the consumer
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and the entrepreneur.
Bitcoin will fall, more, sooner or later. But the technology behind it
will live on.
pi —– | —–
ap
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mba.knappily.com
WORLD – BUSINESS / Electric Vehicles / Electric

cars: the revolution that’s always coming, but
never comes
29-Jul-2017
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pi European governments are making big promises to ban the sale of cars
ap
with combustion engines: Germany by 2030, France and the UK by
2040. It’ll take a lot more than promises, though, to bring about the all-
electric future. The governments and industry now face big decisions
on how to create the required infrastructure, provide financial
incentives, and - most of all – encourage people to go electric.
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What promises have certain

European governments made?
Certain European governments are
making big promises to get rid of cars
that run on combustible fuel and
replace them with electric cars.
The initiatives could become the biggest government-driven
revolution in a major market since anti-tobacco legislation—

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and a benevolent one, given that car makers get fair warning.
Germany was among the first European nations to come up
with the plan of banning combustible engine cars in 2016.
Germany’s federal council, the Bundesrat, had passed a resolution
calling for a ban on combustion engine cars by 2030.
If the ban were to go through, German citizens would only be
permitted to purchase electric or hydrogen-fuelled cars. A German
court on Friday backed an effort to ban diesel cars from
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Stuttgart, dealing a blow to carmakers such as Daimler and
Volkswagen which had sought to avert legal curbs by modifying
vehicles to cut their emissions.
France joined this bid earlier this month. France will end sales of
pi petrol and diesel vehicles by 2040 as part of an ambitious plan to

meet its targets under the 2015 Paris Climate accord, Emmanuel
Macron’s government had announced.
The announcement came a day after Volvo said it would only
ap
make fully electric or hybrid cars from 2019 onwards, a
decision hailed as the beginning of the end for the internal
combustion engine’s dominance of motor transport after more than
a century.
Scrambling to combat a growing air pollution crisis, Britain
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announced on Wednesday that sales of new diesel and gas cars

would reach the end of the road by 2040, the latest step in
Europe’s battle against the damaging environmental impact of the
internal combustion engine.
But the shift to electric vehicles will be a gradual one, and the
target set by Britain is less ambitious than some of the efforts
elsewhere. US President Donald Trump’s decision to withdraw
the United States from the Paris climate accord has also dented
optimism.
Britain’s new clean air strategy, published on Wednesday, calls for

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sales of new gas and diesel cars and vans to end by 2040. The
government will also make 255 million pounds, or $332 million,
available for local governments to take short-term action, such as
retrofitting buses, to reduce air pollution.
Why won't it be easy to kill the
combustion engine?
Since Volkswagen (VW) admitted
in September 2015 to cheating
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emissions tests, diesel cars have
been scrutinized for nitrogen oxide
(NOx) emissions blamed for causing respiratory disease.
pi Diesel driving bans are the only adequate solution to quickly

clean up the air, said Judge Wolfgang Kern of Stuttgart’s
administrative court, ruling on a case brought by an environmental
group over the city’s failure to comply with emissions levels for
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smog-inducing nitrogen oxide. Kern’s decision is likely to
influence other judicial cases coming in Germany on the matter.
Britain’s decision (the 2040 deadline) is the latest indication of
how swiftly governments and the public in Europe have turned
against diesel and internal combustion engines in general.
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But it’s easy to tout the end of an era with non-binding promises,
and much harder to get enough people to like a genuine zero-
emission car, that is, one whose only contribution to emissions is
made by the energy industry as it produces electric power.
Granted, electric vehicles already have a lot of fans. People like the
idea of reducing their carbon footprint, as well as electric cars’ fast
acceleration and noiselessness.
The reality of electric cars, though, remains at odds with their
promise. Consumers tend to baulk when they get a sense of the

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range limitations (producers’ estimates are valid only under

specific conditions) and consider the strategic aspect of planning
their driving around charging opportunities.
No more than 10% of those who consider an electric vehicle
actually buy one, and older electric cars with short ranges are
worth a lower percentage of the original price than even much-
maligned diesels.
And then there are the longer-term questions of whether the
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charging infrastructure will keep up with the number of
vehicles, and whether electrical grids will be able to handle all the
added demand.
The National Grid in Britain recently warned that, by 2030,
pi electric cars could require 3.5-8GW of additional capacity in

the country, on top of the current peak demand of 60GW. By the
middle of the century, when it is assumed almost all cars will be
electric, that extra peak demand could be up to 18GW.
ap
Probably the biggest shifts in the European auto market are
happening in diesel, which major cities plan to ban sooner than
combustion engines. In the UK, demand for diesel cars dropped
10% in the second quarter of this year.
Financial incentives can help by bringing electric-car prices close
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to those of traditional vehicles — but they are not enough for a

breakthrough. Only countries such as Norway, where the
incentives make electric vehicles appreciably cheaper to buy
and own, have seen significant uptake.
Governments are rightly hesitant to force something on consumers that
doesn’t really work for them — which is why countries that plan to
ban combustion engines in new cars haven’t actually legislated on it
yet.
When do we see a similar event in business history?

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During the 1950’s and 1960’s, as well

as numerous decades before that,
smoking was extremely commonplace.
It was not unusual to see people
enjoying their cigarettes pretty much
anywhere, but over the past fifty years
there has been a dramatic shift in the prevalence of smoking and in the
public perception of the habit.
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The extreme backlash against cigarettes sparked anti-smoking
campaigns, and the rise of anti-smoking organizations, and a
slew of studies on the effects of smoking on the human body.
pi The anti-smoking campaign was one of the biggest events in the

history that called for a ban on tobacco advertising and sponsorship, as
well as taxes to discourage use.
Since the news began to spread that smoking is harmful to a
ap
person’s health, hundreds of anti-smoking organizations have
been established with the goal of educating the public on the health
risks associated with smoking and encouraging and assisting them
to quit smoking for good.
The American Cancer Society developed what has been the most
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successful anti-smoking campaign, the Great American

Smokeout.
The Smokeout, which is held annually on the third Thursday in
November, began in the late 1970’s and has been a driving force in
changing not only the societal perception of smoking, but also in
influencing legislation and health care practices.
These advocacy groups have done much more than just bring
awareness to the dangers of smoking and producing catchy anti-
smoking slogans; they have become integral in challenging tobacco
companies and forcing them to be accountable for the business that

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they conduct.
Additionally, these organizations in tandem with some highly
effective anti-smoking campaigns have prompted major societal
changes in smoking, such as largely reducing the public places
where smoking is allowed.
Airplanes, restaurants, and malls are a few of the places that
enforce a no smoking policy. Other places such as theme parks and
sports stadiums now only allow smoking in designated areas.
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But in the recent past cigarette manufacturers are attempting to
thwart government tobacco controls wherever possible, even as
governments make progress regulating the products, a new World
Health Organization report has found.
pi World health officials also warn that tobacco companies have

moved their fight to the developing world, such as Africa,
where smoking rates are predicted to rise by double digits in
the coming decades.
ap
Now the campaign to convince consumers that the combustion era is
ending and electric is taking over is working about as well as anti-
smoking campaigns did before cigarettes were banned in most public
spaces and became prohibitively expensive for many smokers.
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Driving a combustion engine car hasn’t acquired the stigma of

smoking, and it may never do so. Unless the current petrol
station infrastructure disappears — unlikely, given that used
combustion engine cars won’t be outlawed — petrol-burning and
hybrid car sales might even boom in the few years before bans
go into effect. And that’s if the bans actually happen.
Some people believe what they are told and grow enthusiastic about
the new era and the next big thing. Most, however, see no reason to
change their habits.

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Where are the problems

with electric cars?
While the electric vehicle is
over a century old in concept,
the modern electric car is far
from it, because the
technology is in development as we speak. Sure, there are a few
models on the market that you can buy today, and some have been
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around for more than a few years.
Unlike internal combustion engines, which have surpassed electrics
back in the day because of deficient battery technology at the time
pi (slightly ironic, you must admit) there is a long way to go

concerning electric vehicle power train development.
Electric engines are smaller, more compact, and more efficient than
existing and even theoretical internal combustion units, while the
ap
batteries are getting better and better.
The problem today is that people do not like waiting, and it takes
a while to charge an electric car, not to mention planning trips.
People want electric cars today, and they want them to be at least
as great as conventional vehicles.
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One other problem that it faces is manufacturing on multiple

continents and complicated shipping requirements. Most
conventional cars tend to be built with parts sourced close to the
factories that make them.
When the first hybrid cars came to market, they were criticized for
using Ni-Mh batteries. Those used metals sourced from mines
found in isolated places in the world, and the rare substances had to
be shipped across the world to be turned into batteries, and then
they would be sent again to the factory that made hybrid cars,
which is a complicated process.

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Things have not changed dramatically for electric vehicles, except

for the fact that automakers have begun making batteries in-
house.
However, that does not mean that the shipping chain does not lead
back to a country that is far away from the factory, and that
expensive metals have to be transported great distances to build
batteries for electric cars.
Another big problem comes with the recycling of the batteries
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and whether all countries are ready for it. While Lithium-Ion
batteries can be recycled, and so can Ni-Mh ones, we do not
have a massive market for those that recycle Lithium-based
batteries.
pi Electric cars will not bring the complete death of the conventional
vehicle. Not in remote areas, and possibly not in places where the
climate is unfriendly.
ap
To power the electric cars means a big increase in the production of
electricity should be made. This only means that the thermal power
plants must burn more coal than ever resulting in the emission of
poisonous gases into the environment.
Unless automakers commit to updating the existing electric
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vehicles they have sold, within reasonable limits — evidently, the

EVs found on the market today will be obsolete in less than ten
years.
Note: A nickel–metal hydride battery, abbreviated NiMH or Ni–MH,
is a type of rechargeable battery. The chemical reaction at the positive
electrode is similar to that of the nickel–cadmium cell (NiCd), with
both using nickel oxide hydroxide (NiOOH).
Who are the leading makers of Electronic vehicles?
It’s a transitional period for electric vehicles, to say the least. We

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remain a few years away from what

should be the start of mass consumer
adoption of the segment. While the
industry reboots for the next phase, let’s
take a look at the automakers who have
sold the most plug-in hybrids and pure
electric vehicles since the start of sales.
The world’s largest EV maker in the first quarter of this year has
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been the Renault-Nissan Alliance. Between the Renault ZOE and
the Nissan Leaf, the best-selling electric vehicle of all time, the
Nissan-Renault alliance is by far the leading automotive group.
pi Tesla is also one of the leaders among automakers, producing only

EVs. It was one of the top-selling EV carmakers in 2015 and its
upcoming Model 3 has attracted unprecedented interest.
The Toyota Prius plug-in, the automaker group’s only electric
ap
model outside of the compliance RAV4 EV, led the charge of
76,028 units sold over the years. Thus, Toyota is not lagging
behind in the list of EV makers in the world.
Mitsubishi with its ‘Outlander PHEV’ is the second most popular
electric vehicle maker in Europe.
General Motors nailed down a solid place in EV sales with the
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success of the original Volt. Through April 2015, Chevrolet, a GM

company, moved 95,293 copies of the Volt and Chevy Spark EV,
a low-volume pure electric car available in a few U.S. markets.
With the 2017 model rolling out to GM will threaten second place
on this list.
BMW has made a major commitment to electrification, and its EV
sales reflect that. BMW leads all major automakers in EVs sales as
a proportion of total sales: more than 3 percent across the United
States and topping 7 percent in California. BMW also now offers 4

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EV models in the US, including plug-in versions of its most

popular models.
Volkswagen has launched a fully electric cross-over model in
Shanghai to take on pacesetter Tesla which has partnered
Panasonic in building the world’s first Gigafactory to manufacture
lithium batteries for its range of electric vehicles and Powerwall
systems.
China, the world’s largest market for EVs, is pushing ahead in
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spreading the benefits from adopting EV technologies. BYD is also
one of the world’s largest electric vehicle makers and a well-known
brand in China.
pi How has India responded to EVs so

far?
Quite unexpectedly, India finds itself at
the cusp of a once-in-a-lifetime
ap
opportunity, one that could have a
profound influence on how the people
of this nation live. Under assault from dangerously high levels of
pollution, Indian roads need a vehicular revolution on par with the one
in the early 1990s that changed the way we communicate.
Kn
With the advances in electric vehicle (EV) technology reaching a

tipping point, there is a chance for India to leapfrog into an age of
clean and efficient mobility.
The similarities with the early 1990s, before the onset of the
telecom revolution, are uncanny. Then, as now, there was a huge
pain point. Phone-starved Indian customers needed a reliable and
on-demand communication network.
A favourable government dispensation which opened the sluices
for a flood of private investment along with a global surge of

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technological innovation in cellular telephony was the other factor

that spurred the telecom boom.
It isn’t very unlike what we are seeing today with leading EV
manufacturers like Tesla Inc. and Toyota Motor Corp.
evincing interest in the Indian market. In April this year, Mint
broke the story about Nissan’s impending plans to bring its best-
selling EV Leaf to India.
Earlier, Suzuki Motor Corp., the parent of India’s largest car maker
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Maruti Suzuki India Ltd, announced that it would form a joint
venture with two Japanese firms, Denso Corp. and Toshiba Corp.,
to produce lithium-ion batteries for electric vehicles in India.
This follows the introduction of the “Faster Adoption and
pi Manufacturing of Hybrid and Electric Vehicles” or FAME

scheme by the government in 2015 for promoting hybrid and
electric vehicles. Further sweeteners have come from the transport
ministry looking to hire electric cars for its officials and also
ap
pushing the same for public transportation.
All that is needed now is a few entrepreneurs with the audacity to
take advantage of the unfolding opportunity. Already there have
been a few tentative explorers like Lithium and Ather Energy, but
they have been too small and as yet too peripheral to make a
Kn
difference.
The real game changer will come when well-funded investors with
technological backing from leaders in the business create a series
of options for customers. As always happens in any new business,
volumes and low prices will drive each other.
India does not have any lithium deposits, with Chile, China,
Argentina and Australia heading the list of countries with the
largest lithium reserves in the world. While that does present an
obstacle to setting up a viable battery manufacturing plant for EVs

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in the country, it also means that companies must look for other
options to power such vehicles.
With India’s passenger car ownership expected to grow manifold over
the next 15 years, this is the moment to change the trajectory of how
these vehicles will be powered. India will have to wait and see how the
new generation of its entrepreneurs seizes this opportunity.
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mba.knappily.com
WORLD – BUSINESS / Electric Vehicles / In

Musk they trust
18-Nov-2016
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pi Tesla Motors Chief Executive Elon Musk has won approval from the
electric luxury automaker’s shareholders for the acquisition of
ap
SolarCity, the solar energy system installer in which Musk is the
largest shareholder. Musk had announced his intention to buy
SolarCity for $2.6 billion in June. The deal seemed like a conflict of
interest, given that SolarCity’s founder is Musk’s cousin. Many
concerns remain but so does faith in Musk.
Kn
What is the news on Tesla and

SolarCity?
The big news from the corporate world is
that the electric car maker, Testla Motors
Inc. has acquired the solar energy system
installer, SolarCity Corp in a stock swap
deal of $2.6 billion.
Before analyzing the deal and its future consequences, it is essential to
know about the two companies:

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Tesla Motors: It is a California based electric luxury car maker

which also specializes in energy storage. It gained attention after its
production of the Tesla Roadster, world’s first electric sports car, in
2008. The company’s second vehicle, an electric luxury sedan, the
Model S debuted in 2012. Tesla’s next launch is Model 3 which is
slated to hit the roads in 2017. Tesla is the second largest global
plug-in car manufacturer after Renault-Nissan. When measured by
kilowatt-hour battery capacity delivered, Tesla is the world leader.
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SolarCity: SolarCity is a California based solar energy services
company which designs, permits, finances, sells, installs,
maintains, and monitors solar energy systems for residential,
commercial and government application. It is the largest player in
pi the U.S. residential solar market, with a nearly 32% share of the
market as of the first quarter of 2016.
Note: A stock swap is a strategy used during a merger or acquisition of
ap
a company in which the acquiring company uses its own stock as cash
to purchase the other company by paying the shareholders of the
acquired company a pre-determined number of shares.
Why was the deal important to Tesla?
The largest shareholder in both the
Kn
companies is the same man, the visionary

business tycoon Elon Musk. He owns 21
percent of Tesla and 22 percent of
SolarCity. He also serves as SolarCity’s
chairman. Though Musk excused himself from voting, he admitted to
lobbying large institutional shareholders for an approval.
Tesla’s recent footprints
Tesla has already entered the energy storage market and is also set
to deploy the two largest lithium-ion battery-storage installations in

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the world.
With SolarCity, Tesla plans to also bring to market a solar roof by
optimizing the synergies between the two companies.
Musk’s vision
Musk had been advocating the acquisition of SolarCity for a few
months now to give thrust to his plan to make Tesla the world’s
first integrated one-stop sustainable energy company, from
energy generation to energy storage to transportation solutions.
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As per Musk, “We are trying to make an integrated product. So
you have an integrated solar roof with a Powerwall and an electric
car, and you just go into a Tesla store, just say yes, it just happens.
pi It all works, it’s seamless and you love it.”

Note: The Powerwall and Powerpack are rechargeable lithium-ion
battery stationary energy storage products manufactured by Tesla
Motors. The Powerwall is intended for home use and stores electricity
ap
for solar self-consumption, time of use load shifting, backup power,
and off-the-grid use. The larger Powerpack is intended for commercial
or electric utility grid use and can be used for peak shaving, load
shifting, backup power, demand response, microgrids, renewable
power integration, frequency regulation, and voltage control.
Kn
When was the deal inked?

Economic Health
Elon Musk outlined the deal to acquire
SolarCity in June 2016. The
announcement caused a slide of 13 per
cent in Tesla’s stock price, wiping out
$4.8 billion in market capitalization.
The main reason for the fall was that SolarCity is a loss-making
company. SolarCity has recorded losses in six of the last eight

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quarters. This year, SolarCity’s stock price has fallen by 60 per

cent.
As for Tesla, the recent quarterly profit it reported happens to be its
first in eight quarters.
The deal
Musk can bring his shareholders on board - after all, he is
considered to be the most visionary business leader since Steve
Jobs. The shareholders of Tesla were finally convinced about
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Musk’s vision to integrate offerings and, on 17 November 2016,
they approved the merger with an overwhelming 85% of them
approving it.
pi Elon Musk and Antonia Gracias, the other person who holds shares
in both the companies did not vote.
SolarCity shareholders will get 0.110 of a Tesla share for each
share in the solar company.
ap
It is not clear when the merger will officially be closed. It is also not
clear if SolarCity will cease to exist as a stand-alone brand.
Where is the deal expected to bring value
to Tesla?
Musk expects the deal to be beneficial for
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all Tesla shareholders on the following

fronts:
Strategy
The deal would double Tesla’s workforce to nearly 30,000
employees and create a unique combination of solar, power
storage and transportation, which would make Tesla the world’s
only integrated sustainable energy company.
“It’s really all part of solving the sustainable energy problem,”
Musk said during a conference call with analysts to discuss the

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deal. “That’s why we are all doing this, to accelerate the advent of
a sustainable energy world.”
Institutional Shareholder Services (ISS) said Tesla would be able to
bridge cash-burning SolarCity’s funding gap and called the deal a
“necessary step” in the electric-car maker’s push to become an
integrated sustainable energy company.
Finances
Tesla predicts that SolarCity will add $1 billion in revenue to the
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combined company next year and $500 million in cash to its
balance sheet over the next three years.
Joining Tesla’s retail network with SolarCity’s installers and
pi consolidating the two companies’ supply chains may result in an

estimated $150 million in cost synergies within a year.
Who is criticizing the deal?
As per a report in The New York Times,
ap
this is the most hated deal of the year.
Corporate Governance: The experts
have pointed that Elon Musk being the
largest shareholder in the two companies
is using valuable Tesla shares to bail out a struggling SolarCity.
Kn
An investor has called the entire deal as a “shameful example of

corporate governance at its worst.”
Bailout: Some analysts were skeptical of the deal’s value for
Tesla. “It’s a bailout,” said Jesse Pichel, an investment banker at
Roth Capital Partners, adding, “SolarCity has had a hard time
raising money. Tesla solves that problem.”
Strategic Sense: Many auto industry experts also said the idea of
marriage between the electric-car manufacturer and the energy
panel installer makes no strategic sense. They have pointed out that

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attempts at such vertical integration have failed to materialize

in the automobile industry. Invevstors are wary that expanding
into a non-auto business like solar energy exposes Tesla to
“untested cost, competitive and regulatory forces.”
Increased Risk: The new company also ties together two money-
losing entities, dependent on borrowing from the market, adding
potential risk along with the opportunity.
Note: Vertical integration is a strategy where a company expands its
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business operations into different steps on the same production path,
such as when a manufacturer owns its supplier and/or distributor.
Vertical integration can help companies reduce costs and improve
pi efficiencies by decreasing transportation expenses and reducing

turnaround time, among other advantages. However, sometimes it is
more effective for a company to rely on the established expertise
and economies of scale of other vendors rather than trying to
ap
become vertically integrated.
How big are the challenges ahead for
Tesla?
Although Elon Musk has promised the
shareholders that “Your faith will be
Kn
rewarded”, the path ahead for him is

replete with challenges.
Dealing with his own ambition: Elon Musk has a cult following;
there are millions who adore the risk appetite and futuristic vision
of this rock star of the business world. The same qualities are now
causing concern for the investors as many believe Musk is
overextending himself between ambitious future goals for
Tesla, the work of integrating SolarCity, and his CEO duties at
SpaceX. The biggest challenge for Musk is maintaining a fine

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balance between all his priorities and also delivering on his

promises.
Donald Trump: Post election of Donald Trump as the President of
America, it may be a possibility that Trump cuts off federal tax
subsidies for electric vehicles. Solar companies too may expect a
less favorable renewable energy policy from Trump’s
administration. Trump has been vocal in his assertion that there is
no climate change - the US must progress without worrying about
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climate. This may mean not worrying about coal based electricity
and not providing subsidy to clean energy. Musk is not worried, at
least not in public. After the merger was approved, he made a joke
about Election Day results, saying that “apparently there’s a new
pi political landscape,” but said that Tesla would be even more

competitive without any government incentives and subsidies.
Launch of Model 3: Tesla faces more challenges in the months
ahead, as it tries to make a five-fold leap in its annual vehicle
ap
production and launch Model 3 next year. Model 3 is aimed at
mass-market customers with a starting price of $35,000. It is
building a massive Gigafactory in the desert east of Reno for the
purpose of building both battery cells and, eventually, vehicles.
The idea is that once Tesla can make its products at scale,
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profits will follow. Will it?

Legality: Concerns about the deal will not die anytime soon - in
fact, they will move to court now. In September itself, Tesla said
that at least four lawsuits had been filed in the early part of the
month to challenge the merger, most alleging breach of fiduciary
duty by Tesla.
But Musk is Musk. He is larger than life. He is a brand name in his
own right. He is changing the world for good. He is the superhero the
world needed. The fans will forgive certain lapses and indulgences.

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Every superhero has a weakness after all.

One such faithful is Austen Allred, an executive at San Francisco-
based startup LendUp, who tweeted Musk after the deal saying he
will “put 100 percent of his net worth” into Tesla, adding: “Don’t
even care if I lose it all. Thank you for what you’re doing and have
done.”
“Wow, thanks,” Musk wrote back. “We won’t let you down.”
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WORLD – BUSINESS / Electric Vehicles / The

ridiculously ambitious Musk Master Plan 2.0
23-Jul-2016
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pi Elon Musk, CEO of Tesla Motors, is the most ambitious businessmen
on earth. Tesla is the first successful American car startup in decades,
ap
raising the profile of electric vehicles. In a Wednesday blog post, Musk
revealed his next Master Plan which has since been declared unrealistic
by critics. But Musk has made a career out of proving critics wrong.
Knappily analyses the plan and its master.
What does the new roadmap of Tesla

Kn
look like?
Musk wants to merge Tesla — which
makes batteries in addition to cars —
with the solar panel company SolarCity
to offer integrated in-home power
systems.
He wants to create a smoothly integrated and beautiful solar-roof-
with-battery product that just works, empowering the individual as
their own utility, and then scale that throughout the world.One

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ordering experience, one installation, one service contact, one

phone app.
He wants to expand into self-driving trucks and self-driving
buses. He has said that as the technology matures, all Tesla
vehicles will have the hardware necessary to be fully self-driving
with fail-operational capability, meaning that were any given
system in the car to break, your car would still drive itself
safely.
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And he signalled that he plans to compete directly with Uber by
enabling Tesla owners to rent out their cars to other passengers
when they’re not in use. He says that when true self-driving is
approved by regulators, it will mean that you will be able to
pi summon your Tesla from pretty much anywhere. Once it picks you
up, you will be able to sleep, read or do anything else enroute to
your destination.
Taken individually, each of these ideas seems like a reasonable
ap
direction for an electric car company to go.But Musk isn’t
planning to take them individually.
He is planning to pursue all of them simultaneously — at the same
time as he faces growing questions about his ability to deliver the
Model 3 by its late 2017 target date.
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Maybe Musk will surprise us once again and execute this

ridiculously ambitious plan on time. But there’s also a big risk that
he’s bitten off way more than he can chew.
Why are critics calling Musk’s second
Master Plan unrealistic?
The most troubling thing about Musk’s
new plan is that it ignores the most
consistent criticisms of Tesla: that the
company overpromises,

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underdelivers, lacks focus, and over-relies on Musk’s vision

(and marketing skills).
Tesla has not had a great track record for quality and reliability.
While Tesla is known for its innovative designs, it’s not really
known for its flawless execution.
All three of the company’s previous vehicles faced production
delays before they were finally delivered to customers. And there
are mounting questions about whether Tesla can meet the Model
ly
3’s 2017 deadline.
Producing cars at mass-market scale requires a ton of capital.
Earlier this year, Tesla announced that it would raise $2 billion to
fund expanded production facilities for the Model 3 — and the
pi company might need all that cash and more to get its Model 3
assembly line up and running by next year. Tesla doesn’t have a lot
of spare capacity or capital to tackle additional projects.
Then there is a real danger that Wall Street will grow tired of these
ap
problems and refuse to give Musk more capital.
When had Musk written his first
Master Plan?
Musk had written his first master plan 10
Kn
years ago in 2006. It envisaged four steps

to realise Musk’s vision.
Step 1 was to build a low-volume
electric sports car, a goal Tesla achieved with its Roadster.
Step 2 – “develop a medium volume car at a lower price” - has
deviated considerably from the original “build an affordable car,”
probably because Tesla’s Model S sells for a lot more than its
initial (and arguably “affordable”) $50,000 price target.
Step 3 – “create an affordable, high volume car” - certainly wasn’t
accomplished with Tesla’s third car, the Model X SUV, though it

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may be someday with Tesla’s Model 3.

Musk says Step 4 - “provide solar power” - is “in the final stages
of completion” on the strength of a planned but unapproved merger
with solar-energy provider SolarCity.
From solar panels and energy storage to robo-taxis and semis, Musk’s
vision for Tesla imagines a world so enthrallingly futuristic that it’s
hard not to get carried away by it.
As it turns out, the incompleteness of Musk’s original plan helps
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explain the existence of a new one. In particular, the original plan’s
goal of providing renewable power, which previously amounted to
little more than an empty promise to make all Tesla Supercharger
pi stations solar-powered, has grown into Point 1 of the new

plan:“create stunning solar roofs with seamlessly integrated
battery storage.”
Where does the faith in Musk come
ap
from?
If anyone can deliver on an agenda this
ambitious, it’s Musk. He is already doing
something most people would find
impossible — running Tesla and
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another exciting space company, SpaceX, simultaneously — so

perhaps his impressive management abilities will stretch to allow him
to manage a few additional projects.
Many of SpaceX’s test launches were failures despite so many trips
to orbit. But the company, much like its owner, is known to operate
at the edge of possibilities. While the loss of a rocket and its cargo
can be costly and inconvenient, these aren’t viewed as crippling
blows to the company. SpaceX has the reputation to push
boundaries and many believe the company can always bounce back

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after a failure. This year SpaceX has demonstrated its cutting-edge

capabilities in space aviation by successfully landing its partially
reusable Falcon 9 rocket no once, but 6 times.
Elon Musk appears to have countered the final negative perception
of electric vehicles: price. Following its April launch, Tesla’s new
Model 3 generated over 250,000 orders in just a few days, meaning
it is likely to become the bestselling electric vehicle in the world.
The markets are hungry for investment opportunities with high
ly
potential returns. One of the biggest problems facing the US
economy right now is a shortage of high-return investments for the
trillions of dollars Americans (and foreigners wanting to invest in
the US) have accumulated. So if Musk can convince the markets
pi that he will eventually deliver on his lofty promises, they might be

willing to cut him a lot of slack — and give him a lot more money
— along the way.
Most of Tesla’s competitors are in an even worse position to
ap
deliver on the future of cars than Tesla is.Tesla’s roots in Silicon
Valley give the company a leg up over old-fashioned car
companies that lack the software expertise that will be required
to succeed in self-driving and ride-hailing technology.
Meanwhile, technology companies like Apple, Google, and
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Uber lack practical experience building self-driving cars.

Who has said what of this
Master Plan?
Given Musk’s unusual tendency
to make such futuristic claims,
and follow that up with a
dogfight to implement that
dream, he tends to draw both die-hard fans and major critics.
In the critic camp, you could count investors that want

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“certainty.” There is really none when one of his companies

(Tesla) can suddenly decide to buy another (SolarCity) for close to
$3 billion, and he announces the deal like it is yet another ordinary
day at work. That’s one reason why the stock at times has been one
of the most shorted. The certainty is “trust in Elon.”
Following publication of the Master Plan Part Deux (his second
Master Plan), Tesla’s stock dropped 3.40% in morning as investors
tried to figure out what to make of a blog post talking about car
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sharing and buses.
Other investment groups are still worried about the issues with the
SolarCity-Tesla deal, which hasn’t yet been approved, but which
Musk’s Master Plan uses as a core tenant.
pi Other analysts have pointed out the obvious, but still true, fact that
the Master Plan Part Deux doesn’t address any of Tesla’s near-
term concerns- like that it’s missed its car shipment goals for two
quarters in a row.
ap
Rebecca Lindland, a senior analyst with Kelley Blue Book, put it
correctly:“Tesla plans require a different aperture because Elon
Musk views the world with a different lens. For better or worse
(profitable or unprofitable), he measures success (and failure) with
an entrepreneur’s metrics so judging his plans through usual
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business standards will only lead to frustration and extreme

skepticism.”
In the “Elon believer” camp, you could count the entire Silicon
Valley. Entrepreneurs and venture capitalists flooded Twitter with
praise, admiration, and congratulations.
This group knows better than anyone else how hard it is to
build an electric car company, a solar company, and a rocket
company from scratch. With Musk’s vision of the next decade
unveiled, his Valley peers are eager to see him try again for round
two.

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Tesla customers are impressed with the Master Plan. They’ve

already bought cars to tap into Musk’s original vision, and they’re
pleased now to play their own parts in the next part of the ride. For
the average customer (or consumer), Elon Musk is the new Steve
Jobs.
Just how ‘crazy’ is Elon Musk?
When Robert Downey Jr. was looking
for inspiration for the playboy inventor
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Tony Stark, Musk provided it. With his
sci-fi fame and $12 billion fortune, the
43-year-old seems to have arrived from
pi the future to generously bestow on us, the people of Earth, his

vision and gifts.
It is hard to grasp the sheer range of difficulties in launching a
rocket into space. The people, the money, the complicated physics
ap
of it would make anyone go mad. Anyone except Musk, whose
goal with SpaceX, which he founded in 2002, was to travel to
space more quickly, more cheaply and more often than anyone
had before. His efforts took him from Russia, where he tried to
find an out-of-service intercontinental ballistic missile to serve as a
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launch rocket, to giants like Lockheed Martin, whose employees

either laughed at him or quit their jobs to join him.
In 2004 he seed-funded a startup called Tesla, which was building
electric cars, and adopted the same low-cost, high-smarts approach
that he had applied to rockets.
In late 2008, SpaceX’s rockets were not launching into orbit, and
Tesla was suffering crippling delays and cost overruns. Mr. Musk
was close to bankruptcy, having invested most of the $200 million
he made as the co-founder of PayPal into the two companies.
By 2012, those who had stuck with him saw SpaceX launch a

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successful mission to the International Space Station and Tesla

launch the widely praised Model S. Now SolarCity, his third major
company, started in 2006, is trying to expand the market for solar
power.
One moral we can derive from Elon Musk’s career thus far is
this:individuals matter.
In this age of incremental corporatism, where more and more of
life is subject to the less and less of innovation, Musk has
ly
demonstrated the power of individual initiative.
This is something that Musk’s friend Larry Page memorialized
when, in 2014, he said that, should he die, he would rather give
pi his billions to Elon Musk — someone with “really big ideas” —

than to some philanthropy.
Still only in his mid-forties, Musk has helped revolutionize online
banking, brought us closer to transforming the way that electricity
ap
is produced and distributed, and has taken the automotive industry
to the future. He has injected new life and ambition into the
aerospace industry.
A decade ago, it would have been easy to dismiss Musk as a dreamy
utopian crusader out of touch with the business world’s hard realities.
Kn
Now that he is heading three multibillion-dollar enterprises and

commands a personal fortune of $13 billion (all of which he can burn
for his vision and without regrets), that criticism seems misplaced.
When he is asked about the secret of his success, Musk often has a
very disappointing reply – “I just work hard.” However unrealistic
his Master Plan may seem now, everyone – even his worst critic –
knows that Elon Musk will work really hard to make his plan real.
—– | —–

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WORLD – BUSINESS / Electric Vehicles / One

huge order, one big leap
2-Oct-2017
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pi Tata Motors defeated Mahindra & Mahindra on price to win a
mammoth government tender for Electric Vehicles (EVs), the largest
ap
such procurement anywhere in the world. The company will now
supply 10,000 EVs to Energy Efficiency Services Limited (EESL) in
two phases. The order comes at a time when India moves firmly some
would say prematurely towards fulfilling its commitment to go ‘only
electric’ by 2030. Knappily explores if this is sensible and feasible.
Kn
What is the procurement about?

Tata Motors Ltd has won a marquee
government contract for supplying
10,000 electric cars, outbidding
Mahindra & Mahindra (M&M) in
the contest for the Rs1,120 crore
order, the largest such procurement anywhere in the world.
The vehicles will be procured by state-owned Energy Efficiency
Services Ltd (EESL) at a per-unit price of Rs11.2 lakh and will

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lay the foundation for the National Democratic Alliance

government’s ambitious plan for a mass shift to electric vehicles
(EVs) by 2030.
Mahindra quoted Rs 13 lakh and has the option of matching the
bid of Tata Motors to win 40% of the contract, EESL managing
director Saurabh Kumar said. “Nissan (Motor Co. Ltd) could not
qualify for the bid as they could not indicate what product they are
going to offer,” added Kumar.
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“Tata Motors Ltd quoted the lowest price of Rs10.16 lakh exclusive
of GST (goods and services tax) in the competitive bidding. The
vehicle will be provided to EESL for Rs11.2 lakh which will be
inclusive of GST and comprehensive 5-year warranty which is 25%
pi below the current retail price of a similar e-car with 3-year

warranty,” the government said in a statement.
These e-cars will be procured in two phases; 500 will be supplied
in November 2017 and the remaining 9,500 cars in the second
ap
phase, for which dates haven’t been declared yet.
“Tata Motors has been collaboratively working to develop electric
powertrain technology for its selected products. EESL tender provided
us the opportunity to participate in boosting e-mobility in the country,
(and) at the same time accelerate our efforts to offer a full range of
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electric vehicles to the Indian consumers,” Guenter Butschek,

managing director and chief executive officer of Tata Motors, said in a
statement.
Note: Energy Efficiency Services Limited (EESL) is a joint venture of
NTPC Limited, Power Finance Corporation, Rural Electrification
Corporation and POWERGRID. It was set up under the Ministry of
Power to facilitate implementation of energy efficiency projects. EESL
is a ‘Super Energy Service Company (ESCO)’ that seeks to unlock
energy efficiency market in India, estimated at US$12 billion, that can

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potentially result in energy savings of up to 20 per cent of current

consumption, by way of innovative business and implementation
models.
Why are companies so keen on EVs?
Indian domestic (conventional) car market
has been growing
India will overtake Germany to become
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the world’s fourth largest market in
domestic car sales by 2017, according to
IHS Markit, a London-based consultancy firm. According to IHS,
in 2017 India will sell 3.8 million passenger vehicles (up from
pi 3.3 million in 2016), while Germany will sell 3.64 million (up
from 3.62 million). The growth comes on the back of a fast
growing economy, adequate financing availability, decreasing
unemployment, increasing disposable incomes, and rising
ap
consumer expectations.
The automobile business has come a long way since 2001. India
ranked 16 then. It also had only 16 car makers that year.
Cut to 2016, it has more than 35 car and light commercial vehicle
makers. By 2020, that number will go up to 55 car manufacturers.
Kn
Toyota had plans to bring in Daihatsu, the small car maker it

acquired earlier this year. Hyundai has plans to get its subsidiary
Kia to India.
It is only natural then that the car makers don’t want to miss the
electric bus
The last week saw very diverse action spanning across vehicle
segments ranging from abrupt leadership rejigs to investment in
electric cars an energy producing company to new launches. All
these show how automobile companies are betting big on the

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Indian market.
India’s first electric car was launched in 2001 by REVA, a
Bengaluru-based company. Back then, it cost Rs250,000 per unit.
(Mumbai-based Mahindra bought over REVA and renamed it
Mahindra Electric — it remains the only exclusive electric
passenger vehicle-maker in India.)
Since then, except for 2016 when the segment saw 36% growth to
22,000 units, including four- and two-wheelers, the EV industry
ly
has been subdued.
The Indian automobile market is tipped to become the third largest
in the world by 2020, according to estimates by JD Power and
Ernst & Young. India’s share of the global passenger vehicle
pi market will jump from 4% in 2010-11 to 8% in 2020.

It also important to remember Nitin Gadkari, the Union road transport
and highways minister who said in September that he will roll a
ap
bulldozer over the carmakers that don’t turn electric.
When did the government show
interest?
“We should move towards alternative
fuel… I am going to do this, whether you
Kn
like it or not. And I am not going to ask

you. I will bulldoze it,”Gadkari said on
September 8. Gadkari has since been called the Bulldozer Mantri.
India is going for a record of sorts. It is for the first time the country
will see a reform without a lag with the advanced countries. While the
advanced world moves towards replacing fossil-fuel vehicles with
electric ones, India wants to take a leap.
It has set for itself an ambitious target of having only electric cars
by 2030. The target is, in fact, more daunting than in many

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advanced countries. For example, Britain will ban the sale of new
petrol and diesel cars 10 years after India, from 2040.
This is also part of the Narendra Modi government’s vision to helm
a renewable-energy revolution in the country. It reckons that the
automobile sector’s massive conversion will cut its oil bill by some
$60 billion, reduce emissions by 37%, and curb the burgeoning
demand for road infrastructure over the next 13 years.
Modest steps have been already taken
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In 2015, India had launched FAME India Scheme [Faster
Adoption and Manufacturing of (Hybrid &) Electric Vehicles in
India] for implementation with effect from 1st April 2015, with the
pi objective to support hybrid/electric vehicles market development

and Manufacturing eco-system.
The original scheme had four focus areas i.e. Technology
development, Demand Creation, Pilot Projects and Charging
ap
Infrastructure with a two year deadline phase-I. It aimed at
incentivising all vehicle segments i.e. 2 Wheeler, 3 Wheeler Auto,
Passenger 4 Wheeler Vehicle, Light Commercial Vehicles and
Buses.
However, FAME infamously failed to take off.
Kn
Now the Modi government is set to roll out a national policy for
EVs by December this year. Accelerated adoption of electric and
shared vehicles could save $60 billion in diesel and petrol costs
while cutting down as much as 1 gigaton (GT) of carbon emissions
for India by 2030, government think tank NITI Aayog in a joint
report with Rock Mountain Institute said last week.
This policy is expected to set the standards and specifications for
the vehicles and provide guidelines to incentivise their use. It is
also expected to provide clarity on the rules regarding the

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manufacturing of and subsidies for their batteries.

As a precursor, India’s new and renewable energy ministry has been
appointed the nodal agency to help procure 10,000 electric cars this
year to replace existing government vehicles.
Various state governments are making their own plans in this
regard. Last week, Karnataka approved a policy to promote
research & development in electric mobility. It has now made it
mandatory to have charging points and pods in all high rises.
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Maharashtra had waived various taxes for EVs when it became
India’s first state to have an electric mass mobility system — in
May, taxi aggregator Ola began operating 200 EVs, including taxis,
pi buses, e-rickshaws, and auto-rickshaws in the state’s Nagpur city.

Where is the
government?
challenge for
Primarily, there are two areas which the

the
ap
government needs to focus on.
Battery cost
EVs are expensive primarily due to their
costly batteries which are mostly imported. “Owing to this
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challenge, we see EV demand continuing to be low in India,” a

spokesperson for Tata Motors, India’s largest automaker, told
Quartz.
Today, just about 22,000 EV units — a mere 2,000 of them being
four-wheelers—are sold annually in India. The National Electric
Mobility Mission Plan, launched in 2015 to achieve fuel security,
wants sales of electric and hybrid cars to hit six to seven million by
2020, CNN reported.
“The government needs to subsidise battery and lithium imports or
incentivise companies to set up this business in India,” Yaquta

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Mandviwala, a partner at Boston-headquartered consultancy firm Bain

& Company said.
Over the past few years, however, prices have declined from $600
per battery unit in 2012 to $250 in 2017. They are further expected
to fall to $100 by 2024, making it cheaper than the capital cost of
petrol vehicles.
“Several forecasts are predicting the price per unit of electric car to be
equivalent to that of a gasoline car by 2025,” Amitabh Kant, CEO of
ly
NITI Aayog, the public policy think-tank headed by prime minister
Modi, said last week. “That will be the tipping point.”
The government also plans to set up a lithium-ion battery-making
pi facility under Bharat Heavy Electricals. This is another attempt to

lower the cost of electric vehicles, a move likely to discourage
Chinese car makers seeking to enter the market.
But the big hope comes from the private sector. FactorDaily
ap
reported that Reliance is looking at establishing a huge Lithium-Ion
(Li-Ion) factory of 25 gigawatt-hours (GWh) capacity. This is as
huge as it gets. EV maker Tesla has the biggest factory that will
produce 35 GWh annually when its so-called Gigafactory is fully
built out in 2018 in Nevada, US.
Kn
The Adani, the JSW, the Mahindra and the Hero groups of
companies are also in the race to set up Li-ion battery production in
India.
Infrastructure
“The support infrastructure needs to be in place — charging
infrastructure and a robust smart electricity grid to take the additional
load,” Mandviwala said.
India has nearly 56,000 petrol stations. Compare them with the
number of community charging stations across the country —

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206. That means EVs are still used mostly within city limits. For
an-all-electric-car target, India needs to ramp up infrastructure in a
big way.
In China, in contrast, the State Grid Corporation of China plans to
install 100,000 charging stations along 11 major routes by 2020,
covering 202 cities and 36,000km of expressway.
The task is, thus, cut out for India. “It can’t be business as usual
for industry and the government,” Kant of NITI Aayog said.
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Who may take this push to the next
level?
Elon Musk, the legendary entrepreneur
pi and CEO of Tesla, is determined to enter

the Indian market. Even though he faces
several obstacles, he is trying hard to
negotiate his entry with the government.
ap
He has already initiated talks with the government to enter India
through the single-brand retail route where the challenge lies in
mandatory local sourcing of up to 30% of the value of goods
sold in the country.
Tesla, the early global mover, is now facing competition. James
Kn
Dyson, inventor of the bagless vacuum cleaner, has announced that

his company is building an electric car which will be launched by
2020. NorthVolt AB, a company founded by a former Tesla
executive, is building a lithium-ion battery factory which would cut
the cost of storing power by half. NorthVolt would be supplying
these batteries to automakers other than Tesla.
Given the Indian government’s target to turn all electric in the next 13
years, Tesla can expect a strong push by the government to introduce
electric vehicles which suddenly opens up a big market for Tesla.

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The government has already started talking tough.

Tesla is going to China for similar reasons. If the Chinese
government decides, it can put millions of electric vehicles on road
since it brooks no opposition from any quarters.
By the time Tesla faces serious competition in North America, it
can have strong footholds in India as well as China, which together
surpass the American car market.
According to the International Energy Agency, the 2030 target would
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require nearly eight times the global stock of such vehicles. India
would need to sell more than 10 million electric cars in 2030,
compared with the almost 1.3 million on the road worldwide in 2015,
pi the agency told Reuters.

Compare it with the 5,000 electric vehicles India had on the road by
the end of last year. That’s a big opportunity for Tesla, which need
not be skeptical about the government’s target like Indian companies
ap
who are at early stages of developing electric vehicles.
How is the Indian market likely to
respond?
India’s shift to EVs was inevitable, if
not imminent, for several reasons.
Kn
A signatory to the Paris climate

agreement of 2015, India is
obligated to bring down its share of global emissions by 2030.
Many of its cities are among the world’s most polluted, suffering
utter degradation over the years, and vehicular pollution is one of
the major causes for this.
Besides, India imports 82% of its oil requirements, making
Asia’s third-largest economy desperate for alternatives to fossil
fuels. After all, it is estimated to spend up to $85 billion in the

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current financial year on oil imports, according to India’s oil

ministry. And the automobile sector forms a bulk of this
demand.
However, how the market will receive EVs is a different story
altogether.
First things first: Value is everything.
“Unless the EV is good for the customer, I can’t push him to buy it,”
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RC Bhargava, chairman of Maruti Suzuki, said on Sept. 12. “Before I
start pushing EVs, I have to make sure they give him the value that
they should give to him, which is what a customer expects from
Maruti.”
pi While costs are the primary problem, they are not the only one.
EVs in India average about 120km on full charge, making them
unsuitable for long drives. Then there is the lack of speed — the
ap
top two India-made battery-powered cars have a top speed of
85km/hour. That can turn off buyers.
Convincing the price-conscious Indian consumer, even if the
infrastructure is in place, will still come down to two factors: the
cost of ownership and vehicle quality. While EV costs have
fallen, boosting demand, better performing vehicles will be key to
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achieving the 2030 target.

No doubt that companies like Tesla are making a beeline for the Indian
market, and India’s uber rich have begun pre-ordering the Tesla Model
3, even before the product is launched in India.
“However, for a significant proportion of vehicles to be electric, a
lot more needs to be done,” Mandviwala said. “Getting to 100% e-
vehicles over the next decade is unlikely, but I do expect it to be a
significant share of the market.”

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Nevertheless, companies are increasingly embracing EVs.

On Sept. 14, Suzuki, the parent firm of India’s largest car-maker,
Maruti Suzuki, announced its plan to set up a $600 million lithium ion-
battery factory. Mahindra, too, is investing some Rs600 crore to ramp
up its EV division, and is expected to launch electric variants of its
popular SUVs, Scorpio and XUV 500.
And it isn’t just about vehicle makers.
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Engine manufacturer Cummins India is ramping up research on
electric mobility solutions. Bus-maker Ashok Leyland has announced a
strategic partnership with SUN Mobility, a transportation-solutions
startup, to develop a battery swapping system for electric buses.
pi Mumbai-based JSW Energy, too, plans to invest $623 million in

electric cars, batteries, and charging infrastructure.
“We believe the auto industry and manufacturers are willing to make
this change since most of these have electric car platforms ready,”
ap
Arun Malhotra, managing director of Nissan India, said.
—– | —–
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WORLD – BUSINESS / Electric Vehicles /

Electrifying Volvo
7-Jul-2017
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pi All of Volvo’s car models launched after 2019 will be electric or
hybrids making it the first major traditional automaker to set a date for
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phasing out the internal combustion engine. The company, owned by
Chinese Zhejiang Geely Holding Group, said five new models set to be
launched in 2019 through 2021 would all be fully electric. Volvo is
betting the company on hybrid and electric cars.
What has Volvo announced??

Kn
Volvo Cars became the first

mainstream automaker to
sound the death knell of the
internal combustion engine,
saying that all the models it
introduces starting in 2019 will be either hybrids or powered solely by
batteries.
“This announcement marks the end of the solely combustion
engine-powered car,” said Volvo CEO Håkan Samuelsson in a

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company press release. The company hopes that a decisive shift

toward battery-powered vehicles will allow it to meet its goal of
producing a cumulative total of one million electrified vehicles
by 2025.
The decision is the boldest commitment by any major car company
to technologies that currently represent a small share of the total
vehicle market but are increasingly viewed as essential to
combating climate change and urban pollution.
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While most major automakers offer hybrids and battery-powered
options, none of them have been willing to forsake cars powered
solely by gasoline or diesel fuel.
On the contrary, United States automakers have continued to churn
pi out SUVs and pickup trucks, whose sales have surged because of
relatively low fuel prices.
Though based in Sweden, Volvo is owned by Geely Automobile
ap
Holdings of China, which already produces battery-powered cars
for the Chinese market.
The decision by Volvo to focus on electric vehicles could
ultimately give it and Geely a head start if, as many analysts
expect, sales of battery powered cars begin to take off. China is
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already the largest market for electric vehicles.

Volvo’s battery-powered vehicles will be produced initially in
China, but eventually also in Europe and at a new factory the
company is building near Charleston, S.C.
Volvo said that it would introduce five models from 2019 to 2021
that would run solely on electric power. That includes two models
sold under Volvo’s Polestar brand, which the company is
marketing as a maker of high-performance electrified cars.
Other models will include plug-in hybrids, which can be charged
from power outlets and run for short distances solely on batteries,

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and so-called mild hybrids, which charge their batteries from the
car’s conventional engine or by recovering energy from braking.
Hybrids still require gasoline or diesel fuel, but they are typically
more efficient because the batteries share the load.
Why did Volvo make this move?
Volvo wants to catch the same wave
Tesla is riding. Tesla has set a goal to
produce 500,000 electric cars per year in
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2018 and a million in 2020.
Volvo’s goal is much less ambitious: the
company hopes to produce a total of 1 million cars over the next
pi eight years. Volvo set this goal last year, and it now looks
relatively conservative in light of Volvo’s all-electric push.
The company sold 534,000 vehicles in 2016, so if it shifts most of
its sales to electric vehicles in the early 2020s, it will sell a lot more
ap
than a million electric cars by 2025.
Right now, hybrid and battery-powered electric cars account
for a tiny fraction of the global car market. Hybrids accounted
for about 2 percent of the US car market in 2016, for example. But
experts expect explosive growth in these numbers over the next
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decade.
Until recently, high battery costs have forced carmakers to choose
between making unaffordable electric cars — like Tesla’s $69,500
Model S — or skimp on battery capacity and make cars whose
range and power compare unfavorably to cars with conventional
gasoline-powered engines.
But battery costs are plunging. Prices fell by almost 80 percent
between 2010 and 2016. And with manufacturers in China and
elsewhere preparing to dramatically boost battery production, we
can expect economies of scale to push prices down even more over

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the next few years.

As a result, the economics of electric-powered vehicles have gotten
a lot more favorable. Batteries have gotten cheap enough that
all-electric cars like the Chevy Bolt and the new Tesla Model 3
can boast more than 200 miles of range and sell for around
$35,000.
And if battery prices continue falling, we’ll eventually reach a
point where electric cars — with their relatively simple electric
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motors and low-cost electric power — actually cost less to own
than a conventional car with its more complex internal combustion
engine. One 2016 study projected that we could reach this point as
early as 2022.
pi At that point, the companies with the best electric-powered cars

will have a big advantage over companies that are still mostly
selling cars with internal combustion engines. Electric cars will be
greener, more convenient, and less expensive to own. The stock
ap
market is so bullish about this strategy that it has valued Tesla on
par with conventional car companies like GM and Ford that sold
about 100 times as many cars in 2016.
When are electric cars likely to overtake
conventional cars?
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Electric cars will outsell fossil-fuel

powered vehicles within two decades as
battery prices plunge, turning the global
auto industry upside down and signaling
economic turmoil for oil-exporting countries.
The Bloomberg New Energy Finance (BNEF) forecast says
adoption of emission-free vehicles will happen more quickly than
previously estimated because the cost of building cars is falling
so fast.

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The seismic shift will see cars with a plug account for a third of
the global auto fleet by 2040 and displace about 8 million
barrels a day of oil production – more than the 7 million
barrels Saudi Arabia exports today.
Surging investment in lithium-ion batteries, higher manufacturing
capacity at companies including Tesla Inc. and Nissan Motor Co., as
well as emerging consumer demand from China to Europe support
BNEF’s projections, which also include:
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In just eight years, electric cars will be as cheap as gasoline
vehicles, pushing the global fleet to 530 million vehicles by 2040.
Electricity consumption from EVs will grow to 1,800 terawatt-
pi hours in 2040, or 5 percent of global power demand, from 6

terawatt-hours in 2016
There’s around 90 gigawatt hours of EV lithium-ion battery
manufacturing capacity online now, and this is set to rise to 270
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gigawatt hours by 2021.
Charging infrastructure will continue to be an issue with
bottlenecks capping growth in key Chinese, U.S. and European
markets emerging in the mid-2030s
Lithium-ion cell costs have already fallen by 73 percent since 2010
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and BNEF predicts innovation of battery manufacturers will accelerate

and lead to further steep declines in average prices over the next two
decades.
The global shift toward electric vehicles will create upheaval for
the auto industry: from oil majors harmed by reduced gasoline
demand to spark plug and fuel injection manufacturers whose
products aren’t needed by plug-in cars.
It’s the world’s biggest economies – China, the U.S. and
Europe – that will drive demand for battery powered cars over

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the next 25 years, according to BNEF. These governments which

have already been the most advanced in providing subsidies and
installing charging points, will reap the benefits sooner than other
emerging economies like India.
In Europe, almost 67 percent of new cars sold will be electrified
in 2040, and 58 percent of sales in the U.S. and 51 percent in
China.
Where do other conventional car
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makers stand?
Although no other traditional carmakers
have declared their intention to bury the
pi internal combustion engine, virtually all

of them are investing in hybrid and
battery technology.
Even though consumer demand for electric cars is so far small,
ap
carmakers view it as a way for them to meet stricter fuel economy
and pollution standards.
Most carmakers expect the share of electric cars to grow
quickly as the technology improves, prices fall and public
charging stations become more commonplace.
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Rapid advances in self-driving cars will also encourage a shift to

battery power: It is simpler to link self-driving software to an
electric motor than to a conventional engine.
Daimler, the maker of Mercedes-Benz cars and trucks, said
that it would invest 5 billion renminbi, or $735 million, in a new
battery factory it will build in Beijing with its Chinese partner,
BAIC Motor.
The major American automakers are moving forward with their
own electrification strategies, albeit on a much smaller scale than
Tesla and now Volvo.

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General Motors, for example, this year introduced the

Chevrolet Bolt — a battery-powered model that sells for about
$35,000 before government incentives are applied. The Bolt can
travel 238 miles on a single charge and will be the basis for other
electric models that G.M. expects to add to its lineup.
Ford has sold electric versions of a few mainstream models, but it
has not yet developed an all-electric vehicle from the ground up.
That is changing, however. The company has said it will introduce
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a battery-powered S.U.V. by 2020 and will add other electric
models thereafter.
The third big domestic automaker, Fiat Chrysler, has lagged. It
sells an electric version of its Fiat 500 subcompact car and a
pi hybrid gas-electric variation of its Chrysler Pacifica minivan. But

the company has yet to announce any plans to build a new vehicle
that is available only as an electric model.
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Who is the world’s leading EV maker?
It’s not Tesla!
A look at the sales data shows that noisy
Tesla is quietly being outsold by the true
pioneer in the electric vehicle field, the
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Renault-Nissan Alliance.
In the first quarter of 2017, the Renault-Nissan Alliance moved
nearly 37,000 electric vehicles, per data supplied by the
automakers.
That is some 12,000 units, or nearly 50%, more than the 25,000
electric vehicles Tesla said were shipped by the company in the
first quarter.
An even bigger surprise: Nissan’s aging Leaf outsold Tesla’s
likewise long-in-the-tooth Model S. The Leaf remained the world’s
best-selling electric vehicle in the first quarter.

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The Renault-Nissan Alliance delivered significant growth in 2016,

with global sales of 9.96 million vehicles.
The car group also reinforced its leadership in zero-emission
vehicles with cumulative sales of nearly 425,000 electric vehicles
since the introduction of the Nissan LEAF in 2010, followed by the
Renault ZOE.
Renault was at the top of the European EV market last year, with
sales up by 11 percent at 25,648 units (excluding Twizy). ZOE led
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the EV ranking with 21,735 sold. Renault Pro+ recently announced
the addition of two new commercial EVs to its lineup: the New
Kangoo Z.E. and Master Z.E.
It is hardly a secret that the Leaf is to be replaced soon by a
pi completely new model with more range, a pleasing design, and

with the semi-autonomous ProPilot package Nissan introduced
with its Serena minivan last year.
Considering the model change, one would expect Leaf sales to go
ap
down, but just the opposite is true. Last March, the outgoing Leaf
even outsold Tesla’s Model X in Norway, the Shangri-La of
electric cars.
The Renault-Nissan Alliance is a strategic partnership between
Paris-based Renault and Yokohama, Japan-based Nissan, which
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together sell one in 10 cars worldwide. The companies, which

have been strategic partners since 1999, sold 8.5 million cars in
nearly 200 countries in 2015. The Alliance also operates strategic
collaborations with other automakers, including Germany’s
Daimler, China’s Dongfeng, and Japan’s Mitsubishi Motors. The
Alliance has a majority stake in the joint venture that owns
Russia’s top automaker, AVTOVAZ.
How is China luring automakers to bring in more electric cars?
The world’s top automakers are gearing up to build electric cars in

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China, despite concerns about market

demand and the potential their technology
could be compromised in a market with
weak safeguards for intellectual property.
Companies including Volkswagen AG,
General Motors Co. and Toyota
Motor Corp. set out plans for electric-car production in China
at Auto Shanghai vehicle expo, bowing to pressure from Beijing.
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China is the world’s largest market for electric vehicles, or
EVs, and auto makers who don’t set up production here could
find themselves shut out of it.
pi The Chinese government uses the term new energy vehicles

(NEVs) to designate plug-in electric vehicles eligible for public
subsidies, and includes only battery electric vehicles and plug-in
hybrid electric vehicles.
ap
Volvo has confirmed it will introduce its first 100-percent electric
car in China in 2019, while Ford will market its first hybrid
vehicle in early 2018 and envisions 70 per cent of all Ford cars
available in China will have electric options by 2025.
Industry players say the push could have a profound impact on the
green-car sector, as resulting economies of scale bring down the
Kn
costs of producing and buying such cars.

China has offered incentives for EV purchases to help fight chronic
air pollution, but has begun scaling back those inducements this
year, causing sales to stumble.
Instead, the government intends to force the hand of manufacturers.
A proposal published in September could require “green” vehicle
production quotas as early as 2018, under a complex system of
earned credits.
Market leader Volkswagen sold four million cars in China in 2016

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but only a few hundred were “green”. The German manufacturer

now plans to begin production of an electric car in China next year,
in a joint venture with Chinese group JAC.
VW expects to sell around 400,000 new-energy vehicles in
China in 2020, said Jochem Heizmann, CEO of Volkswagen
China.
General Motors says it plans to launch at least 10 new energy
vehicles in China, targeting 150,000 in annual sales by 2020.
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The Chinese market is dominated by local manufacturers including
sector pioneer BYD, which sold 96,000 EVs last year.
—– | —–
pi
ap
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WORLD – BUSINESS / Electric Vehicles / The

Lithium problem
24-Feb-2017
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pi The practical applications of lithium are wide-ranging and the demand
for the metal is expected to grow as Electric Vehicles become popular.
ap
Beyond this, lithium has been a fascinating and at times annoying
element for astronomers and researchers. For while lithium is much
less than expected in stars formed in the earlier stage of the Universe, it
is much greater than normal in some of the younger stars.
What does the word Lithium bring to

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mind?
Lifesaver that keeps our mobile phones,
laptops, and other portable electronic
gadgets up and running. Their relatively
high energy density – ability to deliver
more energy for the same weight – and lack of memory effect –
repeated partial discharge does not affect their capacity as it does
for nickel-based batteries, makes lithium-ion and lithium-polymer
rechargeable batteries the most efficient power sources for these

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indispensable devices.
It is also used in non-rechargeable batteries in pacemakers, toys
and some other things.
But lithium has a range of current applications and its demand is
expected to grow in future
Other Current applications
Compounds of lithium are valued in glass ceramics; air
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conditioning systems; lubricating greases; metallurgy; specialist
optics where IR, UV and vacuum UV applications are concerned;
rocket propellants; nuclear fusion and production of tritium.
Medical application. Lithium salts have been found useful in
pi treating bipolar disorder in humans.

Extremely small quantities of lithium in fetal tissues and organs of
the human body were detected as early as the late nineteenth
century. But it needed nearly a century to discover a link between
ap
low-lithium diet and increased mortality in case of rats and goats.
With humans, what could be found so far was low lithium intakes
from water supplies were associated with increased suicide rate,
drug abuse and crime, and homicides.
Future potential
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Goldman Sachs estimated that the Electric Vehicle adoption would

increase steadily and reach 22 percent in 2025, from under 3
percent as of December 2015. Lithium-ion batteries might
therefore have their greatest market share in the transport
systems of the future.
Why does Lithium go way beyond these?
It poses a mystery that takes investigators back to the Big Bang.
The Big Bang models say that our Universe started off as an

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extremely hot and tightly packed

entity. At the earliest stage the
models can reconstruct, radiation
and elementary particles filled up
the Universe which was in the
form of hot plasma with a
uniform distribution of energy.
As it expanded, the plasma cooled down. In an interval of few
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minutes cosmic time – which was zero when the Universe began –
the temperature and other conditions were just perfect for protons
and neutrons to join and form the primordial atomic nuclei.This
Big Bang Nucleosynthesis resulted in light elements – hydrogen
pi and helium nuclei and their isotopes; and lithium-7 nuclei.

Now the Big Bang Nucleosynthesis theory was worked out by
determined the temperature of the Universe in its infancy.
From this scientists inferred which nuclear reactions happened in
ap
that environment. Factoring in probabilities of key nuclear
reactions, the neutron lifetime, and the baryon-photon ratio –
determined from the left over electromagnetic radiation – the
relative abundances of Deuterium, Lithium-7, Helium-3 and
Helium-4 compared to hydrogen were calculated.
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These calculations had to be verified by observations. For this

scientists turned to the old parts of the Universe to get an idea
of the relative quantities of primordial nuclei – in case of
lithium halo stars poor in metal content and globular clusters
provided them their material.
While for other nuclei, observed values and calculated values
matched well, lithium posed a problem – the lithium determined
from observation was less than three times the calculated value.
The disparity became known as the “primordial lithium problem”.

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When did the primordial lithium

problem come to light?
In 1982, astronomers François and
Monique Spite reported that lithium-
7 existed in much smaller quantities
than had been theoretically predicted.
They chose old stars of the Milky Way’s halo – stars born in Milky
Way’s early days – and found lithium-7 levels to be much lower
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than expected.At most, the stars had one-third the expected
value of lithium, with the most primitive among them
containing even lower levels.
pi Since then researchers have taken several directions in the quest to

explain the mystery of the missing lithium. Theories put forth and
deeper mysteries include:
Axion – a hypothetical elementary particle – was suggested as a
ap
possible reason. A team from the University of Florida proposed
that if such a particle did indeed exist, and was cold enough to form
a Bose-Einstein condensate, which in turn would have cooled down
photons of the early Universe. If that was the case, the amount of
lithium-7 produced then would have been much less than the
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calculated value, thereby eliminating the discrepancy. But it means

that a reduction in lithium-7 should be compensated with
deuterium and more neutrino types in the model.
Researchers have also suggested that the lithium has evaded us so
far due to a mixing process in the interior of older stars, where
it is destroyed.
Where does the other surprise come from?
Lithium baffles scientists and enthusiasts from both ends of the
spectrum.On one hand, there’s too little of it in older stars while on

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the other, some younger stars contain as

much as ten times the normal.
Candidate sources of lithium
Cosmic rays or high-energy particles –
mostly protons speed about through the
interstellar medium. On dashing into
stray nuclei like oxygen, the impact breaks up the nuclei into
smaller elements, including lithium. While this is a fairly
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common process, it can account, at most, for one-fifth of the
helium.
With another 20 percent attributed to Big Bang where does the
pi tremendous 60 percent come from?

Asymptotic Giant Branch Stars – stars that at most weigh 10
times our Sun and are in the terminal stage of their lives – are a
hotbed of nuclear reactions giving rise to lithium and causing it to
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rise to the surface. The quantity of lithium ejected and the manner
of its spreading over the galaxy remains to be known.
Novae explosions. White dwarfs denote the elderly stage of
smaller stars – those which weigh about eight times our Sun. They
are extremely dense and have lost all their hydrogen fuel. As fusion
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slows and gravity takes over, these stars tend to collapse on

themselves. When such a star orbits another star, its immense
gravitational pull, can attract hydrogen and other material from its
co-star. As material builds up, it pushes up temperature and
pressure, making the environment ready for nuclear reactions that
give rise to lithium. Nuclear fusion and temperature cyclically
drive each other and the resulting explosion is witnessed as a nova.
More importantly, it throws lithium into space at speeds of a few
1000 kilometres per second.

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Who discovered crucial evidence

pertaining to the mystery of excess
lithium?
A team of astronomers from National
Astronomical Observatory of Japan,
Osaka Kyoiku University, Nagoya
University, and Kyoto Sangyo University made the first
observation. The nova of interest – Nova Delphini 2013 – was
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discovered on August 14 2013 by amateur astronomer Koichi
Itagaki. In September 2013, an investigation of materials released
by the explosion revealed a large amount of Lithium-7 production
pi happened when beryllium-7, produced by the explosion decayed.

As Lithium-7 is not expected to last in high-temperature
environments, the Beryllium needs to be transported to a cooler
region, for efficient lithium production. The nova was forceful
ap
enough to do so. This was the first direct evidence to support the
long-held theory that nova explosions were a crucial source of
lithium.
It was the first but evidence began to enthusiastically build up.
Luca Izzo and his research team set their sights on Nova Centauri,
discovered by amateur astronomer John Seach in Australia in 2013.
Kn
Another first ensued – their study revealed with certainty that the
nova threw out lithium at the rate of two million kilometres per
hour; this was the first detection of lithium in a nova system.
While the mass of ejected lithium was relatively insignificant,
Milky Way has witnessed billions of Novae during its evolution.
This adds significant support to the long-inferred explanation for
the excess lithium.
Last year, two plus one discoveries added credibility as beryllium
had been found in the novae.

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Scientists acknowledge that further studies are required but reason that
this is a significant step towards bettering our understanding. They
seek to now validate current models of the working of novae and find
out exactly how much lithium do these explosions produce.
How credible is the Big Bang theory?
Looking up at the stars and way into the
past has been intrinsic to humankind.
How the universe evolved is a topic that
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universally resonates in one way or other
and has fascinated scientists,
philosophers and several thinkers. It has also spawned various
pi opinions and caused intense debate.

The Big Bang theory, despite its problems and
misinterpretations remains one of the most popular and widely
accepted development models of the Universe.
ap
Highlights of the theory
Not an explosion but an expansion. The theory does not aim to
say that the Universe started off with a bang! It postulates that
space, from being concentrated at one point began to expand as the
Universe progressed. Consequently, all the things enclosed in this
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space began to move further apart relative to one another.

The singularity. The area of zero volume and infinite density in
which all of observable matter, energy and space was compressed
called the singularity sets the beginning of the theory – the theory
is not concerned about how the singularity came about, what
happened before it. The theory’s scope also does not extend
beyond the Universe.
One consequence of the Big Bang was the inception of four basic
forces in the Universe – electromagnetism, gravity, strong and

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weak nuclear forces.

Observational evidence
The spectra from various galaxies seen in all directions, show all of
them are moving away from us and vice versa, and the more
distant the galaxy, the faster it moves away from us.
Discovery and measurement of the cosmic microwave
background – remnant electromagnetic radiation from the time
charged electrons and protons first formed neutral hydrogen atoms
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– which helped calculate the relative abundances of light elements
formed during Big Bang Nucleosynthesis.
Galaxy formation and evolution and distribution of large-scale
pi cosmic structures are other observational evidence.

The four phenomena are sometimes known as the “four pillars” of the
Big Bang theory.
Some problems
ap
Critics say the theory violates the first law of thermodynamics –
matter or energy cannot be created or destroyed – as it implies the
universe began out of nothing.
Baryon asymmetry – the universe, even in its early stage
contained more matter than anti-matter – is not sufficiently
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explained.
Some critics say galaxy and star formations disobey the law of
entropy, according to which change becomes less organized
over time. But if the early universe is viewed as homogeneous and
isotropic, the present state of the Universe suggests its evolution is
in concordance with the law.
Flatness problem. The Universe’s spatial curvature is determined
by its total energy density – a value less than the critical density
means negative curvature, equal to means zero and greater means

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positive. The Universe of today has a nearly zero spatial curvature

which does not reconcile with the fact that any small departure
from critical density increases with time.Why therefore has this
Universe not terminated in a Big Crunch or heat death despite
the passage of billions of years?
Lithium is instrumental in deciphering the chemical evolution of the
universe. Little wonder that the mysteries around this light element
intrigue researchers.
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—– | —–
pi
ap
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WORLD – BUSINESS / Electric Vehicles / Cobalt

is the new Lithium
26-Feb-2017
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pi The availability of cobalt, a key battery material used to power electric
autos, has become scarcer after a group of hedge funds bought up the
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equivalent of 17% of last year’s global production of the precious
metal. Knappily analyzes the reasons for the high demand and rising
prices of the metal that is powering mobile phones and cars in one part
of the world, while sucking life out of innocent children in the other.
What are the reasons for surge in

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demand of Cobalt?
One of the main reasons for surge in
demand is the growing number of electric
and hybrid cars being produced.
Consultants CRU Group say electric
car and plug-in hybrid vehicle sales could hit 4.4 million in
2021 and more than 6 million by 2025, from 1.1 million last year.
By 2020, 75% of lithium-ion batteries will contain cobalt,
whose properties allow electric cars to extend their range between

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charges, according to eCobalt Solutions, which produces battery

grade cobalt salts.
The battery industry currently uses 42 percent of global cobalt
production. The remaining 58 percent is used in diverse industrial and
military applications-and the two sides are going to find themselves
competing for dwindling supply.
Global total demand for cobalt last year was around 100,000 tons,
of which around half was used in batteries to power electric cars, as
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well as mobile phones, laptops, digital cameras, and cordless drills.
“In terms of overall demand, EVs (electric vehicles) only consumed
around 6.5% of refined cobalt in 2016. This will increase to 16.9%
pi in 2021 helping lift demand to nearly 130,000 tons,” CRU senior

consultant Edward Spencer said.
“We expect a deficit in the region of 900 tons this year. However, a
far larger deficit could open quickly if mine and refinery capacity
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growth fails to keep pace.”
Analysts at Macquarie Research expect deficits of 885 tons next
year, 3,205 in 2019, and 5,340 in 2020.
That represents bad news for auto manufacturers such as Tesla,
General Motors and Ford, particularly as all three are currently in the
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process of developing new models.

Analysts expect the likes of General Motors and Volkswagon, in
addition to smartphone makers Apple and Samsung, to soon crank
up demand as they experiment with their own electric cars.
The companies that provide them with batteries, including Johnson
Controls (JCI) and Japan-listed electronics giant Panasonic, are
also likely to find that the scarce availability of cobalt will eat into
their profits.
This scarce metal is mainly used to improve battery stability and

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capacity.
Why is the price of cobalt shooting
through the roof?
Only about 100,000 metric tons of cobalt
is produced annually, though 65 per cent
of refined supply comes in a non-metal
form, like the chemicals used in jet
engines, drilling tools, pigments and smartphones.As such, only
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around 35,000 tons comes in metal form, worth around $US550
million ($713 million).
Prices for cobalt metal have climbed nearly 50% since September
pi to five-year peaks around $19 a pound as stricter emissions

controls boost demand for electric vehicles, especially in China,
struggling with ruinous pollution levels in some cities.
Around 97% of the world’s cobalt supply comes from what is largely
ap
an afterthought-as a by-product of nickel or copper mining.
And as the price of nickel and copper continue to plunge, it
makes mining them uneconomical, further tightening the
supply of cobalt.
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Further supply chain panic comes from the fact that some 60% of the
world’s cobalt supply comes from the massively unstable
Democratic Republic of Congo (DRC) and much of the mining
activity is centered near the south-central cities of Kambove and
Kolwezi.
The entrenched corruption that stems from the unregulated
industry and illegal artisanal miners who used tens of thousands of
children to mine cobalt, make the DRC a high-risk venue.
The auto industry doesn’t like to source its cobalt from here
because any connections to this supply chain are bad for reputation

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in terms of corporate social responsibility.

When do we see the
opportunists pushing the price
even higher?
The availability of cobalt has
become scarcer after a group of
hedge funds bought up the
equivalent of 17% of last year’s global production of the precious
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metal, the Financial Times has reported.
According to the report, half a dozen funds purchased an
estimate 6,000 tons of cobalt because they believe that demand,
pi half of which comes from the electric vehicle industry, is

destined to soar.
This big investment means that the price of cobalt, which has
already risen more than 50% since November to $21 per pound,
ap
has increased even more and is hard to come by for the various
companies that use the metal to boost the power of lithium-ion
batteries.
Before November last year, the average volume was just 24 contracts a
day; by comparison, copper trades around 140,000 contracts a day. But
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increased market attention has seen these contracts jump to an average

of 162 a day, with some sessions reaching 600.
Industry insiders believe this trend of price increases is likely to
continue.
Commodity consultancy CRU claims that global demand for cobalt
is expected to outstrip supply in 2017 by 900 tons, and grow by
20% in each of the next five years.
According to CRU Group, demand for the nickel byproduct is set
to boost on average by 16 per cent annually through to 2022.

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“If last year was lithium’s time, for 2017 its battery peer cobalt may
be the one receiving more attention,” a Macquarie analyst wrote in a
recent note to clients.“Prices have accelerated to levels last seen in
2011, and with demand from the core portable electronics sector
recovering and supply growth relatively stagnant, this can be
fundamentally justified.”
Where do we see the role of cobalt
in China-DRC relationship?
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The Chinese government has been
leading the world in promoting the
development of electric cars, not
pi only as a solution to peak oil, but also

to reduce the country’s carbon footprint.
China plans to get five million electric vehicles on the road by
2020.
ap
During 2015, sales tripled to 330,000 and the strong growth
continued throughout 2016 with sales up 150% year-on-year in
April.
However, China has very little cobalt of its own.
The country accounts for just 1.1% of world deposits and much
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of it is low grade (0.02% compared to 0.1% to 0.5% for the DRC’s

reserves).
The Democratic Republic of Congo (DRC) holds 3.4 million
tons of the world’s 7.1 million tons of known cobalt reserves
and accounted for roughly 60% of global production in 2015
according to mining consultant CRU.
Unsurprisingly, Chinese companies are now trying to exert greater
control over the global supply chain by purchasing cobalt mines in the
DRC.

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Last year, for example, Luoyang-based China Molybdenum has

signed a $2.65 billion agreement with Freeport McMoRan to
purchase a controlling 56% stake in its Tenke Fungurume mine in
Katanga .
Freeport is the world’s second biggest cobalt miner after
Glencore with a 12% market share. Its Tenke Fungurume mine
produced 16,000 tons of the metal in 2015 and has reserves that
could last up to 25 years.
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Shenwan Hongyuan Securities (SWS) reported that the country’s
largest cobalt products manufacturer, Zhejiang Huayou, is also
planning a Renminbi 2.24 billion ($340 million) private placement to
pi finance acquisitions in the DRC.

The company has a 25% market share in China and is also a big
player in the Congo.
The Congolese government is not very happy with the Chinese
ap
either.
The two other main shareholders in the Tenke Fungurume mine are
Lundin Mining, which owns 24% and Congo’s own state mining
company Gecamines, which owns the remaining 20%.
Lundin Mining was informed of the China Molybdenum deal and
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has first right of refusal to make a counter offer by August 8.

However, Gecamines was not informed and the government is also
annoyed that the transaction has been structured through an
offshore vehicle, which means it will not be subject to domestic
tax.
Equity investors, on the other hand, responded very positively to
the news.
China Molybdenum’s Hong Kong-listed shares are up 61% from
their mid-February low, while Zhejiang Huayou’s share price

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climbed nearly 200% during the same period.

The rally is also partly driven by a perceived turnaround in cobalt’s
supply-demand dynamics.
The Chinese brokerage believes it is now the right time to invest in
the sector.
In a recent research report it said, “Extremely low prices,
contracting supply and continuing global demand are reshaping
market expectations regarding cobalt.”
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CRU predicts Chinese cobalt consumption will rise from 43,500
tons in 2015 to 130,000 by 2020 (about 77% of its current
consumption is used in batteries for electric cars and smartphones).
pi Analysts are also keeping a close eye on inventory stockpiles; with

a small handful of Chinese companies accounting for 20,000 tons
of the 30,000 tons globally stockpiled in 2015 (imports were up
39.4% year-on-year).
ap
However, SWS says stockpiles are a defensive measure. Chinese
miners need to maintain sizeable reserves given the lengthy
shipping time from Congo (about four months) and to cover any
potential surge in new orders.
NMC and NCA batteries will be very positive for cobalt demand
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too.
Lithium nickel cobalt aluminum oxide batteries are also called
NCA batteries, and are increasingly important in electric
powertrains and in grid storage. NCA batteries are not common in
the consumer industry, but are promising for the automotive
industry. Lithium nickel manganese cobalt oxide batteries are
known as NMC and are another popular type of lithium-ion
batteries.
BYD, a Chinese automobile manufacturer, for example, said it

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would it would switch to NCA technology last August.

Umicore is also tripling its capacity at its two factories in China
and South Korea through to 2018.
And out in the Nevada desert of the United States, the world’s
largest building by square footage (the size of 100 football pitches)
is also taking shape as electric car manufacturer Tesla builds its $5
billion gigafactory, which will handle every aspect of NCA battery
production from start to finish when it opens later this year.
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Who is suffering in this ‘cobalt rush’?
Demand for this element has punishing
effects across the Congo.
pi The sophisticated electronics that rely

on cobalt in their batteries are in stark
contrast to the “artisanal” way in
which this element is mined.
ap
Men, who call themselves creuseurs (French for “diggers”), dig
into the ground using the most rudimentary tools and often
lack the use of any protective equipment.
Women are generally tasked with washing the mineral rocks
before they are dumped into sacks and sold at open markets.
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Children as young as 7 years old also do this work.

Whether they collect pebbles containing this coveted element or haul
sacks of rocks that weigh anywhere from 45 to 90 pounds, an Amnesty
International report says the end result is pay averaging $2 a day.
That pay comes with several costs to children:
Illnesses from breathing in noxious dust
Muscle and skeletal injuries that cause lifelong damage to
developing bodies
Physical abuse

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Theft of these already meager wages

A life condemned to poverty
These human rights abuses are endemic in the industry — with
UNICEF estimating that at least 40,000 children are working in or
around these mines, amounting to a third of all Congolese miners.
For months, the world’s largest smartphone and other electronics
manufacturers, including Apple, Samsung and LG, were largely
dismissive of allegations that the cobalt in their products has ties to
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child labor.
In the wake of a Washington Post investigation, Apple admitted
that cobalt with ties to child labor made its way into some of
pi the company’s batteries.

Samsung, already distracted with its disastrous Galaxy Note 7
recall, reportedly launched an internal investigation.
Other companies, including Microsoft, offered the “complex supply
ap
chain” excuse.
Much of the problem lies with one of the electronics industry’s most
critical suppliers, Huayou Cobalt and its subsidiary, Congo DangFang
Mining.
Representatives of Huayou Cobalt admitted to the Washington
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Post that the company had “insufficient awareness of supply

chain management.”
Many companies denied sourcing from Huayou Cobalt, said they
prevent Congolese cobalt from entering their supply chains, or
responded with only general statements.
Tracking this material is indeed difficult:From the mines where it
is extracted, cobalt passes through a myriad of traders, then to
ports in either Tanzania or South Africa and, eventually, to one
of many lithium-ion battery manufacturers in Asia.

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One contributor to the controversy over cobalt and its impact on people
is a loophole that was left in the Dodd-Frank Act of 2010.
The omnibus law included the directive that the U.S. Securities and
Exchange Commission (SEC) issue rules requiring companies to
disclose their use of “conflict minerals” if they are necessary to the
functionality of their products.
But Dodd-Frank only covers tin, tungsten, tantalum and gold –
not cobalt. Hence the flood of cheap cobalt worldwide, driven
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largely by demand from the U.S. market.
Electronics manufacturers are starting to realize that they cannot
explain themselves out of this controversy.Apple, which earlier this
pi year said it spent five years improving its supply chain so that it
would be free of conflict minerals, is one of the first manufacturers
to take on this problem.
The company claims to have audited 100 percent of its supply
ap
chain.
And while it cannot guarantee that all of its products lack materials
with ties to human rights abuses, the company took action another
step further.
Starting in 2017, Apple says it will consider cobalt a conflict
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mineral for internal disclosure purposes.

Other companies need to take more aggressive action on cobalt as well.
But change will be excruciatingly slow: Consumers are accustomed to
cheap electronics, the surging popularity of electric vehicles will spark
demand for even more cobalt, and Congo ranks as one of the world’s
most corrupt nations.
In the meantime, these companies need to partner with NGOs to find a
way to make Congolese miners’ lives more bearable. Manufacturers
must launch far more aggressive electronic waste recycling programs

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so less virgin material is processed at the expense of far too many

humans’ dignity.Finally, consumers must demand that the makers
of electronics disclose exactly where they source cobalt and other
conflict minerals.
How is cobalt useful in batteries?
Cobalt is one of a new complex of
‘tech-metals’, also known as
lifestyle metals, which include
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lithium and vanadium.
Batteries have an anode and a
cathode.Cobalt is used in the cathode.
pi The cobalt is entirely within the cathode as lithium-cobalt oxide

and without it, a lithium-ion battery can’t be created.
In terms of its function, cobalt provides the battery with a good
cycle ability, thanks to the tight molecular compound structure
ap
it provides in the cathode.
There is a common misbelief that the more nickel used in a cathode,
the more energy dense the battery will be.
This is not true however, because as nickel is added, overall
voltage is decreased and with it power. To counteract this,
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cobalt must be used.

In addition, increasing the proportion of nickel leaves the battery
less thermally stable, a property that may be counterbalanced by
manganese, a mineral that has no exothermic tendency.
Despite some researchers attempting to find an NMC battery with
zero cobalt composition, at least 10% cobalt must be used in
battery cathode chemistry at all times due to safety and battery
longevity reasons. Many batteries today are using what is termed
“333” composition, or one third nickel, one third cobalt and one third

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manganese.
Electric car manufacturers are increasingly switching from lithium iron
phosphate (LFP) technology for their batteries to ternary batteries
deploying nickel-manganese cathode material (NMC) or nickel-cobalt-
aluminium (NCA).
SWS says this is because they cost less and have better thermal
stability.
It also expects a declining gap in energy density between the two
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types of fuel cell.
Belgium’s Umicore, a materials technology firm, recently said that
electric car manufacturers will use NMC in particular because the
pi batteries offer longer driving ranges.

GF Securities further notes that government subsidies focused on
battery range will act as a demand boost for ternary batteries in
China.
ap
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WORLD – BUSINESS / Electric Vehicles / Tesla

turns on world’s biggest battery
2-Dec-2017
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pi Tesla has switched on the world’s biggest lithium ion battery just in
time to feed Australia’s shaky power grid for the first day of summer,
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meeting a promise by CEO Elon Musk to build it in 100 days or give it
free. Critics say the battery is a “Hollywood solution” in a country that
still relies on fossil fuels, mainly coal, for two-thirds of its electricity.
Supporters, however, say it will stabilize renewable power.
What has Musk achieved now?

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The State of South Australia announced on

Dec. 1 that it had powered up the world’s
biggest battery ahead of schedule: a feat
already being heralded as one of this
century’s first great engineering
marvels and a potential solution to the country’s energy woes.
The battery is the size of an American football field. It is capable of
powering 30,000 homes, and its rapid deployment reflects the
union of a blackout-prone state and a flashy entrepreneur,

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Elon Musk, the founder of Tesla Motors, who pledged to

complete its construction in 100 days or do it for free.
“This is history in the making,” said Jay Weatherill, the premier
of South Australia. In a statement, Tesla said the completed
battery “shows that a sustainable, effective energy solution is
possible.”
Meanwhile, the debate over the battery’s potential has become
intense. Federal lawmakers who favor fossil fuels argue that its
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impact is being exaggerated; while supporters gush that the
state’s embrace of Musk could change the future of energy in
Australia and the rest of the world. Regardless, experts say, this
is a moment of disruption.
pi What made Musk make this battery?

It all started with a tweet, read on a couch. Weatherill, a Labor Party
politician who has tried to promote his state as a magnet for innovation
ap
since taking office in 2011, was at home on his sofa in March when his
phone began lighting up. He was just days away from announcing a
plan to deal with the power failures that had plagued his state for years.
On his phone came Twitter notification after Twitter notification
with news that would upset his plan: Musk had offered to build
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the most powerful battery ever made, and do it faster than ever
imagined. Recalling that moment, Weatherill said he started to
sweat. If he embraced Musk’s proposal, would it look like a
billionaire American entrepreneur was strong-arming his state into
redefining its energy policy? Was Musk’s offer real, or merely a
publicity stunt?
When Musk was asked by the Australian entrepreneur (and fellow
billionaire) Mike Cannon-Brookes “how serious” he was about
his offer, the American mogul doubled down. “Tesla will get the
system installed and working 100 days from contract signature or

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it is free,” Musk tweeted. “That serious enough for you?”

“Of course, the whole thing then exploded, and everyone’s piling
on me, saying ‘Grab it!’” Weatherill said at a conference in
Adelaide, the state’s capital, in September. In March 2017, the
State Government announced a plan to create a $114 million fund
to support renewable energy projects.
Tesla was selected from over 90 competitive bids to provide the entire
energy storage component for Neoen’s Hornsdale Wind Farm. What
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started as a bet on Twitter by Tesla CEO Elon Musk is now a massive
battery storing and dispatching power for South Australia.
Why is this a turning point for
pi Musk?
For Musk, the battery has been a
headline-grabbing venture that could
prove that his radical vision of the
ap
world’s energy future is both
functional and economical.
“This fits into his way of doing these big, grandstanding things to
get attention for the company and the technology that he’s
building,” said Ashlee Vance, the author of a 2015 biography of
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Musk. “Tesla’s at this really critical stage where they’re trying to

be both a car company and an energy company at the same time.”
Australia is a fitting target for Musk. The country is the
world’s largest exporter of coal. By most measures, it is the
sunniest continent on earth. It has abundant wind and
hydroelectric power capabilities. And yet the cost of electricity in
Australia increased 20 percent from 2012 to 2016, and Australians
this year paid between 50 and 100 percent more for their power
than Americans, according to experts.

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South Australia has the highest electricity prices in the world. This
imbalance of supply and demand has resulted in regular blackouts and
astronomical bills for the state’s 1.7 million residents.
To be clear, the high-capacity Tesla battery does not create
energy, it just stores it. The state already invests in wind and
solar energy. The battery would give it a bank of saved energy,
which could ease pressure during periods of high demand and help
better manage the electrical grid.
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The next several weeks, the beginning of Australia’s summer,
will be crucial for judging the battery’s success. Summer is when
Australia gets its peak demand, and it will be a very high-profile
pi demonstration in the role that batteries can play.

But some experts said the stakes would be even higher for Musk. He
could shop the idea globally — if it works. “He needs these battery
packs to really become effective,” said Vance. “He needs this to justify
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the entire reason of Tesla’s existence.”
Tesla, which dropped the word “motors” from its name earlier this
year, told investors in May that its energy storage business is already
scaling “several times” faster than its car line. The company expects
to produce 15 gigawatt hours of battery storage a year in the
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2020s.
“We are an energy innovation company as much as a car company,”
said Tesla CTO JB Straubel.
When will the battery prove its
worth?
The 100-megawatt/129MWh
battery was first tied to the grid
over the weekend; it then
underwent testing to ensure it can

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both generate power to and store charge from the National Energy
Market of Australia.
The power grid in South Australia now includes this Tesla battery
tied to a wind farm, allowing the system to supply electricity
around the clock. The battery can store enough energy to power
around 30,000 homes for more than an hour.
But officials are hoping it can help stabilize the system and ease
the power load during peak demand — key goals in South
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Australia, where the entire state endured a blackout in
September 2016.
In addition to helping to stabilize the electrical grid, officials say
pi the battery will allow the wind-powered Hornsdale Power

Reserve to sign direct contracts with medium-sized businesses.
“South Australia is now leading the world in dispatchable
renewable energy, delivered to homes and businesses 24/7,”
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Weatherill said in a statement about the installation.
The battery is comprised of a grid system that runs on the same
technology that powers Tesla’s cars. In a statement, the company said
the completion of the battery “shows that a sustainable, effective
energy solution is possible”.
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Where is the criticism coming from?

In March, when Musk first presented
his proposal, Prime Minister Malcolm
Turnbull spoke with the entrepreneur
and tweeted enthusiastically about its
potential. Months later, when Tesla and
the French renewables company Neoen were awarded the contract,
however, Turnbull’s Liberal Party government attacked the
battery project and continued its attack on South Australia’s energy

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policy.
“30,000 South Australian households could not get through
watching one episode of ‘Australia’s Ninja Warrior’ with this big
battery,” said Scott Morrison, the country’s treasurer.
Turnbull’s government has promoted fossil fuels over
renewable energy to stimulate growth and prevent South
Australia’s power shortages. The government has questioned the
battery’s capacity, implied the state has been hoodwinked by a
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clever salesman and suggested that Weatherill was looking for
publicity ahead of a 2018 election.
“The Tesla battery has been sold to the people of South Australia
pi as an answer to their woes,” Josh Frydenberg, the energy minister,

said. “But in reality it is just a fraction of the storage and backup
that South Australia needs.”
Franck Woitiez, the general manager of Neoen’s Australia division,
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which will operate the battery from its wind farm, said the Turnbull
government was out of touch with the future of renewable energy.
“There’s no turning back,” said Woitiez.
“It’s not tomorrow, it’s now.”
Who else is Musk targeting?
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The battery in South Australia is just one

of several similar projects with which
Tesla is involved.
Smaller banks of batteries, also intended
to smooth out power supplies, are also
installed in Southern California, Hawaii, New Zealand, in the
UK and on several Pacific islands. Luxury hotels in South
Africa, on islands and in remote locations are also using small
power storage systems.

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The company has also talked about sending more battery packs to
Puerto Rico, which lost almost all its power generating systems
after Hurricane Maria swept across the region.
Retailer Target and online giant Amazon have also expressed
interest in storing power. Amazon said it was piloting a program to
use the batteries at data centres. The power source would keep
servers running if electricity is cut and help keep supplies stable.
Tesla said the expertise it built up building lithium-ion batteries
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for its cars helped it develop the bigger power packs for the
energy storage systems. The batteries used in energy storage
facilities that connect to the grid are not exactly the same as those
seen in Tesla cars but have some design elements in common.
pi Tesla has partnered with Panasonic on the development and

production of its Powerpack technology. Despite this, it
partnered with Samsung on the Southern Australia facility
because Panasonic could not produce the required batteries
ap
within the tight deadline.
Tesla will soon be facing stiff competition from power firms. Next
year, a battery storage facility 50% larger than Tesla’s in
Australia will be turned on in South Korea. Chinese firms and
many other renewable energy firms are also installing many battery
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storage systems for power suppliers around the world.

Tesla, LG Chem, Panasonic (a Tesla partner), Mitsubishi, Samsung
and many, many others are now positioning themselves to be the next
generation of suppliers. Tesla is proving to be one of the biggest
risk-takers by staking out huge projects like the one in Australia,
and building out a massive internal demand for its own batteries
through Tesla vehicles.
How important is energy storage?
The 100-megawatt installation is the largest of its kind in the world,

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according to the South Australian

government. It will provide electricity to the
grid generated by wind 24 hours a day, seven
days a week, regardless of whether or not
the wind is blowing. That’s the advantage of
coupling renewable energy with battery
energy storage.
While renewable-energy sources like wind and solar are only
ly
available intermittently, energy storage allows the electricity
generated from those sources to be available whenever it is
needed. When wind and solar power are available, a surplus of
pi electricity is produced. That excess power can be stored in battery

packs for later use.
While some wanted to blame it on renewable energy (which
provides ~40% of the state’s electricity), the fundamental issue in
ap
the state was outdated grid infrastructure and lack of backup
capacity in cases where storms knock out significant blocks of
the grid. Large energy storage units aren’t the only things needed
to avoid such blackouts, but they are a huge help.
Providing a neat explanation of why such energy storage
installations have value, the vice president of a firm that lost the
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bidding process for the South Australia project (AES Energy),

Praveen Kathpal, stated: “Storage can respond within a fraction
of a second. It can address those stability issues very quickly
without needing to resort to using large power plants.”Which is
exactly why, regardless of anti-storage and anti-Tesla talking
points, large-scale energy storage facilities will become more
common in the years to come in the regions and areas where
they are well suited.
If the system lives up to expectations, it could serve as an example for

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other projects, providing a boost to renewable energy and helping to

decrease use of fossil fuels for electricity generation.
If it doesn’t, at least Musk tried. He will try better the next time.
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pi
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WORLD – BUSINESS / Electric Vehicles / Asphalt

boost to Li-ion batteries
10-Oct-2017
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pi Researchers at Rice University have developed high-capacity lithium
metal batteries with asphalt-nanoribbon anodes that significantly
ap
surpass commercial lithium-ion batteries in charge times. In addition,
they avoid lithium dendrite formation which has led to battery failure.
The need for ultra fast charging is highlighted by the situation of
electric vehicles. Startups, the industry, and universities are pushing
hard to take battery technology to the next level. Supercharging is an
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idea whose time has come.
What are the findings?

Lithium batteries operated on asphalt-
nanoribbon anodes experience a ten - or
twenty-fold rise in rate of charging, said
scientists from Rice University.
The Rice lab of chemist James Tour
realized anodes with porous carbon made from asphalt that
displayed remarkable stability even after it had been subjected

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to more than 500 cycles of charging and discharging. Its high-

current density of 20 milliamps per square centimeter makes it
a promising component in rapid charge and discharge devices
needing high-power density.
“The capacity of these batteries is enormous, but what is equally
remarkable is that we can bring them from zero charge to full
charge in five minutes, rather than the typical two hours or more
needed with other batteries,” Tour said.
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Another crucial benefit found by tests was that asphalt-derived
carbon thwarted dendrite formation. Lithium dendrites are
mossy deposits that branch into the battery’s electrolyte and if they
grow long enough, short-circuit anode and cathode leading to
pi battery failure, burning or explosion.

Asphalt, generally known as blacktop pavement, is, in the technical
sense, a viscous, semi-liquid hydrocarbon, that is one of the
components of the paving material.
ap
Why is the time ripe for further
research?
With manufactures pushing the
limits of battery technology to
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achieve further compactness and

durability, and cater to consumer
demand, battery experts say the limits of energy density are steadily
approaching.
“A battery is really a bomb that releases its energy in a controlled
way,” said Qichao Hu, a former researcher at Massachusetts Institute
of Technology and founder of SolidEnergy Systems, a battery startup.
“There are fundamental safety issues to all batteries, and as you get
to higher energy density and faster charge, the barrier to explosion is
less and less.”

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While the explosions of Samsung’s Galaxy Note 7 phones yet

again brought up questions on limitations of Li-ion batteries, their
problems have been acknowledged for quite some time, said an
article in Reuters.
In 2013, some Li-ion batteries of the Boeing 787 system caught
fire, forcing all members of the fleet to ground. Burning Li-ion
batteries had pushed the US Consumer Product Safety
Commission to issue recalls for battery packs, snow blowers,
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hoverboards, flashlights and power.
But lithium possesses the advantage of the lightest metal - it needs
lesser space for the same amount of energy.
pi Smartphones ushered in a whole new culture of users-addiction to

phones. And with the entry of electric vehicles, speedier charging
became an imperative. From this the demand and drive spiked, to
make devices do more, packing greater energy into lesser volume.
ap
While experts are divided on whether the potential of li-ion
technology is beginning to saturate and safety concerns will
soon pervade, research towards safer batteries and alternate
technologies is underway, with lithium metal batteries among
others being explored.
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When is the need for superfast charging

markedly visible?
With electric cars, whose prices are
falling and popularity rising, a fast
charging system is now a must to make
further inroads. When electric cars can
cover hundreds of miles following few minutes of charging, their
popularity will soar.
As past experiences such as Japan’s have shown, fast charging

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drives greater usage of electric cars. In the case of Japan, DC fast

charging was first deployed in July 2008. Electric car drivers
reluctant to use their EVs before that took to driving their cars
more often and over longer ranges after the mere presence of the
fast charging network.
With the exception of Tesla, automakers rolling out electric cars
had not worked towards setting up an adequate and fast charging
infrastructure early enough
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Currently EVs with Li-ion batteries require 20-30 minutes to
recharge even when fast chargers are used and achieve a range
of 300-400 kilometers (185-250 miles). Fuel-reliant cars
however can fuel up within few minutes.
pi Despite achieving longer ranges, the lack of effective charging

infrastructure is a huge barrier to mass adoption of electric cars -
something automakers and governments across the world (China,
some European countries) are keen about.
ap
It was reported this July that Toyota Motor Corp is developing an
electric car powered by a new type of battery that significantly
boosts driving range and charging speed, to enter the market in
2022.
Where are some efforts towards
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faster charging from?

Earlier in 2017, battery start-up
StoreDot said its uber fast batteries
would be ready in 2018. The Israeli
start-up showed off its FlashBattery
technology in 2015 and if all goes as planned, smartphones can be
charged up to 100 percent within 5 minutes using this battery next
year.
Ben Wood, a technology analyst at CCS Insight, agreed the

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technology if successfully implemented, would mark a defining

moment, but expressed skepticism about the claims. “Taking
risks with battery technology can bite you,” he told the BBC. “I
would say that experience has taught me to always remain
skeptical. Let’s see if it happens would be my view.”
Store Dot also revealed an electric car battery that takes 5
minutes to charge and said it could achieve a range of 300
miles. By contrast, Tesla says one of its car’s batteries needs 75
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minutes to charge entirely, employing its Supercharger
technology.
“Consumers want charge times similar to filling up their cars at a
pi petrol station,” said Joe Kempton, an analyst at Canalys. But real

applications would ensue only if “the technology can be produced at a
large enough scale” and at the correct cost, he added.
In November 2016, Qualcomm’s Quick Charge 4 system was
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announced with the promise of 5 for 5; at least 5 hours of battery
life from 5 minutes of charging. It also offered a 0 to 50 percent
charge in about 15 minutes or less.
Much of the smartphone industry is developing proprietary fast-
charging technologies; Samsung’s experience with Galaxy Note 7
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has made people well aware of what happens when batteries fail.
An article in Pocket Lint highlighted the involvement of universities in
pushing the limits of battery technology. Its picks include:
A solid state battery using sulfide superionic conductors
developed by Toyota scientists. This means improved stability and
safety and a charge or discharge cycle of 7 minutes – an ideal
candidate for cars.
Graphene batteries developed by the company Graphenano. The
company said the charge cycle last just few minutes but can offer

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electric cars a range of up to 500 miles.

Scientists at Rice University found a way to reduce the
manufacturing cost of microsupercapacitors. The result is a
battery that can charge 50 times faster than present batteries and
discharge even slower than current supercapacitors.
Scientists at MIT have created a scalable battery that can charge to
the maximum in just 6-minutes. It also shows improved durability.
Who also have said what on the Rice
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research?
Wood raised some doubts about the
Rice research. “We see so many of
pi these claims and I have learned

through experience to be extremely
cautious about them,” he observed, adding that physics often
interfered with batteries being charged very swiftly.
ap
He also said that as people now preferred to keep their phones for
longer they might be reluctant to technologies that made them
change their phone faster than they wanted or involved them
spending money to have the battery swapped.
Store Dot’s initial prototype claimed to charge a smartphone in
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half-a-minute. The reason for slowing it down to five minutes

was not explained.
Stuart Miles, founder and head of the Pocket-lint tech news
website, was more optimistic about the research. “As our demands
on batteries become stronger and stronger, ensuring they can
charge faster is at the forefront of everyone’s focus,” he said.
“A lot of what we do with our tech is limited by battery capabilities,
but just imagine what could be achieved if we could top up our phones
or computers in the same way we top up our cars with fuel.”

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How did the Rice researchers

develop their battery?
The capacity of a battery
depends on how much lithium a
given volume can accommodate.
In the Rice research, instead of
using materials that incorporate lithium into their structure, the asphalt
anode has lithim coated on its surface in a safe manner.
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In a previous development, the lab used unprocessed gilsonite – a
derivative of asphalt. When researchers used it this time around,
they combined it with conductive graphene nanoribbons and
pi applied lithium metal over the composite through

electrochemical deposition.
The lab used this anode with a sulphurized-carbon cathode to
prepare full batteries for testing. Initial tests showed it could
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run through repeated charge/discharge cycles while retaining
much of its capacity. It also worked at a wide variety of
charge/discharge rates, from taking 10 hours to discharge to taking
as little as six minutes. The batteries had a high-power density of
1,322 watts per kilogram and high-energy density of 943 watt-
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hours per kilogram. For comparison, the batteries in a Tesla

are in the neighborhood of 250 Whr/kg.
While an earlier research found that dendrite formation could
be prevented by a combination of graphene and carbon
nanotubes as the anode, Tour said the new composite is easier
to make. “While the capacity between the former and this new
battery is similar, approaching the theoretical limit of lithium
metal, the new asphalt-derived carbon can take up more lithium
metal per unit area, and it is much simpler and cheaper to make,”
he said. “There is no chemical vapor deposition step, no e-beam

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deposition step and no need to grow nanotubes from graphene, so

manufacturing is greatly simplified.”
It remains to be seen whether this tech can be commercialized.
However, gilsonite’s low price is definitely an advantage.
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pi
ap
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WORLD – BUSINESS / Privacy / Apple and all

things secret
31-Oct-2017
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pi Recent reports of Apple firing an employee for breaching secrecy rules
have reinforced how seriously tech companies take secrecy. In the case
ap
of Apple, their prioritization of secrecy, especially concerning
unreleased products and such involve hiring those formerly employed
by NSA and FBI to prevent leaks and trace their source, no matter how
long it takes. While secrecy is understandable, an excess of it
backfires.
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What has highlighted Apple’s

strict policy regarding secrecy?
A company known also for its
rigid adherence to secrecy, Apple
has reportedly dismissed an
engineer from work, after his
daughter recorded a video showcasing features of a pre-release
iPhone X at Caffè Macs, the company’s sophisticated employee
cafeteria at its Cupertino, California headquarters, last week.

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Amelia Peterson, the daughter, in a follow-up video said the

consequence of the action was her father losing his job. While
others had uploaded videos of the phone before Peterson,
Apple has a strict set of rules on how employees should
maintain confidential in-house information secret. Also,
Peterson’s video showed both private employee-limited QR
codes and product codenames to be used in future.
As an article in Endgadget noted, Apple also enforces a “general
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prohibition of recording video on campus” to prevent the
outflow of corporate secrets. Caffè Macs especially is supposed to
be a secure, private area where employees can talk without fear of
being filmed, according to an article in 9 to 5 Mac.
pi Beyond a blow to the surprise element, for Apple, it had to

ensure that corporate secrets aren’t given away and it didn’t
want to convey the impression that recording pre-release
devices was okay.
ap
Nevertheless, the engineer had devoted his heart to the making
of this handset, only to be fired the week before it is made
public. The daughter asserted her family did not blame Apple,
and her father takes complete responsibility for violating a rule
by allowing her to film his phone.
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She added that while she removed the video as soon as Apple
asked her to, it had gone viral by then. She noted this would be a
word of caution to other employees and hoped Apple would focus
more on ensuring every employee is well aware of its rules.
In her words
“At the end of the day when you work for Apple, it doesn’t matter
how good of a person you are, if you break a rule, they just have no
tolerance. They had to do what they had to do. I’m not mad at
Apple. I’m not going to stop buying Apple products. Rules are in

mba.knappily.com
place for the happiness and for the safety of workers, and my dad
takes absolutely full responsibility for the one rule that he broke.”
“It was an innocent thing, and to be honest I think Apple is going
to do a much better job from here on out in addressing the rules
and making sure that everybody is aware of the rules. And it was
an innocent mistake, and he fully apologizes.”
Apple did not at once issue an official response to requests for
comment
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Why is the report not surprising?
In May this year, Apple held an
internal briefing on how important
pi secrecy was to it and the measures

it had in place to prevent leaks
about new products. The Outline
obtained a recording of the briefing and discussed it the next month.
ap
In the hour-long presentation it was revealed that Apple’s
Global Security team hires an undisclosed number of
investigators across the world to stall counterfeiters and
competitors, and media from accessing information. It also
traces the source when leaks take place.
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Some investigators have previously been employed at NSA,

FBI, the U.S. Secret Service and the U.S. military.
“When I see a leak in the press, for me, it’s gut-wrenching,” an
Apple employee says in the first video. “It really makes me sick to
my stomach.” Another employee adds, “When you leak this
information, you’re letting all of us down. It’s our company, the
reputation of the company, the hard work of the different teams
that work on this stuff.”
This was the first of several briefings Apple planned for its employees.

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“This has become a big deal for Tim,” Greg Joswiak, Apple’s Vice
President of iPod, iPhone and iOS product marketing, says in one
of the videos. “Matter of fact, it should be important to literally
everybody at Apple that we can’t tolerate this any longer.”
Later, Joswiak adds that “I have faith deep in my soul that if we
hire smart people they’re gonna think about this, they’re gonna
understand this, and ultimately they’re gonna do the right thing,
and that’s to keep their mouth shut.”
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When their process is made
known?
Historically, Apple’s hugest leaks
pi happened when parts were

robbed from factories in China.
Those parts were made known to
media, like when photos of iPhone leaked in 2012, or were put up
ap
for sale on the black market.
The New Product Security team is “very heavily on supply
chain”, said Jenny Hubbert, who works on the Global Security
communications and training team.
Director of Global Security David Rice said Apple has so
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effectively cracked down on leaks from its factories that now

breaches are more likely to take place in California than its
factories abroad. “Last year was the first year that Apple
[campuses] leaked more than the supply chain,” Rice said in the
briefing to about 100 attendees.
Rice compared Apple’s screening of their factory employees to
that of the Transport Security Administration. “Their peak
volume is 1.8 million a day. Ours, for just 40 factories in China, is
2.7 million a day.” It increases to 3 million when Apple ramps up
production.

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“In aggregate, we do about 221 million transits a year. For

comparison, 223 million is the top level volume for the top 25
theme parks in the world,” Rice said. “So this is just one big theme
park. People coming in, coming out, there’s billions of parts flying
around at any given instance. So you marry up a bunch of parts
moving around plus a lot of people moving around and it’s no
wonder that we don’t leak even more.”
“We deal with very talented adversaries,” he said. “They’re very
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creative and so as good as we get on our security controls, they
get just as clever.” Black market sellers seek out factory
workers by posting signs at bus stops and factory dormitories,
he said, offering “top dollar” for Apple parts.
pi There is immense incentive for Apple’s Chinese workers to

smuggle parts and leak them. While a lot of the workers are good
and honest, there are those tempted when they receive huge offers
– sometimes as high as a year’s salary, said Rice. Apple workers on
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the production line earn approximately $350 a month, not including
overtime, according to a 2016 report from China Labor Watch.
The housing or enclosure, which in essence, is the metal back of
an iPhone or MacBook is the most valuable part. “If you have a
housing, you pretty much know what we’re going to ship,” Rice
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said. In 2013, Apple had to buy back around 19,000 enclosures

prior to the iPhone 5C announcement and later 11,000 before
the phones were shipped. “So we’re buying as fast as we possibly
can to try to keep it out of every blog on Earth”.
In the years since Tim Cook made secrecy a special priority,
Rice’s team have been able to reduce enclosure theft. “In 2015
we had 57 enclosures stolen, 50 of which were stolen on the night
of announce, which was so painful.” In 2016, Rice said the
company made 65 million housings, and only four were stolen. “So
it’s about a one in 16 million loss ratio, which is unheard of in

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the industry.”
This improvement has led to fewer complaints from Apple’s U.S.
employees, on draconian secrecy tactics. “You always get this
battle … like, ‘Well, why do we have to do all this security stuff
when our supply chain leaks so much?’” Rice said. “I think the
noise has always been high here and once the supply chain noise
dropped down suddenly we realized, ‘Oh crap. We have a problem
here.’”
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Apple’s investigations have been tenacious and one took three
years to trace the leaker.
Rice said the focus on secrecy does not reflect as a culture of
pi fear. “I think what is unique at Apple is that we don’t have a Big

Brother culture,” he said. “There’s nobody on my team reading
emails, sitting behind you on the bus, we don’t do that.”
But the briefing gave working for Apple an appearance of
ap
working for CIA (complete with lingo such as “blowing
cover”). It was characterized by employees placing limits in
their personal lives. “I go through a lot of trouble not to talk
about what I work on with my wife, with my teenage kids… with
my friends, my family,” an employee in one of the videos said.
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“I’m not telling you that you give up all relationships,” Rice said,
“but that you have a built-in relationship monitor that you are
constantly using.”
Apple also goes to the lengths of enforcing passive solicitation.
“The sense we get when we talk to Apple engineers across the
board is like, ‘Well gosh, what if I say something in a park? Did I
just break secrecy?’”
Rice clarified that employees have the right to share with outsiders
things such as what an awful boss they have or their earnings, and
also the right to approach law enforcement “if the company is

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doing something illegal”. But it draws hard lines when unreleased

products, unreleased services, or availability of products are the
subject.
Rice also emphasized the importance of coming forward if
employees worry they’ve breached secrecy. “ Our role at NPS was
created because someone spent three weeks not telling us a prototype
was in a bar somewhere ,” Rice said in the briefing, referring to the
prototype iPhone 4 left in a bar by an Apple employee that made
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its way to Gizmodo in 2010. That leak was so hard on Apple that
Steve Jobs personally reached out to the editor of Gizmodo to ask
for the phone back. “The crime was in the coverup.”
pi Where does Apple trace its stand on

secrecy to?
Steve Jobs, during his tenure as
Apple’s CEO, was notoriously
ap
obsessed with secrecy. Some facets of
this secrecy have been explored in
Brian Merchant’s book on the iPhone’s “untold origin”
Steve Jobs, for a significant time, was against the idea of Apple
making a phone. But a team of Apple engineers went ahead
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and built a prototype of the touchscreen technology without his

knowledge. “It was really the size of a table. They were just really
kind of trying to experiment with this whole brand new paradigm”,
Merchant said.
“And the fear was that if Jobs stumbled into it too early before it
looked like something Apple could physically do, he would say,
‘What the heck are you guys doing?’ and shut the whole thing
down.”
When Jobs finally relented and saw the demo, he asked for a repeat

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and said, “‘OK, this is pretty cool.’ And then fast forward a
couple weeks, couple months and he loves it. And now he is like,
‘Oh, you know what? Multi-touch? Yeah, I invented that.’”.
In a costly, paranoid and secretive project, the best engineers were
hired in from different parts of the company to shrink and prepare
the touchscreen technology, make it compatible with an OS and
glide it onto a sleek gadget.
While Apple is known for secrecy in most projects, with iPhone this
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reached newer levels of obsession. Merchant wrote of suppliers who
were provided specs for dummy projects and engineers building
behind locked doors. Except for the keyboard, barely any other
pi component of the iPhone underwent user testing. Engineers from

other departments hired to debug some aspect of the phone, were
not permitted to see the screen. Prototypes were moved around the
company after being carefully concealed in black cloth.
ap
The brilliant team worked for a grueling two-and-a-half years;
they remained anonymous for long after that. Merchant said,
“Tensions were running high. People were missing holidays, missing
their children’s birthdays. And it got so intense that I’ve had some of
these engineers tell me that the iPhone is the reason that I’m
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divorced.”
The book says Jobs constantly kept his team on their toe nails
while ensuring their work was never leaked. Eventually, it took
the efforts of hundreds of designers and engineers who made it
through emotional strain and corporate pressure to get the device in
place.
When Apple received a patent for the original device, just 14
people were mentioned in the list of designers. On the others’
feelings about their anonymity, Merchant said, “I think they were
OK with it at the time. Now, 10 years later, I think a lot of people

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are coming around to the idea that maybe it would be nice if this
achievement could be recognized as sort of the fuller, more
complex undertaking that it was, if only because that’s just the
truth about how innovation and invention happens.It takes
teams, it takes cooperation, it takes a lot of people, more people
than we can even perhaps comprehend.”
Merchant added that most knew their contributions would remain
anonymous. “You knew, by signing on to work there, that that was
ly
a possibility, that you would just, sort of, be working under Jobs’
shadow, and [that] he wasn’t going to divulge any of the details or
the names or the teams that really made this possible.”
pi “It was just his nature.”

One Apple executive estimates that Jobs’s penchant for secrecy
may have brought in a few hundred million dollars in marketing,
in addition to the tens of billions made in iPhone sales alone
ap
Merchant, in the book also attempts to address the moral price of one
iPhone. While Apple’s Code of Conduct states that suppliers must
ensure safe working conditions and treat workers with dignity and
respect, ground level reality is harsh.
He revisits the supply chain areas, from the Bolivian mines where
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the phone’s tin comes from to the Chinese factory city in Schenzen
where the phones are assembled to the Kenyan mines. The
happenings he records are largely discomfiting and dismal.
While workers at the assembly company Foxconn are treated
better since the wave of suicides in 2010 made international
news, conditions continue to be poor.
The phones’ cobalt and tungsten arrive mostly from DRC, where
profits from mining have long fed violent rebel armies.
An article in Guardian restates philosopher Peter Singer’s question:

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whether a child’s life was valued less than the price of a pair of shoes,
and asks, “ So is an iPhone worth it? ”
Who else among tech companies
have followed Apple’s fetishism for
secrecy?
Proprietary tech giants in general,
foster a culture of secrecy.
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Snapchat CEO Evan Spiegel has in
his office a portrait of Steve Jobs, according to a 2016 Business
Insider article. His company has adopted a culture of secrecy with
a particular obsession against leaks just like Apple.
pi Facebook, earlier this year, was said to be on the lookout for a

Global Threat Investigations Manager and a lawsuit against Google
was filed in San Francisco alleging that the giant runs an internal
spy program.
ap
In a 2012 article on Mashable, Lance Ulanoff writes on Microsoft’s
equivalent of Apple’s iPhone
“Microsoft’s Surface team worked in secret at the company’s Studio B
building in Redmond, Washington. Word has it that many at Microsoft
had no idea what this team was doing. When I took a special tour of
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the building and all the rooms where Surface was designed and tested,
we typically passed through two locked barriers and always under the
watchful eye of some very stern-looking security guards. Those
working on and testing the product were not allowed to take it outside.
Though hundreds tested Surface, it was always in “locked offices, with
the curtain down.”
How can excessive secrecy be detrimental?
With billions at stake for tech companies, they do have reason to
be secretive. But when it exceeds a limit, it can erode into the

mba.knappily.com
company culture.
Amazon for instance, has
been known to share just
the numbers required of it,
and keep a tight control on
employees. This discipline
has earned it a position in the market but as George Packer noted in
the New Yorker: “I would argue that a culture of secrecy is bound
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to end up harming the institution itself, especially when it’s
firmly under the control of one leader, as Amazon is under Jeff
Bezos. Without some permeability to the outside world,
pi groupthink takes over, bad habits become entrenched, and a

company, like a government, is slow to recognize problems that
are apparent to everyone else.”
Such secrecy also hinders a company’s talent and makes it
ap
harder to self-evaluate itself honestly.
In a 2014 post from Jordan Price, an ex-Apple contractor who
publicly quit, he highlighted how on-boarding was a nightmare
because of an array of passwords, accounts and logins – it needed a
month just to get on to Apple’s server. Continuous meetings and
checkins hurt productivity too.
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Barriers make the job harder and set up a demoralizing divide

between employees who know and those who don’t. Talented
people don’t generally take to the idea of performing tasks that
apparently have no relation with the end product. When locked
rooms and secret projects dominate, people are prone to feel
discouraged by the lack of trust the company places in them and
their abilities.
Duke professor Dorie Clark explains that employee buy-in is a
stronger incentive than cash. That is hard to achieve when

mba.knappily.com
information and strategy are concealed.

Companies who spend years in proprietary research or product
development can’t afford utter transparency. But the line should
be drawn when secrecy is a detriment.
—– | —–
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pi
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mba.knappily.com
WORLD – BUSINESS / Privacy / Google

vs. Privacy
25-Jun-2017
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pi Google is stopping one of the most controversial advertising formats:
ads inside Gmail that scan users’ email contents. The decision didn’t
ap
come from Google’s ad team, but from its cloud unit, which is angling
to sign up more corporate customers. The change announced Friday
will end a practice that Google has embraced since the company
introduced Gmail in 2004. The practice has raised concerns among
privacy watchdogs and creeped out some users.
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Alphabet Inc's Google said on Friday
it would stop scanning Gmail
content for creating personalized
ads from later this year, bringing the
widely-used email service in line
with its enterprise offering, G Suite.
The decision was outlined in a blog post by Google cloud
computing chief Diane Greene, who joined the company in 2015

mba.knappily.com
and has been responsible for the rapid growth of Google's cloud
business.
“G Suite's Gmail is already not used as input for ads
personalization, and Google has decided to follow suit later this
year in our free consumer Gmail service,” it said. “Consumer
Gmail content will not be used or scanned for any ads
personalization after this change. This decision brings Gmail ads
in line with how we personalize ads for other Google products. Ads
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shown are based on users' settings. Users can change those
settings at any time, including disabling ads personalization.”
Google's practice of analysing incoming and outgoing emails of
its free consumer Gmail users has been criticized on privacy
pi concerns.
The Gmail scanning system was highly controversial ever since it
was introduced in 2004, but the advantages of the service were
clear. At the time, most webmail accounts offered pitiful
ap
amounts of storage 2MB for Hotmail, for example while Google
was offering a gigabyte and promised to increase that later.
While people weren't particularly enamoured with the idea of
having their emails automatically scanned, they certainly liked the
storage enough to continue using it. Nevertheless, Microsoft's
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advertising whiz kids used the practice as a stick to beat Google

with albeit to very limited effect.
But Google's not going to stop pushing targeted ads it'll just get
the information to do this from your searches, YouTube
watching habits, Android phone and every time you use any
other Google service. And Google will still be doing some Gmail
scanning to offer up its Smart Replies suggestions at the end of the
messages.
Google's G Suite business bundle have been gaining more
enterprise users in the past year, with more than 3 million

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companies paying for the G Suite service, the company said.

Gmail has more than 1.2 billion users worldwide.
Why is this move not surprising?
Google’s tendency to scan users’
emails isn’t new; the company has
come under fire for the practice
several times.
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Back in 2013, consumers filed a
class-action lawsuit against the company, claiming it “unlawfully
opens up, reads, and acquires the content of people’s private email
messages.”
pi Google argued that it was only scanning the emails to help sell ads,
noting that “all users of email must necessarily expect that their
emails will be subject to automated processing.” Additionally, the
company claimed that it was just targeting works in messages in a
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fully automated process, meaning no humans actually read the
emails.
In 2014, the company changed some of its Gmail scanning policies,
saying it would stop indexing students’ messages for the purpose of
serving up more relevant ads to them elsewhere on the Internet.
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The change was part of the company’s Google Apps for

Education (GAFE).
Despite this, in Feb. 2016 a group of current and former college
students sued the Internet giant for the snooping that did occur for
years on the Gmail accounts provided by their university.
More recently, in March, a judge rejected Google’s proposed
settlement in a class-action lawsuit with non-Gmail users who
sued because their emails to Gmail users were being
intercepted and scanned for the purposes of providing targeted
advertising to the recipient.

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The lawsuit, filed in 2015 by a San Francisco man, alleged that

Google violated the US Electronic Communications Privacy Act by
“intercepting, reading, and analyzing the content of private email
messages” without permission.
The judge in the case rejected the settlement, saying it didn’t go far
enough in requiring proper disclosures from Google about this
invasive practice.
When did Google change its privacy
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policy?
Google updated its privacy policy and
terms of service across all of its
pi products and services on March 1,

2012.
The privacy change enables the company to share data across a
wide variety of services. This includes embedded services in
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millions of third-party websites using Adsense and Analytics.
The policy was widely criticized as creating an environment that
discourages Internet innovation by making Internet users more
fearful online.
In December 2009, after privacy concerns were raised, Google's
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CEO, Eric Schmidt, declared: “If you have something that you
don't want anyone to know, maybe you shouldn't be doing it in the
first place. If you really need that kind of privacy, the reality is that
search engines—including Google—do retain this information for
some time and it's important, for example, that we are all subject in
the United States to the Patriot Act and it is possible that all that
information could be made available to the authorities.”
Privacy International raised concerns regarding the dangers and
privacy implications of having a centrally located, widely popular
data warehouse of millions of Internet users' searches, and how

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under controversial existing U.S. law, Google can be forced to

hand over all such information to the U.S. government.
In its 2007 Consultation Report, Privacy International had ranked
Google as “Hostile to Privacy”, its lowest rating on their report,
making Google the only company in the list to receive that ranking.
At the Techonomy conference in 2010, Eric Schmidt predicted that
“true transparency and no anonymity” is the way forward for the
internet: “In a world of asynchronous threats it is too dangerous
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for there not to be some way to identify you. We need a [verified]
name service for people. Governments will demand it.”
He also said that “If I look at enough of your messaging and your
location, and use artificial intelligence, we can predict where you
pi are going to go. Show us 14 photos of yourself and we can identify

who you are. You think you don't have 14 photos of yourself on the
internet? You've got Facebook photos!”
In the summer of 2016, Google quietly dropped its ban on
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personally-identifiable info in its DoubleClick ad service.
Google's privacy policy was changed to state it “may” combine
web-browsing records obtained through DoubleClick with what the
company learns from the use of other Google services.
While new users were automatically opted-in, existing users were
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asked if they wanted to opt-in, and it remains possible to opt-out by

going to the Activity controls in the My Account page of a Google
account.
ProPublica states that “The practical result of the change is that
the DoubleClick ads that follow people around on the web may
now be customized to them based on your name and other
information Google knows about you. It also means that Google
could now, if it wished to, build a complete portrait of a user by
name, based on everything they write in email, every website they
visit and the searches they conduct.”

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Google contacted ProPublica to correct the fact that it doesn't

“currently” use Gmail keywords to target web ads.
Where is Google facing
antitrust legal hurdles?
The European Commission
(EC) has brought three
antitrust cases against
Google in the past two
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years. The first involves Google Shopping, the second Android,
and the third AdSense.
There have been ongoing rumblings about Google breaching
pi competition regulations in Europe. Here’s a rundown on the latest

developments.
The case:
In the next few weeks, the European Commission, the EU’s
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institute responsible for introducing and enforcing legislation, is
expected to accuse Google of allegedly steering users toward its
own Google Shopping service and products when people use
Google Search, using its market share for an unfair advantage.
This investigation has taken seven years. Joaquín Almunia, the
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previous European competition commissioner, tried to settle the

case with Google three times between 2013 and 2014, but
complainants rejected service changes Google proposed as part of
the settlement deal.
Originally, the investigation was broader than Shopping, examining
Google’s other search verticals, like Maps and Travel.
Current competition commissioner Margrethe Vestager started
serving in 2014 and focused the case just on Shopping. She has
previously been muscular in antitrust cases: Last year, she issued a

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€13 billion ($14.5 billion) tax bill to Apple for illegal state aid, as
well as a €3 billion ($3.4 billion) cartel bill to five European truck
makers.
Google has faced antitrust claims in the past from the Federal
Trade Commission but hasn’t been charged.
At the country level, Spanish and Russian authorities have come to
blows with Google over smaller claims.
This is the first of three competition claims against the company
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being investigated at the European level.
The key numbers:
Any potential fine will be capped at 10 percent of Google parent
pi Alphabet’s revenue from last year and “up to 30 percent of

Google’s shopping revenues times the number of years of the
abuse,” according to the FT.
Alphabet made €80 billion ($90 billion) in revenue last year.
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Google has 78 percent of desktop search engine market share,
according to Net Market Share.
The implications:
If the decision is that Google has abused its market share, it will
have to work with the European Commission to adapt Search so it
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complies with competition law. Whether this is just on the

Shopping vertical or has broader impact on Google’s Travel and
Maps verticals will depend on the exact wording of the decision.
Google is expected to appeal any negative decision from the
European Commission and waive any fine while the appeal is
ongoing. As the case is ongoing, neither Google nor the European
Commission would comment for this article.
Alternatively, Google could withdraw its Shopping service from
Europe altogether.

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Don’t expect that to happen anytime soon, though. “This will

probably go on for another four or five years,” said Oliver
Fairhurst, an associate at law firm Lewis Silkin.
Fairhurst said the benefactors will be Google competitors
because they can rely on the decision to bring private damages
actions against Google, and they will also potentially be able to
compete with Google on their own platforms. “For EU-based
tech companies, the playing field might get more level, allowing
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them to catch up with Google,” he said.
Who helps make Google its
billions?
pi It is you. Yes, you.

You may think of Google as a
search engine. But they are first
and foremost an advertising
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company — in fact, the largest advertising company in the world.
Google actually sells more ads in the United States than the entire U.S.
newspaper industry, and that’s only a fraction of their total business.
The way they got to be so big is that they have developed the
world’s most powerful data mining techniques for understanding
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what consumers are likely to do. When you use a web site or
service provided by Google, they are monitoring everything you do
or say.
If you use Google search, they keep a record of everything you
search for, and what links you clicked on. If you use Gmail,
they read all of your emails (inbound and outbound) and use
their software to figure out what you are interested in.
They know what you watch on YouTube. They can even track
most of the non-Google web pages you visit, because whenever

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you open a web page that contains an ad placed by Google’s

subsidiary DoubleClick or a Google+1 button (their equivalent
of a Facebook “Like”).
Google knows that you have seen that page. If you use WiFi at
home, Google knows where you live, because their StreetView cars
collect WiFi addresses in addition to taking pictures of your house.
So in short, Google knows a vast amount about you, probably far
more than you realize. They combine all of this information to
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create an incredibly detailed — and perhaps shockingly accurate —
picture of who you are. And they are doing this not just for you, but
for hundreds of millions of other people too — all day, every day.
They use this information — which of course they constantly
pi update every time you touch the Internet — to decide which ads to
put in front of you when you visit a web page they control.
This might be one of their own web pages or a page belonging to
one of the thousands of publishers who use Google’s services to
ap
sell ads.
Google only gets paid when a user actually clicks on an ad, so
they have every incentive to pick the ads that you are most
likely to click on. And they have become extraordinarily good at
making these predictions. This is the power of data mining applied
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to the task of profiling users and understanding what they are likely
to do next.
How do targeted ads work?
Targeted advertising is a form of online
advertising that focuses on the specific
traits, interests, and preferences of a
consumer. Advertisers discover this
information by tracking your activity on
the Internet.

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When a person views a product on a retail website, the user’s

browser submits information about what he is looking at to third-
party advertising networks, such as doubleclick.net.
The information is stored in a browser cookie — a small piece of
code that lets ad networks and sites share information on what
visitors view or buy. Users can clear these cookies periodically to
clear out their record with ad networks.
If that person later clicks on another site in the same advertising
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network, ads for the product the user viewed at the first retail site
could show up. The ad is targeted to the user in hopes of drawing
him back to purchase the product.
If you are shopping for work boots on your laptop, you can get
pi targeted ads for work boots on your smartphone, even though you
never browsed for boots on the device. Advertisers can now guess
who you are by analyzing your location, browsing habits, and the
types of sites you sign in to, like Facebook or Google.
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Targeted advertising could be seen as an invasion of privacy.
However, remember that all of the information you submit to the
Internet can be tracked, whether it be search engine requests, social
media updates, or the websites you visit. And if it can be tracked,
this information may return to you in the form of a targeted ad.
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The more advertisers know about you, the more they assume about
your buying habits. Age, gender, income, relationship status:
Advertisers will take whatever they can get if it means they could
sell you something.
—– | —–

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WORLD – BUSINESS / Privacy / Phishing me

softly
5-May-2017
ly
pi More than a million people are estimated to have been affected by a
Google Docs phishing attack that spread like wildfire this Wednesday
ap
– even though Google managed to shut down the vulnerability in less
than an hour once it became aware of the scam. This was a
sophisticated phishing attack built inside Google’s own Docs platform.
With even Google appearing fallible, Knappily explores if there is any
real safety in the virtual world.
Kn
What was the attack?

A Google Docs scam that appeared to
be widespread began landing in users’
inboxes on Wednesday in what seemed
to be a sophisticated phishing or
malware attack.
The deceptive invitation to edit a Google Doc – the popular app
used for writing and sharing files – appeared to be spreading
rapidly, with a subject line stating a contact (an actual name) “has

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shared a document on Google Docs with you”.

If users clicked the “Open in Docs” button in the email, it took
them to a legitimate Google sign-in screen that asks to
“continue in Google Docs”.
Clicking on that link granted permission to a bogus third-party app
to possibly access contacts and email, which could allow the spam
to spread to additional contacts.
Why did people fall for this?
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The way the con works is by duping
people into thinking they’re collaborating
with somebody they know on Google
pi Docs – when in fact they’re authorising a

malicious app to gain access to all of their
email and contacts.
You get an email saying someone added you to a Google Doc;
ap
click this link to view it. That takes you to a legitimate account
screen, listing all the Google accounts you are logged into. This
was the biggest reason so many people fell for it – the first click
too them to a genuine Google screen.
On this permissions page (which, again, is a real Google page),
Kn
users are asked whether they are willing to authorise ‘Google

Docs’ to access their email and contacts – but the trick here is
that this ‘Google Docs’ isn’t the web platform itself, but a
malicious app that has simply been named “Google Docs”.
The hackers took a leap of faith in relying on the trust that
‘Google’ generates. They could called it “Jane’s folder” or “Team
Spreadsheet” or “Interesting Videos”. But by calling it “Google
Docs”, the hackers were relying on people being relaxed about
clicking on what looks to be just another innocuous Google app
message – and that reliance appears to have been well-founded,

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given an estimated million or more people proceeded to authorise

the impostor.
In doing so, they were actually granting the hackers the ability to
read, send, and delete their email, and to manage their contacts.
What’s more, the attack automatically propagated itself once
people had authorised the app, spamming everybody in affected
users’ contacts list with the fraudulent Google Docs email
invitation.
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When did Google resolve this?
Fortunately, Google acted pretty
quickly on Wednesday to shut the
pi scam down. The faith in Google was

not unfounded after all. However, the
sophistication of the attack made
people wonder if we just witnessed Phishing 2.0
ap
It is still not clear how widespread the attack was, but several
media outlets claim to have received spam emails.
In a statement issued last afternoon, Google says it’s taken measures to
stop the spread of the attack and resolve the problem at its core:
We have taken action to protect users against an email
Kn
impersonating Google Docs, and have disabled offending

accounts,” the company said in a statement. “We’ve removed the
fake pages, pushed updates through Safe Browsing, and our abuse
team is working to prevent this kind of spoofing from happening
again. We encourage users to report phishing emails in Gmail”.
Google said the spam campaign affected “fewer than 0.1%” of
Gmail users. That works out to about one million people affected.
On Thursday, an official statement from Google confirmed that the
issue has been resolved.

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In a statement the company said, “We’ve removed the fake pages,

pushed updates through Safe Browsing and our abuse team is
working to prevent this kind of spoofing happening again.”
Google has also introduced a new alert system to its Android
Gmail app that attempts to automatically detect phishing attempts.
If an email is believed to be a scam, an alert is displayed.
Where was Google found
wanting?
ly
Most of us have experienced
some kind of phishing attempt in
our online lives, and we have seen
pi phishing grow in complexity.

Usually, we notice that the login pages are crafted to convince users
they are logging into a valid service. When the user fails to notice that
the phishing page is fake, their login details or credit card information
ap
is sent to attackers. The stolen credentials and personal information are
used to perform identity theft and fraudulent activities.
If you are ever stuck with a loading icon that spins for a long time,
check your address bar. If you are on the wrong site, refreshing or
closing the browser will not help. By the time you see the loading icon,
Kn
your sensitive data has already been sent to the attackers. This is how
the ordinary phishing attacks work.
According to PC World magazine, the Google Docs scam was
more sophisticated than typical phishing attacks, whereby people
trick people into handing over their personal information by posing
as a reputable company.
But it is not that such an attack could not have been
anticipated. In fact, the tech-blogger community had seen it
coming.

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Developer André DeMarre, speculated back in 2011 that client name

application spoofing could offer an interesting attack vector. His post
offered the following scenario to explain how such an attack could
work:
Imagine someone registers a client application with an OAuth
service, let’s call it Foobar, and he names his client app “Google,
Inc.”. The Foobar authorization server will engage the user with
“Google, Inc. is requesting permission to do the following.” The
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resource owner might reason, “I see that I’m legitimately on the
https://www.foobar.com site, and Foobar is telling me that Google
wants permission. I trust Foobar and Google, so I’ll click Allow.
pi And that’s more or less what happened when the phishing campaign
hit on Wednesday.
The malicious email contained what appeared to be a link to a
Google Doc file. This led to a legitimate Google.com page asking
ap
you to authorize ‘Google Docs’ to access to your Gmail account.”
But the app called “Google Docs” was really another app
altogether that used the same name and set in motion all manner of
nastiness.
DeMarre was not only clever enough to have figured out this kind of
Kn
attack, he even reported it to Google in 2012 and said, over on

Hacker News, that he even received “a modest bounty” for his
troubles.
Google then told him that “We’re deploying some abuse detection
and reactive measures to deal with impostors that might try to
abuse this sort of attack. Given this, we do not intend to perform
validation that the URL matches the branding information.”
But DeMarre says Google subsequently chose not to implement
the proposed defences, a decision that now looks terribly short-

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sighted.
“To be clear, I’m not criticizing Google,” DeMarre’s recent post
clarifies. “Just presenting an interesting piece of information that
shows the approach they’ve taken on this type of phishing attack in the
past.”
“Phishing is a hard problem, and any technical solution will only go
so far,” he continues. “The main criticism I have with many OAuth
authorization dialogs, not just Google’s, is that they often don’t show
ly
enough information for technical users to vet the authenticity of the
app. It’s like if a web browser didn’t show the address bar.”
Well, that is criticism at its best.
pi Note: The phishing scam relied on OAuth exploitation. OAuth, which

stands for Open Authorization, lets apps and services “talk” to each
other without logging into your accounts. Think about how Amazon
Alexa can read off your Google Calendar events, or how your
ap
Facebook friends can see what song you are listening to on your music
app. In the last three years, apps that use OAuth jumped from 5,500 to
276,000, according to Cisco Cloudlock.
Who else was affected by data
breaches?
Kn
Biggest breach ever

In September of last year, Yahoo
revealed that 500 million user
accounts had been breached during a
hack in late 2014. To make things worse, the company confirmed
that it knew for two years that a “state-sponsored actor” had
hacked into its network. The news came out amid Verizon - which
is buying part of Yahoo - was negotiating terms.
As if that wasn’t enough, though, Yahoo announced in December

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of last year that another 1 billion accounts were accessed in a data

breach that occurred all the way back in 2013.
In this breach, more than one billion user accounts may have been
affected, the company revealed last year. Names, phone numbers,
passwords and email addresses were compromised. The three-year-
old hack was uncovered as part of continuing investigations by
authorities and security experts into the 2014 breach
Last month, Yahoo today revealed that some 32 million accounts
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have been accessed by intruders over the past two years. According
to Reuters, the accounts were compromised using forged cookies.
Yahoo is currently of the belief that the accounts were accessed by
the “same state-sponsored actor believed to be responsible for the
pi 2014 hack.”
Phishing scams
Last year, an American man pleaded guilty to stealing celebrities’
ap
nude pictures by using a phishing scam to hack their iCloud and
Gmail accounts.
And in 2013, Google said it had detected thousands of phishing
attacks targeting email accounts of Iranian users ahead of the
country’s presidential election.
Kn
How do advanced phishing attacks

work?
More advanced phishing attacks
involve just a few additional lines of
code. These pages still serve the
loading icon (just like in an ordinary
phishing attack), but after a few seconds, they redirect you to the
real site (even directly to the legitimate login page).
At this point, you are still not logged in because your login data

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was sent to the attacker instead. This time you did not have a
chance to notice because the address bar shows the legitimate site.
Most victims think there was an issue with their password or
some other glitch, so they try again and log in successfully.
The victim forgets about the issue and continues as if nothing
happened. A few hours, days, or even months later, the real
problems start. If they choose to, the attacker can start using
stolen credentials and personal information immediately after
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the data is successfully sent back to them.
If you had trouble logging in while you were confident the login
credentials were correct, remove all your confidential emails
(password information, pictures, confession about the murder you
pi committed last year…) as quickly as possible and pray that the

hackers did not really bother coming for your account. If you are a
celebrity (thank you for reading Knappily), you will not be spared
and you will most likely find all your private matters circulating
ap
online. You will call those photographs ‘morphed’ but the internet
would not care.
How can you prevent such attacks?
You cannot prevent such an attack (that is up to God and Google), but
Kn
you can surely fight till your last click. We leave you with one simple
but useful tip.
Check the Address Bar
It’s critical to check where you are entering sensitive information. In
many cases, a simple address bar check in your browser helps you
realize that you are not on the intended site. In case you spot this, do
not panic. Just close the tab and take a deep breath. If you care for the
humankind and the computerkind, report the matter to the site which
was being targeted. Make sure you report to the genuine site – else they

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will come for you. These hackers log every attack and all available
information about the victim such as which browser are you using and
which perfume you are wearing.
—– | —–
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pi
ap
Kn

mba.knappily.com
WORLD – BUSINESS / Privacy / The Great

Firewall strikes again
19-Jul-2017
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pi Users of WhatsApp in China and security researchers have reported
widespread service disruptions amid fears that the popular messaging
ap
service may be at least partially blocked by Chinese authorities. It is
getting increasingly clear that China has developed sophisticated tools
to block specific material, rather than taking the old-school approach
of taking out entire services. China's censorship apparatus, known
colloquially as The Great Firewall, refuses to respect freedom of
Kn
expression.
What is the development?

The last of Facebook’s major products
that still worked in China was
disrupted by the government on
Tuesday, as Beijing broadly tightened
its controls over the internet.
The product, WhatsApp, a messaging app used across the globe,
was partly blocked by Chinese filters, leaving many unable to

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send videos and photos and some also unable to send text-based
messages.
The disruption of WhatsApp was the latest in a long line of big
digital services running up against China’s “Great Firewall,” the
country’s system of internet filters and controls.
In recent weeks, the government has appeared to increase its grip,
an online crackdown fed by a perfect storm of politically sensitive
news, important events and a new cybersecurity law that went
ly
into effect last month.
WhatsApp, which is owned by Facebook and offers end-to-end
encryption, has a relatively small but loyal following among
Chinese users seeking a greater degree of privacy from government
pi snooping than afforded by popular domestic app WeChat, which

is wildly popular but closely monitored and filtered.
Chinese foreign ministry spokesman Lu Kang said he had no
information on the issue when asked by reporters on Tuesday.
ap
WhatsApp is one of the world's most widely used messaging
services, with over 1.2 billion users.
Some in the Chinese government are worried that the excess
censorship and controls are damaging the country’s ability to
access crucial information, like scientific papers and other
Kn
educational resources. As such, there have been calls for a more

surgical way to block specific material, rather than a
sledgehammer approach that takes out entire services.
In recent months, a number of virtual private networks, tools that
allow users in China to access the broader internet around the
world, were removed from app stores or shut down. China’s
telecom regulator said it would ban unauthorized VPNs
starting in February 2018.
The new cybersecurity rules, broad and vague, have left Western
companies uncertain of how they will be applied and what impact

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they could have on a difficult operating environment. The

government has put strong emphasis on the law, which could serve
as a watershed for how the internet is managed and foreign
companies are policed.
Why did China make this move?
Questions over WhatsApp's status come at
a politically fraught time in China. The
government is in the midst of preparing
ly
for a sensitive party congress while
Chinese censors this week revved up a
sprawling effort to scrub all mention of Liu Xiaobo, the Nobel
pi Peace Prize laureate who died Thursday in government custody.

A report this week by the University of Toronto's Citizen Lab
detailed how Chinese censors were able to intercept, in real
time, images commemorating Liu in private one-on-one chats
ap
on WeChat, a feat that hinted at the government's image
recognition capabilities.
It appeared that pictures were also the focus of the move to censor
WhatsApp. Late Tuesday, users in China could send texts over
WhatsApp without the use of VPNs, but not images.
Kn
Nadim Kobeissi, a cryptography researcher based in Paris who has

been investigating the WhatsApp disruption, said he believed The
Great Firewall was only blocking access to WhatsApp servers
that route media between users, while leaving servers that
handle text messages untouched. He said voice messages also
appeared to be blocked.
But there was no evidence to suggest that Chinese authorities were
decrypting WhatsApp messages, Kobeissi added.
A Chinese censorship researcher known by his pseudonym Charlie
Smith said authorities appeared to be blocking non-text WhatsApp

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messages wholesale precisely because they have not been able to

selectively block content on the platform like they have with
WeChat, which is produced by Shenzhen-based internet giant
Tencent and legally bound to cooperate with Chinese security
agencies.
Because WhatsApp content is encrypted, “they have moved to
brute censor all non-text content,” Smith said in an email. “It
would not be surprising to find that everything on WhatsApp gets
ly
blocked, forcing users in China to use unencrypted, monitored and
censored services like WeChat.”
Signal, another encrypted messaging service, appeared to also have
patchy service with significant delays.
pi China has long blocked Twitter, Facebook and YouTube, with

officials arguing that foreign social media services operating
beyond their control pose a threat to national security. But
authorities in China, as with other governments, are paying
ap
increasing attention to encrypted messaging apps.
After Beijing waged its largest-ever crackdown on human rights
lawyers and activists in 2015, the People's Daily newspaper, the
ruling Communist Party's official mouthpiece, singled out
Telegram as the platform where lawyers coordinated their
Kn
activities. And in closely orchestrated and televised trials, the

arrested lawyers read scripted confessions explaining how they
used the apps to communicate freely with collaborators overseas.
Telegram has since been blocked, with many Chinese dissidents
switching in recent months to WhatsApp.
The progressive tightening of messaging apps forces Chinese users
to resort to domestic apps such as WeChat “to simply function and
have day-to-day communications,” said Kobeissi, the security
researcher. “Then they can be monitored en masse.”

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When did China implement its new

cyber rules?
China's controversial new
cybersecurity law came into effect on
1st of June 2017 in the face of criticism
and confusion from international
companies.
The law has been largely touted by Beijing as a milestone in data
ly
privacy regulations, but critics say authorities haven't provided
enough information about how the wide-reaching law will be
implemented. That's a big concern, as failure to comply carries
pi fines that could hit 1 million yuan (about $150,000) and potential
criminal charges.
What's more, the law is expected to make it even harder to do
business in China by increasing costs to foreign firms, exposing
ap
multinationals to cyber-espionage, and giving domestic companies
an unfair edge.
And it's adding to the already tough environment: The World
Bank currently ranks the world's second-largest economy 78
out of about 190 countries in terms of ease of doing business,
Kn
only a few notches above Qatar, Guatemala and Saudi Arabia.

The law focuses on protecting personal information and individual
privacy, and standardizes the collection and usage of personal
information. As such, companies will now be required to introduce
data protection measures, and sensitive data — for instance,
information on Chinese citizens or relating to national security
— must be stored on domestic servers.
In some cases, firms will need to undergo a security review before
moving data out of China. One of the challenges, however, is that
the government has been vague on what would be considered

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important or sensitive data.

One of the most contentious parts of the new law involves
measures allowing China to conduct security reviews of
technology products and services that could affect national
security. Critics have slammed the plans as intrusive and trade-
inhibiting.
Unauthorized collection, disclosure and receipt of a citizen's
personal information now constitutes a criminal offense, according
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to Scott Thiel, a partner at law firm DLA Piper. Sanctions would
take into account the degree of harm, and the amount of illegal
gains — fines could go up to five times the amount of those ill-
gotten gains.
pi The law is “not only for the legal protection for the interests of the
masses in cyberspace, but also effectively safeguards national
cyberspace sovereignty and security,” according to a government
statement published in state media outlet China Daily.
ap
For Beijing, this is one way to try to protect Chinese data from
foreign spying by keeping everything contained onshore.
Where does the Chinese insecurity get
weird?
Kn
Chinese President Xi Jinping looks too

much like Winnie the Pooh, apparently,
so the regime had to go ahead and ban
any mentions of the cuddly wuddly big
yellow bear on the Internet.
GIFs of Winnie the Pooh have been deleted off China’s instant
messaging app WeChat and trying to compose a message
mentioning the bear will grant an error message.
The Chinese name for and images of the plump, cute cartoon
character are being blocked on social media sites here because

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bloggers have been comparing him to China's president.

When Xi Jinping and Japan's Prime Minister Shinzo Abe endured
one of the more awkward handshakes in history netizens responded
with Winnie the Pooh and Eeyore shaking hands.
And then there was the time President Xi popped his head out of
the roof of his special Red Flag limousine to inspect the troops - a
photo appeared online of a toy Winnie the Pooh popping out of
his own little car.
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It is not only that China's censors will not tolerate ridicule of the
country's leader, they do not want this beloved children's
character becoming a kind of online euphemism for the
Communist Party's general secretary.
pi In other countries such comparisons might be thought of as

harmless enough and some might even think that having Winnie as
your mascot could even be quite endearing: not in China.
Here the president is Mr Grey. He doesn't do silly things; he
ap
has no quirky elements; he makes no mistakes and that is why
he is above the population and unable to be questioned.
Comrades don’t like cartoons. This is more ridiculous than any
cartoon.
Kn
Who has successfully survived

amidst China's tough cyber rules?
Even though other American
technology giants such as Facebook
and Google are blocked in China,
Apple has maintained a thriving
business in the country by adhering to local rules. It also helps that
Apple’s smartphones and computers do not carry the same political or
security risks as social media platforms and networking equipment.

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Apple said that it would open its first data center in China. The
move is a response to a strict new law in China that requires
companies to store users’ data in the country.
Already, Amazon, Microsoft and IBM have formed partnerships
with Chinese companies to offer cloud computing services based in
China. Apple, easily the most successful foreign technology
company in China, had much to lose without a plan for its own
data center in the country.
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The new data center, in Guizhou, a province in southwest China, is
part of a $1 billion investment in the province and will be operated
in partnership with a local data management company, Apple said.
The move is part of a worldwide trend regarding the security and
pi sovereignty of digital data. Microsoft, Amazon and Facebook are

among the big American technology companies plowing billions of
dollars into building data centers in Germany, the Netherlands,
France and other countries.
ap
While some of the expansion is for technical reasons — the online
services operate faster when they are near customers — the
companies are also reacting to growing pressure from European
governments and customers to maintain some control over their
data.
Kn
Apple already stores some of the data of China’s residents in local

servers, but the new agreement goes one step further with a
Chinese partner responsible for running its data center, managing
the sales of its services in the country and handling legal requests
for data from the government.
In 2014, Apple first moved some of the data of its Chinese
customers that had been overseas to a domestic plant operated by
China Telecom. The change occurred shortly after state-run China
Central Television raised security concerns that Apple was tracking
the locations of iPhone users.

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Careful not to offend, Apple said it “appreciated” that CCTV

had flagged the issue but explained that the company did not
have access to its users’ locations.
In December, complying with what it said was a request from the
Chinese authorities, Apple removed news apps created by The
New York Times from its app store in China. Apple did not
specify what had prompted the request. The company also must
undergo “security audits” on new models of the iPhone before
ly
gaining approval to sell them in China.
Other American technology companies have also moved data into
China in accordance with the new law. Airbnb said last year that it was
pi moving its user data to a domestic location, citing a need to comply

with local laws.
How does the future of censorship in
China look?
ap
Web users in China thrive on finding
creative ways to circumvent the
country's online censors.
The tonal Mandarin language is often
used as a vehicle for clever ways to work around censorship, and
Kn
still images and gifs posted online could take on a life and
significance of their own online as a result. Many words sound
more or less the same, but the tone differentiates between one
word and another.
So one might end up talking about ‘watches’ instead of
‘Communism with Chinese characteristics’, or one will end up
talking about ‘river crabs’ instead of something more political.
When the censors pick up on that, then one start having
pictures of watches or river crabs to indicate what one’s trying

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to say — so it's really creative.

As web users find ways to circumvent the firewall, censoring the
internet in China in general has become more difficult with each
passing year.
However, China is to seal itself off from much of the global
internet by blocking virtual private networks, in what observers
see as a wider assault on freedom of speech under Xi Jinping, the
Chinese president.
ly
The move, which was first reported by Bloomberg News, would
make it almost impossible for web-users in China to browse
overseas websites.
Beijing runs a huge online censorship program which deletes
pi content that criticises the ruling Communist Party or its policies,

while an online “50 cent army” are paid to post pro-
government comments.
China’s leading telecommunications companies have been ordered
ap
to crackdown on the use of such tools. The move will not only
restrict the work of multinational companies who operate in China,
but will also seal Chinese online users from any messages of
dissent from overseas websites.
China announced in January that it would launch a “cleaning up”
Kn
operation against unauthorized VPNs, but that crackdown was not

understood to be directed against overseas-based VPN providers,
which are commonly used by foreigners.
Next year’s crackdown would come months after this autumn’s
19th Party Congress, a twice-a-decade political gathering of the
Communist Party of China. President Xi is likely to further
cement his power at the meeting, after a first term which has seen a
general tightening of freedoms in China.
Foreign companies were last year advised by authorities that they
would “do well” to register their websites in China.

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—– | —–
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pi
ap
Kn

mba.knappily.com
WORLD – BUSINESS / Privacy / Google takes on

online terror propaganda
21-Jun-2017
ly
pi In the wake of recent terror attacks in London, Google senior vice
president Kent Walker said the company would work with other web
ap
firms, including Facebook, Microsoft and Twitter, to “accelerate our
joint efforts to tackle terrorism online”. In March, Google and
YouTube had found themselves facing annoyed advertisers, with many
pulling out their business after they found their ads played on videos
promoting terrorism and extremist content on the video service.
Kn
What has Google announced?

Google plans to make it harder
for terrorists to exploit its
platform by introducing new
measures that are designed to
help the search giant remove
extremist content quicker and more efficiently.
In a recent blogpost in the Financial Times (FT), Google has said
that it is working with government, law enforcement and civil

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society groups to tackle the problem of violent extremism online. It

has also said that there should be no place for terrorist content
on Google services.
Announcing the measures, Google counsel Kent Walker wrote -
“We have thousands of people around the world who review and
counter abuse of our platforms. Our engineers have developed
technology to prevent re-uploads of known terrorist content using
image-matching technology. We have invested in systems that use
ly
content-based signals to help identify new videos for removal. And
we have developed partnerships with expert groups, counter-
extremism agencies, and the other technology companies to help
inform and strengthen our efforts.”
pi In a bid to address the problem, Walker said that Google intends to:
Put more engineering resources into training software that uses
artificial intelligence to identify videos promoting extremism -
ap
“We have used video analysis models to find and assess more than
50% of the terrorism-related content we have removed over the
past six months. We will now devote more engineering resources to
apply our most advanced machine learning research to train
new”content classifiers" to help us more quickly identify and
Kn
remove such content.“

Hire more people to flag inappropriate YouTube videos -
“Machines can help identify problematic videos, but human
experts still play a role in nuanced decisions about the line
between violent propaganda and religious or newsworthy speech.”
Take a tougher stance on videos that do not clearly violate
YouTube’s policies - “Videos that contain inflammatory religious
or supremacist content; in future these will appear behind a
warning and will not be monetised, recommended or eligible for
comments or user endorsements.”

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Increase the number of independent experts in YouTube’s

Trusted Flagger programme - “YouTube will expand its role in
counter-radicalisation efforts.”
Why is this development not
surprising?
The Google column in the FT
comes days after Facebook
published a blog post detailing the
ly
various efforts it was making to try
and tackle terrorism.
Google and Facebook have come under increasing levels of
pi scrutiny in the wake of recent terror attacks in the UK and

Europe.
UK Prime Minister Theresa May and French Prime Minister
Emmanuel Macron have taken a particularly hard stance, launching
ap
a joint campaign last week that could see them create new laws
to punish tech firms if they fail to remove certain types of
content.
“We cannot allow this ideology the safe space it needs to breed,”
May said after the London Bridge terror attack. “Yet that is
Kn
precisely what the internet - and the big companies that provide
internet-based services - provide.”
Germany’s government is trying to push through regulations that
would see social media companies fined up to €50 million (£44
million) if they fail to remove unsuitable content.
After the attack on Manchester Arena, British ministers were
reported to be planning to enforce widespread new powers that
would force US tech firms like Apple, Facebook and Whatsapp to
remove encryption from messaging services like Facebook and
WhatsApp.

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End-to-end encryption, the term given when only the sender

and recipient of messages can decipher them, makes it harder
or intelligence agencies to spy on digital communications. In
theory, this unbreakable encryption method could be used by
terrorists to plot attacks under the radar of the nation’s
intelligence services.
“Until now, big Internet companies have refused to give their
encryption keys or access to this content, saying that they have told
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their clients that their communications are protected,” Macron
said in April, according to TechCrunch. “This situation is no
longer acceptable.”
pi When did Youtube feel the heat of

hateful videos?
YouTube came under fire this year
when The Times of London and other
ap
news outlets found examples of
brands that unintentionally funded
extremist groups through automated advertising — a byproduct of
YouTube’s revenue-sharing model that provides content creators a
portion of ad dollars.
Kn
Brands such as AT&T and Enterprise Rent-A-Car pulled ads from

YouTube. Google responded by changing the types of videos that
can carry advertising, blocking ads on videos with hate speech or
discriminatory content. Google also created a system to allow
advertisers to exclude specific sites and channels in YouTube
and Google’s display network.
By allowing anyone to upload videos to YouTube, Google has
created a thriving video platform that appeals to people with a wide
range of interests. But it has also become a magnet for extremist
groups that can reach a wide audience for their racist or intolerant

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views.
Google has long wrestled with how to curb that type of content
while not inhibiting the freedom that makes YouTube popular.
Part of the challenge is the sheer volume of videos uploaded to
YouTube. The company has said that more than 400 hours of video
content is uploaded to the site every minute, and YouTube has been
unable to police that content in real time.
There have been successful auto-content blockers developed for
ly
photographs, but video poses an entirely new problem. While
photos could be relatively easily scanned, videos contain
hundreds of individual frames, which makes scanning them far
pi harder.
This is complicated further by company policies of free speech and
documentation. Youtube’s policy states that they permit media
“intended to document events connected to terrorist acts or news
ap
reporting on terrorist activities” as long as those clips include
“sufficient context and intent.” This creates a thin line that
automated software would find extremely difficult to traverse, even
if sufficient video filtering software was developed.
Users flag offensive videos for review, while the company’s
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algorithms comb the site for potential problems. Videos with

nudity, graphic violence or copyrighted material are usually taken
down quickly.
Where has Facebook found the
solution to this problem?
Facebook has recently offered new
insights into its efforts to remove
terrorism content, a response to
political pressure in Europe to

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militant groups using the social network for propaganda and recruiting.
Facebook has ramped up use of artificial intelligence such as
image matching and language understanding to identify and
remove content quickly, Monika Bickert, Facebook’s director of
global policy management, and Brian Fishman, counterterrorism
policy manager, explained in a blog post.
Facebook uses artificial intelligence for image matching that allows
the company to see if a photo or video being uploaded matches a
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known photo or video from groups it has defined as terrorist, such
as Islamic State, Al Qaeda and their affiliates, the company said in
the blog post.
pi YouTube, Facebook , Twitter, and Microsoft last year created

a common database of digital fingerprints automatically
assigned to videos or photos of militant content to help each
other identify the same content on their platforms.
ap
Similarly, Facebook now analyzes text that has already been
removed for praising or supporting militant organizations to
develop text-based signals for such propaganda.
“More than half the accounts we remove for terrorism are
accounts we find ourselves, that is something that we want to let
our community know so they understand we are really committed
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to making Facebook a hostile environment for terrorists,” Bickert

said in a telephone interview.
More than 150 people, including counter-terror experts, former
prosecutors, ex-law enforcement, analysts and engineers, are
employed at Facebook to “exclusively or primarily” focus on
“countering terrorism”, the company said.
The social media giant also revealed it is employing 3,000 extra
people this year in order to trawl through posts and remove those
that break the law or the sites’ community guidelines.

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It also plans to boost its “counter-speech” efforts, to encourage

influential voices to condemn and call-out terrorism online to
prevent people from being radicalised.
Who is winning the social media war?
Today the so-called Islamic State (ISIS)
is as much a media conglomerate as a
fighting force. According to
Documenting the Virtual Caliphate, an
ly
October 2015 report by the Quilliam
Foundation, the organization releases, on average, 38 new items per
day — 20-minute videos, full-length documentaries, photo essays,
pi audio clips, and pamphlets, in languages ranging from Russian to

Bengali.
The group’s closest peers are not just other terrorist organizations,
then, but also the Western brands, marketing firms, and publishing
ap
outfits — from PepsiCo to BuzzFeed — who ply the Internet with
memes and messages in the hopes of connecting with customers.
And like those ventures, the Islamic State uses a few tried-and-true
techniques for boosting user engagement.
The Islamic State recognized the power of digital media early on,
Kn
when its brutish progenitor, Jordanian jihadist Abu Musab al-

Zarqawi, discovered the utility of uploading grainy videos of his
atrocities to the Internet.
As the group evolved, its propagandists surpassed and humiliated
their bitter rivals in al Qaeda by placing a premium on innovation.
The Islamic State maximized its reach by exploiting a variety of
platforms: social media networks such as Twitter and Facebook,
peer-to-peer messaging apps like Telegram and Surespot, and
content sharing systems like JustPaste.it.
More important, it decentralized its media operations, keeping

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its feeds flush with content made by autonomous production

units from West Africa to the Caucasus — a geographical range
that illustrates why it is no longer accurate to refer to the group
merely as the Islamic State of Iraq and al-Sham (ISIS), a moniker
that undersells its current breadth.
Only a fraction of the Islamic State’s online output depicts the kind
of sadism for which the group is notorious: Far more common are
portrayals of public-works projects, economic development,
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and military triumphs, frequently aimed at specific Muslim
enclaves throughout the world. This content is meant to convince
prospective recruits of the veracity of the organization’s core
narrative: that its empire is both stable and inexorably growing.
pi So far, digital propaganda of this sort has helped motivate more

than 30,000 people to turn their backs on everything they have ever
known and journey thousands of miles into dangerous lands, where
they have been told a paradise awaits.
ap
How are terrorists using social
media?
Extremists of all kinds are
increasingly using social media
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to recruit, radicalise and raise

funds, and ISIS is one of the most
adept practitioners of this approach.
Terrorists are now able to hide their identities using encryption
tools which were once only available to government agencies.
ISIS has proved fluent in YouTube, Twitter, Instagram, Tumblr,
internet memes and other social media. Its posting activity has
ramped up during a recent offensive, reaching an all-time high of
almost 40,000 tweets in one day as they marched into the
northern Iraqi city of Mosul.

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Twitter has tried to counter ISIS, suspending more than 1,000

accounts it suspected of terrorist links.
Amateur videos and images are being uploaded daily by ISIS foot
soldiers, which are then globally shared both by ordinary users and
mainstream news organisations.
ISIS use of hashtags is interesting, as they focus them on group
messaging and branding concepts.
Social-media monitor Recorded Future found that ISIS had
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succeeded in creating hype with a total of 700,000 accounts
discussing the terrorist group.
Al-Qaeda has an Internet presence spanning nearly two decades.
The Taliban has been active on Twitter since May 2011, and has
pi many thousand of followers. Tweeting under the handle

@alemarahweb, the Taliban tweets frequently, on some days
nearly hourly.
The Czech Military Intelligence Service commented that Al-Qaeda
ap
is spreading its ideology among the Muslim community in Europe,
mainly through the means of social media.
—– | —–
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mba.knappily.com
WORLD – BUSINESS / Privacy / Freedom vs

Security
17-Jun-2017
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pi As Internet shutdowns have become increasingly common in India,
Human Rights Watch (HRW) has asked India to cease “arbitrary
ap
restrictions”on Internet and phone services.
The state governments have imposed 20 temporary Internet shutdowns
in 2017 in an attempt to stop rumours during times of unrest. In what
has essentially become a freedom vs. security debate, the Government
feels the latter takes precedence.
Kn
What was the shutdown about?

The Human Rights Watch on Friday
said so far in 2017, there have been as
many as 20 Internet shutdowns in India.
According to the Software Freedom
Law Centre, there have ben 79 instances
of Internet shutdowns in the country across 14 states since 2012.
Only two instances were recorded in 2012, but, as many as 31 were
recorded in 2016.

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While Jammu and Kashmir has recorded the most number of

shutdowns during this period, Gujarat, Rajasthan and
Haryana have recorded nine each, the Delhi-based non-profit
organisation said.
An Internet shutdown, unlike blocking certain websites, pertains to
putting a blanket ban on Internet services as a whole.
Indian law provides for online restrictions. Section 5(2) of the
colonial-era Telegraph Act of 1885 allows the central or state
ly
governments to restrict or interfere with the transmission of messages,
though it has not been updated to specify safeguards or procedure for
Internet shutdowns.
pi Section 69A of the Information Technology (Amendment) Act of 2008

allows the government to block specific websites and pages in “the
interests of the sovereignty and integrity of India, the security of the
State.” The law prescribes safeguards before blocking content, but in
ap
practice the process is rarely followed. Instead, state governments use
section 144 of the Code of Criminal Procedure, which gives states
broad powers to prevent assemblies deemed unlawful to shut down
Internet services.
Why was the shutdown deemed
Kn
autocratic?
Arbitrary and overbroad Internet
shutdowns violate India’s obligations
under international human rights
law. In July 2016, the UN Human
Rights Council passed a resolution condemning measures by
countries to intentionally prevent or disrupt online access and
information, and called for free speech protections under articles 19
of the Universal Declaration of Human Rights and the International

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Covenant on Civil and Political Rights (ICCPR).

The council stressed the importance of combating advocacy of
hatred that constitutes incitement to discrimination or violence on
the Internet by promoting tolerance and dialogue.
Reacting to the spate of shutdowns, international watchdog body
Human Rights Watch on 16th June called for Indian authorities to
“cease arbitrary restrictions of the country's internet and
telecommunications networks”.
ly
Shutdowns in response to campaigns on social media and
mobile mass messaging applications spreading false and even
incendiary information have frequently been perceived as
disproportionate.
pi Some feel the authorities have failed to follow legal procedures,

undermined stated objectives of preventing rumors or panic, and
ordered unnecessary shutdowns such as to prevent cheating in
examinations.
ap
Critics of the Government position say the lack of transparency and
failure to explain these shutdowns only further the perception that
they are meant to suppress nonviolent reporting and criticism of the
government.
International human rights law protects the right of people to freely
Kn
seek, receive, and provide information and ideas through all media,
including the Internet. Security-related restrictions must be law-
based and a necessary and proportionate response to a specific
security concern.
In May, David Kaye, the United Nations special rapporteur on
freedom of opinion and expression, and Michel Forst, the special
rapporteur on human rights defenders, condemned the restrictions
on the internet and social media services in Jammu and Kashmir,
saying they had a “disproportionate impact on the fundamental
rights of everyone in Kashmir,” and had the “character of

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collective punishment.”
When else has the government made
similar shutdowns?
Since 2012, 79 Internet shutdowns have
been reported across 14 states in India.
The numbers have steadily risen, from 2
in 2012 to 31 in 2016. State governments
have imposed 20 Internet shutdowns so far in 2017, including by four
ly
states in June.
On June 5, the Bharatiya Janata Party (BJP)-led government in
Maharashtra state suspended mobile Internet services in
pi Nashik district for a few hours after protests by farmers turned

violent.
On June 6, the BJP government in Madhya Pradesh suspended
internet services in six districts following farmers’ protests for
ap
higher rates for their produce.
On June 7, the People’s Democratic Party-led government in
Jammu And Kashmir State suspended mobile Internet services in
the Kashmir valley after the killing of a civilian by security forces.
This was the fifth time the state government had suspended the
Kn
mobile internet or broadband services in 2017 in a questionable

attempt to prevent rumors from fueling violent clashes between
government forces and street protesters.
On June 8, the BJP government in Uttar Pradesh state shut down
Internet services for two days in Saharanpur district after
authorities arrested a Dalit leader following violent clashes
between Dalits and members of a dominant caste. The government
had also temporarily shut down mobile Internet services in the
district two weeks earlier.

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Where are the economic implications?

Internet shutdowns in India carry
disproportionate costs in a digital
world where increasing numbers of
people access information and
conduct their business online.
Considering the number of essential activities and services they
affect, shutdowns restrict expression and interfere with other
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fundamental rights, said Special Rapporteur Kaye his June report to
the Human Rights Council.
A report by the Washington, DC-based Brookings Institute
pi estimated that India lost over US$968 million between July 2015
and June 2016 because of Internet shutdowns.
The Indian government has been promoting the idea of a Digital
India where people increasingly access goods and services online,
ap
but which simply cannot afford blanket restrictions. A modern
India that wants technology for development cannot at the same
time be haphazardly invoking national security to deny people
access to essential information and services.
The demonetization effort by the Government of India undertaken
in November 2016 is speeding adoption of universal payment
Kn
systems, digital wallets, etc. that rely on the Internet and always-on
connectivity. When tens of millions of customers are suddenly
deprived of connectivity, an artificial economic disaster is imposed
on large swaths of the population.
International attention and discourse on this issue have barely
touched upon the paradox between these shutdowns and the move
of an entire democratic country towards a connected economy,
with the vision of delivering an essential services to a digital world.
In a contemporary economy, shutting down Internet service is like

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closing all the roads and shutting down all the banks at once.
Who does the Government seek to
nullify?
We live in an age of mass consumption of
content on social media, so what we see,
hear, and read online has a tremendous
impact on the way we perceive the world.
The use as well as abuse of the Internet will continue.
ly
Officials contend these shutdowns are needed to prevent violence
fueled by rumors circulated on social media or mobile messaging
applications.
pi When the social media ban was imposed earlier, the Government
said the ban was necessary because social media services were
“being misused by antinational and antisocial elements.
Social media in India has at times fueled rumors leading to
ap
violence. False information has also led government officials to
impose excessive restrictions.
Indian authorities have also imposed shutdowns to curtail election
campaigning. For instance, authorities in Jammu and Kashmir
suspended both mobile and broadband services in three districts
Kn
ahead of by-elections in April 2017.

It is also important to ignore these concerns. It essentially becomes a
freedom vs. security debate. The Government feels the latter takes
precedence.
How could the government approach
these situations?
The government at the national as well as
state levels should adopt the RITES
approach – renegotiate, involve, train,

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engage, and streamline:

First, it should work with other governments of the world to
renegotiate the MLAT to reduce the delays associated with cross-
border data sharing.
Second, it should involve civil society organisations in information,
education, and communication campaigns to educate the public on
how to engage with social media.
Third, it should build its technical capacity by training officers in
ly
latest technologies and by developing knowledge-sharing platforms
where DMs can collaborate to share tactical skills from prior
experiences of shutdowns.
pi Fourth, law enforcement agencies should engage with citizens by

creating WhatsApp helplines, where communities can notify
officers about sensitive content floating on social messaging apps.
Officers to engage in “counter-messaging” efforts to quell rumours
ap
can also use these groups.
Fifth, the government must streamline the current legal framework
relevant to Internet shutdowns by removing overlapping
legislations and clarifying processes.
The central governments should closely work with the states, law
Kn
enforcement officers, technology companies, civil society

organisations, and the public at large to develop alternative
techniques to check misuse of the Internet.
—– | —–

mba.knappily.com
WORLD – BUSINESS / Privacy / Alexa, we may

have a problem
9-Apr-2017
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pi The introduction of Amazon Echo has ushered us into a world of
luxurious convenience. This voice-enabled personal assistant acts like
ap
a genie that captures the words we utter and grants our wishes. We can
now summon the world or escape from it sitting in our living rooms.
As more and more devices line up to support Alexa, our experience is
becoming more streamlined. But this exciting new world is not without
challenges.
Kn
What is the buzz about Alexa?

Alexa, the voice-enabled digital
assistant powering Amazon's Echo
smart speakers, has been capturing
hearts and ears of its users.
For a long time, computer-dictation
remained unreliable. The machines needed extensive training to even
sense one’s voice. But the advancement of technology can be seen in
the manifestation of this new ability dubbed as deep learning, an

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artificial intelligence tool.

As a result, machines have taken a giant leap in translation,
transcription accuracy, and text-to-speech systems. Computers are
closing in on humans in by becoming better at handling natural
language in all its forms.
A voice request to Google Home and Amazon Echo devices
records or streams audio clips of what we say. The clips are then
sent for processing and are formulated for a response, which is tied
ly
to the user’s account by default.
While they don’t understand language, the Amazon speakers have
a rudimentary learning of activation phrase “Alexa”. Once that is
pi uttered, the voice assistant jumps to capture the request, and sends
it to the cloud through a WiFi connection.
The microphones are listening even when we don’t place a request,
it is just that they aren’t sent over a network without the activation
ap
phrases.
What is the business story of these assistants?
Usage of voice-activated assistants such as Amazon’s Alexa and
Google Assistant remains relatively low. But it is growing at an
impressive rate.
Kn
In fourth quarter of last year, 12 percent of U.S. broadband

households had smart speakers with voice assistant technology,
according to a new report from Parks Associates. That was more
than double fourth quarter 2015, when adoption was at just 5
percent.
The future appears promising for voice-activated devices,
particularly Amazon’s platform. A recent report from RBC
Capital Markets said Alexa could generate $10 billion in revenue
for Amazon by 2020. The company predicts Alexa will have a 40

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percent adoption rate in three years.

Word is spreading quickly. According to an RBC survey in
September 2016, just 33 percent of Amazon customers had heard
of Alexa, Echo or related products. But that number jumped to 77
percent in March this year.
Why is Amazon more successful in
this business?
It under-promised
ly
Amazon kept the expectation low by
claiming Echo to just be an “an
intelligent system, to get things done
pi just by asking.” And it stuck to its promise. The far-field

microphones baked into the device pick up a normal speaking
voice from just about anywhere in a room, and respond to voice
commands reliably.
ap
It engages
Amazon has also kept its users hooked to Alexa. One third of the
users turn to it three or more times each day.
“People are latching on to the idea that once it is in their home,
they should use it,” Forrester tech analyst James McQuivey told
Kn
backchannel.com. “It turns out having microphones in your

environment is a lot more convenient than pulling out your phone.”
It learns ‘skills’
Amazon made Alexa more enticing to its users by opening its
platform early to third-party developers to program “skills”
just months after it launched much like how apps function. A
year and a half after its launch, Alexa now has over 5,000 skills.
When was Alexa caught in an ethical dilemma?

mba.knappily.com
Last year, a high-profile attorney took

over as lead counsel for an Arkansas
man accused of killing his friend, a
former police officer, after a night of
drinking and football.
The first challenge arose in the form
of an ethical dilemma when Arkansas police from the US
demanded Amazon to handover a murder suspect’s Echo.
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Amazon insisted that the police hand over compelling need for the
information with enough proof that it can’t be obtained anywhere
else. For the deal to be through, the information sought must also
pi be integral to the case. The judge would then reveal the

information, if necessary, after reviewing it in private.
While Amazon managed to fend this away by invoking free speech
protection, and asked the company to jump through the many
ap
other hoops it had bypassed, the question remains just how much
is Alexa listening and how it could infringe our privacy.
This isn’t the first time law enforcement and right to privacy have
provided an ethical conundrum. Last year, a magistrate had ordered
Apple to help the Federal Bureau of Investigation (FBI) to hack an
Kn
iPhone used by one of the San Bernardino shooter suspects. It was not
just about unlocking a phone but also about creating a new software
tool to eliminate specific security protections the company built into its
phone software to protect customer data.
Where are the challenges?
Privacy
The more devices support the
devices, the more streamlined the
experience will be. But for the

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technology to attain its potential, not only does it need

breakthroughs, but it needs to resolve the trade-off between
convenience and privacy.
Digital assistants are backed by sophisticated cloud-based artificial
intelligence systems, connected to your home through the internet
to at least one speaker and an always-on microphone. But most of
these assistants remember our commands forever. And the
concept of an always-on, always-connected, always-remembering
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listening device is where it gets intriguing and tricky.
Should the devices have an informed consent before recording?
Who from the companies analyse the tendencies giving by these
assistants? Even if the stored data is erased completely, it wiping
pi them out will degrade the devices’ performance.

The problem also rests with the archaic laws that are failing to
catch up with fast-emerging technologies.
“Privacy and security of IoT (Internet of Things) is big right now
ap
following recent attacks like the Mirai botnet and malware
targeting specific brands of smart TVs,” declared Cris Thomas, a
respected security expert and spokesperson for Tenable Network
Security. “While I can't speak with authority on Alexa specifically,
one of the privacy risks of IoT devices is that they are always
Kn
listening.”
Understanding language
The other challenge lies within deep learning itself. Even as
machines recognise speech more reliably and talk in a less stilted
manner, they don’t understand the meaning of language.
This makes it difficult to maintain coherent conversation since the
context goes missing. This problem is perhaps the most difficult
one to crack.
But the work towards solving this has begun. Researchers funded

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by universities and companies have built bots that could hold more
elaborate conversations about more complex tasks, from retrieving
information to advising on mortgages to making travel
arrangements.
Who are the others competing in this
space?
Google Home
ly
Google Home, launched in
November 2016, is a direct rival to
Amazon Echo. And it functions very
similar to Alexa. It records or stream audio clips of what we say.
pi Those files are sent to a server to process the audio and formulate a
response. The recorded clips are associated to our user accounts.
They are triggered with activation phrase “OK Google.”
The google histories remain there until you decide to delete them.
ap
Apple
When Apple introduced Siri in 2011, it promised that we could talk
to Siri like a human being. But Siri didn’t turn out to be all that
intelligent — at the time, it couldn’t do much. It made a bad first
Kn
impression.
Siri has improved since. It records and responds to our queries.
While Apple logs and stores Siri queries, they are tied to a random
string of numbers for each user instead of an Apple ID or email
address. But since it doesn’t catalogue them or provide access to
the running list of requests, we can’t listen to our history of Siri
interactions in Apple’s app universe.
Apple deletes the association between those queries and those
numerical codes after six months.

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Microsoft
Microsoft’s Cortana is voice assistant on Windows 10 three years
ago. It works a bit differently, but still mirrors some of the personal
information on servers. To customize the experience, Cortana uses
a combination of cloud-stored data and on-device data.
We can view or delete data stored from Cortana’s Notebook. That
Notebook and your cloud-stored info is synced, and you can check
your Bing personalization hub to see what’s stored on the servers.
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How can such an ‘assistant’ transform
our lives?
pi It can give us the latest news and

weather information. It can call up music
tracks or radio stations. It can be used to
get an answer for something on our
minds or to place an order at a restaurant through a watch or to
ap
activate a device like vacuum for cleaning or to even tell us jokes.
Apple’s Siri handles over 2 billion queries per week. Over 10%
of Google searches are input by voice. Alexa had crept into a
lot of households by the end of 2016. Dictating email is
becoming more reliable alternative than it ever was.
Kn
Voice could transform computing by providing a smoother means

of interaction. The leap is bigger than it was with icons and menus
over giving commands over keypads/keyboards, for it
disintermediates the need for a user interface (UI).
While voice is unlikely to replace all of the typing, it can be
credited for growing share of people’s interactions with the
technology around them.
These devices are about to follow us everywhere. At our homes,
hotel rooms, cars, on our phones, watches, etc. Much like phones

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exist without wires and computers without screens and keyboards,

this is likely to be more ubiquitous than can be seen.
Alexa has already walked into many of our machines. LG peddles
its InstaView Smart Fridge with Alexa, Ford and Volkswagon into
some of their dashboards, etc. It is now headed to devices from
companies like Dish, Samsung, and Whirlpool.
After years of false starts, voice interface is slowly creeping into our
lives as more people purchase voice-enabled speakers and other
ly
gadgets.
—– | —–
pi
ap
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mba.knappily.com
WORLD – BUSINESS / Smartphone Industry /

Only innovation can save the smartphone
21-Aug-2017
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pi This fall, Apple will unveil the latest edition of the iPhone. As
Samsung and Apple gear up to launch new flagship smartphones, the
ap
market leaders are under increased pressure from Chinese
manufacturers such as Huawei, Oppo and Xiaomi. It is getting clearer
to them that offering more of the older features won’t really entice the
customer anymore. Augmented Reality (AR) may become an integral
part of the future smartphone.
Kn
What is the expectation?

Apple is widely expected to
unveil the latest iteration of the
iPhone in September, while
smartphone market leader
Samsung is holding a 23 August
unveiling likely to launch its Galaxy Note 8 handset. The two market
leaders are seeing rivals, mainly from China, chip away at market
share, creating pressure to showcase innovation.

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Global smartphone sales saw a modest decline of 0.8% in the

second quarter of 2017, as market leaders Samsung and Apple
consolidated their positions, an IDC survey showed.
The South Korean giant maintained the top spot with a 23.3%
market share, while Apple held on to second place with 12%,
according to IDC.
Huawei was the third-largest vendor, with an 11.3% market
share. The Chinese electronics giant closed the gap with Apple,
ly
adding two percentage points to market share from a year earlier,
according to the survey. China-based Oppo and Xiaomi rounded
out the top five.
pi Market leaders are seeking a wow factor that can help them fend off
challenges from rising China-based manufacturers.
Why are the Chinese companies
doing well?
ap
With a 3 percent year-on-year rise in
the number of smartphone shipments
globally, Chinese companies — who
are already dominating the market
share in their home country as Apple has been knocked out of the race
Kn
— are looking to expand outside the country as well.

Most of these players used offline marketing to gain more sales
and, in countries like India, are focussing on tier-2 and tier-3
cities where online sales are slow. According to a study by
CounterPoint Research, these brands will continue to expand their
reach beyond China during the second half of this year which will
potentially lead the top three Chinese companies – Huawei, Oppo
and Xiaomi - combined to lead the market share charts.
The study also found out that China, India and South East Asia

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are still the main markets for these growing Chinese

smartphone brands with at least one brand holding a top-three
spot in these countries. Africa has also figured in the expansion
plans of these companies.
The growth of Chinese smartphone brands can also be attributed to
the fact that they provide better hardware features than their
competitors at the same or even lower price.
Many of these Chinese companies sell phones for less than $200,
ly
compared with about $650 for an iPhone or high-end Samsung
Galaxy phone. In other words, for the same price, customers can
buy three or four smartphones with high resolution cameras.
Chinese makers can keep prices low by reducing the profit
pi margin (they typically operate with a 2-4% margin) and

turning to cheaper components that are a year or two old. That
means high-end phones still take better pictures and have sleeker,
thinner designs. But smartphone innovation has slowed down, and
ap
the advances appear marginal to many consumers.
When has the Indian Smartphone
shown similar trends?
About 28 million smartphones were
Kn
shipped to India in Q2 and the industry

registered 3.7 per cent quarter-on-
quarter growth, according to
International Data Corporation’s (IDC) Quarterly Mobile Phone
Tracker report. Thanks to Goods and Services Tax (GST), smartphone
vendors experienced weak sales in second quarter.
“The third quarter of the year started slowly as the sales channels
adjusted to the new taxation system but they quickly recovered
within a few weeks. The Indian smartphone market is now
preparing for the biggest quarter so far; offline channels have

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already cleared the old stocks, eTailers are getting ready for mega
online festivals, and vendors are set to launch new models in the
Diwali festive period,” the report read.
Samsung emerged as the number one smartphone vendor in
India in Q2, 2017 with 24 per cent share. The Korean company
witnessed a decline of four per cent from the same period of last
year thanks to growing competition from Chinese vendors who
have now started to focus equally on offline segment as well.
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Samsung was followed by Xiaomi, which retained its number
two position in Q2 as well with 17 per cent share. The Chinese
smartphone maker experienced 25 per cent quarter-on-quarter
growth. IDC attributes this growth to Xiaomi’s expansion in offline
pi segment such as opening of Mi homes, Mi authorised stores and

partnering with the key large format retail stores.
Xiaomi tripled its offline shipments in Q2, added the report.
Xiaomi Redmi Note 4 is now the highest shipped smartphone in
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a single quarter with over two million smartphone units sold in
Q2.
Chinese vendors Vivo and Oppo grabbed the third and fourth
spot with 13 per cent and eight per cent shares respectively.
Thanks to above-the-line marketing activities and promotions,
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Vivo made a significant jump from four per cent market share in
the same period last year to 14 per cent now. Vivo saw 26 per cent
quarter-on-quarter growth. Oppo’s shipments declined by 13 per
cent quarter-on-quarter.
Lenovo and Motorola together are the fifth largest smartphone
vendors in India with seven per cent market share.
The Indian smartphone vendors registered 18 per cent quarter-on-
quarter growth in Q2, though their combined market share remains
limited to 15 per cent. Chinese smartphone makers, on the other hand,

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contribute to 54 per cent market share with 9 per cent quarter-on-

quarter growth in Q2.
As per the IDC report, the third quarter is the biggest quarter for
feature phones as festive season in India approaches.
Reliance Jio JioPhone 4G feature phone, which is expected to hit
the shelves in September, will most likely contribute to stabilising
feature phone market in the short term.
About 34 million units of feature phones were shipped in Q2, and
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the segment saw 6.5 per cent quarter-on-quarter growth after
declining consecutively for two quarters.
Note: A feature phone is a mobile phone that incorporates features
pi such as the ability to access the Internet and store and play music but
lacks the advanced functionality of a smartphone.
Where is the mystery around
iPhone 8?
ap
The iPhone 8, tipped by some to
arrive as the ‘iPhone Edition’ or
‘iPhone X’ will be Apple's 10th-
anniversary smartphone and looks
set to be the first to debut wireless charging tech, a curved
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AMOLED display and an unusual vertical dual rear-facing camera. If

rumours are to be believed, the so-called ‘Edition’ will launch
alongside the less-impressive iPhone 7S and 7S Plus.
The iPhone 8 is likely to be announced in September 2017,
marking 10 years since the firm launched its first smartphone.
If it's anything like Apple's new MacBooks, next year's iPhone will
be more expensive than this year's release, and some are claiming
that the highest-spec model will be the first iPhone to cost more
than $1,000.

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Rumoured specs
5.8in 2.5D OLED edge-to-edge display
New design with an ‘all-glass’ construction
71x143x7.4mm
Wireless charging support
Apple A11 chip
Rear-facing Touch ID sensor
IOS 11 with improved Siri, P2P payments
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Face-scanning technology
Vertical dual cameras on rear
Support for LTE speeds up to 450Mbps
pi The iPhone 8, according to rumours, will have a screen running almost

edge-to-edge, with a slimmed-down bezel of just 4mm on each side.
An image of this design, also showing the loss of the Home button and
the rumoured ‘notch’ along the top edge, has been spotted in the leaks.
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Who else needs a winning product?
Samsung has accidentally revealed a
number of the upcoming Galaxy Note
8’s features. The company listed the
phone on its website a few days ahead
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of its expected launch, and confirmed it

will come with a so-called “Infinity” display, an S-Pen stylus and
Samsung’s virtual assistant Bixby.
The listing, which also showed pictures of the phone and revealed
that it will come with 64GB of storage.
Numerous leaks over recent weeks have revealed almost every
detail about the Galaxy Note 8, which is expected to look very
similar to the S8 and S8+, two excellent new phones that came out
earlier this year.

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Samsung will officially unveil it on 23 August, and reports suggest

it will hit the market on 15 September, just after the expected
launch of Apple’s newest batch of iPhones.
Rumoured Specs
6.3in 3840x2160 Super AMOLED curved Infinity Display with
18.5:9 ratio
S Pen support
162.5mmx74.6mmx8.5mm
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Improved iris scanner
Screen embedded fingerprint scanner
Built-in ‘Bixby’ AI assistant
pi Samsung Exynos 8895 CPU (or Snapdragon 835 in the US), 6GB
RAM
12MP dual rear-facing camera, 8MP front-facing camera
USB-C connectivity, 3.5mm headphone jack
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Android 7.0 Nougat
IP68 certification
64GB build-in storage, microSD expansion
3,000mAh battery.
Fast charging, wireless charging support
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Midnight Black, Maple Gold, Orchid Grey and Deep Sea Blue
colour options.
Notes on the Note
When Samsung's first Note hit the market, it was mocked and dubbed a
niche product. Over time, though, the phone became popular.
Samsung used the device's larger screen to set itself apart from
other Android vendors and from Apple - until everyone else
followed suit with bigger phones.
The introduction of Apple's first large-screen iPhones in 2014, the

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iPhone 6 and iPhone 6 Plus, caused Samsung's market share to

drop.
Since size alone wasn't enough to differentiate itself from rivals,
Samsung started experimenting with flashy new hardware and
software in its Note lineup. Because the phablet isn't as vital to
Samsung as its Galaxy S line (Strategy Analytics estimates Note
sales will make up just 5 percent of its total shipments), it has the
freedom to try out riskier features.
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The result is some features that trickle down to the more accessible
Galaxy S line. The Galaxy Note Edge was the first mainstream
Samsung phone with a curved edge, which is now the marquee
feature on all of its flagship phones. The recalled Note 7 (the one
pi with exploding batteries) sported features like an iris scanner,

which made its way to the Galaxy S8.
As it waits for the memory of the prone-to-overheat Note 7 to fade,
ap
Samsung may not take many risks with the Note 8. That's despite DJ
Koh, head of Samsung's mobile business, promising a “better, safer
and very innovative Note 8.”
Adding flashy but untested new features might make buyers rush to
buy the phone, but any battery or other major issues would be
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disastrous for Samsung.

“It's fair to assume that Samsung is pulling out all the stops in
terms of quality control to ensure that the next version of the Note
has no battery issues,” GlobalData analyst Avi Greengart said.
Killing off the Note line after the Note 7's troubles would have been an
easy way to quash the battery debacle. On August 23, we should find
out why Samsung decided to keep it - and whether that's enough to
make people take Note again.
How can smartphones recapture consumer interest?

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Some analysts say the upcoming

handsets may showcase the ability to
handle augmented reality (AR) as a
way to revive interest.
Google has pushed augmented reality
with a “Tango” phone, and enabled
Pixel handsets to be used for virtual reality with “Daydream” gear.
And Apple has made an AR kit available to developers that could
ly
lead to iPhone apps. “The standard AR demos we have seen for
years as a future thing - seeing how new furniture looks in your
living room or virtual coupons hanging in mid-air in supermarket
pi aisles - we will see this fall,” Greengart predicted.

Among the first devices to take advantage of Tango is the Asus
Zenfone AR, which was introduced at the Consumer Electronics
Show (CES) in Las Vegas in January this year.
ap
A lot of people got their first taste of augmented reality (AR) last year
when Pokemon Go became a runaway hit on smartphones. But the
popular mobile game barely scratched the surface of the
possibilities of AR.
The Nintendo game just layered two-dimensional animation over
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footage being captured by the smartphone camera.

New entries include the “Essential” smartphone from a start-up
founded by Andy Rubin, credited with being the father of
Android software.
Essential, whose backers include Internet colossus Amazon and
China’s Tencent Holdings, began selling its $699 handset in early
August, touting the handset’s ceramic and titanium construction
and the ability to add accessories on a magnetic connector.
The $699 Essential Phone is an ambitious device. It has a unique
way to connect modular accessories, starting with a 360-degree

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camera. It has a bold take on how to make a big, edge-to-edge

screen paired with top-flight materials such as ceramic and
titanium. And it has a dual camera system that is meant to compete
with other flagship devices without adding any thickness to the
phone.
Smartphone makers are also expected to do more with voice
recognition and commands, making handsets more attractive in places
where literacy rates are low but mobile Internet access is available.
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—– | —–
pi
ap
K-Module
This GDPI-WAT course can absolutely 'wow' your panel. It

covers everything from economics, trade, world affairs,
Kn
budget to management foundations.
Check out the course here: mba.knappily.com

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iPhone X, but whY?
14-Sep-2017
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pi In January 2007, Steve Jobs unveiled the original iPhone and the
mobile and personal computing industries were never the same again.
ap
Ten years later - at a building named after the late Apple co-founder -
his successor Tim Cook took the stage to introduce the iPhone X, the
phone that he and Apple believe will define the roadmap of the
smartphone industry for the next 10 years. Can X recreate the good old
Apple magic?
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What are the new Apple products?

Specifically, there were three new phones
announced at Apple’s fall event: the high-
end iPhone X, which was the star of the
show with a new bezel-less design, OLED
screen, and 3D face-scanning tech.
There’s also the iPhone 8 and 8 Plus, the Apple Watch Series 3 (i.e.,
the Apple Watch Series 2 with LTE), and the Apple TV 4K (a, um,
Apple TV with 4K).

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Oh, and everything else is more powerful and faster, too.

The iPhone X is here
Apple’s new flagship phone is the iPhone X (pronounced “iPhone
10”). As expected from the leaks, there’s an all-new design, featuring
what Apple calls a Super Retina display. The new screen is an edge-
to-edge 5.8-inch OLED panel with 2436 x 1125 and support for HDR
(both Dolby Vision and HDR10).
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The iPhone X feels like ‘the future of the smartphone’
There’s no home button, with Apple instead using a new 3D
scanning system, called Face ID, that unlocks your phone display
pi using facial recognition. There’s also a new A11 Bionic processor

that’s more powerful than the previous generation chip, support for
wireless charging, and a new animated emoji feature for
messaging.
The cameras are also upgraded, with dual 12-megapixel rear
ap
cameras with dual optical image stabilization, and an improved
front camera that supports portrait mode, too. On the battery
front, Apple says that the iPhone X will last up to two hours longer
than the iPhone 7.
Apple also showed off a new AirPower charging mat that can
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charge your iPhone X, Apple Watch Series 3, and AirPods (with a

new charging case) simultaneously, although the charging pad
won’t be out until next year.
The iPhone X comes in two colors: space gray and silver. It’ll
come in two storage configurations — 64GB for $999, and
256GB for a whopping $1,149. Preorders will start on October 27,
with shipping set to start on November 3rd.
iPhone 8 and 8 Plus are the iPhone 7S in all but name
Along with the iPhone X, Apple also announced the new iPhone 8

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and 8 Plus. Those phones are a more pedestrian upgrade to the

iPhone 7, adding a new glass back (for wireless charging), a more
powerful A11 Bionic processor, improved cameras, and a True
Tone display, among other smaller improvements.
It’s a nice upgrade to the iPhone 7, but it kind of feels more like a
7S than a true successor like the iPhone X does.
Up close with the iPhone 8 and 8 Plus
The iPhone 8 starts at $699 for a 64GB model, while the iPhone 8
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Plus will start at $799 (also for 64GB), although both phones will
also have a 256GB model for $849 and $949, respectively.
Preorders begin on Friday, September 15th, with the new devices
pi set to ship September 22nd.

The new Apple Watch has LTE
The Apple Watch Series 3 is the newest version of Apple’s
wearable, and it’s coming with a big addition: LTE connectivity, so
ap
you don’t have to keep it connected to your phone. Apple says it’ll
work with the same phone number that your iPhone has, and all
that things like calls, iMessages, and music streaming will just
integrate seamlessly.
The design is mostly the same, with a new red dot on the digital
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crown visually changing things up, while the device itself is

slightly thicker than the Series 2 model. The Series 3 is also even
faster than before, with a new W2 chip that also improves battery
life. Apple says to expect up to 18 hours with the new model.
It’ll be out September 22, starting at $329 for the non-cellular
version, and $399 for the cellular-equipped model.
Apple TV 4K has better resolution and HDR video
As the name may suggest, the Apple TV 4K is an Apple TV that
adds support for 4K video. Along with the boosted resolution, the

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Apple TV 4K supports HDR video, too. The Apple TV 4K is

compatible with both the HDR10 and Dolby Vision specifications,
and will be able to play back 4K HDR content. Apple specifically
called out Netflix and Amazon Prime Video (although Prime Video
is still set to launch “later this year”).
To go with the new Apple TV 4K, the iTunes Store will also be
selling movies and TV shows in 4K and HDR for the same price as
HD content, with no charge to upgrade titles that you already own.
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The Apple TV 4K will cost $179 when it ships on September 22nd.
iOS 11 and watchOS release dates
While the new hardware was certainly the focus of the launch event,
pi we also got release date information for some of the major software
updates Apple announced earlier this year. Both iOS 11 and watchOS
4 will launch on September 19, just in time for the iPhone 8 and Apple
Watch Series 3.
ap
Why is this creating a buzz?
Apple Inc. introduced a trio of new
iPhones Tuesday, making a bet that
some customers will be willing to part
with upward of $1,000 for the premium
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iPhone X while others will also pay up

to upgrade regular models.
Inside a theater at its new $5 billion headquarters, Apple worked to
conjure the magic that 10 years ago made its iPhone the world’s
most valuable company’s most valuable product.
The pricing of the new flagship phone puts it closer to a major
appliance or many PCs and represents a test of the enduring cachet
of Apple products, already among the priciest in their field.
In the plane of pure reason, the iPhone X shouldn’t be a big deal.

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Either consumers will buy a $1,000 phone and Apple will make
some extra money or else they won’t and Apple won’t repeat the
experiment. Either way, the iPhone 8 will be the big financial
driver.
But consumer purchasing decisions don’t happen on the plane of pure
reason.
The products are Apple’s most anticipated in years. The company
and its shareholders have endured a slump in iPhone sales
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growth and the company is facing intensifying competition
from Samsung Electronics Co. and others.
That anticipation has pushed Apple’s share price up 39% this year
pi to record highs, giving the company an unprecedented market

value of more than $830 billion.
The risk for Apple is that people who are willing to pay $750
for the best phone in the world may not feel like shelling out
ap
that much cash to have the second-best phone in the world. If
the best phone in the world is out of your price range and you are a
value buyer now, maybe you decide that the real value proposition
is that $200 Android. Or simply not upgrading your phone at all.
The best phone is a powerful idea that potentially transcends
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narrow cost-benefit analysis. Voluntarily surrendering your mass

market product’s status as the best is a risky move.
Of course it’s also a risk with considerable upside for Apple. But in a
world where the past few iPhones felt like sure things and Apple
seemed to have decisively pulled ahead of its major competitors, the
fact that there’s a risk at all makes this the most exciting iPhone launch
in years.
When was iPhone launched?
Everybody knew it was coming. But nobody, not even Apple,

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predicted how the iPhone would change

the way we look at phones forever.
First announced Jan. 9, 2007, by Steve
Jobs, the iPhone is considered one of
Apple’s worst-kept secrets, but still the
most anticipated gadget of all time. Prior
to the unveiling at Macworld Expo, tech blogs published rumors
purporting to contain details on the iPhone.
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Apple fans dreamed up illustrations of the fabled device. And days
before the iPhone finally landed June 29, hundreds of fanatical
consumers camped outside Apple and AT&T stores for the $600
pi gadget.
Despite drawing a horde of fans, the iPhone didn’t immediately
charm its way into the mainstream because of its high price tag.
Just two months after the iPhone’s initial release, Apple
ap
trimmed the handset’s price down to $400. That helped a little,
but it wasn’t until 2008 — when Apple unveiled the iPhone 3G
with a new $200 price tag and access to the faster 3G network —
that the smartphone exploded in popularity. Apple sold over 10
million iPhone 3G units worldwide in just five months.
But it wasn’t the faster network or the price tag that really set the
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iPhone ahead of its competitors. Apple’s core philosophy is that

software is the key ingredient, and the operating system lying
beneath the iPhone’s sleek and sexy touchscreen broke new
ground. Unlike other cellphones’ software, the iPhone’s operating
system was controlled by Apple rather than a mobile carrier.
Just as the Apple II in 1977 was the first computer made for
consumers, the iPhone was the first phone whose software was
designed with the user in mind. It was the first phone to make
listening to music, checking voicemail and browsing the web as

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easy as swiping, pinching and tapping a screen — pleasant like a

massage.
“An iPod, a phone, an internet mobile communicator,” Jobs said when
preparing to introduce the iPhone in 2007. “An iPod, a phone, an
internet mobile communicator…. These are not three separate
devices!”
Just like that, Apple put a miniature computer in consumers’
pockets.
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And then Apple put another miniature computer in more
consumers’ pockets with the release of the iPod Touch in
September 2007 — a phoneless iPhone for those unwilling to pay a
pi monthly fee but craving the iPhone’s mobile computing powers.

But that wasn’t enough for iPhone users. Operating on a closed
platform, the iPhone was limited to the few apps that Apple offered
— and the handset was restricted to one U.S. carrier, AT&T. The
ap
iPhone’s software limitations gave birth to an underground world
of hackers seeking to add third-party applications for the iPhone,
known as the Jailbreak community. And the AT&T exclusivity
created a subset of the hacker community focusing on unlocking
the iPhone to work with various carriers — today famously known
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as the iPhone Dev-Team.

Apple wasn’t pleased about the infiltration. At the launch of the
British iPhone in September 2007, Steve Jobs said Apple would
work to suppress unlock hacks.
“It’s a cat-and-mouse game,” Jobs said. “We try to stay ahead. People
will try to break in, and it’s our job to stop them breaking in.”
That game involved Apple issuing software updates that, once
installed, effectively bricked unlocked iPhones, rendering them
useless. The Dev-Team is winning the battle, as it keeps publishing

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unlock hacks for each iPhone software update.

Apple did, however, benefit tremendously from iPhone hackers.
The company learned from the Jailbreak community that third-
party applications were in high demand, and would thus add even
more appeal to the phone. This revelation led to Apple opening its
iPhone App Store, which launched concurrently with the second-
generation iPhone, iPhone 3G.
With the launch of the App Store, Apple shook up the mobile
ly
industry again by reinventing software distribution. Apple designed
the App Store’s model with a do-it-yourself mentality: All software
developers had to do was code an interesting app, submit it to the
App Store for approval and market the app however they wished.
pi Then, Apple gives developers 70 percent of each app sale, keeping

30 percent to cover credit-processing fees.
The App Store’s method is proving far more effective than the old-
fashioned computer shareware model, where developers would
ap
offer a free trial of their apps and then cross their fingers that
consumers would eventually pay. The shareware model especially
didn’t help independent coders, whose apps got trampled on by
large software companies with fatter marketing budgets.
Despite a few hiccups, Apple’s App Store now features over
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50,000 applications available, and over 1 billion apps have been

downloaded, according to Apple. The App Store has spurred some
smartphone companies to launch their own application stores as
well — but they’re far behind.
Apple has already sold 40 million iPhone and iPod Touch units
worldwide, meaning developers have the biggest shot to strike it rich
with Apple’s App Store.
Where is the challenge for Apple?
Not every successful product is “the best” product in its category.

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The point of Ikea furniture or a Toyota

Camry isn’t to be the greatest, most
high-end offering in the realm of
houseware or sedans, the point is to
meet a practical consumer need at an
attractive price. There are Ferraris and
Porsches in the marketplace, too, but making “the best” car isn’t
necessarily a more successful business strategy than making a good
ly
enough car at a reasonable price.
But the iPhone is different. From the day it was first
introduced, it was positioned in the market as the best phone in
the world. But it’s also become the best-selling phone in the
pi world. And like any marquee smartphone, it needs to be updated

and upgraded every year.
This gives Apple a big problem. Year after year, any new ideas
they want to bring to the iPhone need to be capable of being
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manufacturing on a massive scale in a relatively compressed
timeline. That’s hard to do and, in practice, it means that certain
things simply can’t be done. And that means risking the iPhone’s
quality leadership.
In concrete terms, low-power OLED screens are spreading in the
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Android world and they provide real user benefits in terms of

increased battery life and the ability to take the display edge-to-
edge. But nobody has yet figured out how to manufacture really
high-quality OLED screens at the volume Apple needs to meet the
consumer demand for iPhones.
The solution is the iPhone X. It’s essentially a Lexus to the iPhone’s
Toyota — pairing the OLED screen with a few other high-end touches
while containing substantially the same guts and commanding a
premium price. Most people probably won’t want to shell out a

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thousand bucks or more for a smartphone, but that’s fine because

Apple couldn’t make this phone in high volume anyway. The outer
frontiers of quality require scarcity, and high prices turn scarcity into
profits.
Who has inspired Apple’s branding
strategy thus far?
For the past decade, Apple’s philosophy
has been summed up by an Andy Warhol
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line about Coca-Cola.
“What’s great about this country is that
America started the tradition where the richest consumers buy
pi essentially the same things as the poorest,” Warhol wrote in his 1975
autobiography. “You can be watching TV and see Coca-Cola, and you
know that the president drinks Coke, Liz Taylor drinks Coke, and just
think, you can drink Coke, too. A Coke is a Coke and no amount of
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money can get you a better Coke than the one the bum on the corner is
drinking.”
Apple’s mobile product lines, like the iPhone and iPad, have
suggested that it wants to make the Coca-Cola of the technological
world. Not for Apple the vast segmented portfolios of the likes of
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Samsung. Instead, it has generally had an incredibly simple offer:

the best phone or tablet it can make, or, for the more price-
conscious, the best phone or tablet it could make last year.
It’s more than just a matter of principle, of course. On the one
hand, it’s a question of branding: every phone with the Apple
logo on it was once (in its opinion) the best phone in the world.
No one need be ashamed of carrying an iPhone, and that’s the way
Apple wants it to stay.
The iPhone isn’t exactly priced to appeal to the poorest people in

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the world, but it operates on broadly the same principle. Middle-

class consumers all around the world can and do own the very
same smartphone that celebrities and presidents and billionaires
use.
That philosophy has been coming under increasing pressure in the
last couple of years, however. Apple faces opposing pressures at
opposite ends of its line.
For more price-sensitive customers, the cost of building a “good
ly
enough” phone continues to drop, and even though Apple has
never been one to chase the genuine budget market, it wants to
grow its user base just like any other company.
A brand-new iPhone is certainly a premium product — you can
pi get a perfectly serviceable Android phone for $200 — but it’s

also a mass market product, an “affordable luxury” that lets
regular people achieve phone parity with the elite.
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iPhone X changes all that. The anticipation now is that most iPhone
buyers won’t be getting the best phone in the world, they’ll be settling
for the iPhone 8.
How is Apple 8 different from Apple X?
There’s the iPhone 8, a pretty update to
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the line that began with the iPhone 6 in

2014. Then there is the iPhone X, a major
overhaul that Apple Chief Executive Tim
Cook called “the future of the
smartphone.”
Let’s go over the major differences:
Phone Dimensions
Apple has had two sizes for a while, the standard phone with a 4.7-
inch screen and the Plus model with the 5.5-inch screen. Both

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iPhone 8 models keep nearly the same screen sizes and overall
dimensions as their predecessors, though they pack in a bit more
weight. The iPhone X, with its spacious 5.8-inch screen, has a body
that is only a tad larger than the standard iPhone, though
substantially heavier.
Screen
The crown jewel of the iPhone X is its screen—a 5.8-inch display
that uses OLED technology (similar to that on Samsung phones)
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rather than traditional LCD. It also packs in more pixels: 2436 by
1125, with a density of 458 pixels per inch. The LCD on the
iPhone 8 Plus, like its phablet predecessors, has a pixel resolution
pi of 1920 by 1080, at 401 pixels per inch.

Biometrics
The big design news of iPhone X is that there is no home button.
Which means no Touch ID fingerprint scanner. Apple introduced
ap
its replacement, Face ID, which uses a front-facing camera array
and infrared technology to capture a 3-D scan to determine whether
the face belongs to the phone’s owner or a stranger.
The user looks at the phone, and it unlocks if it likes what it sees.
Face ID can be used with Apple Pay and apps that are Touch ID
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compatible. The iPhone 8 still uses Touch ID.

Battery and Charging
Apple says the iPhone 8 and iPhone 8 Plus have battery life
comparable to their predecessors, while the iPhone X lasts up to
two hours longer than the iPhone 7. But both the iPhone X and the
iPhone 8 models support fast charging via a USB-C power adapter.
Apple says this will charge up to 50% of the battery in 30 minutes.
Apple also introduced wireless charging, using the Qi open
standard, with all the new models. This means that by resting on a

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compatible charging pad, the phone can replenish without plugging

in. Apple says it will sell its own charging pad next year.
Camera(s)
When Apple introduced the iPhone 7 and 7 Plus, only the larger
model got the dual camera. This provided a 2X telephoto lens and
the ability to pull off tricks like Portrait Mode, which artfully blurs
the background of a close-up shot. The same thing happened with
the iPhone 8 models; while both get new sensors, only the iPhone 8
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Plus has a dual camera. And like before, only one of the iPhone 8
Plus’s cameras has optical image stabilization.
The iPhone X has a redesigned dual camera—this time both have
pi optical image stabilization. For the two new dual-camera models,

there is a new beta feature called Portrait Lighting, which can
change the lighting effects around and on the face of a photo’s
subject.
ap
Price and Availability
These may be the biggest differentiators for some. The iPhone 8
starts at $699, while its big sibling, the iPhone 8 Plus, starts at
$799. This is a tad pricier than the iPhone 7 and 7 Plus, but in the
same ballpark. Both of these phones will be available for preorder
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Sept. 15, and will be in stores on Sept. 22.

The iPhone X will start at $999 for a 64GB. If you want a 256GB
version, the cost jumps to $1,149. Yes, that is the costliest iPhone
ever. And you will have to wait longer for it. Pre-orders start Oct.
27, and the phone will be available in stores Nov. 3 — while
supplies last.
—– | —–

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India, the driver of smartphone sales
27-Oct-2017
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pi India has overtaken the United States to become the second-largest
smartphone market in the world, trailing China. Smartphone shipments
ap
grew 23% year on year in the third quarter backed by demands during
the festive season sale to reach just over 40 million units. After
sluggish growth for months due to demonetization and the
implementation of GST, the smartphone market has recovered well.
The top five vendors account for three-fourth of total shipments in
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India.
What are the smartphone numbers?

After a wobble in the second quarter of
2017, India’s smartphone market
recovered quickly with shipments
growing 23% year-on-year in the third
quarter to reach just over 40 million units,
as per a report by analyst firm Canalys.
“Doubts about India’s market potential are clearly dispelled by this

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result,” said Canalys research analyst Ishan Dutt. “There are close to
100 mobile device brands sold in India, with more vendors arriving
every quarter. In addition, India has one of the most complex channel
landscapes, but with low barriers to entry. Growth will continue. Low
smartphone penetration and the explosion of LTE (long term evolution,
or 4G) are the main drivers.”
Despite posting excellent results, the market continues to
concentrate, with the top five vendors (Samsung Electronics,
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Xiaomi Inc., Vivo Electronics Corp., Oppo Electronics Corp.
and Lenovo Mobile Communication Technology Ltd) now
accounting for 75% of total shipments in India.
pi Samsung and Xiaomi accounted for almost half of the total market
as the top five vendors continued to post strong growth in Q3 2017.
Samsung shipped 9.4 million smartphones, almost 30% more than
in Q3 last year.
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Second-placed Xiaomi increased shipments by over 290% to 9.2
million units.
“Xiaomi’s growth is a clear example of how a successful online brand
can effectively enter the offline market while maintaining low
overheads,” said Canalys analyst Rushabh Doshi. “But Xiaomi focuses
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on the low end. It struggles in the mid-range (devices priced between

Rs15,000 and Rs20,000), where Samsung, Oppo and Vivo are
particularly strong. Nevertheless, we predict Xiaomi’s continued go-
to-market innovations will allow it to overtake Samsung within a
couple of quarters.”
Apple Inc. began local production in India earlier this year, and its
iPhone shipments more than doubled to 900,000 units in Q3 2017
compared with the year-ago period, impressive in a market that is
skewed toward low-end smartphones.

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Why isn’t this surprising?

According to Canalys, one of the main
reasons for this boost were the low
barriers to entry India affords mobile
phone manufacturers — there is strong
competition among Samsung, Xiaomi,
Vivo, Oppo, and Lenovo.
Other key factors driving the rise are Indian consumers’ increasing
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emphasis on LTE (Long-Term Evolution, a 4G wireless broadband
technology) and the country’s low smartphone penetration.
In the second-largest smartphone market, 220 million of the 1.3
pi billion people use smartphones. In a recent survey of nearly 1,000

feature phone users across India, 15% intended to switch to a
smartphone on their next purchase.
Cheap handsets and the proliferation of fourth generation, or 4G,
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services have also helped India overtake the US to become the
world’s second-largest smartphone market, trailing only China.
Industry experts believe the tide is turning, as retailers benefit from
the biggest quarter of the year. By the festive season, brick-and-
mortar shops had cleared their pre-GST inventory and were reading
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with aggressive discounts to attract customers. Online behemoths

like Amazon and Flipkart, too, launched their usual mega online
festivals.
When did the growth stagnate?
The government’s move to scrap high
denomination notes in November last year
had resulted in over 20% fall in shipments
in that quarter over the preceding quarter.
After demonetisation, the complications

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following the recent implementation of the goods & services tax

(GST) only made things worse, prompting a slowdown in
smartphone shipments to India.
In the second quarter of this year, 28 million smartphones were
shipped to the country, a “modest” 3.7% year-over-year increase,
according to market research firm International Data Corporation.
In comparison, smartphone shipments had grown a “healthy
14.8%” annually during the first quarter of 2017.
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But industry experts had predicted that things are turning around.
With digital payment options becoming more mainstay and cash
transactions picking up again, smartphone sales in the country have
recovered, say industry watchers.
pi “We estimate the market to jump back to double digit growth ahead of
a festive season in (the second half of) 2017,” said Shobhit Srivastava,
a research analyst at Hong Kong-based Counterpoint Research.
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“The sentiment is indeed positive in the market. All the ambiguities
have cleared now, and vendors are gearing up for the upcoming
festival season to recover from the slow start in the first half of this
year,” Jaipal Singh, senior analyst at IDC, said.
Where did the turnaround come from?
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Readiness of manufacturers
Indian phone makers are now more clued
in to the demands of the market today.
Last year, when telecom upstart Reliance
Jio flooded the country with free 4G
connections, Indian vendors were not ready with a 4G portfolio.
“They thought it will take some more time for the entire category
(of smartphone users) to migrate to 4G,” Singh of IDC said. “Now
they are prepared for the upcoming season,” Singh said, adding

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that Indian vendors have a stronger grip over distribution in India,

and will make use of that to gain back market share.
“Especially (the) segment (of phones priced) less than Rs6,000,
hardly any Chinese are serving this segment…and this segment is a
mass contributor, so they are definitely launching more products in
this segment so they can bring volumes,” Singh pointed out.
But the smartphone pie that both Indian and Chinese players are
trying to bite into is far from large. In the price-sensitive country,
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more than half of the handsets shipped are still feature phones.
Big billion ecommerce sale
E-commerce majors Flipkart, Amazon and Paytm Mall have seen a
pi huge spurt in smartphone purchases of their festive season sales,

beating last year’s figures.
Flipkart, which concluded the latest edition of ‘The Big Billion
Days’ (TBBD) sale, said it sold 1.3 million smartphones within
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the first 20 hours of the category opening for sale. The company
generated gross sales of more than Rs 5,000 crore, driven by
booming sales of Apple Inc.’s iPhones, Xiaomi phones and VU
televisions, during its Big Billion Day sale.
Amazon, on the other hand, saw a 2.5x growth in smartphones,
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while large appliances saw 4x growth over last Diwali led by

brands like Samsung, Apple, Bosch & BPL.
The boom in the sale of smartphones is on account of various
offers and discounts being offered on various e-commerce sites,
coupled with affordable payment solutions like ‘No Cost EMIs’,
exchange and buyback offers.
The e-retail giants also roped in electronics brands such as TCL
and Onida to sell exclusives, as well as gave up all or part of their
profit margin so consumers can get better deals, ET reported.
ShopClues, which focuses on tier II and III towns, launched a

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feature phone on its platform - Inovu i7 - priced at Rs 349.

Who did the most sales?
Counterpoint estimates industry
shipments in the quarter to have risen 13
per cent from a year earlier and 32 per
cent sequentially to an all-time high of 40
million units.
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Samsung has dominated sales in the Indian market for well
over four years. However, this is under threat, with China’s
Xiaomi ending the quarter through September almost side by
side with the South Korean market leader.
pi Data from research firm CMR termed the gap between Samsung
and Xiaomi as “minuscule”. The research house has yet to release
the numbers for the past quarter, but for July-August, it estimates
Samsung’s India smartphone share at 21.4 per cent, a tad above
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Xiaomi’s 20.8 per cent.
In smartphone market share, the difference between Samsung and
Xiaomi was a mere half percentage point in the past quarter,
The rise of Beijing-headquartered Xiaomi — it posted $1 billion in
revenue from India in 2016, within three years of its launch in this
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market — has been on the back of its strategy to give high-quality,

high-specification phones at half the price of competitors.
Chinese players are likely to continue dominating the Indian
market. Between the second quarter of 2016 and the second quarter
of 2017, Vivo too saw its market shares soar from 2.6% to 11.9%,
respectively. Vivo leapt up especially because of its “aggressive
distribution and promotion of new Android devices in suburban
areas of major cities like Mumbai,” market research firm Strategy
Analytics noted.

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However, on the record shipments last quarter, Counterpoint said this

was primarily due to brands pushing stock into channels to tap the
festive demand. However, industry insiders said sales weren’t as strong
as expected. Samsung, which last week reported a record profit
globally, is facing threat in the featurephone segment with Nokia’s
return.
How is India driving the smartphone
market?
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As a share of year-on-year global mobile
purchases, the mature market regions of
Europe and North America have stagnated
pi as mobile adoption reaches saturation

point. With demand from China slowing down, India’s striking
rate of growth makes it a key country for smartphone makers.
Mobile subscriptions in India are expected to hit 1.4 billion by
ap
2021, according to the Ericsson Mobility Report.
As a result, western smartphone makers, like Apple and Google,
are increasingly looking east for growth, giving countries like India
significant influence over the sorts of features they build into their
phones.
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“Normally what happens in emerging markets is they leapfrog others

in terms of forging ahead,” said Satish Meena, forecast analyst at
Forrester. “India has the advantage of volume — they have sufficient
volume so they can tell smartphone makers to build certain features.”
“The smartphone makers can then try and use them in the African
market, and the Middle East market, for example. The African market
has similar problems in terms of purchasing power and penetration of
smartphones,” said Meena.
“Everybody is looking at India as a huge landing ground for their

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innovation and also as a next big step in that part of the world,” said
Sanjeet Pandit, Qualcomm senior director for business development
and sales for Asia-Pacific and India. Qualcomm’s chips are used in
about 30 percent of smartphones in India.
The country’s citizens are spread across a vast geographic area —
from modern urban hubs to poor rural villages — which has made
delivering payments and services challenging for both the public
and private sector, said Forrester’s Meena.
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The Aadhaar initiative, which assigns a unique identification
number to every registered citizen, allows people to more easily
access government services, such as subsidies, health care and
pi education, or do things like open a bank account or cellphone plan

remotely using an Aadhaar-approved cellphone. The government
is pushing smartphone makers to create devices for the
domestic market which support iris-based authentication
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technology.
India is leapfrogging ahead of many developed countries to a
paperless, cashless, presence-less system, said Piyush Peshwani,
who helped create the Aadhaar authentication enrollment
technology and process which was launched with fingerprint-based
scans in 2010.
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That said, U.S. smartphone makers have been reticent about

aligning themselves too closely with governments for business,
privacy and security reasons. Microsoft is reportedly working
with the government to integrate Skype with the Aadhaar
database, so video calling could be used for authenticated calls,
according to Bloomberg. It is unclear, though, how U.S. tech
companies will respond to the Indian governments’ demands.
Of course, the collection of the personal biometric information of
Indian citizens in a giant database presents an enticing target for

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cybercriminals. And while many consumers are happy to surrender

biometric information, such as a thumb print or iris scan, to obtain
government and businesses services, some consumers and civil
liberties unions worry that their information may be misused.
—– | —–
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pi
ap
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SCIENCE & TECHNOLOGY / 2017: The best of

India’s science
23-Dec-2017
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pi It’s that time of the year when we list the best in each field. When the
absence of India’s name starkly stands out among the best scientific
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achievements, one feels impelled to gather what exceptional
achievements/personalities have made news/are worth remembering;
even as a desperate attempt to remain optimistic notwithstanding the
basic stumbling blocks in our system. So here come some science
stories that made news in 2017.
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In what field was India most

noticed this year?
Since February, ISRO has had
one failed launch and achieved
four successful launches
India, with the help of six other
nations, sent 104 satellites to space in February 2017. It was hailed
as “one of the most complicated missions in the history of Indian
space exploration”. With this launch, India surpassed the Russian

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Space Agency’s record of putting 37 satellites into orbit back in 2014.

The mission’s main aim is to offer Remote Sensing Services,
where the satellite images are used for road network monitoring,
distribution of water, and making land use maps.
On 5 May, ISRO launched GSLV-F09 (Geosynchronous Satellite
Launch Vehicle). Its main aim is to set up a smooth
communication network amongst the South Asian nations by
providing them with applications in Ku-band, where they have a
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higher frequency range to communicate in. This will be useful in
telecommunication, tele-education and tele-medicine, and mapping
of natural resources.
pi Forecasting weather, land monitoring, and prompt response to

natural disasters are some of the other benefits of the satellite.
On 28 June, India’s 18th communication satellite, GSAT-17, built
by ISRO and operated by INSAT, launched aboard an Ariane 5
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ECA rocket from the Guiana Space Centre in Kourou, French
Guiana to join the 17 others circling Earth.
The rocket comprised of multiple satellites, of which the ‘Hellas
Sat 3’s main objective is to provide direct-to-home and telecom
services. The total cost of the mission was Rs 1,013 crore,
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including the launch fee. On the other hand, the ‘Inmarsat-S EAN’
component serves as the satellite portion of Inmarsat’s new
European Aviation Network.
Why did India’s scientists
March for Science?
On August 9, thousands of
scientists and their supporters
marched in 26 cities across the
country to voice the need for

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development of science and scientific temper

The India March for Science sought more government funding
for scientific research and to put a halt to the spread of
unscientific beliefs and religious intolerance.
The global March for Science fuelled the March in India. In India
too, scientific temper is increasingly in danger, observed the
organisers of the August 9 march. “There was not much of a
response from India at that time [during the global march] though
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a similar situation exists here,” said KS Rajini, the state secretary
of the Breakthrough Science Society in Bengaluru.
But the global march triggered communication among scientists, a
pi related network among the faculty of the country’s scientific

institutions and eventually the drafting of an appeal which was
circulated across colleges and research centres urging the scientific
community to take to the streets and lend a voice in public
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demonstrations to spread awareness about their work.
While the global march was the immediate trigger for the
demonstrations, members of the scientific community have been
expressing worries about lack of funding from the government for a
few decades
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“Science cannot be compared to business,” said S Mahadevan,

professor of Molecular Reproduction, Development & Genetics at
IISc, Bangalore. “One cannot invest in research and expect
immediate results. It is a creative activity, and it may take many
years before research yields any practical value.”
The situation is even more desperate now, said researchers. In
June, the Council for Scientific and Industrial Research,
India’s biggest Research and Development organisation, which
runs 37 laboratories, declared a financial emergency. Its
Director General Girish Sahni told Indo-Asian News Service that

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there were hardly enough funds to back new research projects.

Referencing Modi’s speech in January where he had highlighted
how important scientific research is and earned the applause of
several, those who attended India’s March for Science said that the
government had not taken action to realize the lofty vision.
“Although the government expects us to achieve groundbreaking
discoveries, it fails to realise that the basic necessity is
infrastructure, which requires sufficient funding,” Anindita
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Brahma, a research associate at the Indian Institute of Science, told
Al Jazeera.
“In most other countries, 2.5%-3.5% of the Gross Domestic
pi Product is allocated for scientific research in the budget,” said

Soumitro Banerjee, professor at the department of Physical
Sciences, IISER Kolkata. “In India, it is only around 0.85% of the
GDP. This is far smaller than anything needed to make any kind
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of breakthrough in science.”
While budgetary issues have existed since long, scientists feel that
in the recent past, scientific studies in India are being “eclipsed by
a rising wave of unscientific beliefs and religious bigotry.” In
addition to funding, the organisers sought an end to “propagation of
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unscientific, obscurantist ideas and religious intolerance”, as well as

stronger adherence to Article 51A of the Constitution, which states
that every citizen of India has a fundamental duty to “develop the
scientific temper, humanism and the spirit of inquiry and reform”.
“While we can justly be inspired by the great achievements in
science and technology in ancient India, we see that non-scientific
ideas lacking in evidence are being propagated as science by
persons in high positions, fuelling a confrontational chauvinism in
lieu of true patriotism that we cherish. Promoting scientific bent of

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mind can certainly help improve the social health of our country
where incidents of witch hunting, honour killing and mob lynching
are reported regularly”, the appeal said.
In national and international conferences, research papers were
being presented without any proper scientific backing, said Rajini.
In 2016, Nobel laureate and structural biologist Venkatraman
Ramakrishnan told The Times of India that the annual Indian
Science Congress was a circus, where discussions on science
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were sparse. Noting an incident in the 2015 edition of the
Congress in Mumbai, where a participant had controversially
claimed that planes had been invented during the Vedic period and
could even fly from one planet to another, Ramakrishnan said that
pi he would never attend another such a conference again.

The fear that pseudoscience is increasing in popularity and
taking the place of rigorous scientific research in the minds of the
people is strongly expressed by scientists. “The scientific
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community is very often cut off from society,” said UK
Anandavardhanan of the Department of Mathematics at Indian
Institute of Technology Bombay. “This might not necessarily be a
bad thing if our leaders took the initiative to speak about the
importance of scientific research to the people. But this has not
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been happening. I am personally participating in this march

because this is one way for the scientific community to connect
with the wider public.”
Souvik Mandal, an ecologist who also marched in Bangalore, said
he was worried “about the ignorance of public and government
bodies, and their denial of scientific facts”. “The intensity in which
pseudoscience and superstition are currently propagated in India
and throughout the world is alarming,” he said.
Gargya of the Indian Science Forum of New Delhi said that he
believed “that in the last few years, many Indian policies that are

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coming are based in beliefs, which are not actually true”.

When was a concerted effort made
to sensitize students on climate
change?
The Science Express, a train which
houses a mobile scientific exhibition
targeting students and teachers,
chose to focus on “Climate Change” from 2015-2017. It had earlier
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covered micro and macro cosmos which also stressed on developing
newer researches in the fields of science and technology worldwide
and “Biodiversity Special”.
pi Launched on 30 October 2007 at the Safdarjung railway station,

Delhi by the Department of Science and Technology (DST),
Government of India, the exhibit charges no entry fee.
The third theme was implemented by a collaborative effort
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between DST, MoEFCC, Department of Biotechnology (DBT),
Ministry of Railways, Vikram A Sarabhai Community Science
Centre (VASCSC) and Wildlife Institute of India (WII).
Solar panels were installed on the rooftops of some coaches and
facilities to train teachers were incorporated too. Dilip Sarkar,
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executive director of VASCSC said that the exhibit aims to

“transform the vehicle into a people’s movement and motivate
them to take individual actions to fight climate change”.
The “Climate Change” theme completed its second phase – and the
ninth phase of the entire project – on 8 September. The mobile
scientific exhibition train traversed a total of 38,800 km and
halted at 138 stations to showcase and spread awareness on the
theme.
When did an immigrant dream take root?

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In the mid 90s, when months after Yogi Goswami migrated from his
hometown Delhi to the US to pursue a career in solar energy and found
his baby boy Dilip troubled by asthma.
Goswami senior, on learning that no air purifier as of then could
effectively remove indoor pollutants, set out to build one on his
own.
Conventional HEPA (High Efficiency Particulate Air) filters
merely entrap a few pollutants but not all of them and neither is
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there a breakdown process involved prior to being released back
into air.
Goswami’s filter sought to absorb particulates like allergens,
pi mold and bacteria and particles up to one-thousand times

tinier than what a HEPA filter can trap. It employs photo
electrochemical oxidation (PECO) and nanotechnology to kill
the pollutants on a molecular level and remove the entire
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spectrum of indoor air pollutants.
The invention made it to TIME’s list of top 25 inventions of 2017.
Dilip and his sister Jaya Goswami patented the technology and
founded Molekule, a San Francisco-based startup, to commercialize
the technology.
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Where are some areas India needs to

focus on?
An article in Mint in the beginning of this
year assessed what was being done to
bridge the gap between the current state of
science in India and Modi’s stated vision
of bringing India to one of the top three positions in the field of
science and technology (S&T) by 2030.
As of now, India performs below its potential on nearly every

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indicator of scientific advancement there is: public and private

funding allocated for research; the count of esteemed awards
Indian scientists working in Indian institutions win; number of
patents registered in the names of Indians or the number of articles
in respectable peer-reviewed journals.
Government’s focus on bettering science education at school level
An HRD report tabled in Parliament last December said that up to
a million teaching positions in government schools across the
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country had to be filled.
Since then, education assessments by the non-profit Pratham have
highlighted how educational outcomes among Indian school
pi students are declining at an alarming rate.

In institutions of higher education too, the situation is barely any
better. The QS World University Rankings 2016-17 placed just two
Indian institutions – IISC and IIT, Delhi – among the top 200 in the
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world.
Government interference and paucity of funds cripple research
institutions in India, and contribute to the brain drain.
Government’s focus on strengthening S&T-industry links
Currently, most of the funding comes from the government while
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private-sector investment (in the form of research and development

centres, for example) is below par. Overall, despite talk since the
late 1980s of increasing S&T investments from the public and
private sector to 2% of GDP (gross domestic product), the
figure remains at around 0.9%. Whereas South Korea comes
first, investing 3% of its GDP in S&T, while Japan follows close
behind.
Another example is Israel, which beyond fostering a flourishing
S&T ecosystem has leveraged its security challenges to establish a

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robust defence industry. In India, it would be interesting to see if

the Modi government’s efforts to boost domestic manufacturing
and thus attract foreign capital (specifically in defence) accomplish
this.
Agricultural research
“India’s investment in agricultural research is still very low.
China spends three to four times more than India. India has to
invest more on research if it wants to catch up,” said Shenggen
ly
Fan, Director General of the Washington DC-based International
Food Policy Research Institute (IFPRI).
“It is seen that for every dollar we spend in agricultural research,
pi there is a return of 10 dollars,” Fan said when at a two-day

conference on realizing the Sustainable Development Goals
(SDGs) through agriculture in India.
While India achieved many of the Millennium Development Goals –
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the precursor to the SDGs – poverty and food insecurity prevail. Up to
71 percent of more than 300 million people in South Asia living in
poverty live in India. Boosting the country’s agricultural sector
provides an opportunity to address both urban and rural development
needs, he argued.
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Socially relevant research

An article in Nature presented the perspectives of 10 research leaders
on what should be prioritized for science in India.
Sunita Narain, Director-general, Centre for Science and
Environment, giving the example of waste management – and
sewage – observed, “ The key obstacle is that everyday challenges
are not top priorities for research and innovation. Indian science
has always been fascinated by the ‘masculine’ agendas of space
and genetics, not reinventing the toilet .”

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She said science must reorient its focus on addressing the needs
of India’s poor. “We need to devise ways to prevent pollution
rather than cleaning it up afterwards”. And research must take on
a form “more humble, nimble and investigative”. “It has to learn
from its poorest and most illiterate people: how they cope with
scarce and diverse resources by being frugal and in tune with their
environment.”
“India’s ambition should be to become the front-runner in the race
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to save the planet.”
An article in The Wire, in presenting a perspective on the extent to
which language is a barrier to advancement of science in India and
pi the difficulties in addressing it noted, “The issue is not simply changing

our language but also the strengthening of extant infrastructure, and
how we can make room for the free flow of ideas – not just inside
classrooms but in as many public spaces as possible.”
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Instilling public consciousness on the potential of Indian science
and what it is doing might pave the way to foster an environment in
which research thrives and perhaps even push the government to
put better effort.
In the EU, a European city of science is chosen annually and its
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achievements and facilities are highlighted to the general public.

As a start, this could be done in India, by beginning with an
institute of higher education or research through which outreach
activities could be organized for the general populace.
Who will be greatly missed?
Prof. Lalji Singh, whose
instrumental role in
establishing DNA
fingerprinting technology in

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India earned him the title,

“Father of Indian DNA fingerprinting”, passed away on December
10.
“The CCMB, BHU, Genome Foundation, ADNAT and his extended
family of researchers and scientists mourn the unfortunate early
demise of Prof. Lalji Singh with utmost gratitude and humbleness.
We pray to almighty for his peaceful heavenly abode. The ADNAT
and the Genome Foundation, without Prof. Lalji Singh, are
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unimaginable but we pledge to fulfill his dreams,” wrote Dr
Moinak Banerjee and Dr Satish Kumar, with whom Lalji was
working to write grant applications on behalf of Genome
pi Foundation until December 2.

Prof Lalji directed significant efforts to convince the
government of the broad spectrum of applications his
groundbreaking research in developing techniques for DNA
ap
fingerprinting would have. His work finally earned recognition,
when, after employing DNA analysis to solve a couple of
criminal cases, he contributed to the high-profile Rajiv Gandhi
assassination case.
Other cases related to big names followed, and Prof. Lalji
established several institutes and laboratories in the country,
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including the Centre for DNA Fingerprinting and Diagnostics

(CDFD) in 1995, Laboratory for the Conservation of
Endangered Species (LaCONES) in 1998, and Genome
Foundation in 2004, which aimed to diagnose and treat genetic
disorders affecting the Indian population, especially the
disadvantaged people residing in rural India.
Having headed CDFD for its first three years, he served as director
of CCMB (Centre for Cellular and Molecular Biology) for ten.
Under his leadership, several research centres including the

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Advanced Laboratory for Structural Biology, a clinical research

facility (CRF), Laboratory for the Conservation of Endangered
Species (LaCONES), the only lab in the world where forensics of
endangered animals are studied, were initiated.
Among his research areas were molecular basis of sex
determination, wildlife conservation forensics and evolution and
migration of humans. His research on the genomics of Indian
population proved that the tribes of Andaman were among the
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first arrivals from Africa. His research disproved the theory of
Aryan invasion of India.
CCMB Director Rakesh Mishra said of Prof. Lalji, “ His studies
threw new light on the history of settlements in India, of past
pi practices of marriages and endogamy and on the mixing of

different gene pools. ”
Beyond his scientific excellence, he was also known for his
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administrative skills, reflected in the revamp of BHU; under him
excellent student facilities were launched as were cultural
initiatives. With him as vice-chancellor, students’ council elections
were also held for the first time in 2011.
LBNL, how about the whiz kids?
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An article in Quint listed a few stellar

inventions by India’s young geniuses
Anang Tadar, a Class XI student from
Arunachal Pradesh, invented a pair of
unique glasses to assist the visually
impaired move about without hand-aids.
His goggles, named Goggles For Blind (G4B), employ
echolocation technology – found in nature in bats – to make the
wearer aware of objects within 2 metres of its field view.

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Reports had it that UNICEF showed interest in refining and

commercializing his prototype.
Kavya Vignesh, a Class VII student from Delhi, and her team of
six, built a bee saver bot called ‘Lightnight McQueen’.
Kavya, whose team crowdfunded their project, said their project
creates awareness and sensitizes people on how instrumental bees
are to our ecosystem. So, if bees form a hive on buildings or at
places of high human activity, their bot “scans the beehive and
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relocates it by building an enclosure that safely encloses the
beehive and transports it to the nearest bee farm”, harming no bees
or humans in the process, she said.
pi Her team was the youngest ever team from India to enter the First
Lego League - European Open championship in Aarhus in May.
They finished second in the European Robotics Competition.
Md. Rifath Shaarook, of Pallapatti in Karur district of Tamil
ap
Nadu, who completed Class XII this year, and his team, designed
the world’s smallest satellite. The experimental satellite was
successfully launched this June by SR 4 rocket from Wallops
Flight Facility in Virginia, United States.
The experimental satellite, KalamSat, was designed with 3D
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printing technology and made of reinforced carbon fibre. Rifath’s

team worked for more than two years to design the experimental
satellite at a cost of just ₹1 lakh. The only model chosen from
India, it was one of the 80 selected among 86,000 designs
submitted by young participants belonging to 57 countries in the
“Cubes in Space” contest organised by Idoodle Learning in
association with NASA.
A team of female engineering students from Delhi’s Indira Gandhi
Delhi Technical University represented India at the Shell Eco-

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Marathon Asia (SEM) in Singapore in March.

_“For our team this project is not only a platform to exhibit our
technical skills and enhance our knowledge, but also a way to
prove our mettle in the male dominated field of mechanical
engineering,”_Manu Priya Vats the team manager of ‘Team
Panthera’, the only all-woman team from Asia, said.
Their car, ‘IRIS 2.0’, a lightweight car made of aluminium and
carbon fibre, and can cover 300 km on 1 litre of petrol, won the
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Perseverance and Spirit of the Event Award. Beyond engineering
challenges, the team had to convince their parents and then
convince sponsors that an all-girls team could achieve great feats in
pi Mechanical and Automation Engineering. “Not just mechanical

engineering, there are innumerable fields which are considered
unfit for women. The somewhat shocking and amusing experiences
have made us stronger and motivated us further to spread
ap
awareness and work towards this cause,” Vats had told
ScoopWhoop News.
Akash Manoj, of The Ashok Leyland School in Hosur, Tamil
Nadu, developed a skin patch which employs a non-invasive
technique that monitors the level of FABP3 protein in the blood,
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and alert the wearer when there is a risk of a silent heart attack,
which is seemingly asymptomatic but alarmingly common and
very dangerous.
The sudden death of his grandfather directed his medical research
interests towards cardiovascular science. Manoj said his parents’
belief that practical knowledge was better than test scores
helped him pursue his passion. The medical product is likely to
enter the market in 2018 at a cost of Rs 900. Manoj wants the
government to back his invention and not the private industry,
who he feels will kill it due to its cost-effectiveness.

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Devika Malhotra, Malini Dasgupta, and Aditi Arya, class XII of

Mumbai’s Cathedral and John Connon School, built a 3D printed
sanitary napkin dispenser for their school.
They came up with the idea as members of an extracurricular
club at the school, the Innovation, Design and
Entrepreneurship club, which challenges members to solve
everyday problems.
“We kept working on this idea because we really wanted to make a
ly
difference,” Devika said. “Every girl in the class immediately said
it was great, and we needed it,” Malini said. The dispenser, 3-D
printed, uses a coil and light sensor to detects and accept ₹10 notes
pi and releases a sanitary pad.

The girls have set their next milestone as taking this solution to
poorer municipal schools. “We all really need this,” Devika said,
“but girls in public schools need it the most. They often have to
ap
miss school on their period.”
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SCIENCE & TECHNOLOGY / India’s

contribution to the world: ZERO
17-Sep-2017
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pi Latest research on the Bakhshali manuscript revealed that parts of it
were written in the third or fourth century – around 500 years earlier
ap
than thought. This has generated excitement because the manuscript
contains numerous representations of the dot as placeholder values.
This dot was the basis for what is now known as zero and predates a
9th century inscription of zero in an Indian temple as the oldest record.
What is the latest finding?

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The latest research on the

Bakhshali manuscript – famed
as “the oldest extant
manuscript in Indian
mathematics” – extracted three
samples from it and performed radiocarbon dating on them.
The analyses revealed the samples originated in different centuries,
one from 224-383 AD, another from 680-779 AD and another from
885-993 AD. This pushes parts of the manuscript back to the

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third or fourth century, hundreds of years older than

previously surmised.
While it has given scholars a fresh puzzle – how parts from
different centuries came to be packaged as a whole – the
excitement is over the revelation that this manuscript is now the
most ancient known record of the symbol zero as we
understand it today.
Till now, a temple in Gwalior, Madhya Pradesh, a 9th-century
ly
inscription of zero on the wall of a temple at Gwalior Fort in
Gwalior, Madhya Pradesh, was considered the oldest Indian use of
a zero symbol as a placeholder.
In the manuscript too, zero is depicted not as a number in its
pi own right, but as a placeholder in a number system, like the

“0” in “1011” indicates no hundreds.
The finding is of “vital importance” to the history of mathematics, said
ap
Richard Ovenden, head of the Bodleian Library.
Now why would he say that?
Many ancient cultures independently
invented similar placeholder
symbols. The Babylonians adopted
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the double wedge to symbolize

nothing and made it part of the
cuneiform symbols known to be 5,000 years old. The Mayans used a
shell to represent absence in their complex calendar system.
But the dot symbol featured in Bakhshali manuscript is the
foundation for the hollow-centred version of the symbol that
became associated with zero as we know it today, notes the
Bodleain Library.
Also, it was exclusively in India that this zero evolved into a

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number in its own right to establish the concept and the

number zero identified and used in the present day – this took
place in 628 AD, just a few centuries after the Bakhshali
manuscript began to be prepared.
“Today we take it for granted that the concept of zero is used
across the globe and our whole digital world is based on nothing
or something. But there was a moment when there wasn’t this
number. This becomes the birth of the concept of zero in its own
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right and this is a total revolution that happens out of India,” said
Marcus du Sautoy, professor of mathematics at the University of
Oxford.
pi When was the Bakhshali manuscript

found?
Found in 1881, a farmer unearthed it
in a field in Bakhshali, near Peshawar.
ap
Indologist AFR Hoernle acquired it and
presented it in 1902 to Bodleian Library
where it has since remained.
The text, written on birch bark in Sanskrit, appears to be a form of
trading manual for merchant traders doing business across the
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Silk Road, and has practical arithmetic exercises along with

something approaching algebra. “There’s a lot of ‘If someone buys
this and sells this how much have they got left?’” said Du Sautoy.
The manuscript is incomplete, consisting of 70 leaves of birch
bark, the intended order of which remains unknown.
In the format followed, each example is presented as a problem, the
solution is detailed and it is verified that the problem has been
solved. The problems involve arithmetic, algebra and geometry,
including mensuration. The topics covered include fractions,
square roots, arithmetic and geometric progressions, solutions of

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simple equations, simultaneous linear equations, quadratic

equations and indeterminate equations of the second degree.
It uses numerals with a place-value system, using a dot as a
place holder for zero. The dot symbol came to be known as the
shunya-bindu (literally, the dot of the empty place).
Where are some of the earliest known
usages of zero?
“The first evidence we have of zero is from
ly
the Sumerian culture in Mesopotamia, some
5,000 years ago. There, a slanted double
wedge was inserted between cuneiform
pi symbols for numbers, written positionally, to indicate the absence of a

number in a place (as we would write 102, the ‘0’ indicating no digit
in the tens column)”, wrote Robert Kaplan, author of The Nothing That
Is: A Natural History of Zero and former professor of mathematics at
ap
Harvard University.
By 1770 BC, the Egyptians used nfr, a symbol that meant
beautiful, to depict 0 in accounting texts. It was also used to mark
the base level in drawings of tombs and pyramids and distances
were measured relative to the base line.
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By 130 AD, Ptolemy used a symbol for zero. While his zero (a
small circle with a long overbar) was used alone and not just as a
placeholder, and is therefore perhaps the first recorded use of a
number zero in the Old World, the positions were generally
restricted to the fractional part of a number.
Lokavibhaga, a Jain cosmological text, internally dated to AD 458
was considered to contain the oldest known mention of numeral
zero (“0”) and the decimal positional system until the latest
findings on the Bakhshali manuscript.
The origin of the modern decimal-based place value notation

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(base-10 notation) can be traced to the Aryabhatia, a Sanskrit

astronomical treatise, the magnum opus and only known surviving
work of the 5th century Indian mathematician Aryabhata, which
states “from place to place each is ten times the preceding.”.
Though he did not use a symbol for zero, French mathematician
Georges Ifrah contended that knowledge of zero was implicit in
Aryabhata's place-value system as a place holder for the powers of
ten with null coefficients.
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Description and rules regarding the use of zero first appeared
in the Brahmasputhasiddhanta , written by Indian
mathematician and astronomer Brahmagupta in the 7th
century.
pi Who has said what on the findings?

“We now know that it was as early as
the 3rd century that mathematicians
ap
in India planted the seed of the idea
that would later become so
fundamental to the modernworld. The
findings show how vibrant mathematics have been in the Indian sub-
continent for centuries”, said du Sautoy.
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The development of zero as a mathematical concept in India could

reflect the South Asian region’s philosophical tradition of
exploring the void and may explain the delay for the concept to
catch on in Europe, which did not share the cultural reference
points
“This is coming out of a culture that is quite happy to conceive of
the void, to conceive of the infinite,” said Du Sautoy. “That is
exciting to recognise, that culture is important in making big
mathematical breakthroughs.” “The Europeans, even when it was

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introduced to them, were like ‘Why would we need a number for

nothing?’ It’s a very abstract leap.”
Ovenden said the results highlight a Western bias that has
frequently witnessed the contributions of South Asian scholars
being unnoticed, according to an article in The Guardian . “
These surprising research results testify to the subcontinent’s
rich and longstanding scientific tradition, ” he said.
Previous investigations of the Bakhshali manuscript suggested it had
ly
been written sometime between the 8th and 12th centuries, but that
analysis used the style of writing, the literary and mathematical
content, and other factors to make the inference. The new carbon
pi dating findings show why it was so difficult to point the manuscript to

a well-defined period.
The latest analysis is yet to be peer reviewed and published in a
scientific journal, notes an article in Gizmodo. “While we're
ap
referring to this as a research paper it hasn't yet been submitted as
a research paper to a journal/publication,” said a Bodleian
Libraries spokesperson to Gizmodo. “We are providing it so that
writers can see the findings from the carbon dating research in
more detail.”
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How big is ‘0’?

The development of zero in mathematics
was the basis for a phenomenal range
of further work, including the idea of
infinity, the modern explanation of
the vacuum in quantum physics, and
some of the most profound questions in cosmology of how the
Universe came to be – and how it might vanish from existence
in an unimaginable future scenario, writes Hannah Devlin in The

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Guardian.
It is the number which has on one side, all negative numbers
stretching into infinity and on the other, all positive numbers.
Neither positive nor negative, it is the origin point for coordinate
axis.
It is very important as a placeholder. The base-60 system of
Babylonians which had no zeros at the end of numbers brought up
the confusion as 1 looked like 60, 2 like 120 and so on.
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In set theory, 0 is the cardinality of the empty set: no books in the
bag means 0 books in the bag; in propositional logic it may be used
to denote false.
In measurements of absolute temperature, zero Kelvin is the lowest
pi possible value. On the Celsius scale it denotes the freezing point of

water.
Its applications span across mathematics, physics and computer
science among other fields.
ap
—– | —–
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SCIENCE & TECHNOLOGY / 2017: the Biggest

of Science
20-Dec-2017
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pi Has Science, in 2017, passed through some of its “best of times and
worst of times”? While science’s crests and troughs in 2017 show how
ap
much has been accomplished and how much more remains, this year
has witnessed some breakthroughs which set the stage for fascinating
new eras. This knapp lists some of these achievements that made the
most news.
What else did the Universe reveal

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this year?
The LIGO-VIRGO detectors and
scientists showed this year that they
were not quite done yet
Scientists studied an astronomical
phenomenon – the clash of two neutron stars – through
multiple “messengers” – light and gravitational waves.
This breakthrough is said to represent a transition like from the age
of silent movies to the era of movies equipped with sound,

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according to an article in Rappler.

This means we can now see such cataclysmic events and
perceive the gravitational “bang” that reaches us.
For those believers in ET life, the Universe sprung another surprise to
fuel their excitement
On April 19, scientists at the European Organisation for
Astronomical Research (ESO) discovered the strongest candidate
for alien life thus far – the super-Earth named LHS 1140b.
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Located in the habitable zone of a dim star 40 light-years away
from us, it received about 50 percent of light from its star as earth
gets from its sun.
pi “This is the most exciting exoplanet I’ve seen in the past

decade,”author Jason Dittmann of the Harvard-Smithsonian Center
for Astrophysics said in an ESO press release. “We could hardly
hope for a better target to perform one of the biggest quests in
ap
science — searching for evidence of life beyond Earth.”
And then there was the interstellar visitor setting a precedent of its
own; the cigar-shaped asteroid Oumuamua. Astronomers across the
world are scrambling to get the most information about this asteroid
before its final farewell flight. A recent update on Oumuamua read
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“Tumbling and silent”.

Why did hopes for Dengvaxia
dampen?
“Dengue fever infects 390 million
people each year, and kills as many
as 25,000, according to the World
Health Organization”, said a 2016
article in CNN.
The Philippines became the first country where the vaccine

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Dengvaxia could be commercially availed when Philippines’

Department of Health launched a school-based immunization
program in highly affected areas.
The vaccine manufacturer Sanofi Pasteur, the vaccines division of
the multinational pharmaceutical company Sanofi headquartered in
France, said Asia contained around 70 percent of dengue fever
patients, , with the Philippines reporting 200,000 cases in 2013.
The makers of the vaccine had expressed confidence in its
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ability to reduce cases in the Philippines by 24% over the next
five years. The school-based drive led the vaccine to be
administered to 830,000 schoolchildren.
There had been vocal critics of the drive at that time; local
pi health experts raised concerns of risk to those unexposed to dengue

and some noted the cost of the vaccination campaign exceeded the
rest of the country’s immunization program combined, said local
news reports.
ap
But to fight endemic dengue, the Philippines and such countries
wanted a vaccine. _“There was a lot of pressure for Sanofi to
proceed, and of course they wanted to make money from it,”_said
Vincent Racaniello, a professor of microbiology and immunology
at Columbia University’s College of Physicians and Surgeons.
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Now a new warning from Sanofi said that further clinical trials
had revealed that the vaccine could actually make more serious the
disease in those who did not have the infection.
The program has been stalled in the Philippines amidst widely-
held alarm over its safety and mounting public rage over its
reach.
Sanofi’s vaccine is sanctioned in 19 countries and is the first to
fight dengue, a disease spread by mosquitoes that infects about 400
million people worldwide and kills 25,000, mostly in Latin

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America and South Asia, according to an article in NY Times.

Late last month, Sanofi said its new analysis found that vaccination
should not be suggested for people who have never had dengue, a
warning echoed by the World Health Organization. But that only
furthers confusion, because there is no quick test to tell if someone
has had the disease.
Though the risk from the vaccine is low, families are afraid
that it has turned their children into time bombs, in whom the
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virus could trigger a life-threatening illness.
Leovon Deyro, whose youngest son received his last injection of
the vaccine two weeks ago, said he suspects that Sanofi worked
pi with corrupt Philippine officials to bypass regulations, something

the company has denied.
“We weren’t told it was not safe,” Mr. Deyro said. So far, he said,
his son, who is 10, has had no alarming symptoms. But, he added,
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“They made my son and other students as guinea pigs.”
“It’s been very devastating for almost the entire country,” said
Dr. Leonila Dans, an epidemiologist and pediatrician at the
University of the Philippines in Manila who had been an early
critic of the vaccination program. “Even those who are not
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vaccinated are very emotional about it, because they feel for the
kids who had the vaccine.”
Dr. William Schaffner, an infectious disease expert at Vanderbilt
University, said, “It’s hard to think of another circumstance when
a major public health program was introduced with this much
controversy.” The problems with the vaccine rollout have “cast
a pall” on other efforts to develop dengue vaccines, he said.
Sanofi has said that the risk to people who get the vaccine is
still very minimal. Also, in those who have previously been
infected, the vaccine is significantly effective. But fears in

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Philippines, where Sanofi said 10 percent of the children who

were vaccinated probably had no earlier exposure to the virus,
have not been soothed.
W.H.O., which in 2016, issued guidelines on how the vaccine
should be used said, “We did not give a blanket recommendation
that the vaccine should be introduced. This is a decision for
governments and governments alone.”
Dengvaxia was first approved in 2015, and Brazil and the Philippines
ly
initiated government-sponsored vaccination drives. Brazil’s
government said it would go ahead with its program but that it would
follow Sanofi’s recommendation to avoid vaccinating people who have
pi never had dengue.

Dr. Scott B. Halstead, an expert who has been studying dengue
since the 1960s, had warned in a scientific article, at the time of
preparation for the Philippines program, that the vaccine could
ap
place people who had no exposure to the virus at higher risk.
Dr Halstead and other researchers said the potential threat was
not from the vaccine, but from the resultant immune response.
The body’s immune response to the first virus is thought to
make the second illness more severe, a discovery credited to
Kn
Dr. Scott B. Halstead.

Based on this finding, Sanofi initially limited Dengvaxia to
children the age of nine and above, although the company did not
admit that the higher hospitalization of younger children stemmed
from their lack of prior dengue exposure.
At the same time it resisted researchers’ warnings, Sanofi
sought another data analysis. Dr. Su-Peing Ng, the head of
medical affairs of Sanofi Pasteur said prior to this new
analysis, “there wasn’t a robust way in which we could answer
that question. It’s only this new analysis that has given us this

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insight.”
The new analysis found that absence of exposure was linked to an
increased risk of severe dengue; the risk was two extra cases per
1,000 previously uninfected people vaccinated, over five years of
follow-up. And there were no fatalities reported.
Dr. Ng, said in an interview that “there is no cause for alarm,”
adding,“those vaccinated in high-exposure settings are much more
protected than those who were not.”
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Experts in infectious diseases say the vaccine is too valuable to
be halted. “If we wait for the perfect vaccine, we will probably be
talking about this 50 years from now,” said Duane Gubler, an
emeritus professor at Duke-NUS Medical School, who supports
pi using the vaccine, especially where dengue is highly endemic. One

of the inventors of a competing dengue vaccine made by Takeda,
he has consulted in the past for Sanofi.
ap
The backlash from public and the government has researchers
concerned that Sanofi’s mistake would lead to distrust towards
other vaccines around the world.
Pharma companies, who have already shown reluctance to
invest in medicines used chiefly in the developing world, may
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grow more cautious after this.

“I think anybody who deals in emerging markets noticed this one,”
said Les Funtleyder, a health care portfolio manager at E Squared
Capital Management who invests in domestic and emerging
markets. He said that many investors were likely to “ask the big
companies, why are you doing this? It’s like, all risk, no reward.”
In a disturbing fallout, two parents have come out to claim that their
children died of severe dengue after being immunized with Dengvaxia.
The Public Attorney’s Office (PAO) is looking into the claims.

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When else did climate change come into

prominence?
The World Meteorological Association
said early this year that record-pushing
heat in 2016 which made it the hottest
year ever recorded has in 2017, driven
the planet into “truly uncharted territory”.
For several years, scientists have predicted the impact of climate
ly
change on health around the world. An international team of
scientists made an effort to deciphering this problem on a
worldwide level
pi Around the world, people have experienced an average increase in

temperature about 1.5 degrees Fahrenheit, and the study found
several signs that even this little warming endangers the health
of hundreds of millions of people each year.
ap
In the past few years, about 125 million people over age 65
experienced heat waves each year, compared to about 19 million
people each year in the 1990s.
The frequency of floods, droughts and wildfires, collectively, has
risen by 46 percent since the 1980s, rising from about 200 events
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each year to 300 events per year. And climate change is responsible
for some of that increase.
“Communities are hurting. People are reeling globally,” Kim
Knowlton, an environmental researcher at Columbia University,
who studies climate change and health at but wasn’t involved in
this study, says. “And I think this experience might mark a
turning point in the public’s perception of climate change
because people are connecting the dots to their health, here and
now.”
The team also found that the countries’ attitude over the past five

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years was in contrast with the indifference they expressed for as

long as about two decades before that.
Impact of climate change on the weather shocks in U.S. Gulf
Coast, eastern seaboard, Puerto Rico and the Caribbean
Several experts are confident that global warming will make
storms stronger – and is already in action to this end. But on
parameters like frequency, physical breadth and duration
there is less certainty.
ly
Scientists concur that climate change will drive higher storm
surges – a coastal flood or tsunami-like phenomenon of rising
water commonly associated with low pressure weather systems
pi (such as tropical cyclones and strong extratropical cyclones).

Newsroom, an independent New Zealand-based site, was among those
that noted, “It is a bitter irony that the countries that have done the
least to cause climate change are going to suffer the most. Countries
ap
that have minuscule carbon footprints are going to be the first to
suffer the consequences of flooding, drought and displacement”, in
its article on climate change’s violent impact on the future generation
in Africa
The UN’s Intergovernmental Panel on Climate Change (IPCC)
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predicted that Africa will bear the heaviest burden of all areas
affected by climate change. Along with the continent’s stagnant
development, several places in Africa are at a geographical
disadvantage.
Countries such as Ethiopia, Nigeria, and Mali — already some of
the hottest in the world — are expected to heat up 1.5 times more
than the rest of the world.
Impact on Nutrition
Concerns over nutrient depletions among some chief crops due

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to rising carbon dioxide levels reached a critical point.

The difficulty of getting across this troublesome warning to non-
experts was also given attention.
Lower zinc concentrations in wheat and rice could lead to zinc
deficiency in an additional 150 to 200 million people.
Similarly, predicted lowering of iron content in some grains and
legumes are a potential warning to countries with significant
anemia rates, like India and Algeria.
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Whatever the changes, concern is growing, says mathematical
biologist Irakli Loladze of Bryan College of Health Sciences in
Lincoln.
pi Where lay
#SolarEclipse2017?
the appeal
Even non-scientists in the United

States could immerse themselves in
of
ap
the experience. #SolarEclipse2017 was
a collage that represented the
phenomenon in completeness, including phenomenal photos of the
total solar eclipse.
For scientists, there was much to look forward to; the eclipse
Kn
gave them a rare and precious opportunity to examine the

sun’s chemistry, Einsteinian relativity and Earth’s place in the
Solar System, according to an article in Scientific American .
Even as the Sun’s chemistry is being probed, it is known that
hydrogen, also among the earliest elements of the Universe, makes up
most of the Sun’s mass.
At the beginning of this year, scientists proved, eight decades
after the prediction, that they could create metallic hydrogen.
For the first time, this world held hydrogen in its metallic state,

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created by the application of almost five million atmospheres of

pressure to liquid hydrogen.
The potential of metallic hydrogen lies in its ability to act as a
true superconductor, ushering in revolutions in fields ranging
from energy storage to rocketry.
Whom did we start out as?
Human origins are very hard to trace
to a point. Fossil and genetic research
ly
this year suggested a reason for this:
Our species does not have a definite
starting point in time or place.
pi The first biological stirrings of humankind occurred at a time of

evolutionary experimentation in the human genus, Homo, said an
article in Science News.
In June, the discovery of five ancient Moroccan fossilized skulls
ap
challenged the belief that humans originated 200,000 years ago,
for these skulls, teeth and bones have been traced to at least a
lakh years further into the past.
And in May, Australian and New Zealand scientists’ discovery brought
back attention on Charles Dawin’s informal suggestion that life on
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Earth originated in a “warm little pond”.

Ancient hot springs deposits in the Pilbara contained 3.48 billion-
year-old fossils, showing there existed life on land billions of
years earlier than records could vouch for. Comparing the
fossils to similar rocks from Rotorua led the research team to infer
that the hot springs once held a diverse range of life, lending
support to the idea that life might have developed in and around
hydrothermal vents.
How has CRISPR achieved a breakthrough again?

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CRISPR/Cas 9, a gene-editing
technique that has rapidly gained
fame, achieved new milestones this
year
In August, US scientist shared a
study in which they employed
CRISPR in human embryos to clip out a mutation linked to a
congenital heart condition. The researchers demonstrated that the
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technique was safe, and said they saw no evidence of ill effects
such as unwanted mutations. But their results prompted concerns
over the interpretation of the data.
pi In September, another group reported fixing human embryos that

carried the recessive genes for a blood disease, in which both
copies have the problematic mutation. The team cloned embryos
from human skin cells, and then edited single bases in the DNA to
ap
set the defects right.
This year also witnessed closure of a 15-month gene-editing
controversy.
In May 2016, Chinese researchers described a new gene-editing
method using an enzyme NgAgo, and said that the technique had
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many advantages over CRISPR–Cas9. But soon afterward, reports

criticized their work, and said it was irreproducible. The study
authors withdrew their article this August.
But the patent battle over CRISPR-Cas9 is yet to be resolved.
How much closer is the quantum revolution?
In March, IBM announced the first commercial quantum-
computing service that will enable users to practise on a working
quantum machine. The company says its 20-qubit system will be
ready for clients by the end of 2017.

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Chinese scientists built the first quantum satellite network

which proves the viability of quantum communications from
space.
In a paper published 16 June 2017 in Science, researchers from the
Chinese Academy of Sciences said the satellite had successfully
distributed entangled photons between three different terrestrial
base stations, a distance of as much as 1,200 kilometers apart. The
result is the longest entanglement ever realized, and the first that
ly
spanned between the Earth and space. Researchers said the system
“opens up a new avenue to both practical quantum
communications and fundamental quantum optics experiments at
distances previously inaccessible on the ground.”
pi How is science confronting and combating political challenges?

An article in Nature highlights the interplays of science and politics
this year
ap
Political turmoil
One week after assuming office, US President Donald Trump
signed a broad executive order that banned citizens of seven
majority-Muslim countries from entering the United States for 90
days — stranding some researchers in transit and leaving several
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others fearful that they would have to leave studies or jobs at US

institutions.
In March, Trump, a self-confessed sceptic of climate change,
previewed his budget proposal for the 2018 funding year, calling
for huge cuts at the National Institutes of Health (18%) and the
Environmental Protection Agency (EPA; 31%). Congress has so
far withstood pressure from the White House to make many of the
reductions that he has sought.
He also set a record as this year comes to its end, for going longer

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without a science adviser than any first-term president since at least

1976. An article in Nature noted that the White House Office of
Science and Technology Policy now has about one-third the
number of staff members it had under the previous president,
Barack Obama.
In June, he announced that the United States would withdraw
from the 2015 Paris climate accord. Later in the year, the EPA
started towards repealing former president Barack Obama’s
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landmark regulations to curb greenhouse-gas emissions from
power plants. The agency also blocked scientists who have current
EPA grants from serving on agency advisory committees.
In August, the Trump administration disbanded a federal advisory
pi committee that was set up to help businesses, states and local

governments make use of the next national climate assessment, due
in 2018. The first part of the report, a 477-page analysis of climate
science that was released in November, highlighted that humans
ap
are the dominant cause of global warming.
2017 witnessed a wave of activism among researchers.
First, the Women’s March witnessed a significant turnout of
scientists and the March for Science held three months later
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encompassed hundreds of similar protests around the globe.

2017 also saw a rise in number of scientists running for public
office in the United States.
Separation fears
In March, the UK government shocked researchers by affirming it
would withdraw from Euratom, a European agency overseeing
fusion research and nuclear regulation. Scientists continued to
report being excluded from EU collaborations and losing
colleagues to other countries.

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And in September, the government released a policy on science

and Brexit that contained goals for negotiations but with few
specifics.
However, campaigners cheered a decision to permit EU nationals
to remain in the United Kingdom once it leaves the union, and a
pledge to spend more on research and development; from 1.7% of
gross domestic product in 2015 to 2.4% by 2027.
Europe, South America and East Asia
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Leaders in France pledged to increase science spending, and
Canada resurrected its chief science adviser position after nearly
ten years without one. Science enjoys broad support in Germany,
pi but the breakdown in November of negotiations to form a coalition

government left the country’s politics in turmoil.
Brazil’s ongoing political and economic chaos led to the lowest
science budget the country has seen in 12 years.
ap
Scientists in Japan are worried that stagnant research funding could
erode the future of the country’s research, despite the government’s
continued push for innovation.
China’s president promised to make his country “a nation of
innovators”. The government introduced policies in clinical
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medicine to fast-track new drug approvals as well as sterner

penalties — including prison — for people who submit faked
clinical-trial data.
In Europe, a fierce battle over logging in Poland’s Białowieża Forest,
a World Heritage Site, was fought throughout 2017.
In July, the European Court of Justice (ECJ) issued an interim
ruling that directed the Polish government to cease active forest
management — including felling trees — in the area at once unless
there was a danger to public safety.

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The government says logging and removing dead wood, which

continued despite the court order, is necessary to combat an
outbreak of spruce bark beetle.
The ECJ announced on 20 November that it would enforce a
penalty of at least €100,000 (US$118,000) per day, which could
begin accruing as early as December, if the country failed to
implement the ban.
Sexual harassment secrets came out into the open in 2017 and science
ly
was no exception
In August, the University of Washington in Seattle fired prominent
microbiologist Michael Katze for breaking university rules,
pi including those prohibiting sexual harassment and conflicts of

interest.
At the beginning of the dispute in 2015, Katze sued university
officials for removing him from his laboratory — a case he lost. By
ap
the end, one university investigation concluded that Katze had
sexually harassed two employees under his supervision, and a
second investigation found he had asked staff to take on personal
errands for him, among other alleged conflicts.
In September, the University of Rochester in New York was
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rocked by protests after news outlets reported on its handling of

charges against faculty member and cognitive scientist Florian
Jaeger.
The university twice investigated allegations that Jaeger had
sexually harassed students and postdocs and created a hostile work
environment, and twice concluded that he had not violated the
school’s policies. Seven current and former faculty members, along
with a former graduate student, presented the complaints on behalf
of students and postdocs. Disappointed with the university’s
findings, they took the allegations to the media and filed a federal

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lawsuit against the university on 8 December. University officials

established a new committee to investigate; the results of which are
expected by 12 January. They have declined to comment until then
as have Jaeger and his lawyer.
In November, following a 13-month investigation, Boston
University in Massachusetts found geology professor David
Marchant guilty of sexual harassment of a graduate student during
a field expedition to Antarctica in 1999–2000. The US House of
ly
Representatives Committee on Science, Space and Technology is
also looking into the reports because Marchant receives federal
research grants. Marchant, who said the charges were untrue, has
appealed against the findings, according to his attorney. He is on
pi leave from the university.

Even as political strife took a toll on the world this year, a first-of-its-
kind scientific collaboration happened in the Middle East
ap
SESAME, the Synchrotron-light for Experimental Science and
Applications in the Middle East, was launched on 16 May. Project
members of the region’s first X-ray source include Jordan, the
Palestinian Authority, Israel, Cyprus, Egypt, Iran, Pakistan and
Turkey. SESAME’s first beamline, designed to probe the
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properties of materials and archaeological artefacts, went live in

November; three more are scheduled to begin by the end of 2018.
—– | —–

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SCIENCE & TECHNOLOGY / Artificial

Intelligence / Marvin Minsky – the father of
Artificial Intelligence
27-Jan-2016
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pi Marvin Minsky, a pioneering mathematician, cognitive scientist, and
ap
computer engineer, and the father of the field of Artificial Intelligence
(AI), passed away at his home on 24th January 2016 at age 88. In his
decades of computer science research, machine learning and futurist
musings on the future of AI technology, Minsky became a legend for
his ideas.
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What are the five important

predictions of Minsky?
Robots will keep us as pets.
Minsky said in the paper: “Will
robots inherit the earth? Yes, but they
will be our children.”
If aliens are out there, we’ll be able to communicate with them.
Minsky was instrumental in the decision to send mathematical

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algorithms into outer space, based on this theory.

Coding will become irrelevant.
While programmers are still very much in demand in 2016, there’s
something to be said for the various ‘click-and-drop’ programs out
there for creating codeless projects.
Neuroscience was on to nothing.
He went on to say that AI and mathematics were the obvious ways
ly
to solve the answers of the human mind.
AI will be solved before 1980.
Speaking in 1967 he said: “Within a generation the problem of
pi creating artificial intelligence will substantially be solved.”

Why is he considered “the Father of
AI”?
Well before the advent of the
ap
microprocessor and the
supercomputer, Minsky laid the
foundation for the field of AI by
demonstrating the possibilities of imparting common-sense
reasoning to computers.
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He was one of the very few people in computing whose visions and
perspectives liberated the computer from being a glorified adding
machine to start to realize its destiny as one of the most powerful
amplifiers for human endeavors in history.
Inspired by mathematical work on logic and computation, Minsky
believed that the human mind was fundamentally no different than
a computer, and he chose to focus on engineering intelligent
machines, first at Lincoln Lab, and then later as a professor at MIT,
where he co-founded the Artificial Intelligence Lab in 1959 with

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another pioneer of the field, John McCarthy.

When was he presented the Turning
Award?
The ACM A.M. Turing Award is an
annual prize given by the Association
for Computing Machinery (ACM) to
“an individual selected for
contributions of a technical nature made to the computing
ly
community”.
It is expected that “the contributions should be of lasting and major
technical importance to the computer field”.
pi The Turing Award is generally recognized as the highest

distinction in computer science and the “Nobel Prize of
computing”.
For his central role in creating, shaping, promoting, and advancing
ap
the field of AI, Marvin Minsky was given this award in 1969.
Above are the other important awards received by Mr. Minsky.
Where are the applications of AI?
Artificial intelligence (AI) is the
intelligence exhibited by machines or
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software.
It is also the name of the academic
field of study which studies how to
create computers and computer software that are capable of
intelligent behavior.
The central problems (or goals) of AI research include reasoning,
knowledge, planning, learning, natural language processing
(communication), perception and the ability to move and
manipulate objects.

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General intelligence is still among the field’s long-term goals.

The field was founded on the claim that a central property of
humans, human intelligence — the “sapience” of Homo sapiens —
“can be so precisely described that a machine can be made to
simulate it.”
Today it has become an essential part of the technology industry,
providing the heavy lifting for many of the most challenging
problems in computer science.
ly
Who was Mr. Minsky?
Marvin Lee Minsky (August 9, 1927
– January 24, 2016) was an
pi American cognitive scientist in the

field of artificial intelligence (AI).
He was the co-founder of the MIT’s
AI laboratory, and author of several texts on AI and philosophy.
ap
He held a BA in Mathematics from Harvard (1950) and a PhD in
Mathematics from Princeton (1954).
He had been on the MIT faculty since 1958.
In 1959, he and John McCarthy founded what is now known as the
MIT Computer Science and Artificial Intelligence Laboratory.
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During his PhD days in Princeton, he mingled with scientists

including the physicist Albert Einstein and the mathematician and
computer pioneer John von Neumann.
Contributions:
Artificial intelligence, Confocal microscope, Useless machine,
Triadex Muse, The Society of Mind & Frame.
Intellectual movement: Trans humanism.
Books: Perceptrons, The Society of Mind and The Emotion
Machine.

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How did Minsky revolutionize the

field of AI?
Here are some of Minsky’s greatest
achievements in AI:
In 1951, Minsky built “SNARC”
(Stochastic Neural Analog
Reinforcement Calculator) - a neural network that could be
considered the first artificial learning machine.
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The lab was part of the ARPAnet - the precursor to the internet -
and helped pioneer the notion that software should be shared freely
(open-source).
pi In the 1960s, Minsky developed some of the first mechanical arms,

laying the foundation for modern robotics.
During the early 70s, along with computer scientist Seymour
Papert, he developed “The Society of Mind” theory of human
ap
intelligence (in his 1986 book), based on research in developmental
child psychology and artificial intelligence.
Director Stanley Kubrick consulted Minsky for his film “2001: A
Space Odyssey,” according to The New York Times - which
contains perhaps the most famous AI in film history, HAL 9000.
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Intelligence / The machine’s own language
30-Nov-2016
ly
pi The Google Brain Artificial Intelligence (AI) has taught itself to
translate between two languages without prior training. For example,
ap
training the AI to translate from Korean to English and English to
Japanese will equip it to translate from Korean to Japanese; a challenge
for machines so far. Massive data are required to enhance translation
accuracy and computational cost is significant. This advancement has
the potential to reduce these burdens.
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What is the latest advancement in

Google’s translation capabilities?
The Google Brain AI has created an
algorithm all by itself – an interlingua –
to teach it translation between two
languages without being taught how to
do so.
According to a post in the Google Research Blog, if the neural
network is taught to translate from Japanese to English and vice

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versa and English to Spanish and vice versa, it can figure out how
to translate from Japanese to Korean and vice versa. This method
has produced reasonable results. Google calls it zero-shot
translation.
The post says this is the first time – to the best of their knowledge –
that zero-shot translation has been successfully realized in
Machine Learning.
On observing the zero-shot translation behavior, researchers
ly
wondered how the machine was going about it. A study of the
underlying mechanism revealed that the system was not merely
memorizing phrase-to-phrase translations; it was storing
pi information about the meaning of the sentence. Researchers

inferred this must be due to the existence of an interlingua.
The interlingua used the information it had learnt to work out what
it had not been taught. It does this by creating a common
ap
representation in which sentences with the same meaning are
represented in a similar way irrespective of language.
Google in its post dated November 22 said the Multilingual Google
Neural Machine Translation system could be used by Google Translate
users today and that Multilingual systems served 10 of the recently
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launched 16 language pairs, and provided superior quality on a

simplified production architecture.
Why is this remarkable even for
Google?
While Google Translate had definitely
gotten past the stage of funny
translations that made one grin or
grimace, the tons of data required to
improve the accuracy has been a drawback. So for any two

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languages, say English and Tamil, one needed to feed the English
version and the acceptable Tamil version.
Google Translate works on over 140 billion words daily. At the
backend, this means building and maintain of several different
systems to accomplish translation between any two languages.
The computational cost is huge.
This new discovery means that to accomplish a Tamil to Kannada
translation one does not have to feed a separate Tamil version
ly
and corresponding Kannada version if the system already
knows how to translate from Tamil to English and English to
Kannada through the appropriate data sets.
While the achievement may seem a fairly easy task for humans, it
pi is a great leap forward for machines. For the first time AI has
shown that it can perform translation tasks without being
trained beforehand.
ap
Most importantly the AI used its self-learnt skills to translate between
two languages to create its own interlingua.
When did Google adopt neural
machine translation?
Google introduced neural machine
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translation (GNMT) this September

to handle inter-conversion between
Chinese-English pairs. Converting
from Chinese to English and vice versa was a daunting task for
machines. The new system was employed on the mobile and web
platforms and Google computer scientists said it reduced errors by 60
percent.
Before this Google used Phrase-Based Machine Translation which
split sentences into words and phrases for translation.GNMT

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differed by taking the entire sentence as its input. The accuracy

improved when engineers made it pick out and handle rare and
vague words separately. Bilingual humans continuously gave
feedback on the new system.
GNMT processes 18 million requests daily and the team managed
to tweak it to provide an optimal performance.They designed
customized chips for their TensorFlow – an open source
framework for Machine Learning. These chips handled the
ly
massive computations to produce the target language results
rapidly.
GNMT provided translation results comparable to that achieved by
humans as bilingual people were employed to coach the system.
pi Where did this proceed to?

In November, in the biggest ever update
so far, GNMT’s capabilities were
ap
expanded to handle eight language
pairs. With French, German, Japanese,
Korean, Portuguese, Spanish and
Turkish, GNMT could work on 35 percent of the translation
requests on Google.
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Google wanted to extend the capabilities to all the 103 languages

Google Translate handled. But while this would provide
substantial improvement in the quality of translation, scaling was a
daunting challenge. The AI would have to work with 10,609
models and be fed with data for 103^2 language pairs.
To address this issue, Google made a single system translate
between multiple languages (multilingual system) by sharing the
translation knowledge between language pairs. The blog post on
this multilingual system explained, “This transfer learning and the
need to translate between multiple languages forces the system to

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better use its modeling power.”

This fuelled the curiosity of the engineers and led them to ask if
their system could accomplish translation between language pairs it
had not had prior exposure to.
The answer (Yes Indeed!) has been elaborated in the What section of
this knapp.
Who benefits most from machine
translators?
ly
This section focuses on Google Translate
Users of Google Translate can enable
pi translation at the tap of a widget. The

annoyance of copy paste is eliminated and
translations of chat texts, comments, articles and lyrics are
obtained much more easily. Tap to Translate was due to arrive in
India, Thailand, Indonesia and Brazil.
ap
Offline mode of Google Translate in Android and iOS phones is a
lifesaver for foreign travelers in far off places where Internet
connection is unreliable. As of May this year, it supported 52
languages. When combined with Word Lens – as of January last
year this feature was available only for 7 languages; the number
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was 29 by this May – the effort to translate foreign text on road

signs or any other printed text became as minimal as holding
the phone in front of the text.
Business owners can overcome language barriers and find out
crucial information to evaluate the potential of their product in
different countries by using Google Global Market Finder.
Google has said that 90 percent of Translate Users are outside US.
Therefore to sustain the app it is necessary to increasingly cater to
the requirements of this huge user base.

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How did Google Brain’s AI

demonstrate its capabilities recently?
The neural networks showed they could
invent their own encryption strategy
and get better at it with practice.
Researchers at Google Brain
experimented on three networks – named Alice, Bob and Eve – for a
start.
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Each system was trained for a specific role – Alice was the sender,
Bob the receiver and Eve the eavesdropper. Alice had to make sure
her message was understandable only to Bob while Eve had to try
pi and foil her plan. Alice and Bob worked out a key that only they
both knew.
Despite poor performance in the initial attempts, with practice
Alice improved on her encryption strategy and Bob could decipher
ap
the message while Eve could guess only 8 of the 16 bits forming
the message.
While this machine invented encryption is very basic, yet to be
exactly understood and cannot be vouched for in practical
applications, it has excited researchers.
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Intelligence / The ‘Big Red Button’ for AI
13-Jun-2016
ly
pi Researchers are painting doomsday scenarios of machines taking over
humans and have warned that Artificial Intelligence (AI) could
ap
threaten humanity. One expert even suggested that Google’s historic
win over Go world champion proves AI can be ‘unpredictable and
immoral’. Some researchers think it’s important to develop systems to
“interrupt” AI programs, and to ensure the AI can’t develop a way to
prevent those interruptions.
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What do the researches want?

As more tech companies get
involved with artificial
intelligence, breakthroughs in
AI have begun occurring at a
faster rate and every big tech
company in cloud computing is working to develop AI in various
capacities. This includes Facebook, Amazon, Google, and
Microsoft.

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The possibility of artificially intelligent machines rising up to

destroy their creators has long been a staple of science fiction. If
this happens, which many philosophers and tech entrepreneurs
seem to think is likely, it could result in rampant activity beyond
human control.
With this in mind, researchers at Google DeepMind are working on
a “big red button” that would interrupt an AI that looks to be
heading down a worrying path. The button should also be smart
ly
enough to prevent the machines from learning how to de-activate
it!
Why the recent interest in AI
pi safety?
Many AI milestones, which
experts viewed as decades away
merely five years ago, have
ap
now been reached, making
many experts take seriously the possibility of super intelligence in
our lifetime.
While some experts still guess that human-level AI is centuries
away, most AI researches at the 2015 Puerto Rico Conference on
Kn
the same subject guessed that it would happen before 2060.

Since it may take decades to complete the required safety research,
it is prudent to start it now.
Because AI has the potential to become more intelligent than any
human, we have no sure-fire way of predicting how it will behave.
We can’t use past technological developments as much of a basis
because we’ve never created anything that has the ability to,
wittingly or unwittingly, outsmart us.
The best example of what we could face may be our own
evolution. People now control the planet, not because we’re the

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strongest, fastest or biggest, but because we’re the smartest.

If we’re no longer the smartest, are we assured to remain in control?
When will the red button not work?
The concept behind the red button is
that of rewards i.e. robot may learn
that there are quicker or more
convenient ways for it to achieve its
ly
goals.
Consider this example: A robot tasked with either sorting boxes
inside a warehouse, or going outside to bring boxes in. As the latter
is more important, the scientists reward the robot more for that task
pi so it learns to favour that action.

But when it rains, the robot will continue to work outside without
worrying about being damaged. In this case, a human might have
to press the red button, shutting the robot down and carrying it
ap
inside.
However, that human intervention changes the environment the
robot is operating in, and can lead to two problems: the robot could
begin to learn that the scientists want it to stay indoors, meaning it
might ignore the more important task.
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Or, potentially worse, it could still favour the harmful action, and
just view the interruption as an obstacle it should try to avoid. In
resisting human intervention, the AI could even learn to disable
the red button. It’s a disturbing thought.
Where is AI being explored?
Facebook: The social media giant is
reportedly using artificial intelligence to
produce detailed maps illustrating
population density and the access to

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internet across the globe and helping

blind people ‘see’ photos by using artificial intelligence to narrate
them via its iOS app.
Elon Musk: The founder of Tesla and Space X is joining forces
with other tech giants such as Amazon Web Service, LinkedIn and
PayPal to form open source AI. This open AI non-profit project
aims to responsibly develop artificial intelligence that maximises
its benefits on mankind. Musk once hinted that one tech company,
ly
Google, worried him more than any other when it came to self-
learning software.
Google: Google bought artificial intelligence start-up DeepMind
for a huge $400 million, and focuses its AI investment on Machine
pi Learning, which will be found in its image and speech recognition

technology and translation applications. It mimics the way the
human brain works and recognises patterns.
Microsoft: Its project Oxford aims to understand its users with
ap
face, emotion and speech application program interfaces (APIs).
They have developed an emotion detection service that can assign
an emotion to a person depending on their facial expression. This
kind of facial recognition allows photos to be edited depending on
the feelings expressed in them.
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Apple: It is reported that Apple aims to develop Siri further and

use Vocal IQ’s speech AI software.
Who have warned against Artificial
Intelligence?
Stephen Hawking has warned that
artificially intelligent machines could
kill us because they are too clever. “The
real risk with AI isn’t malice but
competence,” Professor Hawking said. “A super intelligent AI will

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be extremely good at accomplishing its goals, and if those goals

aren’t aligned with ours, we’re in trouble”.
Elon Musk called the prospect of artificial intelligence “our
greatest existential threat” in a 2014 interview. “I’m increasingly
inclined to think that there should be some regulatory oversight,
maybe at the national and international level, just to make sure
that we don’t do something very foolish.” Mr. Musk cites his
decision to invest in the Artificial Intelligence firm, DeepMind, as
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a means to “just keep an eye on what’s going on with artificial
intelligence. I think there is potentially a dangerous outcome
there.”
Microsoft co-founder Bill Gates has also expressed concerns about
pi Artificial Intelligence, “I am in the camp that is concerned about

super intelligence. First the machines will do a lot of jobs for us
and not be super intelligent. That should be positive if we manage
it well. A few decades after that though the intelligence is strong
ap
enough to be a concern. I agree with Elon Musk and some others
on this and don’t understand why some people are not concerned.”
Note: A ‘superintelligence’ is a hypothetical agent that possesses
intelligence far surpassing that of the brightest and most gifted human
minds. It is defined as “an intellect that is much smarter than the best
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human brains in practically every field, including scientific

creativity, general wisdom and social skills.” The computer programs
which consistently beat humans in Chess cannot qualify as super-
intelligence because they are not better in all fields (just one – chess).
How can AI be dangerous?
The following examples illustrate, the
concern about advanced AI isn’t
malevolence but competence. Experts
think these two scenarios are possible:

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The AI is programmed to do
something devastating: Autonomous weapons are artificial
intelligence systems that are programmed to kill. In the hands of
the wrong person, these weapons could easily cause mass
casualties. Moreover, an AI arms race could inadvertently lead to
an AI war that also results in mass casualties. To avoid being
thwarted by the enemy, these weapons would be designed to be
extremely difficult to simply “turn off,” so humans could plausibly
ly
lose control of such a situation.
The AI is programmed to do something beneficial, but it
develops a destructive method for achieving its goal: This can
happen whenever we fail to fully align the AI’s goals with ours,
pi which is strikingly difficult. If you ask an obedient intelligent car to

take you to the airport as fast as possible, it might get you there
chased by helicopters and covered in vomit, doing not what you
wanted but literally what you asked for. If a super intelligent
ap
system is tasked with an ambitious geoengineering project, it might
wreak havoc with our ecosystem as a side effect, and view human
attempts to stop it as a threat to be met.
—– | —–
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Intelligence / AI without humans
19-Oct-2017
ly
pi In a major breakthrough for artificial intelligence, Google’s AlphaGo
program, devised by the tech giant’s AI division Deep Mind, took just
ap
three days to master the ancient Chinese board game of Go with no
human help. The new AlphaGo Zero began with a blank Go board and
no data apart from the rules, and then played itself till it mastered the
massively complicated game. This is a spectacularly fascinating and
scary leap of the machine.
Kn
What is the big tech development?

Google’s artificial intelligence group,
DeepMind, has unveiled the latest
incarnation of its Go-playing program,
AlphaGo – an AI so powerful that it
derived thousands of years of human
knowledge of the game before inventing better moves of its own, all
in the space of three days. In an article in the journal Nature,
DeepMind announced that it has built a final version of its prolific

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digital Go master: AlphaGo Zero.

AlphaGo Zero is being hailed as a major advance in AI because it
mastered the ancient Chinese board game Go from scratch,
and with no human help beyond being told the rules. In games
against the 2015 version, which famously beat Lee Sedol, the
South Korean grandmaster, AlphaGo Zero won 100 to 0. On May
25, 2017, Ke Jie, the world’s number one player of the complex
strategy board game, lost to the software three out of three games.
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The current feat marks a milestone on the road to general-purpose
AIs that can do more than thrash humans at board games. Because
AlphaGo Zero learns on its own from a blank slate, its talents
pi can now be turned to a host of real-world problems.

What is Go?
Go is thought to date back to ancient China, several thousand years
ago. Using black and white stones on a grid, players gain the upper
ap
hand by surrounding their opponents’ pieces with their own.
The rules are simpler than those of chess, but a player typically
has a choice of 200 moves at most points in the game, compared
with about 20 in chess. It can be very difficult to determine who is
winning, and many of the top players (humans) rely on instinct.
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Draws are rare, and a typical game retains a fluidity and dynamism
far longer than comparable games. An early mistake can be made
up, used to advantage, or reversed as the game progresses. There is
no simple procedure to turn a clear lead into a victory - only
continued good play. The game rewards patience and balance over
aggression and greed; the balance of influence and territory may
shift many times in the course of a game, and a strong player must
be prepared to be flexible but resolute.
Beyond being merely a game, Go can take on other meanings to its

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devotees: an analogy for life, an intense meditation, a mirror of one’s

personality, and exercise in abstract reasoning, a mental “workout” or,
when played well, a beautiful art in which black and white dance in
delicate balance across the board.
And now, this is the game that computers have conquered.
Note: DeepMind was bought by Google for £400 million in 2014.
Why is the development getting
ly
everybody excited?
AlphaGo was never just about
board games. The aim was to
pi make the computer smarter by

giving it a complicated task, such
as playing Go. The 3,000-year-old Chinese game played with black
and white stones on a board has more move configurations possible
than there are atoms in the Universe. When the computer got smarter,
ap
it was made to play against humans till it learnt to defeat the best of
humans.
The AlphaGo Zero program is a distillation of previous systems
DeepMind has built: It’s more powerful, but simpler and doesn’t
require the computational power of a Google server to run. And it
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is much smarter. When pitted against the version of AlphaGo

that beat world champion Lee Sedol, AlphaGo Zero won 100-0.
The most important new modification is how AlphaGo Zero
learned to master the game. It doesn’t analyze data from Go
games humans have played before, unlike past versions. It
learns only by playing the game against itself. AlphaGo Zero
isn’t the first algorithm to learn from self-play — Elon Musk’s
nonprofit OpenAI has used similar techniques to train an AI
playing a video game — but Zero’s capabilities show that it’s one

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of the most powerful examples of the technology to date.

“By not using this human data, by not using human features or
human expertise in any fashion, we’ve actually removed the
constraints of human knowledge,” David Silver, who led the
AlphaGo team, said. “It’s able to therefore create knowledge for
itself.”
That’s how the system earned its name: Zero human knowledge.
DeepMind CEO Demis Hassabis says this approach is crucial to
ly
AlphaGo’s applicability outside the lab or off the Go board. By
building an algorithm that can learn from a blank slate, the
company says it can now be applied to other real world problems.
pi “For us AlphaGo wasn’t just about winning the game of Go, it was
also a big step for us towards building general purpose learning
algorithms,” he said.
Instead of Go moves, DeepMind claims the AlphaGo Zero
ap
algorithm will be able to learn the interactions between
proteins in the human body to further scientific research, or
the laws of physics to help create new building materials.
The idea of using AI to help mine the vast potential combinations of
molecules to build a super-battery or some other futuristic device isn’t
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new; Hassabis has been saying it for years. But AlphaGo Zero
represents the company’s first major vehicle that some researchers
agree can help us get there.
“Drug discovery, proteins, quantum chemistry, material design, think
about it, maybe there is a room-temperature superconductor out and
about there,” Hassabis says now, alluding to a hypothetical metal that
would be able to perfectly conduct electricity. “I used to dream about
that when I was a kid reading through my physics books. That would
be the Holy Grail, a superconductor discovery.”

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When did Zero become an expert?

Writing in Nature, the researchers describe
how AlphaGo Zero started off terribly,
progressed to the level of a naive
amateur, and ultimately deployed
highly strategic moves used by
grandmasters, all in a matter of three days.
It discovered one common play, called joseki, in the first 10 hours.
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Other moves, with names such as “small avalanche” and “knight’s
move pincer” soon followed. After three days, the program had
discovered brand new moves that human experts are now
pi studying! Intriguingly, the program grasped some advanced

moves long before it discovered simpler ones, such as a pattern
called ladder that human Go players tend to grasp early on.
“It discovers some best plays, josekis, and then it goes beyond
ap
those plays and finds something even better,” said Hassabis. “You
can see it rediscovering thousands of years of human
knowledge.”
“AlphaGo Zero not only rediscovered the common patterns and
openings that humans tend to play… it ultimately discarded them in
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preference for its own variants which humans don’t even know
about or play at the moment,” said AlphaGo lead researcher David
Silver.
This is a trial-and-error process known as “reinforcement learning”.
The “learning from humans” part is called supervised learning,
while the self-play is called reinforcement learning. DeepMind
also built some code into how AlphaGo interpreted the game
board, like which pieces were its own and whether like pieces were
next to each other.

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“It left open this question: Do we really need the human

expertise?” says Satinder Singh, a professor specializing in
reinforcement learning at the University of Michigan, who wrote a
review of the new paper in Nature. “AlphaGo Zero is a really
pleasing, pure reinforcement learning success. Pure learning
through experience.”
AlphaGo Zero doesn’t have hints from humans that previous
systems had, like which pieces are whose or how to interpret the
ly
board. It simply sees black and white pieces, called stones, on the
board. It plays itself thousands of times, randomly at first,
rewarded for winning and punished for losing.
“If we learn the game of Go purely through supervised learning,
pi the best you could hope to do would be as good as the human

you’re imitating…” Singh said. “Through self-play you could learn
something completely novel.”
ap
That is why AlphaGo Zero could beat the version of AlphaGo that
beat a world champion after training for just 36 hours and earned
its 100-0 score after 72 hours. That previous version took “weeks” to
train, according to DeepMind.
The idea is simple
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Originally, the DeepMind team taught AlphaGo to play the ancient

game using a deep neural network — a network of hardware and
software that mimics the web of neurons in the human brain. This
technology already underpins online services inside places like
Google and Facebook and Twitter, helping to identify faces in
photos, recognize commands spoken into smartphones, drive
search engines, and more.
If you feed enough photos of a lobster into a neural network, it can
learn to recognize a lobster. If you feed it enough human dialogue,
it can learn to carry on a halfway decent conversation. And if you

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feed it 30 million moves from expert players, it can learn to play

Go.
Where are the concerns?
The AlphaGo team says they don’t
know AlphaGo Zero’s upper limit
— it got so strong that it didn’t
seem worth training it anymore.
It’s not brute computing power
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that did the trick either: AlphaGo Zero was trained on one machine
with 4 of Google’s speciality AI chips, TPUs, while the previous
version was trained on servers with 48 TPUs. There is something in the
pi algorithm that makes it learn better and much faster than humans. And
that is where it gets scary.
Lee Sedol is one of the most skilled humans on the planet when it
comes to the ancient game of Go — watching him lose to a
ap
machine over and over again is hard to take for any self-
respecting human.
The 34-year-old has spent almost his entire life practicing and
perfecting the game of Go. He’s a national treasure in his home
country of South Korea and he’s renowned for playing beautiful
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moves that other players can’t think of. Sedol confidently strolled
into the tournament expecting to beat AlphaGo 5-0, or 4-1 at the
very least. The look on his face after he lost the first game was
something to behold.
Sedol put up his best resistance, and brought the best of his
lifetime’s learning against the machine. After all, his reputation
was at stake after the game was hyped up as the event where the
software would conquer the human. Sedol lost the ‘tournament’ 4-
1.

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We are all Sedols

You could feel that Sedol was not just fighting for his reputation
but also for the dignity of humans. You are very much on the side
of Lee Sedol, or to put it another way, humanity as a whole. But
humanity is now losing to machines, one game at a time.
He hasn’t played against AlphaGo Zero, but considering that Zero
has defeated AlphaGo 100-0, one can imagine the fate of Sedol
against Zero.
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Tom Mitchell, a computer scientist at Carnegie Mellon University
in Pittsburgh called AlphaGo Zero an “outstanding engineering
accomplishment”. He added: “It closes the book on whether
pi humans are ever going to catch up with computers at Go. I guess

the answer is no. But it opens a new book, which is where
computers teach humans how to play Go better than they used
to.”
ap
For all that was written about the 1997 victory of Deep Blue over
chess grand champion Garry Kasparov, it’s often forgotten that
IBM retired the chess A.I. immediately after that match. Some
have speculated that it was to avoid risking tainting DeepBlue’s
victory with a later loss, while others say IBM’s chess experiment
had simply run its course.
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AI is already in your daily life. Facebook uses AI for targeted

advertising, photo tagging, and curated news feeds. Microsoft and
Apple use AI to power their digital assistants, Cortana and Siri.
Google’s search engine from the beginning has been dependent on
AI. All of these small advances are part of the chase to eventually
create flexible, self-teaching AI that will mirror human learning.
But DeepMind’s AlphGo is an experiment that just keeps crossing
milestones. The engineers at DeepMind are among the best in the
world, and building a board-game A.I. is never going to satisfy

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them for long.

Many in Silicon Valley were intrigued to learn that DeepMind
CEO Hassabis, a skilled chess player and former video-game
designer, once came up with a game called Evil Genius, featuring a
malevolent scientist who creates a doomsday device to achieve
world domination. An investor in DeepMind once joked as he left a
meeting that he ought to shoot Hassabis on the spot, because it was
the last chance to save the human race.
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Elon Musk began warning about the possibility of A.I. running
amok three years ago. It probably hadn’t eased his mind when one
of Hassabis’s partners in DeepMind, Shane Legg, stated flatly, “I
pi think human extinction will probably occur, and technology will

likely play a part in this.”
Before DeepMind was gobbled up by Google, in 2014, as part of
its A.I. shopping spree, Musk had been an investor in the company.
ap
He told that his involvement was not about a return on his
money but rather to keep a wary eye on the ‘arc of AI.’ “It gave
me more visibility into the rate at which things were improving,
and I think they are really improving at an accelerating rate, far
faster than people realize. Mostly because in everyday life you
don’t see robots walking around. Maybe your Roomba or
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something. But Roombas aren’t going to take over the world.”

In a startling public reproach to his friends and fellow techies,
Musk warned that they could be creating the means of their
own destruction. He told Bloomberg’s Ashlee Vance, the author
of the biography Elon Musk, that he was afraid that his friend
Larry Page, a co-founder of Google and now the C.E.O. of its
parent company, Alphabet, could have perfectly good intentions
but still “produce something evil by accident” - including,
possibly, “a fleet of artificial intelligence-enhanced robots capable

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of destroying mankind.”
Computer scientist David Gelernter says the coming of computers with
true humanlike reasoning remains decades in the future, but when the
moment of “artificial general intelligence” arrives, the pause will be
brief.
Once artificial minds achieve the equivalence of the average
human IQ of 100, the next step will be machines with an IQ of
500, and then 5,000. “We don’t have the vaguest idea what an
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IQ of 5,000 would mean,” Gelernter wrote in The Wall Street
Journal.
As artificial intelligence imitates more of the qualities we consider
pi uniquely human, it raises existential questions, such as: What will do

when a computer takes our jobs? When we prefer its company to
human company? When it makes art we love? How will it feel to be
taken over?
ap
The only comforting part is that AlphaGo is not programming itself.
Not yet.
Note: A tensor processing unit (TPU) is an application-specific
integrated circuit (ASIC) developed by Google specifically for
machine learning. Compared to a graphics processing unit, it is
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designed explicitly for a higher volume of reduced precision

computation (e.g. as little as 8-bit precision) with higher input/output
performance (IOPS) per watt, and lacks hardware for
rasterisation/texture mapping. The chip has been specifically designed
for Google’s TensorFlow framework.
Who is the mind behind AplhaGo?
Demis Hassabis is the CEO and cofounder of DeepMind. But the real
mind of DeepMind is David Silver, the main programmer on the Go
team.

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Despite contributing to more research

papers (16 now) than any other
DeepMind employee, Silver has largely
stayed out of the limelight. He
consulted for DeepMind from its
inception and joined full-time in 2013.
He’s got an impressive academic record, having achieved top
marks in his computer science class at Cambridge University,
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which is where he met and befriended Hassabis, who reportedly
taught Silver how to play board games, including Go. “Dave and I
have got a long history together,” Hassabis told in February. “We
used to dream about doing this [creating powerful AIs] in our
pi lifetimes, so our 19-year-old selves would probably have been

very relieved that we got here.”
After Cambridge, Silver cofounded the videogames company
Elixir Studios, where he was CTO and lead programmer, winning
ap
a number of awards for technology and innovation.
Silver returned to academia in 2004 to study for a PhD on
reinforcement learning in computer Go, making him an ideal
recruit for DeepMind. During his PhD, he cointroduced the
algorithms used in the first “master-level” Go programs. However,
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they could only beat humans on 9x9 boards, not the standard 16x16
boards, which allow for more moves, thereby making them harder
for computers to grasp.
DeepMind has been relatively quiet about who builds the AIs that
are taking on the best humans at computer games like “Space
Invaders” and Go. The latest paper in Nature does not reveal the
algorithm but merely says that capable programmers will be able to
understand how it works from the paper itself.
“We’re really lucky,” says Hassabis, who compares his company to

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the Apollo program and Manhattan Project for both the breathtaking
scale of its ambition and the quality of the minds he is assembling at an
ever increasing rate. “We are able to literally get the best scientists
from each country each year. So we’ll have, say, the person that won
the Physics Olympiad in Poland, the person who got the top maths
PhD of the year in France. We’ve got more ideas than we’ve got
researchers, but at the same time, there are more great people coming
to our door than we can take on. So we’re in a very fortunate position.
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The only limitation is how many people we can absorb without
damaging the culture.”
Leading them all is Silver, who is worth his weight in gold.
pi How scared we must be of the future?

In Game Four, mustering all his skills
and will, Sedol, the human, made a move
that no machine would ever expect. And
ap
it was beautiful too. Indeed, it was just as
beautiful as the move from the Google
machine — no less and no more. It showed that although machines
are now capable of moments of genius, humans have hardly lost
the ability to generate their own transcendent moments. And it
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seems that in the years to come, as we humans work with these

machines, our genius will only grow in tandem with our creations.
Think about what happens when you put these two things together.
The human and the machine. Fan Hui is the European champion
of Go, and has lost many games to AlphaGo. But he will tell you
that after five months of playing match after match with
AlphaGo, he sees the game completely differently. His world
ranking has skyrocketed. And apparently, Lee Sedol feels the same
way now.

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Hassabis says that he and the Korean met after Game Four, and
that Lee Sedol echoed the words of Fan Hui. Just these few
matches with AlphaGo, the Korean told Hassabis, have opened his
eyes.
The proponents of AI say that the game isn’t human versus machine.
It’s human and machine.
The essence of artificial intelligence is massive, intuitive
computing power: machines so smart that they can learn and
ly
become even smarter. If that sounds creepy, you are overthinking
the concept. The machines are becoming quicker and more
nimble, not sentient. There is no impending threat to humanity
pi from computers that become bored and plot our doom.

Experts hoping to illustrate the potential of artificial intelligence
without frightening people conjure the image of the know-it-all
yet submissive digital assistant. It will know where to buy the
ap
perfect gift, based on algorithms that understand the latest trends
and your family’s preferences. And oh, it noticed that you’re
walking funny. Is your back acting up again? At the hospital, it will
analyze an MRI better than doctors can.
The frontiers are limitless: analyzing stocks, managing energy use,
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discovering new drugs. “I think we’re going to need artificial

assistance to make the breakthroughs that society wants,” Hassabis
told Wired magazine. “Climate, economics, disease — they’re just
tremendously complicated interacting systems. It’s just hard for
humans to analyze all that data and make sense of it.”
The message is: be awed, but not afraid. Technically, computers may
outthink us, but humans will always have the edge because we are
more creative. After all, we built the machines.
But what if the machines learn how to rebuild humans?

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—– | —–
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pi
ap
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Intelligence / Are bots the new apps?
3-Apr-2016
ly
pi Microsoft’s “chatbot” Tay may have suffered a racist meltdown last
week, but the company is not giving up on artificial intelligence (AI).
ap
Microsoft unveiled several prototype bots at its annual Build
conference on 31st March. These will further Nadella’s vision of
“conversation as a platform”. He bets big on AI that will be fast, smart,
friendly and (fingers crossed) not at all racist.
What are bots?

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As the number of mobile apps and their

utility increases day by day, it’s getting
harder to download, set up, manage and
switch between so many apps on our
mobile device.
As an alternative, messaging apps are becoming the new platform,
subsuming the role played by the mobile operating system. This is
similar to the past trend of browser replacing the desktop OS as the
new platform.

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The messaging bots are replacing mobile apps now. Bots are the
new apps and their store is the new app store.
To put it bluntly, bots are messaging apps with artificial
intelligences that more easily respond to our requests and
perform actions in the real world.
If you are a small e-commerce firm, for example, you’ll be able to
create a bot that facilitates a customer’s ability to order.
If you are an end user, you just interact with numerous ‘bots’ to do
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everything from booking hotels and managing our diaries, to
ordering pizza.
Why was the need for bots felt by
pi Microsoft?
By any measure one might consider,
Microsoft’s Windows platform for
smartphones has been a failure.
ap
It squandered billions of dollars in a
failed effort to build a mobile device platform.
Microsoft believes the world will soon move away from apps —
where Apple and Google rule — into a phase dominated by chats
with bots. Thus Microsoft has shifted its focus from mobile apps to
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bots.
“[It’s] a simple concept that’s very powerful in its impact,”
Nadalla said at Build developer conference on 31st March. “We
think this can have as profound an impact as the previous platform
shifts have had.”
With the release of the Microsoft Bot Framework, developers will
now be able to have their own go at creating their own chatbots.
When and how can productivity be increased with bots?
Bots can both, initiate action as well as respond to requests. For

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example,
Messaging bots can read and write
messages just like a human would.
E-commerce bots can enable buying of
goods and services.
Food bots can order dinner.
Content bots can share relevant content such as weather.
Watcher bots can notify you when specific events happen.
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Banking and trading bots can provide financial services.
Interestingly, we can have a bot for bots! When you have too many
bots, your Personal Assistant bot manages the communication with the
pi other bots for you, escalating only the high-priority requests for which
you’ve trained it.
Where does the future for bots lie?
The tech industry has begun to
ap
embrace bots with a fervor unseen
since the early days of the App Store.
Though the developer community has
much expectation, most people haven’t
even used a bot yet. Bot’s user interface, nothing more than a blank
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text box, can be challenging to navigate for many.

We may get a better picture, when Facebook opens up its
Messenger to third-party bots created by developers, which is
expected to be on 12th April. Overnight, more than 800 million
people could have access to bots that perform an ever-increasing
number of tasks.
In a brave new bot-filled world, with new possibilities and new
risks, Microsoft is betting that bots ‘are the new apps’.
Last week, Microsoft launched @TayandYou, a “chat bot”

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designed to engage people on Twitter.

The company’s Technology and Research teams claimed that
chatting with Tay would make it smarter, thanks to the wonders of
machine learning.
Who is Tay?
Tay is an artificial intelligence chatterbot
for the Twitter platform released by
Microsoft Corporation on March 23rd.
ly
Hours after Tay’s public release,
pranksters figured out how to teach Tay
to spew racist comments and posted them for all to see.
pi Relatively mild example: “Bush did 9/11 and Hitler would have
done a better job than the monkey we have now.”
It was a huge embarrassment for Microsoft. The company didn’t
program the bot to act like a Nazi; it simply didn’t prepare Tay for
ap
the usual Internet trolls. Tay may look like some badly planned
research experiment, but she’s actually one part of a big Microsoft
bet on AI.
Due to her inflammatory tweets, she was taken offline around 16
hours after her launch.
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“We were probably overfocused on thinking about some of the

technical challenges, and a lot of this is the social challenge,” Lili
Cheng, Microsoft research lab, says. “We all feel terrible that so
many people were offended.”
How is Microsoft strategizing bots
development after Tay failure?
Even after Tay embarrassment,
Microsoft is not only sticking with bots,
it is sticking with Tay itself. It plans to

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rerelease her once it can make the bot safe.

The day after Tay came down, Nadella e-mailed the team, telling
them to “keep pushing,” and expressing his hope that they will use
this episode as “the rallying point”.
The bigger question is: will bots replace apps? Satya Nadella said
that bots could replace apps in the future.
Many feel that chatbots will work in tandem with apps and quite
possibly take away jobs from people.
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Entirely replacing apps might be too much of a stretch.
For Microsoft, it should balance the cool and creepy aspects of the
technology as it releases tools for developers to write their own
bots, as well as its own, like Tay, a playful chat bot that ran amok.
pi —– | —–
ap
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Intelligence / China’s real plan for Artificial
Intelligence
23-Jul-2017
ly
pi In China, cutting-edge innovation often comes with orderly, numbers-
ap
heavy government mandates. Artificial intelligence (AI) is no
exception. Beijing has outlined plans to become a world-leader in AI
by 2025, laying down a challenge to U.S. dominance in the sector amid
heightened international tensions over military applications of the
technology. With the bulk of its economic output coming from
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manufacturing, China is supposed to benefit the most from automation

resulting from AI.
What has China unveiled?

China unveiled a national artificial
intelligence (AI) development plan
and said it expects the value of its core
AI industries to exceed 150 billion
yuan by 2020 and 400 billion yuan
($59.07 billion) by 2025.

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China will look to be an international leader in AI technology by

2025 and will encourage cross-border cooperation as part of the
strategy, China's State Council said in a notice on its website.
“The situation with China on national security and international
competition is complex… we must take initiative to firmly grasp
this new stage of development for artificial intelligence and create
a new competitive edge,” it said.
The plan comes as the US is poised to bolster its scrutiny of
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investments, including artificial intelligence, over fears that
countries including China could access technology of strategic
military importance. It follows a similar national AI development
plan released by the US in October last year.
pi The report says China aims to catch up to global leaders by

rectifying existing issues including a lack of high-end computer
chips and equipment, software and trained personnel.
It outlines strategic plans to strengthen links between private firms,
ap
research bodies and military bodies to promote mutual
development in AI.
It also says it will increase the role of government in guiding
development of AI with policy support and market regulation as
well as developing AI safety assessments and control capabilities.
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China has already begun investing heavily in artificial intelligence

technology, including a mix of private and state-backed initiatives.
Several top Chinese firms have established research bases in the
US, including Baidu Inc. and Tencent Holdings Ltd. This year AI
was named as a strategic technology by Chinese Premier Li
Keqiang in an annual report that lays out the most important
leadership priorities.
Why is China looking to boost its AI investment?
With this major push into AI, China is looking to rival U.S. market

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leaders such as Alphabet Inc's Google and

Microsoft Corp, as it is keen not to be left
behind in a technology that is increasingly
key from smart cars to energy.
“The local and central government are
supporting this AI effort,” said Rui
Yong, chief technology officer at PC maker Lenovo Group,
speaking on the sidelines of an AI conference in Shanghai. “They
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see this trend coming and they want to invest more” he added.
The plan highlights China’s ambition to become a world power
backed by its technology business giants, research centers and
pi military, which are investing heavily in AI.

Globally, the technology will contribute as much as $15.7
trillion to output by 2030, according to a PwC report last month.
That’s more than the current combined output of China and India.
ap
Key development areas for Beijing include AI software and
hardware, intelligent robotics and vehicles, virtual reality and
augmented reality.
“Artificial intelligence has become the new focus of international
competition,” the report said. “We must take the initiative to firmly
grasp the next stage of AI development to create a new competitive
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advantage, open the development of new industries and improve

the protection of national security.”
Chinese AI-related stocks advanced Friday. CSG Smart Science &
Technology Co. climbed as much as 9.3 percent in Shenzhen
before closing 3.1 percent higher, while intelligent management
software developer Mesnac Co. surged 9.8 percent after hitting the
10 percent daily limit in earlier trading.
Another report from Accenture Plc and Frontier Economics last
month estimated that AI could increase China’s annual growth rate

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by 1.6 percentage point to 7.9 percent by 2035 in terms of gross

value added, a close proxy for GDP, adding more than $7 trillion.
Since when is China trying to
dominate in AI?
In recent years, China’s leadership has
been increasingly thinking about how
to ensure their competitive edge in the
AI industry. The acceleration of
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China’s policy efforts to advance AI development began in 2014,
when President Xi Jinping called for innovation and
breakthroughs in science and technology, including AI, at the
pi opening ceremony of the 17th Congress of the Chinese Academy of

Sciences.
Following 2014, a series of national economic initiatives, including
the 13th Five Year Plan (March 2015), Made in China 2025
ap
(May 2016), Robotics Industry Development Plan (April 2016),
and Three-year Guidance for Internet Plus Artificial
Intelligence Plan (May 2016), all provided guidelines to boost AI
R&D.
Just prior to the opening of the 2017 Two Sessions the Political
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Conference in China, China’s top economic planner, the National

Development and Research Commission (NDRC), launched a
national engineering laboratory for the research and application of
‘deep learning’, appointing China’s tech giant, Baidu, Inc., to lead
the lab.
The creation of a national AI laboratory is just one of the many
steps taken by NDRC to boost R&D in AI. In 2016, the NDRC
announced that it would create an AI market worth more than
US$15.26 billion by 2018

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China’s rapid progress in AI research has been remarkable.

An October 2016 White House report indicated that in 2016, the
number of academic research papers published in China in the
field of deep learning exceeded the number published by U.S.
researchers.
Further, a recent Nikkei Asian Review study finds that Chinese
patent applications in the segment of AI grew to 8,410 between
2010 and 2014, a 186 percent increase from the previous five-
ly
year period between 2005 and 2009.
Although many Chinese tech companies have made technological
breakthroughs within their fields of expertise, it will take years
pi before the practical application of AI technology will be realized,

and perhaps longer before it is mature enough for monetization.
However, scientists often refer to AI as the core of the next wave
of industrialization, and whoever leads the frontier in the AI
ap
industry will possess a strong hold of future growth. Therefore,
China is investing heavily in its AI industry, as a strategic choice to
enjoy long-term opportunities and lead the world by dominating
this field.
Where does this pose a threat to
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the USA?
The United States appears poised
to heighten scrutiny of Chinese
investment in Silicon Valley to
better shield sensitive
technologies seen as vital to U.S. national security. Of particular
concern is China's interest in fields such as artificial intelligence and
machine learning, which have increasingly attracted Chinese capital in
recent years.

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The worry is that cutting-edge technologies developed in the

United States could be used by China to bolster its military
capabilities and perhaps even push it ahead in strategic industries.
The U.S. government is now looking to strengthen the role of the
Committee on Foreign Investment in the United States
(CFIUS), the inter-agency committee that reviews foreign
acquisitions of U.S. companies on national security grounds.
An unreleased Pentagon report warns that China is skirting U.S.
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oversight and gaining access to sensitive technology through
transactions that currently don't trigger CFIUS review. Such deals
would include joint ventures, minority stakes and early-stage
investments in start-ups.
pi It also says it will increase the role of government in guiding

development of AI with policy support and market regulation as
well as developing AI safety assessments and control capabilities.
China has already begun investing heavily in artificial intelligence
ap
technology, including a mix of private and state-backed initiatives.
Several top Chinese firms have established research bases in
the U.S., including Baidu Inc and Tencent Holdings Ltd.
Lenovo's Rui said official support for AI was because it was seen
as the latest “industrial revolution” akin to the advent of the
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combustion engine, electricity or the Internet.

“They see the fourth industrial revolution as coming, (and think)
we better invest and support and build a very strong ecosystem,”
said Rui.
Who are currently the big players in
the field of AI?
Artificial intelligence is the new frontier
for many global tech leaders, with
everybody from Google parent Alphabet

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to Tesla plowing money into the

burgeoning field.
It's hard to pinpoint the exact path that AI will take, but with
companies such as Google, Facebook and Microsoft making huge
strides and Stephen Hawking and Elon Musk calling for AI to be
regulated and monitored, it is definitely a hotly debated topic.
In 2014, Google bought artificial intelligence startup DeepMind for
a whopping $400 million to complete one of the largest AI
ly
acquisitions to date. DeepMind has since been used to find the
quickest route between underground stations, defeat champion
players of the board game ‘Go’, and to improve healthcare.
pi Google has also made its machine learning system TensorFlow

free to anyone who wants it, and in July 2017 it launched a new
project to study and redesign the ways people interact with AI
systems called People + AI Research initiative (PAIR).
ap
Microsoft Ventures, initially founded in January 2016, is a VC
fund created by Microsoft that focuses on “investing in AI
companies focused on inclusive growth and positive impact on
society”, along with machine learning, big data, the cloud, security
and SaaS.
Since then, Microsoft Ventures has co-led funding of two artificial
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intelligence startups, Agolo and Bonsai. Angolo uses AI to create

summaries of information, in real-time, while Bonsai enables the
automated management of machine learning algorithms.
According to The Next Web, Facebook is helping blind people ‘see’
photos by using artificial intelligence to narrate them via its iOS
app. By using neural networks, the Facebook app will generate a
description for every photo e.g. “three women smiling with
champagne”.
In addition, Facebook is reportedly using artificial intelligence to

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produce detailed maps illustrating population density and the

access to internet across the globe.
Baidu, known as “China's Google,” is a $55 billion company
headquartered in Beijing. It's working on speech recognition
intelligence called Deep Speech 2.
With Uber investing heavily in autonomous driving technology,
it's not a big surprise that it would invest in AI operations,
potentially rivalling those of tech giants Google, Microsoft and
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Facebook.
Other big companies include IBM, Spotify, SalesForce, NVidia,
OpenAI and Apple.
pi Just how big is the potential in the

field of AI?
Artificial intelligence may not be so
threatening after all. Amid warnings of
ap
the economic disruption that robots
and automation could unleash on the
world economy as traditional roles disappear, researchers are finding
that new technologies will help fuel global growth as productivity
and consumption soar.
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Artificial intelligence has the potential to fundamentally transform

the world around us – the way we communicate, work, and conduct
our daily lives. AI will contribute as much as $15.7 trillion to the
world economy by 2030.
Gains would be split between $6.6 trillion from increased
productivity as businesses automate processes and augment their
labor forces with new AI technology, and $9.1 trillion from
consumption side-effects as shoppers snap up personalized and
higher-quality goods, according to the report.
Bank of America Corporation (BAC) expects the current robots

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and artificial intelligence solutions market at $153 billion by the

year 2020 including $83 billion for robots, and $70 billion for AI-
based analytics.
Global GDP, which stood at about $74 trillion in 2015, will be
14 percent higher in 2030 as a result of AI, according to PwC’s
projections.
“The mindset today is man versus machine,” Anand Rao, an AI
researcher at PwC in Boston, said at a briefing at the World
ly
Economic Forum’s Annual Meeting of the New Champions
gathering in Dalian, China. “What we see as the future is man and
machine together can be better than the human.”
PwC found that China, the world’s second-biggest economy,
pi stands to gain more than any from AI because of the high

proportion of gross domestic product derived from
manufacturing. “The impact of AI on China will be huge and
greater even than the impact on the U.S.,” Rao told reporters at a
ap
briefing on the report.
While the applications based on AI are already visible in healthcare
diagnostics, targeted treatment, transportation, public safety,
service robots, education and entertainment, it will inevitably gain
prominence in other fields in the years ahead.
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Overall, although the future of AI-based technologies will be

determined by weighing its benefits against risks and costs which these
AI-based technologies present, technology giants are already
positioned ‘to bring and be a part’ of these transformational changes.
—– | —–

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Intelligence / It is ‘AI First’ for Google
19-May-2017
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pi As it continues to further its core mission of “organizing the world’s
information”, Google is moving from a mobile-first to an artificial
ap
intelligence (AI)-first world, said CEO Sundar Pichai at the Google I/O
2017 developers conference. All of Google’s innovations are now
being clubbed under an umbrella unit called Google.ai, which
comprises Research, Tools and Applied AI. Machine Learning, Deep
Data and Computer Vision are the hottest focus areas of the technology
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giant.
What is Google doing now?

Way back in 1998, Google came into
being with a product that would
change the way we used the Internet.
It brought Google Search to the
world. Search made the gigantic
World Wide Web shrink to a bite-sized chunk of a search results page.
It was a simple interface, which did not come in the way of the people.

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It made the lives of people easier so much so that Googling became an

Oxford dictionary-approved verb. Since then, somehow everything
Google came out with had been related to providing that kind of
simplicity. The mission to make lives simpler using technology
showed in every product of the company. It’s no surprise thus, that
after helping people get around in the web, introducing the world’s
most popular mobile operating system, and providing accessibility
through its cloud storage service, the next logical step would be to
ly
make machines and bots servile to humans.
19 years after introducing search, Google is now putting its eggs in
the AI basket. Almost every Google product has been infused with
pi neural networks, which learn the habits of the users they serve
and become smarter and better. Deep data and machine learning
allow Google to provide the highest quality of service to over a
billion users.
ap
Addressing thousands of developers at the annual Google I/O
conference on 17 May, Google CEO Sundar Pichai outlined the
company’s new strategy to transition from ‘mobile first’ to
artificial intelligence and machine learning. The goal is to equip
the company’s line of digital assistant products and services to
anticipate the needs of users, and comprehend sights and sounds in
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ways never before possible on a massive scale.

Google’s deep learning and computer vision capabilities have
advanced dramatically, according to Pichai, and now impact
everything from cloud computing to Gmail, search and mobile
devices.
“In an AI-first world, we are rethinking all our products,” Pichai
said, adding that the company is using machine learning (ML),
deep learning (DL) and computer vision in all its products — be it
search, data centres, medical imaging, cloud, Google Assistant, the

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newly-launched Google Lens for Google Assistant, Google Home,

or hands-free calling on Google Home. All these innovations are
now being clubbed under an umbrella unit called Google.ai, which
comprises Research, Tools and Applied AI.
Note:
Machine Learning is the science of getting computers to act
without being explicitly programmed. In the past decade, machine
learning has given us self-driving cars, practical speech
ly
recognition, effective web search, and a vastly improved
understanding of the human genome. Machine Learning at its most
basic is the practice of using algorithms to parse data, learn from it,
pi and then make a determination or prediction about something in the

world. So rather than hand-coding software routines with a specific
set of instructions to accomplish a particular task, the machine is
“trained” using large amounts of data and algorithms that give it
ap
the ability to learn how to perform the task. Machine learning is so
pervasive today that you probably use it dozens of times a day
without knowing it.
Another algorithmic approach from the early machine-learning
crowd, Artificial Neural Networks, came and mostly went over
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the decades. Neural Networks are inspired by our understanding of

the biology of our brains – all those interconnections between the
neurons. But, unlike a biological brain where any neuron can
connect to any other neuron within a certain physical distance,
these artificial neural networks have discrete layers, connections,
and directions of data propagation. This is called Deep Learning.
Computer Vision is an interdisciplinary field that deals with how
computers can be made for gaining high-level understanding from
digital images or videos. From the perspective of engineering, it
seeks to automate tasks that the human visual system can do.

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Why does Pichai believe this change

is necessary?
Sundar Pichai, CEO of Google, noted
that when Google was founded in
1998, there were about 300 million
people using the Internet, the vast
majority of who were sitting at desktop computers and looking for
answers that came in the form of blue links.
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But today, the Internet community is closer to three billion people,
and users are searching for all kinds of help across different
contexts and devices, from cars and classrooms to homes and the
pi phones in their pockets.

Sundar believes the last 10 years were about building a mobile-
first world, turning smartphones into remote controls for our lives.
But in the next 10 years, the shift will be towards a world that
ap
is AI-first, a world where computing becomes universally
available — be it at home, at work, in the car, or on the go — and
interacting with all of these surfaces becomes much more natural,
intuitive, and intelligent.
Putting AI first doesn’t cut out mobile. In fact, mobile hardware
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and software remain a crucial part of Google’s strategy, but now all
of it is infused, at some level, with artificial intelligence and,
especially, machine learning.
The argument of a coming AI apocalypse has grown boring now,
especially because it invariably makes the leap from the nascent forms
of AI we experience now to a terrifying future were every robot can
out-think and, eventually, annihilate us. But if that nightmare ever has
to unleash upon us, the first steps would be taken by Google. Perhaps
they already have been taken.

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When did Google unveil a

machine-learning framework?
Among the AI development tools
unveiled on May 17 is the latest
iteration of the company’s
TensorFlow machine learning
framework called the Cloud Tensor Processing Unit (TPU). The
four-processor board is described as a machine learning “accelerator”
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that can be accessed from the cloud and used to train machine-learning
models. Each board delivers up to 180 teraflops of computing
horsepower.
pi Cloud TPUs “are optimized for both training and inference,”

explained Google CEO Sundar Pichai. Running on the Google
Compute Engine, the company said its AI accelerators could be
mixed-and-matched with the latest Volta GPU announced by
ap
Nvidia last week or Skylake CPUs from Intel.
The AI initiative addresses the reality that building and training
machine learning models is an often arduous and expensive
process. Greater availability of tools like TPU also responds to the
underlying lack of skilled developers, Pichai added.
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Other machine learning tools included in the AI initiative include

APIs for speech and computer vision, the company added. Google
is promoting its new cloud processors as nothing short of “an
important advancement in technical infrastructure for the AI era.”
Google is attempting to differentiate its cloud service as best suited
for deep learning and machine learning development.
Note:
TensorFlow is an open source software library for machine
learning across a range of tasks, and developed by Google to meet

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their needs for systems capable of building and training neural

networks to detect and decipher patterns and correlations,
analogous to the learning and reasoning which humans use. It is
currently used for both research and production at Google products.
A graphics processing unit (GPU), occasionally called visual
processing unit (VPU), is a specialized electronic circuit designed
to rapidly manipulate and alter memory to accelerate the creation
of images in a frame buffer intended for output to a display device.
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GPUs are used in embedded systems, mobile phones, personal
computers, workstations, and game consoles.
Skylake is the codename used by Intel for a processor
microarchitecture which was launched in August 2015 succeeding
pi the Broadwell microarchitecture. Skylake uses the same 14 nm

manufacturing process technology as its predecessor Broadwell,
serving as a “tock” in Intel’s “tick-tock” manufacturing and design
model.
ap
Tick-Tock was a model once used by chip manufacturer Intel
Corporation to follow every change to the microarchitecture with a
die shrink of the process technology, originally adopted in 2007.
Every “tick” represented a shrinking of the process technology of
the previous microarchitecture (sometimes introducing new
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instructions, as with Broadwell, released in late 2014) and every

“tock” designated a new microarchitecture. Every year to 18
months, there is expected to be one tick or tock.
Where are the
key areas of
implementation?
From revealing
more about
Android O to

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Android Go to Google Home, this year’s I/O demonstrated Google’s

strength as a software powerhouse. Here are key announcements of the
conference, and how Google is making more user-friendly products
with the help of machine learning and artificial intelligence (AI):
Android O and Android Go: During the keynote, Notification
Dots, Google Play Protect, Smart Text Selection, and much more
were announced. A new Android O beta is available for download.
Instead of collaborating with smartphone makers to build a low-
ly
cost hardware, Google will offer a lightweight version of Android
O. This will essentially allow developers and hardware
manufacturers to make cheaper phones, packing low cost
pi components that will still offer a smooth and fluid user experience.
Google said the first smartphone with Android GO will hit the
markets only in 2018.
Google Home: Rivaling Amazon’s Echo smart speaker, it has a
ap
slew of new features. Perhaps the most significant feature is that
Home users will be able to make hands-free phone calls, through
the device. Google is also launching a new compelling feature
called “proactive assistance”. Home will alert users of upcoming
traffic, meetings etc, based on their schedule.
Google Assistant: Assistant is also coming to the iPhone for the
Kn
first time. This is big news itself. In terms of new features, instead
of communicating to the Assistant with the voice, you can also type
your queries. Google Assistant will also now take advantage of
Google Lens, allowing users to take a photo at real world items to
get information via Assistant.
Standalone VR headsets coming: Google is working hard to
crack the virtual reality market. To make sure it offers a right
product to its customers, the search giant announced standalone VR
headsets will be available starting later this year. The company has

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roped in HTC — maker of high-end Vive headset — and PC maker

Lenovo to make a standalone Daydream VR headset. Google has
collaborated with chipmaker Qualcomm to come up with a
reference design.
Google Photos: Google is adding a bunch of new features to
Photos app. The first among them is Suggested Sharing, which
will heavily rely on machine learning to remind you to share
photos with people who appear in them. Then there is something
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called Shared Libraries, which will let users share their entire
library with any person. Google Lens feature is being integrated
into Photos as well. So you’ll be able to point your smartphone at
real-world objects around you, and instantly view useful
pi information about them.

Who are the competitors?
Alphabet Inc., Google’s parent
ap
company, has been heavily investing
in moonshot (futuristic) projects and
in its quarterly earnings report noted
that it spent nearly $1 billion on ‘other
bets’. But Google is not alone in its quest for AI dominance. Other tech
Kn
giants and legacy players too have been investing resources into
developing their machine learning and AI capabilities.
Amazon: Amazon launched Amazon Echo, a voice-activated smart
home speaker, and also has a machine learning initiative under its
cash-cow Amazon Web Services (AWS). Both these initiatives
make heavy use of AI and machine learning. Amazon Founder and
CEO, Jeff Bezos considers AI to be in its early stages of a decade-
long trend.
Facebook: While Mark Zuckerberg’s most recent focus has been
on curing diseases through the Chan Zuckerberg Foundation,

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Facebook has been investing heavily in artificial intelligence

through a range of open-source AI projects and also improving
image recognition features of photos uploaded on Facebook.
Facebook also has an AI wing — Facebook AI Research (FAIR)
— that aims to leverage machine intelligence and develop
technologies to give people better ways to communicate.
Microsoft: Microsoft may have lost the ‘smartphone wars’ to
Google and Apple but is looking to ride the AI wave. Microsoft’s
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machine learning capabilities include their Azure cloud but under
CEO Satya Nadella’s leadership the company recently announced
the launch of a new division to focus on AI. The new division
includes the company’s Information Platform Group, Bing and
pi Cortana product groups, and ambient computing and robotics

teams, which takes the total headcount to 5,000 computer scientists
and engineers.
IBM: Unlike other recent entrants, IBM has been in the AI space
ap
since the 1950s. Arthur Samuel developed a checkers player
that learned from experience, which is considered to be the
earliest and most influential examples of machine learning. 40
years later, IBM Research’s chess-playing program Deep Blue
made history when it beat Gary Kasparov. More recently, IBM’s
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Watson has been at the forefront for its progress in AI and

machine learning.
OpenAI: While a lot of global tech giants are rapidly advancing to
develop their AI capabilities, OpenAI, a non-profit artificial
intelligence (AI) research company is not equally optimistic about
the future of AI. OpenAI’s co-chairs include Sam Altman (CEO of
startup incubator Y Combinator) and Elon Musk (CEO of SpaceX,
Tesla) with former CTO of Stripe Greg Brockman heading the tech
team. Pieter Abbeel, Yoshua Bengio, Alan Kay, Sergey Levine,
and Vishal Sikka are advisors to the group. The goal of the

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organisation is to “advance digital intelligence in the way that is

most likely to benefit humanity as a whole, unconstrained by a need
to generate financial return.”
How does this have implications for
policy-making?
Technology companies aren’t just funding
big things — they are funding the biggest,
most world-changing things. They are
ly
spending on ideas that, years from now,
we may come to see as having altered life for much of the planet.
At the same time, the American government’s appetite for funding
pi big things — for scientific research and out-of-this-world

technology and infrastructure programs — keeps falling, and it
may decline further under President Trump.
This sets up a looming complication: Technology giants, not the
ap
government, are building the artificially intelligent future. And
unless the government vastly increases how much it spends on
research into such technologies, it is the corporations that will
decide how to deploy them.
There are two ways to respond to the tech industry’s huge
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investments in the intelligent future. On the one hand, you could

greet the news with optimism and even gratitude. The technologies
that Google and other tech giants are working on will have a huge
impact on society. Self-driving cars could save tens of thousands of
lives a year, for instance, while computerized methods for
diagnosing and treating disease could improve our health and cut
the cost of care.
What’s more, experts in the field say that many tech giants are
currently approaching AI with a kind of academic ethos. For
instance, they regularly publish papers on their findings, and —

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through their cloud server businesses — they are allowing third-

party companies to access some of their latest A.I. tech.
But the tech industry’s huge investments in AI might also be cause
for alarm, because they are not balanced by anywhere near that
level of investment by the government.
In the waning days of the Obama administration, the White House
published a report examining the ways artificial intelligence would
alter the world. The report found that the federal government spent
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only $1.1 billion on unclassified AI research in 2015. It argued for
increasing spending on artificial intelligence by several times. With
greater federal funding, the report said, researchers could focus
pi more on basic research — more tenuous, potentially less

immediately applicable areas of A.I. — and through the grant-
making process, the government would have a greater say in how
the technology develops.
ap
—– | —–
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Intelligence / Machine - 4, Humans - 1
15-Mar-2016
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pi In a landmark battle between man and artificial intelligence (AI), Lee
Sedol, the world champion of the game “Go” – considered to be the
ap
most complicated board game - has been defeated 4-1 by AlphaGo,
Google’s DeepMind AI program. AlphaGo won the final match after a
nail-biting comeback against the master human Go player. Is AI now
smart enough to outsmart all humans?
Whatis Go?
Kn
Go is thought to have been

developed in ancient China, several
thousand years ago.
Using black-and-white stones on a
grid, players gain the upper hand by
surrounding their opponent’s pieces with their own.
The rules are simpler than those of chess, but a player typically has
a choice of 200 moves compared with about 20 in chess.
According to DeepMind’s team, there are

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1,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
possible positions; that’s more than the number of atoms in the
universe, and more than a googol times larger than chess.
It can be very difficult to determine who is winning, and many of
the top human players rely on instinct.
Why was this face-off important?
The five-day battle was seen as a
major test of what scientists and
ly
engineers have achieved in the
sphere of artificial intelligence. It
was supposed to show us whether
pi the gap between the algorithm vs intuition has been bridged.

Go is a 3,000-year old Chinese board game and is considered to be
a lot more complex than chess where artificial intelligence scored
its most famous victory to date when IBM’s Deep Blue beat
ap
grandmaster Gary Kasparov in 1997.
But experts say Go presents an entirely different challenge because
of the game’s incomputable number of move options which means
that the computer must be capable of human-like “intuition” to
prevail.
Kn
When was AlphaGo developed?

Google’s AlphaGo was developed by
British computer company
DeepMind which was bought by
Google in 2014.
The computer program first studied
common patterns that are repeated in past games. After it learned
that, it got to reasonable standards by looking at professional
games. It then played itself, different versions of itself millions

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and millions of times and each time get incrementally slightly

better - it learns from its mistakes. Its ability to learn from its
mistakes is far greater than what can be managed by humans.
Learning and improving from its own matchplay experience means
the super computer is now even stronger than when it beat the
European champion late last year.
Even the one defeat handed over by the Go champion Lee Sedol (in
the fourth game) was “very valuable” for AlphaGo, as it identified
ly
a problem which the team could now try to fix.
After its victory, AlphaGo has been given an honorary “ninth
dan” professional ranking, equivalent to that held by Mr Lee who
has 18 international titles to his name and is widely considered one
pi of the greatest Go players of the modern era.

Where does AlphaGo
intelligence from?
get its
ap
AlphaGo combines two artificial
intelligence techniques in its quest
try master the hugely complex game
of Go, applying Deep Learning with
Monte Carlo Tree Search — allowing the AI to simulate millions
Kn
of games, glean the outcomes and learn from those to generalize a

(evidently highly successful but not unbeatable) Go game strategy.
The holy grail of artificial intelligence remains the creation of a
general learning AI that can apply multifaceted intelligence to
solve problems of all stripes.
Even if we conceded that machines are becoming better than
humans in board-games; these machines are clearly very far away
from being able to claim victory in the chaotic complexity of the
off-boardgame world.
The number of variables involved in even apparently simple human

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tasks — like tidying a room — quickly makes even the most

sophisticated machine intelligence look dumb. So we humans
shouldn’t feel too bad about losing to AlphaGo.
AlphaGo doesn’t care if it wins or loses. It doesn’t even care if it
plays and it certainly couldn’t make you a cup of coffee after the
game.
But yes, AI can take away your job in the coming years; unless
your job itself is AI.
ly
Who is the founder of DeepMind?
Demis Hassabis is the founder of
DeepMind, which is leading
pi Google’s project to build software

more powerful than the human brain.
This superhero of AI started as a
child chess prodigy. He won the Pentamind championship at the
ap
Mind Sports Olympiad five times and rose to fame at a young age
with UK computer games developers Bullfrog and Lionhead,
working on AI-heavy games like Theme Park and Black & White,
and later forming his own studio, Elixir.
Hassabis then left the games industry in the mid-2000s to complete
Kn
a PhD in neuroscience before co-founding DeepMind in 2010.

In January 2014 DeepMind was acquired by Google for a reported
$625 million, where Hassabis is now Vice President of Engineering
leading their general AI projects.
How is AlphaGo different from Deep
Blue?
Deep Blue was built purely to play
chess. Its sole purpose was to be able
to calculate and process the 10 to the

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power of 120 (that’s 120 zeroes after 1) possible moves in the

game.
AlphaGo too has a deeply specific purpose: its artificial
intelligence is designed to use different types of programs in
harmony to help it deal with the trillions upon trillions of different
outcomes involved in playing Go.
But the potential of something like AlphaGo has wider implications.
While the algorithm has been tailored to play in virtual
ly
environments like Go, the machine powering its learning has more
general applications. This machine can learn quickly.
The development of the intelligence required to beat Lee Se-Dol
pi has come about quicker than was expected.

Until just five months ago, computer mastery of Go was thought to
be at least a decade off. A computer’s ability to play games has
become a crucial measure of how far AI has come.
ap
It demonstrates that a machine can execute an “intellectual” task
better than humans. What’s unique about AlphaGo is that it has
been teaching itself by playing the game (against itself) millions
of times over to learn where its weaknesses are and quickly
correcting them.
Kn
The current world champion of Go is not a human – it is a machine

which taught itself how to go from an amateur player to world
champion in less than a year.
—– | —–

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SCIENCE & TECHNOLOGY / Medicine /

Examining the Angelina Jolie Effect
2-Mar-2017
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pi When Angelina Jolie published an essay about her decision in 2013 to
get a double mastectomy, not only did it go viral, but thousands of
ap
women in the US followed suit to get themselves tested for mutations
in the breast cancer risk genes. This has led to researchers exploring as
to how the health choices of celebrities can have a significant effect on
people’s decisions, worries and behaviours.
What was Jolie’s essay about?

Kn
In May 2013, Angelina Jolie

revealed that she carried a maternally
inherited pathogenic BRCA1
mutation and had undergone surgery
to remove the risk of developing
breast cancer, known as bilateral risk-reducing mastectomy
(BRRM). The story was covered by all kinds of news outlets for
several weeks.
According to her article, Angelina Jolie lost her mother,

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grandmother and aunt to cancer and decided to take matters into

her own hands to spare her children the grief of losing their mother
too. The honest and very informative nature of ‘My Medical
Choice‘ increased awareness of familial cancer in the community
and encouraged women to consider genetic testing.
Breast Cancer Research published an article that assessed the so-
called ‘Angelina Jolie effect’ on the increase of referrals to
genetic testing facilities as well as enquiries about risk-reducing
ly
surgeries.
Indeed, researchers have been exploring in recent years how the
health choices of the people we see in TV, movies and public life
can have a significant effect on people’s decisions, worries and
pi behaviours.
This pattern has been coined as the “Angelina Jolie effect”,
following what happened when Jolie wrote an influential article in
the New York Times in 2013.
ap
Note:
BRCA1 and BRCA2 (BReast CAncer genes 1 and 2) are human genes
that produce tumor suppressor proteins. These proteins help repair
damaged DNA and, therefore, play a role in ensuring the stability of
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the cell’s genetic material.

Why do the words of celebrities
matter?
Referral rates were around 2.5-fold
higher in June and July from 1,981
in 2012 to 4,847 in 2013 and
around 2-fold higher in August
through to October. The referral rates then settled to 32% higher
towards the end of the year.

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Celebrities, every single day, either directly or indirectly influences

each of us.They have a subtle, but powerful, impact on the
decisions we make regarding our purchases, and our health.
There is a growing interest in analyzing whether celebrity
influence, in fact, has a positive or negative outcome on health and
behavior.
Celebrities sharing health concerns or past experiences serves
as encouragement to fans and followers. It brings out a
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connection between perceived gods and mortals.
Celebrities can influence not only people’s fashion and diets but
also their medical decisions. Researchers considered this a good
example of how celebrity endorsements can fuel the use of health
pi care services.
When did Jolie reflect on her first
piece?
ap
Aware of her influence on the public,
Jolie published another op-ed in
2015 calling for testing and treatment
decisions to be made on a case-by-
case basis under the supervision of a physician.
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While surgery was right for her, non-surgical options might be

better for other women, Jolie said in her second piece.
“I wanted other women at risk to know about the options. I promised
to follow up with any information that could be useful, including about
my next preventive surgery, the removal of my ovaries and fallopian
tubes,” she said.
“It is not easy to make these decisions. But it is possible to take control
and tackle head-on any health issue. You can seek advice, learn about
the options and make choices that are right for you. Knowledge is

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power,” she added.

Where did the ‘Jolie effect’ fall
short?
Overall mastectomy rates in America
remained unchanged, and
mastectomy rates among women
who had had a test actually fell from
10% to 7% - suggesting that whilst more women were being
ly
tested, a smaller proportion of these were actually at risk of
having a gene variation.
The fact that mastectomy rates dropped after Angelina Jolie’s
pi editorial suggests that that denominator of women who started

getting the BRCA test became less appropriate for the BRCA test
because they had a lower pre-test probability of having the
mutation in the first place.
ap
The conclusion of the study was that celebrity endorsements
‘can have a large and immediate effect on use of health
services’ and effectively communicate with a broad audience -
but without necessarily targeting the sub-populations at
greatest risk for the relevant health condition.
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Most women who develop breast cancer never inherited a faulty

BRCA gene; they develop cancer for other reasons. Learning a
negative test result could possibly make them less cautious about
other forms of prevention or screening.
Who else have triggered similar
effects?
In 2000, Katie Couric’s awareness
campaign about colorectal screening
led to an increase in colonoscopy

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use, and was dubbed the “Katie Couric effect”. News of Kylie
Minogue’s announcement about a breast cancer diagnosis in 2005
led to an “unprecedented increase” in mammography bookings.
After Charlie Sheen that he was HIV-positive, researchers sifted
through Google search information and found that his
announcement “corresponded with the greatest number of HIV-
related Google searches ever recorded in the United States”.
The research — on the aggregate, at the population level — says it’s
ly
clear: Celebrity culture, celebrity endorsements, has an impact.
How does BRRM affect a woman?
Many women feel relieved after risk-
pi reducing breast surgery as they know they

have greatly reduced their risk of
developing breast cancer. But there may
also be feelings of loss and other
ap
emotions. Some women experience these feelings more than others.
The breast care nurse typically supports the patient and help her to talk
through her feelings.
Breast surgery may affect how a woman feels about herself sexually.
It can take time to get used to changes in how she look. Talking with
Kn
one’s partner about how both are feeling can help one to overcome any
difficulties. (However, there’s no right or wrong time to begin having
sex again.)
However, it is recommended that the patient makes positive lifestyle
changes to improve overall health. This may include changes to diet,
exercising more or stopping smoking.
There can be other problems too:
After the patient is home after operation, she is advised to check for
wounds regularly. She must tell her breast care nurse or doctor

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immediately if there are possible signs of infection, such as:

increased redness or change in colour over the breasts, around the
scar areas or both
discharge (fluid being released) from the wounds
a fever (a temperature above 38°C or 100.4°F)
feeling generally unwell.
Bruising and bleeding
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Bruising to the breast area and donor site is very common after the
operation. It usually goes away after about three weeks.
Sometimes, after the operation, there can be bleeding and a build-
up of blood (a haematoma) in the breast or donor site. If this
pi happens, it is most likely in the first 24 hours after surgery and can
cause swelling and pain. Sometimes another operation is needed to
stop the bleeding.
Fluid under the wound (seroma)
ap
After the surgery, a fluid collects in the area around the wound (a
seroma). There will be drains in place to take away this fluid which the
nurse will remove after a few days. Sometimes, after the drains are
taken out, fluid builds up under the wound. This may need to be
drained by a surgeon or nurse, using a small needle and syringe.
Kn
—– | —–

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Breakthrough in diabetes treatment?
5-Nov-2017
ly
pi Researchers have successfully synthesized artificial beta cells which
have done an effective job at keeping glucose levels normal in mice for
ap
up to 5 days with appropriate insulin regulation. If the same results can
be achieved in humans, it would make a significant difference to those
reliant on insulin injections or mechanical pumps. Diabetes mellitus
has hit low – and middle-income countries in recent decades.
What have the researchers

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achieved?
Researchers from the
University of North Carolina
and North Carolina State
University have synthesized
beta cell mimickers which have demonstrated the ability to control
blood glucose in mice for up to five days.
The challenge here was replicating cellular reactions that enabled
insulin to be delivered in a manner as close to the natural process

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as could be achieved. Researchers recreated the natural secretion

process of vesicle fusion.
Like actual beta cells, the synthesized ones are encased by a two-
layered lipid membrane. Specially designed cell-like tiny pouches
known as vesicles carrying insulin are present inside the cells. The
surface of these pouches chemically responds to an increase in
blood sugar levels. This results in their fusion with the artificial
beta cells’s outer membrane and thereby the release of insulin into
ly
the blood stream.
“This is the first demonstration using such a vesicle fusion process
for delivering insulin that employs insulin-containing vesicles like
pi those found in a beta cell and can reproduce the beta cell’s functions
in sensing glucose and responding with insulin ‘secretion’,”
explained Zhaowei Chen, PhD, postdoctoral student at the university
In the study, a single injection of the artificial beta cells into
ap
diabetic mice lacking beta cells, speedily normalized the animals’
blood glucose levels and maintained those levels normal for up to
five days.
“ Our plan now is to further optimise and test these synthetic cells in
larger animals, develop a skin patch delivery system for them, and
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ultimately test them in people with diabetes ,” said lead investigator

Zhen Gu, Professor at the University of North Carolina in the US.
Why is this being considered
significant?
If the mouse results are also
achieved in humans, diabetics
could one day have a less strenuous
means of keeping their blood sugar
under control.

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That would mean “a huge leap forward” for patients who

presently rely on monitoring their blood sugar and injecting
insulin into their body many times a day, Omid Veiseh, a
bioengineer at Rice University in Houston who wasn’t involved in
the research told Science News. “Even if it were just a one-day
thing, it would still be impressive.”
Patrik Rorsman, a diabetes researcher at the University of Oxford who
wasn’t involved in the research believed that despite the limitations of
ly
artificial insulin delivery systems like this offer a feasible disease
treatment. Unlike transplanted beta cells — or other real cells
genetically engineered to release insulin for diabetes treatment —
pi these artificial cells could be produced on a large scale and enjoy a

much longer shelf life than live cells, says study coauthor Zhen Gu,
a biomedical engineer at the University of North Carolina at
Chapel Hill.
ap
Even for patients who control their insulin with automated
mechanical pumps synthetic cells offer more precise, real time
blood sugar regulation, saids Michael Strano, a bioengineer at MIT.
The creation of the new faux cells not only poses a potential
diabetes treatment, “but it’s also a bellwether. It’s slightly ahead of
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its time,” says Strano. “I think therapeutics of the future are going
to look like this.”
When is the need for such research
highlighted?
Two types
Diabetes encompasses many different
metabolic disorders that collectively, if
ignored, cause abnormally high
concentration of glucose – a type of sugar – in the blood.

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In Diabetes mellitus Type 1, pancreas cannot produce adequate

amounts of insulin hormone, usually because their insulin-
producing beta cells are subjected to autoimmune destruction.
Diabetes mellitus Type 2 is now thought to arise from
autoimmune attacks on the pancreas and/or insulin resistance.
Despite normal or even excess insulin production the blood has
higher-than-normal glucose levels.
The main aim of diabetes management is to restore carbohydrate
ly
metabolism to the closest to normal state. For this, individuals with an
absolute deficiency of insulin need insulin replacement therapy, which
is administered through injections or an insulin pump. Insulin
pi resistance, on the other hand, can be remedied by dietary changes and

exercise.
Millions of people are dependent on insulin for their diabetes
management and have to use an injection or mechanical pump
ap
for their intake.
Thus far, using pills as a means to deliver insulin has been a
challenge for the huge size of the molecule makes digestive
enzymes and acids destroy it before it could make it to the
bloodstream.
Kn
The chief problem with insulin treatments as of now is that they

lack the efficiency of insulin-secreting pancreatic cells when it
comes to regulating blood glucose levels automatically and
efficiently.
While transplants of pancreatic cells work in some situations,
the restraining factors are high costs, shortage of donor cells,
the need for immune-suppressing drugs and low success rate as
frequently the transplanted cells are destroyed.
A 2016 article in NCBI brought up the repercussions of incorrect
insulin administration: transient and serious hypo- and

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hyperglycemia, wide glycemic excursions, and diabetic

ketoacidosis (DKA). In the sample of patients studied, “errors in
self-administering insulin, including choosing an incorrect insulin
dose, were common. Injection site selection and diabetes numeracy
were also concerns.”
Note: DKA, a potentially life-threatening complication of diabetes
mellitus, results from a shortage of insulin; in response the body
switches to burning fatty acids which produces acidic ketone bodies.
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Where else had research shown
promise?
Martin Fussenegger and his research
pi team at the ETH University in Basel,

Switzerland, developed a cell-based
diabetes treatment which they said could
render injection of insulin unnecessary, reported a 2016 Guardian
ap
article.
The therapy involved a capsule of genetically engineered cells
implanted under the skin that automatically release insulin as and
when needed. Diabetic mice that were treated with the cells were
found to have controlled blood sugar levels for several weeks.
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Scientists said they hope to acquire a clinical trial licence to test

the technology in patients within 2018. If successful, the
treatment would be relevant for all type 1 diabetes patients,
and those cases of type 2 diabetes that require insulin
injections.
The team re-engineered human kidney cells to assume a
function normally carried out by pancreas. This was done with
the introduction of two genes – one to make the cells sensitive
to glucose levels and a second to command the cell to pump out

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insulin when glucose levels exceeded a threshold.

The team created a start-up to commercialize the technique
and hoped to bring it to the market within a decade.
Emily Burns, research communications manager at Diabetes UK,
said: “We can already replace the cells in the pancreas that are
damaged in type 1 diabetes by using cells taken from donated
pancreases, but one of the issues with this approach is that there
aren’t enough donors. That’s why research like this is so
ly
important: finding ways to produce an unlimited supply of
pancreatic cells, or cells that act like them, in the lab.”
Who are affected with diabetes
pi mellitus?
In W.H.O’s 2016 Global Report on
diabetes, it was observed, “Diabetes
is an important public health
ap
problem, one of four priority
noncommunicable diseases (NCDs) (cardiovascular problems, chronic
respiratory diseases and cancers being the other three) targeted for
action by world leaders. Both the number of cases and the prevalence
of diabetes have been steadily increasing over the past few decades.”
Kn
In the executive summary it was noted that worldwide, the number

of people living with diabetes had risen from 108 million adults in
1980 to 422 million in 2014. Previous 2013 estimates from the
International Diabetes Federation put the number at 381 million
people; an indication that diabetes prevalence is on a rapid rise.
Diabetes led to 1.5 million deaths in 2012; an additional 2.2
million deaths were attributed indirectly to diabetes, as it
increased the risks of cardiovascular and other diseases.
While diabetes mellitus (especially Type 2) is more common in the
better developed countries, the greatest increase in prevalence is,

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however, occurring in low- and middle-income countriesincluding

in Asia and Africa.
“The percentage of deaths attributable to high blood glucose or
diabetes that occurs prior to age 70 is higher in low- and middle-
income countries than in high-income countries. ”
“The global prevalence (age-standardized) of diabetes has nearly
doubled since 1980, rising from 4.7% to 8.5% in the adult
population. This reflects an increase in associated risk factors such
ly
as being overweight or obese. Over the past decade, diabetes
prevalence has risen faster in low- and middle-income countries
than in high-income countries.”
pi Note: In epidemiology and demography, age adjustment, also called

age standardization, is a technique used to allow populations to be
compared when the age profiles of the populations are quite different.
In the region of Africa, around 20 million people are living with
ap
diabetes. This figure is expected to reach 40 million by 2030. In
comparison to other world regions, Africa has the highest
percentage of undiagnosed diabetes cases touching 62% and
the lowest diabetes related health expenditure.
The increase in incidence in developing countries accompanies the
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trend of urbanization and lifestyle changes, including increasingly

sedentary lifestyles, less physically strenuous work and the global
nutrition transition, marked by increased intake of foods that are
high energy-dense but nutrient-poor (often high in sugar and
saturated fats, sometimes referred to as the Western pattern diet).
The risk of getting type 2 diabetes has been largely found to be
associated with lower socio-economic position across countries.
How else has insulin delivery been explored?
Inhalable insulin

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Exubera, the first inhalable insulin was

approved by FDA in 2006 but
withdrawn from the market by the
manufacturer Pfizer the next year, in
part, due to lack of acceptance.
In 2014, the FDA approved Afrezza,
the rapid-acting insulin taken prior to each meal or on beginning to
eat without using needles. It however won’t replace the need for
ly
injected, long-acting insulin, for those who need it.
Transdermal in which insulin is administered through the skin, such as
by using a patch
pi Among several methods, researchers produced a watch-like device

to monitor blood glucose levels through the skin and administer
appropriate insulin doses through pores in the skin.
In May 2017, an article in The Verge noted rumours on Apple
ap
attempting to develop a wearable that would accomplish real-
time continuous blood sugar monitoring without breaking the
user’s skin and said, “ For people with diabetes, this would be a
huge improvement over the somewhat invasive or downright
painful options they currently rely on. But experts warn that if
Kn
the rumors are true, Apple will be facing a scientific and

technological battlefield littered with decades of other companies’
failures ”.
Oral insulin
The potential market for an oral form of insulin is assumed to be
tremendous, thus many laboratories have attempted to devise ways
of moving enough intact insulin from the gut to the portal vein – a
vein conveying blood to the liver from the spleen, stomach,
pancreas, and intestines – to have a measurable effect on blood

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sugar.
Artificial pancreas
FDA last year approved artificial pancreas – the first
automated insulin delivery system – for people with Type 1
Diabetes.
The device - Medtronic’s MiniMed 670G - is hybrid closed-loop
system which monitors blood sugar and then delivers required
background (also known as basal) insulin doses. The device will
ly
also switch off when blood sugar levels drop too low.
However, this device is yet to be a fully automated artificial
pancreas. People with type 1 diabetes are expected to enter
pi carbohydrate content information into the system, the agency

noted.
—– | —–
ap
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SCIENCE & TECHNOLOGY / Medicine / Cancer

vs. Chemotherapy
2-Nov-2016
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pi Ninety percent of cancer patients develop resistance to chemotherapy.
Now, UK-based scientists have identified a modification of proteins
ap
called histones, which make cancer cells resistant to chemotherapy.
This discovery may help prevent resistance to common chemotherapy
used to treat breast and colon cancers, offering hope for improvement
in cancer care. Knappily looks into this finding and presents the
reasons why cancers are so difficult to cure.
Kn
What is the new discovery in

understanding chemotherapy
resistance?
Scientists have made an important
breakthrough in understanding why some
cancer cells become resistant to
chemotherapy.
Researchers from the University of Sheffield have identified that a
specific modification to proteins that wrap around the DNA of

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cancer cells is protects them from chemotherapy treatment.

Resistance to chemotherapy
Most types of chemotherapy act by causing many breaks in the
DNA, thus killing the cancer cell.
But, unfortunately, cancer cells fight back by trying to fix the
breaks through a toolkit of specialized armies, giving cancer
resistance to therapy.
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The researchers, led by a team from the Krebs Institute for Nucleic
Acids at the University of Sheffield, have found that, a change in a
specific mark in the histones proteins makes the repair faster in
cancer cell, thus increasing their resistance to therapy.
pi “The change we identified is not genetic – but epigenetic,” said

Professor El-Khamisy, Director of Research and Innovation at the
Department of Molecular Biology and Biotechnology.
Thus, it was identified that the key to preventing resistance to a
ap
common class of chemotherapy used to treat breast and colon
cancer is to change the speed with which the cancer cells repair
damage to their DNA that is caused by chemotherapy.
Note: Histones are a family of basic proteins that associate with DNA
in the nucleus, which condense and structure the DNA of eukaryotic
Kn
cell nuclei into units called nucleosomes. Their main functions are to
compact DNA and regulate chromatin, therefore impacting gene
regulation.
Why do tumors become resistant to
chemotherapy?
Chemotherapy treatments are given in
cycles in order to allow normal cells
— and the patient — to recover from
the toxic drugs. Some 90% of cancer

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patients with metastatic breast, prostate, lung or colon cancers

develop resistance to chemotherapy. The clues found by various
researchers are:
WNT16B: In a recent study published in the journal Nature
Medicine, researchers report that an excess of a protein called
WNT16B, which is produced by fibroblast cells near tumors, may
spur cancer cells to grow and invade surrounding tissue. Under
normal conditions, fibroblast cells produce collagen to maintain
ly
cells’ structure. But when fibroblasts are doused with
chemotherapy, it damages their DNA causing them to
overproduce WNT16B.
pi Tumor microenvironment: The researchers from the Fred

Hutchinson Cancer Research Center have found that the tumor
microenvironment also can influence the success or failure of
chemotherapies.
ap
P-glycoprotein: Scientists have found that a group of genetic
mutations causes increase in the level of p-glycoprotein - a protein
found in cell walls. The protein acts as a pump keeping
chemotherapy drugs out.
Epigenetic differences: Researchers from the University of
Barcelona describe in The Journal of The National Cancer Institute
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that the existence of epigenetic differences is one of the causes that

make a patient with colon cancer that responds well to initial
chemotherapy become resistant when the tumor reappears.
Note: Epigenetic differences refer to those changes arising from non-
genetic influences on gene expression. Simply put, they are the reason
why identical twins aren’t actually ‘identical’.
When can these findings help?
These studies can help identify a potential target to stop or even

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reverse cancer resistance to

chemotherapy, thus making
chemotherapy treatment more
effective for various types of
cancer.
Histone deacetylase inhibitors:
Recent discovery, made by the team from the Krebs Institute for
Nucleic Acids, indicates that hijacking the cancer cells’ ‘fix and
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repair toolkit’ could help to increase cancer cell death.
This means that patients who develop resistance to certain classes
of chemotherapy can benefit from drugs that modulate histone
pi marks such as histone deacetylase inhibitors. The potential drug

molecules for this are topoisomerase I inhibitors, used especially
to treat colon and breast cancer.
When can these inhibitors help?
ap
Altered expression and mutations of genes that encode histone
deacetylase have been linked to tumor development since they
induce the unusual transcription of key genes regulating important
cellular functions such as cell proliferation, cell-cycle regulation
etc.
Kn
Here is a non-technical description. The histone mark proteins are

like the directors in a film. The script of the film stays the same but
the director - the histone mark - can choose to eliminate, slow
down or speed up certain scenes or dialogues, altering the film for
better – cancer cell death - or worse – cancer cell survival.
Inhibiting the activity of of the enzyme (histone deacetylase)
that controls the ‘scene’ - ensuring that the film always has a happy
ending - can reverse the resistance of cancer cells.
Thus, this discovery could have important implications for

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personalized treatment of colon and breast cancers. Finally, a very

promising door is opened to examine whether similar mechanisms are
happening in other human tumors too.
From where has cancer treatment
evolved to the present day?
Cancer and its treatments have evolved
over the decades.
ly
Nitrogen mustard: It was initially used
during World War II for treatment of
naval personnel who were exposed to mustard gas during military
action. Later, this agent served as the model for a long series of
pi similar but more effective agents (called alkylating agents) that

killed rapidly growing cancer cells by damaging their DNA.
Methotrexate: It is a cancer treatment drug used commonly today.
It was first used in 1956 to treat metastatic cancer called
ap
choriocarcinoma.
Over the years, chemotherapy drugs have successfully treated
many people with cancer.
Today, several approaches are available to improve the activity and
reduce the side effects of chemotherapy - New drugs, new
Kn
combinations of drugs, and new delivery techniques; Novel

approaches that target drugs more specifically at the cancer cells (such
as liposomal therapy and monoclonal antibody therapy); Drugs to
reduce side effects, like colony-stimulating factors, chemoprotective
agents (such as dexrazoxane and amifostine); Agents that overcome
multi-drug resistance.
Early in the 20th century, only cancers small and localized enough
to be completely removed by surgery were curable.
Radiation therapy: Later, radiation was used after surgery to

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control small tumor growths that were not surgically removed.

Radiation therapy uses high-energy radiation (X-rays, gamma rays,
and charged particles) to shrink tumors and kill cancer cells.
Who are able to survive cancer through
chemotherapy?
Chemotherapy is indeed a major part of the
reason for better outcomes and more hope
in cancer. But, the success rate of survival
ly
of cancer patients is low.
A study by Public Health England and Cancer Research UK found
that across England around 8.4 per cent of patients with lung
pi cancer, and 2.4 per cent of breast cancer patients died within a
month.
The survival rates for poorer countries are expectedly worse. For
example, survival rates in India are quite low for most types of
ap
cancer, less than half of the advanced countries in many types.
Survival rates (to live for at least five years after diagnosis) are just
19% for stomach cancer compared to 25-30% in most countries.
For colon cancer, it is 37% while it goes up to 65% in the US.Only
4% of liver cancer patients survive for five years in India
Kn
compared to 10 to 20% elsewhere. One reason for the low survival

rates in India could be that equitable access to early diagnosis
and optimal treatment is not yet available for all people in India.
According to the World Health Organization (WHO), cancer is
among the leading causes of death worldwide.In 2012, there were
14 million new cases and 8.2 million cancer-related deaths
worldwide.
Why is the success rate of chemotherapy low?
Increased patient drug tolerance due to increase in cellular drug

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excretion of the chemotherapeutic drugs.

Each cancer demands a unique treatment. However, the available
chemotherapeutic drugs are generally not specific for particular
cancers.
Chemotherapy affects only cells that are dividing leaving out
dormant cancer stem cells.
Chemotherapy is toxic for the body because it does not
discriminate between healthy and cancerous cells.
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Chemotherapy can improve outcome and quality of life of cancer
patients if more drugs specific to each type of cancer are available
coupled with appropriate nutritional strategies.
pi Note: Every person’s cancer develops and grows in its own way and is
unique in terms of what therapies it is sensitive to. A global push is on
to characterize the molecular variations between tumors — known as
inter-tumor heterogeneity — and offer individualized treatments to
ap
more patients. That alone is a massive task.
How else can cancers be treated?
In order to tackle chemotherapy resistance,
researchers have been testing combinations
of targeted therapies. But due to lack of
Kn
targeted drugs for the vast majority of

mutations, the focus has shifted to
Immunotherapy.
Immunotherapy: It is a type of cancer treatment designed to boost
the body’s natural defenses to fight the cancer.
Immunotherapy works by: Slowing the growth of cancer cells or
by stopping cancer from spreading to other parts of the body or by
boosting the immune system to work better at destroying cancer
cells

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Immunotherapy comes in many forms: Treatment vaccines,

antibody therapies and drugs — and can be received through an
injection, a pill or capsule, a topical ointment or cream, or a
catheter.
Keytruda: It is the only immunotherapy drug approved for first-
line treatment of patients with metastatic non-small-cell lung
cancer.
Prospects: In synthetic biology, where it can be used to change the
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functions of genes, how they behave and what they recognize. But
the challenge lies in obtaining sustained positive responses to
immunotherapy treatments.
pi Note: One of the most famous cancer patients to have received a form
of immunotherapy is former US President Jimmy Carter, who had a
deadly form of skin cancer called melanoma.
—– | —–
ap
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Kymriah: a breakthrough cancer drug
31-Aug-2017
ly
pi The Food and Drug Administration of the US has approved the first
cancer drug that uses a patient’s own cells to fight cancer, a milestone
ap
that is expected to transform treatment in the coming years.
Oncologists describe the drug, made by Novartis and marketed as
Kymriah, as revolutionary. Critics worry the first-of-its-kind cancer
treatment could usher in a new class of ultra-expensive medications.
We are entering into the era of personalized cancer cures.
Kn
What has the FDA approved?

The US Food and Drug Administration
approved a first-of-its kind cancer therapy
aimed at bolstering a patient’s own
immune cells, while the drugmaker
behind the treatment attempted to allay
worry over the high cost of the procedure.
The treatment, called CLT019 but re-christened by Novartis after
the FDA approval as Kymriah, has been shown to dramatically

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raise the chances of survival for children and young people with an
aggressive form of leukemia who don’t respond to standard
treatment.
Kymriah is a form of personalized immunotherapy known as
CAR-T, or chimeric antigen receptor T-cell therapy. A patient’s
T-cells, which are a type of white blood cell, are removed and then
sent to a manufacturing center where they are genetically
programmed to target leukemia cells. The cells are then infused
ly
back into the patient to kill cancer cells.
So far, CAR-T therapies have been tested only in certain types of
blood cancer. Kite Pharma’s leading CAR-T effort is aimed at
patients with aggressive non-Hodgkin lymphoma, in whom
pi standard therapy has failed.

Kite and Novartis are both investigating several more CAR-T
therapies for various forms of blood cancer. Novartis is also
conducting early-stage CAR-T trials in certain types of brain and
ap
lung tumors.
Despite its limited use now, “for patients with the right disease, the
response rates can be astonishing,” said Stephan Grupp, who was
part of the team that first developed Novartis’s CTL019 at the
University of Pennsylvania.
Kn
Switzerland’s Novartis AG NVS is expected very soon to get the first

official green light to start offering the treatment.
Kymriah is the first CAR-T treatment to come before the FDA, but it
won’t be the last. No fewer than 76 CAR-T treatments are currently
under review at the FDA, and Gottlieb predicted that other approvals
would follow.
Why is this a breakthrough in cancer treatment?
Medicine has done a great job of reducing deaths from heart disease

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and stroke but less so with cancer.

Despite a four-decade war against the
disease, one that has cost hundreds of
billions of dollars, millions of people die
annually. Cancer is the second leading
cause of death globally, and was
responsible for 8.8 million deaths in 2015. Globally, nearly 1 in 6
deaths is due to cancer.
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Finding a cure for cancer has been the Holy Grail for long.
Unfortunately, curing cancer in mice hasn’t translated well to
curing it in humans. Yet, progress continues to be made and we do
pi appear to be getting closer to making such headlines a real

possibility.
The approval of this breakthrough therapy for a deadly form of
leukemia, or blood cancer, has opened the door to a new class of
ap
treatments and a fresh era for the science and economics of deadly
or debilitating diseases.
First proposed in 1972, the idea of correcting or enhancing
genes to treat disease has a history buoyed by promise but also
buffeted by failures. With recent advances in genomic medicine,
cell biology and genetic engineering, efforts to locate and edit the
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genes and cells that play a key role in disease have injected new
hope for such treatments.
“We’re entering a new frontier in medical innovation with the ability
to reprogram a patient’s own cells to attack a deadly cancer,” USFDA
commissioner Scott Gottlieb said.
The treatment is neither a pill nor an injection, but a
personalized medicine service that functions as a “living drug.”
Patients would have their body’s own disease-fighting T cells
fortified and multiplied in a lab, then get the cells back to help

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them fight their cancer.

In clinical trials of 88 patients with a relapsing or treatment-
resistant form of acute lymphoblastic leukemia, 73 went into
remission after receiving the experimental treatment.
Gottlieb, himself a survivor of blood cancer, predicted that this new
approach to cancer treatment will “change the face of modern
medicine.”
Acute lymphoblastic leukemia is the most common form of pediatric
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cancer, affecting some 3,000 children and young adults yearly in the
United States. Though it is considered highly curable in most patients,
about 600 each year either do not respond to chemotherapy or see their
pi leukemia return after an initial round of successful treatment.

“Those patients don’t make it — none of them do,” said Dr. Grupp,
director of the cancer immunotherapy program at Children’s
Hospital of Philadelphia, who administered the first course of
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Kymriah five years ago when it was an experimental treatment
called CTL019.
That initial patient, 7-year-old Emily Whitehead of Philipsburg
saw her leukemia remit completely within three weeks of
getting the treatment. Now 12, she was among those calling on
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the FDA to approve Kymriah for other patients like her.

“Certainly for blood cancers, this is a game-changer,” Grupp said.
Adapting this therapy for patients with solid tumors, he said, will
be “the work of the next five years.”
The new approach was designed to fight some of the most stubborn
cancers by giving the body’s immune system a very specific assist.
Novartis intends to have 32 certified treatment centers up and running
by the end of 2018. Patients up to the age of 25 would go to one of
these centers to have their T cells harvested and later reintroduced in
their modified form.

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When were the first cures developed?

The main reason that cancer has been such
a hard problem to tackle is a lack of basic
understanding of the underlying molecular
mechanisms that drive it. The first
medicines to tackle cancer,
chemotherapies, came about during the Second World War when it
was discovered that people exposed to nitrogen mustard, a chemical
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similar to mustard gas, had significantly reduced white-blood-cell
counts.
Researchers investigated whether these compounds could be used
pi to halt the growth of rapidly dividing cells, such as cancer cells.

Thus began an era of testing different chemical compounds to see
if they would kill tumours. New drugs were discovered that acted
on cancer, but this sort of science was not particularly revealing
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about the cause of cancer or why these treatments often only
worked temporarily.
Much progress has been made since. Thanks to a much deeper
understanding of cell biology and genetics, there exist today a
growing number of targeted therapies that have been designed at
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a molecular level to recognise particular features specific of cancer

cells.
Along with chemotherapy, surgery and radiotherapy, these
treatments — used singly and in combination — have led to a
slow, but steady, increase in survival rates. Childhood cancers and
breast cancers are much more curable now than they used to be.
But there remains much work — and research — to be done: some of
the most promising new cancer medicines are the product of our
deeper understanding of how cancer cells mutate and escape removal
by the body.

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Where did the shift occur?

Decades into the declared modern war
on cancer, scientists and clinicians are
excited by what we are learning. Yet
patients and families are too often
frustrated by the lack of progress in
prevention and treatment.
Most people don’t acquire a significantly higher risk of cancer
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from the genes that they inherit from their parents. Instead, cancer
arises as a result of copying errors (mutations) in the inherited
genes, as our bodies make new cells to maintain our various
pi organs. A recent widely quoted publication suggests that these

errors are an inevitable consequence of trying to copy three billion
bits of information as a cell divides.
That may be true, but it doesn’t mean getting cancer is inevitable.
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The fastest and most extensive rates of cell division occur when we
are developing as embryos. Billions upon billions of cells are
produced each day, yet cancer in newborns is exceedingly rare. In
contrast, cell division in each of our tissues slows as we grow
older, while the incidence of cancer increases with age.
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Cancer is not one disease. It is many. Yet oncologists have long

used the same blunt weapons to fight different types of cancer:
cut the tumour out, zap it with radiation or blast it with
chemotherapy that kills good cells as well as bad ones.
Cancer is seen today less as a disease of specific organs, and more
as one of molecular mechanisms caused by the mutation of
specific genes. The implication of this shift in thinking is that the
best treatment for, say, colorectal cancer may turn out to be
designed and approved for use against tumours in an entirely
different part of the body, such as the breast.

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Until recently, cancer was treated based on the tissue in which it

originated. Increasingly, effective cancer therapy is empowered by
knowing the precise mutations a patient’s tumor has acquired,
independent of where in the body the cancer arose. This
approach is called precision medicine.
We have learned that the number of mutations a cancer cell has
acquired also matters. This is where immunotherapy, which
harnesses the body’s own immune system to fight cancer, offered
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promise. It has been successful in inducing long-term remissions of
hard-to-treat cancers in about a third of patients in ongoing trials.
Over the next five to ten years the era of personalized medicine could
pi see enormous progress in making cancer survivable.

Who was overseeing this?
The pace is also being driven by a five-
year-old program at the USFDA to get
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promising drugs through quickly, said
Ellen Sigal, chairwoman of the advocacy
group Friends of Cancer Research.
Known as the Breakthrough Therapy Program, the USFDA
initiative gives drugmakers more access to agency staff to help design
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clinical studies that will meet its standards.

“It changed the culture,” Sigal said. “Now, if developers understand
the patients that will benefit, they know how to design these trials.”
While the approvals are coming faster, the process is also putting
more of the onus onto doctors to assess how well the drugs
actually work, said Bach.
“To the extent there’s full data available, what it tells me is at the
USFDA, the effectiveness bar is being lowered,” Bach said, who
doesn’t think safety standards are being lowered in turn. “They are

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expecting us to more and more make the calls on the data, which is
okay.”
The procedure can only be undertaken at a limited number of
facilities in the U.S. It is highly tailored to individual patients and
can take the better part of a month to complete. Those logistical
hurdles and the expected high price had cast a shadow over what
has otherwise been seen as a groundbreaking treatment.
The FDA has currently approved Kymriah only for children and young
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adults up to 25 years old who suffer from acute lymphoblastic
leukemia and who have not responded to standard therapy. The
decision was expected, following the backing of an FDA advisory
pi committee of experts, who voted unanimously in favor of approval in

July.
Gene and cell therapies that target the immune system for enhancement
have been particularly promising. They do, however, come with risks
ap
— specifically, that the activation of immune cells will run amok,
sparking reactions ranging from rash and itching to fever and flu-like
symptoms that can lead to death.
In approving Kymriah, the FDA warned that it has the potential to
cause severe side effects, including cytokine release syndrome, an
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overreaction to the activation and proliferation of immune cells that

causes high fever and flu-like symptoms, and neurological events.
Both can be life-threatening.
Kymriah can also cause serious infections, low blood pressure,
acute kidney injury, fever and low oxygen levels.
The FDA called for continuing safety studies of the new therapy.
How will the company charge for the cure?
The major question still remains: What will be the price that these
companies seek? Or, more importantly, what is an extra year of life

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worth?
Interestingly, some countries have set a
formal value on a year of life in order to
be able to determine what price a
company is allowed to receive for its
drug in that particular country. The
actual term used is “QALY” which stands for “quality-adjusted
life year”: A QALY is meant to signify a true quality of life year
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wherein the patient isn’t just barely alive, but rather living a
productive life.
In the U.K. a QALY is rated at about $50,000 per year. The
pi U.S. has not formally set a value for a year of life. However, the
FDA has made use of QALYs to justify to Congress various rule
changes it wants approved.
For example, in 2011 the FDA added new requirements for the
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display of health warnings on cigarette packages and in cigarette
advertisements . The FDA quantified the benefits to society of
these changes as being worth $185 – $601 million annually over 10
years.
One of the assumptions made in this calculation was a QALY in
the range of $100,000 - $300,000. In 2015, in order to establish
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minimum standards for the safe handling of produce to reduce the

risk of serious adverse health consequences or death from the
consumption of contaminated produce, the FDA used $459,900 per
QALY.
Swiss pharmaceuticals giant Novartis has indicated it would
charge $475,000 for the treatment, which involves extracting a
patient’s disease-fighting blood cells, modifying them to attack
cancer cells more vigorously and then reinjecting them in the
patient. The $475,000 price tag is significantly lower than what many

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analysts had expected.

In a bid to blunt criticism over the price, Novartis said it would
take payment for patients covered by Medicaid only if they
respond to Kymriah within a month of treatment.
The company also said it would offer financial assistance — such
as help with copay, travel and accommodation costs — to privately
insured patients.
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pi
ap
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SCIENCE & TECHNOLOGY / Medicine / The

pricelessness of life
14-Jul-2017
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pi The deal between NHS England and Roche, manufacturer of the
pioneering breast cancer drug Kadcyla has successfully materialized as
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has Roche’s deal with the Wales Government. Now Kadcyla, a drug
that extends lifespan and enhances quality of life in patients with a
particular type of breast cancer that has reached the advanced stages,
can be accessed as a routine drug and will be more widely available.
What is the government’s U-turn on

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Kadcyla?
A glimpse of the rocky path taken thus far
Kadcyla, a drug used to lengthen the
lifespan of women with one form of
terminal breast cancer, was since 2014
made accessible only through the Cancer Drug Fund (CDF).
The CDF, established by the UK government in 2011, serves only
England and eligible patients had to apply for funding; the reach of
the drug was thus restricted.

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Kadcyla was first rejected in November 2015 as a drug that was

too costly and NHS England – which regulates the the budget,
planning, delivery and day-to-day operation of the commissioning
side of the National Health Service in England – determined to
exclude it from the list of treatments for CDF. Where end of life
drugs are concerned, the upper limit for approval for funding is
£50,000 per patient per year; for Kadcyla, this cost had stood at
£90,000.
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Intervention of Breast Cancer Now, UK’s largest breast cancer
charity, through lobbying the UK government and preparing a
petition asking Roche, the manufacturing company that produces
Kadcyla, to offer a discount led Kadcyla to be included in the
pi CDF for a longer time.

But in December 2016, cost constraints were once again brought
up to recommend the removal of Kadcyla. Breast Cancer Now
gathered more than 115,000 signatures for its petition to procure
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funding for Kadcyla and the matter was debated in parliament
January this year.
The U-turn
A successful secret deal brokered between Roche and NHS in
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England with the backing of National Institute for Health and

Clinical Excellence (NICE), the regulatory body that recommends
drugs to be funded by NHS has led to the approval of Kadcyla for
routine use on the NHS. Roche offered a discount and the NHS,
for this review, compared Kadcyla with Herceptin plus
capecitabine, a change from previous comparisons with
different combinations, explaining that the change was made as
Herceptin plus capecitabine is now considered standard
treatment for people with advanced breast cancer.
This will make the drug available to 1,200 women a year.

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Wales has also followed suit. As UKIP’s Group Leader in the

Welsh Assembly, Neil Hamilton, said, “I am delighted that the
manufacturer has now agreed to give the Welsh NHS the same
commercial agreement as in England. This means that patients in
Wales will be able to benefit from the treatment.”
Why is the decision being welcomed?
Research has revealed that Kadcyla can
help women with HER2-positive breast
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cancer that has spread to other organs
(metastasis), cannot be removed by
surgery and has ceased to respond to
pi other treatments.
Clinical trials of Kadcyla have shown that Kadcyla extended and
enhanced overall survival by around six months in women in
the advanced stage of cancer. It also relatively reduced side
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effects.
In a clinical assessment that led to FDA approval of Kadcyla in
2013, patients treated with the drug were found to have a median
progression-free survival (length of time the patients lived without
the cancer becoming worse) of 9.6 months against 6.4 months for
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patients treated with lapatinib plus capecitabine and a median

overall survival of 30.9 months against 25.1 months.
Kadcyla, also known as T-DM1, is a combination of Herceptin and
a powerful chemotherapy agent. It attaches to HER2 receptor on
cancer cells, and while erceptin blocks out signals that cause the
cancer to grow and proliferate, the chemotherapy constituent enters
the cell and brings about its death from within. It is administered
intravenously once every three weeks.
“ Today’s announcement means that Kadcyla will be permanently

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funded in England, removing uncertainty for patients and giving

doctors a further treatment option ”, observed Cancer Research UK .
Note: Previous treatments, usually Herceptin must have proven
unsuccessful before patients can receive Kadcyla.
Breast Cancer Now explained that Kadcyla is usually a “second-line
treatment” for patients whose condition has worsened since they first
took treatment for secondary breast cancer (occurs when breast cancer
cells spread from the first (primary) cancer in the breast through the
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lymphatic or blood system to other parts of the body).
When should numbers not be
the sole deciding factor?
pi Context
Drugs that target sub-types of
cancer such as human epidermal
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growth factor 2 (HER2) positive
breast cancer revive hope among patients and their loved ones. But
the manufacturing costs of such drugs are high and the question of
whether meeting the expense with NHS funds is worth it arises.
Also, it cannot be said that they always significantly extend the
length and quality of life. The complex biology of some types of
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cancers renders them unaffected by treatments.

NICE evaluates whether drugs can be NHS-funded by examining
the clinical evidence – which shows how well the medicine or
treatment works – and economic evidence – which shows how
well the medicine or treatment works in relation to how much
it costs the NHS. In doing so, NICE determines if the drug
represents value for money.
One metric NICE considers is the quality-adjusted life years
(QALYs; 1 QALY equates to one year of perfect health) and

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sees if the drug’s cost per quality-adjusted life year fits within
the limit set.
In Kadcyla’s case, the full price came to £166,000 per QALY.
Following negotiations, the cost per QALY has come down to about
£50,000; “in line with other drugs that extend the life of terminally ill
patients”, reported BBC News.
While the drug has been approved following the discount, even at
its higher price, it had been argued that when weighed against
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the benefits, NICE’s rigid adherence to price as a decision-
making basis for treatment was flawed.
A Lancet commentary noted:
pi “Evidence from trials is that patients treated with trastuzumab

emtansine have longer overall survival, extending life by an
average of 9 months, as well as longer progression-free survival
than do patients on other cancer drugs”
ap
Further, while 1200 people in UK are estimated to benefit from the
drug, across Europe, “of 70 000 people diagnosed with advanced
breast cancer, one in five are HER2 positive.”
For a patient group with severely limited options, NICE’s
rejection of an effective intervention is hard to accept.
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Where are the highest incidences of

breast cancer recorded?
Breast cancer is the most common
cancer affecting women in
developing and developed countries;
it accounts for 25 percent of all
cancers in women.
While current statistics point to a greater chance of occurrence in
developed countries, this could also be on account of lack of

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diagnoses in the less developed countries.

According to WorldAtlas, most countries recording high rates of breast
cancer are in Europe
Belgium, Denmark and France (metropolitan) have the highest
incidence. In Belgium, 111.9 out of one lakh are diagnosed yearly
(adjusting for the age difference); in Denmark it is 105 and France,
104.5. The high rates are attributed to different factors: westernized
lifestyle; noticeable levels of hormonal replacement therapy in the
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past; and rigorous mammographic screening.
U.K. stands seventh with 95 cases per lakh annually and is
followed by Barbados, U.S. and Ireland.
pi In England, breast cancers were the most common to be registered;

in 2015, they accounted for 15.4 percent of malignant cancer
registrations for all ages combined. The incidence rate for breast
cancer increased from 163.6 in 2005 to 170.2 cases per 100,000
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females in 2015; it accounted for 43.2% of cancers among females
aged 20 to 59.
In 2015, breast cancer incidence rates ranged from 159.3 per
100,000 women in London to 182.4 per 100,000 in the South East.
Over the two decades from 1995 to 2015, the increase in number of
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diagnosed cases contrasted with the decrease in mortality. This has

been owed to earlier diagnosis and faster treatment.
“More than 46,000 women are diagnosed with breast cancer in
England each year, with the disease responsible for over 9,000
deaths annually”, according to Cancer Research UK.
India
Breast cancer is the most common cancer among Indian women
with incidence rate as high as 25.8 per 100,000 women and
mortality 12.7 per 100,000 women.

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India, U.S and China account for nearly one-third of the worldwide
breast cancer burden, according to Breast Cancer India. Going by
the mortality to incidence ratios for 2012, India fares the worst
among the three.
Detection in advanced stages greatly worsens the situation in
India. While survival rates in U.S. for at least 5 years after cancer
is diagnosed is 89 percent, in India rough estimates place it at 60
percent.
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Another alarming trend is the increasing occurrence of breast
cancer among younger women and the high rate of deaths. While
lack of awareness and late detection are known factors, an
analysis last year of cancer literature from the country
pi revealed that Indian women showed a higher rate of the most

aggressive type of breast cancer, the triple negative breast
cancer (TNBC) than women from other parts of the world.
“The next step is to do studies with patients diagnosed with triple
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negative breast cancers to see if these patient have some common
genetic pattern or mutation that place them at a higher risk of
getting triple negative breast cancer,” said Aju Mathew of the
Markey Cancer Center at the University of Kentucky.
Who said what?
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“The committee acknowledged the

comments received from patients
during the consultation, … in
particular that 115,000 people had
signed a Breast Cancer Now petition
urging NICE and the company to ensure that it remains available,”
Carole Longson, NICE director of health technology evaluation,
said in a statement. “We are therefore very pleased that the
company and NHS England have been able to agree a deal that

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will achieve this.”

“Today’s announcement on Kadcyla shows that for companies
who are willing to work with us, there are concrete gains for
them, for the NHS and, most importantly, for patients able to get
new and innovative drugs. In this case, tough negotiation and
flexibility between the NHS and Roche means both patients and
taxpayers are getting a good deal”, said chief executive of NHS
England, Simon Stevens.
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Richard Erwin, general manager, Roche asserted that Roche’s
commitment to make Kadcyla accessible UK-wide has never
swayed. “ This is a positive example of how solutions can be
reached when all parties show flexibility. ”
pi Delyth Morgan, chief executive of Breast Cancer Now hailed the

move, saying it ensured “thousands of women with incurable
breast cancer will be given precious time to live ”. She also
praised the relentless efforts of “hundreds of thousands of
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women, men and families across the country” to ensure the routine
availability of Kadcyla. She also cautioned, “ However, this news
comes at a time when there is a real possibility that Perjeta, the
first-line treatment for this group of patients, could soon be
removed from NHS use, with a decision imminent. Perjeta’s
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benefits are extraordinary, offering nearly 16 additional months

of life to women with incurable breast cancer, and it is imperative
that a solution is found to save this drug, at a cost affordable to
both the NHS and the taxpayer. ”
Concerns over secrecy regarding the price agreed upon and the
tremendous disadvantages it placed the public at were discussed in
an article in Stop Aids
Transparency, a tenet of democracy, empowers citizens to examine
decision-making and holds governments accountable. By not

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revealing the price, the citizen’s right to know if taxpayer

money is effectively utilized is snatched away. Pharma industry,
one of the most lucrative industries, will benefit.
Roche is opting to conceal the price because it cannot justify it.
While Kadcyla is important, the estimated costs of R & D often
cited as justification for exorbitant prices, vary over a vast
range and are greatly debated.
‘UACT has some questions regarding the final negotiated price
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and has deep concerns over the lack of transparency of the
negotiations and the price of the life-saving drug.’ There is a lack
of genuine evidence and transparency about the actual
amounts spent by pharmaceutical companies on research and
pi development (R&D) and the public contribution to this sphere.

John Piears, whose wife’s death from ovarian cancer led him to
launch Dying for a Cure campaign aimed at reform of the
development process of cancer drugs to provide maximum benefit
ap
to patients said, “It is welcome news that Kadycla will now be
made available to terminally ill breast patients on the NHS, but
truly shocking that some patients are likely to have died
needlessly while Roche, the drug company that owns the
monopoly on the drug, withheld it for many months to try to
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extract the highest possible price from the NHS. Even now it
seems that the price is too high for the NHS to make it available
to all breast cancer patients – cheaper drugs will need to be tried
first, even if they are likely to be less effective or has worse side
effects. For too long drug companies have held patients to
ransom in this way, extorting unwarranted high prices in order to
recoup R&D costs many times over.”
Last month it was made known that Roche was one of the
companies being investigated for over-pricing in South Africa of
its breast cancer drugs Herceptin and Herclon.

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Roche’s stand on Kadcyla’s exorbitant cost

Jennifer Cozzone, then head of health economics and pricing at Roche,
had told the Telegraph that the price was based on two key
considerations.
First, the “value” that the medicine represents to the entire
healthcare system, including the benefit to the patient as well as
whether the drug could help save money in other areas by, for
example, cutting hospital admissions.
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Second, the level of investment that goes into a medicine. While
concealing the exact cost for development of Kadcyla, she said it
had taken three decades to develop. An oft cited cost estimate in
pi the drug industry to get a drug into market is “around $1bn

(£595m)”.
Pharma companies frequently justify the high prices as raw
material for next generation research.
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How else is technology in India
aiming at detection?
IIT researchers are developing a
wearable device vest with a thermal
sensor to detect cancer. The data
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collected would be sent to a computer

using CDAC equipment. Clinical trials had begun last year.
“One of the best features of this device will be that the data
collected can be transmitted to hospitals anywhere in the world or
analysed from a system,” said an official involved with the
development.
Centre for Materials for Electronics Technology (C-MET)
functioning under the Ministry of Electronics and Information
Technology (MeitY) initiated the project after it was realized

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that majority of rural women did not know about the

conventional modes of detection; by self-examination and
mammography.
With evidence pointing to a rising trend in breast cancer in India,
the Centre was exploring cost-effective detection facilities.
“Machine suitable to India at affordable rates for early detection
of cancer is being done. I applaud the scientists who have done this
work. It is a good initiative in ‘Make in India’. They need to use
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this technology for helping commercial manufacturing,” Ravi
Shankar Prasad, Minister of Information Technology told
BusinessLine last October.
pi Niramai Health Analytix, founded last year by Geetha Manjunath

is working on a “non-invasive, non-touch, non-radiation approach to
detect breast cancer ” with Artificial Intelligence (AI) over thermal
images.
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“People go only when they have a large lump in their breast,”
Manjunath told ET. “By the time they go to the hospital, it is pretty
late and tough to save lives. Our solution can detect it five years
before the lump starts forming,“ she said, and added that their
technology is “privacy sensitive“._
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SCIENCE & TECHNOLOGY / Medicine / The art

of overpricing life-saving drugs
28-Apr-2017
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pi Ruling in favour of two pharma majors, India’s Biocon and US’
Mylan, the Competition Commission of India (CCI) has ordered a
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probe into Swiss drugmaker Roche for allegedly using anti-competitive
practices to restrict cheaper copies of the cancer drug Transtuzumab
from reaching patients. Knappily analyzes the CCI order, which is a
significant development in the struggle for access to affordable life-
saving medicine in India.
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What is the CCI order?

The Competition Commission of India
(CCI) has ruled in favour of Pharma
major Biocon in the case against Swiss
Pharma giant Roche over breast
cancer drug Trastuzumab. CCI has
given directions for carrying out a detailed investigation to ascertain if
Roche used its dominant position to maintain its monopoly over
the drug.

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The order comes as a response to a joint complaint filed by Mylan

and Biocon in 2016 alleging that the Roche Group indulged in
“abusive conduct”.
CCI, India’s antitrust regulator, has ordered a probe into the
conduct of Roche for allegedly using anti-competitive practices to
restrict cheaper copies of Trastuzumab from reaching patients.
CCI said that the Roche group tried to block market access for
Biocon Ltd and Mylan Pharmaceuticals’s generic biotech drugs of
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its Trastuzumab drug used in the treatment for early breast
cancer and metastatic gastric cancer.
CCI said in its interim order that it had enough reason to order an
investigation by its director-general into whether the Roche group
pi abused its dominant position in the market. It cautioned that this

order should not be construed as “expression of final opinion on
the merits of the case.”
“Roche adheres to all applicable laws and regulations in countries
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where it operates,” Roche spokeswoman Shilpika Das said in a
statement. “We are fully committed to cooperating with the
authorities in India.”
In an interim order the CCIsaid it found merit in Biocon and
Mylan’s arguments, and ordered its director general to conduct
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a “detailed investigation” and submit a report within 60 days.

Although the order is not final, the investigation could result in
penalties for Roche, said a lawyer at the Delhi High Court, who
declined to be named.
Biocon said in a statement that it welcomed the CCI’s order.
Why are Biocon and Mylan angry?
Biocon and Mylan produce Trastuzumab “biosimilar” - drugs
which are almost identical and have similar safety and
effectiveness - which are sold in over 12 countries including India

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and are priced over 25% lower than

Roche’s Herceptin.
They filed a complaint with the CCI last
year alleging that Roche wrote to
doctors, hospitals, and state and
federal regulators, misleading them
about the safety of efficacy of the biosimilar versions of
Trastuzumab.
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They alleged that Roche was using its powerful position to
restrict entry of low-cost alternatives to Trastuzumab. Roche
also allegedly influenced tenders and legal processes.
pi Kalyani Menon-Sen, coordinator for Campaign for Affordable

Trastuzumab, said that women were often pressurized to buy
Roche’s drug at private hospitals. If they opt for buying it outside,
or choose biosimilars, they are sometimes even denied
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treatment.
Roche drug is priced up to 35% higher than its biosimilars. A
440mg vial of Roche’s Trastuzumab was sold in India for Rs.
1,20,000 during 2002-2012. In 2013, it released a cheaper version
at Rs. 75,000. The same year, Biocon released its biosimilar at
Rs. 57,500; Roche subsequently lowered its prices too.
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Not just Biocon and Mylan, Roche targeted other biosimilars

too. In 2015, Reliance Life Science’s biosimilar TrastuRel was
approved, but it could be released one year later after being
challenged by Roche in the Delhi High Court. Cadila Healthcare,
meanwhile, took precautions: it sought an injunction from the
Bombay High Court before it launched its biosimilar version.
The order provides relief to Biocon and Mylan
“When seen collectively in the background of surrounding facts
and circumstances, they (letters and communications to authorities

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and doctors) only appear to be a part of the bigger plan/strategy

of Roche Group to eliminate competition posed by biosimilars to
Roche’s products in the relevant market,” said the CCI order.
“Creating any iota of doubt in the minds of doctors can adversely
affect the market for biosimilars, which is prescription induced,
and the damage can be beyond repair. Such disparagement may
also have ripple effects within the medical community. In this
scenario, those biosimilar manufacturers who do not have strong
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marketing channels amongst doctors may be forced out of the
market because of abusive denigration by a dominant player,”
continued the CCI order.
“Prima facie, it appears to the Commission that Roche Group has
pi shirked such responsibility (of a dominant player) and indulged

in abusive conduct”, the order concluded.
Though the commission did not opine that Roche did ‘unfair pricing’,
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it noted that companies which are smaller in size and do not have a
proper distribution channel will be affected by Roche’s move and
approach.
When did the Supreme Court decide on
a similar case?
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The story of the Gleevec patent

In 1992, Novartis filed an initial patent
application in the United States
covering the drug “ imatinib ”, which
patent application also covered pharmaceutically acceptable salts.
It was subsequently granted a patent. Novartis applied for and
received US Food and Drug Administration (FDA) approval for the
marketing of a salt form of that drug called “imatinib mesylate”.
The drug was placed on the market in that form in 2001.

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Novartis sought patent protection for the beta crystalline form

of imatinib mesylate in 1998 after India had agreed to enter the
World Trade Organization and to abide by worldwide
intellectual property standards under the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS).
However, there was one big problem for Novartis. Section 3(d) of the
Indian Patent Act 1970 (as amended in 2005) does not allow patent
to be granted to inventions involving new forms of a known
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substance unless it differs significantly in properties with regard to
efficacy. Thus, the Indian Patent Act does not allow evergreening of
patents.
pi The Novartis application did not disclose any improvement in

efficacy. However, when India adopted section 3(d) in 2005,
Novartis undertook some studies to meet the statutory requirement
to show enhanced efficacy.
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Imatinib mesylate is used to treat chronic myeloid leukemia and
is marketed by Novartis as “Glivec” or “Gleevec”.
The application was rejected in 2006 on the grounds that it failed
to satisfy novelty and non-obviousness requirements.
Novartis lodged appeals before the Madras High Court, which
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was then transferred to the then newly formed Intellectual

Property Appellate Board.
The Appellate Board rejected Novartis’ contention on the grounds
that the invention was not a new substance but an amended
form of a known compound and that Novartis was unable to
show increase in efficacy as laid down in section 3(d) of the
Indian Patents Act.
Novartis then appealed directly to the Supreme Court through a
Special Leave Petition, due to urgency, as the patent if granted on
appeal would expire by 2018.

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On the basis of the documents presented, the apex court of

Indiaconcluded that Gleevec did not meet the requirements of an
“invention” as laid down in the Indian Patents Act.
The Court then held that the claimed flow properties,
thermodynamic stability and hygroscopicity, whereon Norvartis
relied on to overcome section 3 (d), had nothing to do with
therapeutic efficacy.
It was stated that the primary purpose of section 3(d), as evidenced
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from the legislative history, was to prevent “evergreening”.
Evergreening is a term used to label practices that have developed
in certain jurisdictions wherein a trifling change is made to an
existing product, and claimed as a new invention. The
pi coverage/protection afforded by the alleged new invention is then

used to extend the patentee’s exclusive rights over the product,
preventing competition.
The ruling cleared the way for mass production of a much cheaper
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generic version. While a cancer patient in the United States
might spend around $70,000 for Gleevec, India’s version could
cost as little as $2,500.
The judgment received severe criticism from a number of originator
pharmaceutical companies, including Novartis, and from the US
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Chamber of Commerce, which argued that the judgment dealt a

harsh blow against the future of innovation, particularly in India.
The Indian Parliament, supported by the Supreme Court, has decided
that Indian consumers should only pay for expensive patented products
when those products represent a genuine advance over older
versions.
Where are the reasons for Roche’s restlessness?
Trastuzumab has been a mainstay of Roche’s profit for years and

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brought in global sales of about $6.7

billion in 2016, but it has been
challenged in the last three years by
biosimilars sold by companies like
Biocon, at about a 25 percent discount to
the original.
India, with among the highest number of cancer patients in the
world, is a big market for trastuzumab, which is indicated to
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treat certain forms of breast and gastric cancer. Roche sells the
drug under the brand Herceptin globally. In India, it is sold as
Herclon and Biceltis.
pi Globally, the market for trastuzumab is getting increasingly

crowded, with new entrants such as U.S. biotech firm Amgen and
partner Allergan, which are seeking approval for their form of
trastuzumab.
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A campaign for Affordable Trastuzumab in India was launched in
November 2012 and it demanded that the Government of India
intervene to enable the production of biosimilars and ensure that the
drug is made available to all.
Roche, subsequently, withdrew its Herceptin (which it had
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launched in 2002) and launched the drug under the brand

name Herclon and Biceltis (marketed by Emcure who
distributed it) at a slightly lower price of Rs 75,000 for a 440 mg
vial, which was still out of reach for most patients.
In 2013, after facing challenges to its patent claims, Roche chose
to withdraw its patent in India in August 2013.
After obtaining requisite approvals from the regulators in 2013,
Biocon and Mylan started marketing biosimilars of Trastuzumab
under the brand names CANMAb and Hertraz in 2014.
Roche filed a case against the regulators for issuing licenses to

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these companies for the said drug.

The Delhi High Court’s Division bench upheld the Indian drug
regulator’s approval given to Biocon and Mylan to market their
cancer drug during the pendency of the civil suit for all indications.
Trastuzumab is now included in the National List of Essential
Medicines and a number of public sector entities such as Indian
Railways either reimburse or procure the drug.
A majority of patients in India have to pay for Trastuzumab
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themselves and some have been seeking financial assistance from
the PM’s National Relief Fund to access the drug.
The price of Trastuzumab has dropped to range between Rs, 29,500
pi and Rs 33,000 per 440 mg vial and distributors are offering one
vial free after a patient purchases three vials.
Note: Unlike generic medicines in which the active ingredients are
identical to the reference small–molecule drug, biosimilars are not
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identical to the reference drugs. Due to processes associated with
translating biologics from living cells in the laboratory to mass-
production molecules, biosimilars can only be highly similar to the
reference product they are designed to resemble; there is no way to
make identical copies of biologics. A generic drug, by legal
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definition, is an exact copy of its reference medicine and must have the
same chemical structure. Biologics are genetically-engineered proteins
derived from human genes.
#Who are over-pricing cancer drugs?
Newer cancer drugs called ‘checkpoint
inhibitors’ work by releasing a molecular
brake, allowing the immune system to
recognize and attack cancer cells the same
way it fights infections caused by bacteria or

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viruses. Used for immunotherapy, they are very effective as they

engage the body’s immune system to improve the odds of survival.
(The picture above shows cancer cell (white) being attacked by two
cytotoxic T cells (red), part of a natural immune response triggered by
immunotherapy.)
However, immunotherapy drugs are very costly as competition
between them is not reining in prices that can now top $250,000 a year.
Oncology drug development is an area of priority for all the
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drug developers of the world. The success of the checkpoint
inhibitors is the result of big bets in cancer therapy made by
Bristol-Myers Squibb, Merck & Co and Roche, among others.
pi The industry’s pipeline of cancer drugs expanded by 63 percent

between 2005 and 2015, according to the QuintilesIMS Institute,
and a good number are reaching the market.
The global market for cancer immunotherapies alone is
ap
expected to grow more than fourfold globally to $75.8 billion by
2022 from $16.9 billion in 2015, according to research firm
GlobalData.
For cancers like melanoma, immunotherapy treatments can mean
long-term survival for around 20 percent of patients.
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Unrestrained pricing power to the pharma companies

The pharmaceutical industry argues that any discussion of the pricing
of prescription drugs must take into account the major investment
required for innovation and discovery of new lifesaving drugs.
Scientific progress and pricing power are driving
pharmaceutical companies to emphasize oncology research.
“Most of the strategy on the part of pharmaceutical companies
assumes unrestrained pricing power,” said Dr. Peter Bach, director
of Memorial Sloan Kettering’s Center for Health Policy Outcomes

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in New York. “We don’t see evidence that companies are pursuing
cost-effective strategies.”
“For cancer drugs in general … it is hard for us to drive down
cost,” said Steve Miller, chief medical officer at Express Scripts,
the US’s largest manager of drug benefit plans for employers and
insurers. “You don’t want to be in the position of being told to use
the second best cancer drug for your child.”
Health insurers have had success in demanding price concessions
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in some drug categories - like diabetes, where several companies
sell similar products and insurers are able to negotiate price
discounts or rebates in exchange for coverage.
But discounting is much less common for newer, innovative
pi cancer drugs, mostly given by injection and approved for defined

patient populations.
Makers of new cancer medications enjoy pricing power due to
coverage requirements, insurance plan structure and a lack of head-
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to-head comparison studies.
Lawmakers world-over have been grappling with how to restrain
rising prescription drug costs. They have talked about solutions
ranging from more price negotiation to faster approval of new
drugs, often invoking increased competition between drugmakers.
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How can the business interests and right

to life be balanced?
The struggle for access to medicine
presents a legal and ethical minefield for
rich and poor countries alike — one that
is being fought out as humanitarians
challenge corporations over intellectual property rights.
In the United States and other rich industrialized nations, “big

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pharma” is already the gatekeeper for life-saving medicines.

The Global South is the next frontier in the patent war, where
public health advocates form the front line against an industry
seeking to colonize nascent health care markets.
The Novartis ruling in India was just one of the many legal
showdowns that have embroiled the drug industry in recent years.
Meanwhile, corporations are pushing back through trade deals
and other intellectual property reforms. The outcome could be
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devastating — stripping government and citizens of authority over
health care costs and lavishing more market power on top drug
manufacturers.
The mechanisms by which the drug companies pursue this power,
pi however, are off the public radar, designed by international bodies

determined to evade democratic control.
The pharmaceutical industry’s chief aim, activists fear, is to
establish a new global standard for governing the control of
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patents, empowering companies to control medicine markets more
expansively and for longer periods of time.
The TRIPS framework
The medicine-related provisions of TRIPS, crystallized in the 2001
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Doha Round of WTO talks, ensure some political flexibility for

governments to circumvent patent protections on public health
grounds.
The agreement exempts poorer countries from regular patent
enforcement rules so that governments can expand access to
affordable medicines by granting compulsory licenses to produce
generics, which override foreign companies’ patents.
For now, the poorest countries are generally exempted from the
WTO’s major patent enforcement policies, thanks to an interim
grace period that allows governments to adjust their regulatory

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systems.
Providing good healthcare requires balancing the need for
innovation with the necessity for more affordable medicines,
within a robust intellectual property (IP) environment.
According to a Tufts University Study, the average cost of
developing a drug, including the cost of failure, is around $2.6
billion and it takes 10 years to bring a new molecule to market.
Life-saving drugs are necessary for combating life-threatening
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diseases. But patients also need new drugs and solutions for
changing disease profiles.
A robust IPR framework can promote the development of new
pi medicines and encourage investment in innovation.

The huge unmet medical needs and therapeutic areas need to be
addressed with innovation-driven cures. It is short-sighted to view
patents as blocking access to drugs. Or to see patented medicines
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and generic drugs as mutually exclusive.
Currently, only 5% of the medicines are patent-protected in
India. Where patented products are beyond the reach of Indian
patients, companies have robust access programs to make them
available for a low price.
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Making generics mandatory

To make health care affordable in the country, the Narendra Modi-
led central government is looking to make it mandatory for doctors
to prescribe generic drugs. The health ministry, in line with Finance
Minister Arun Jaitley’s Union Budget announcement, has started work
on amending the Drugs and Cosmetics Act.
The Pradhan Mantri Bhartiya Janaushadhi Pariyojana will be
introduced for cheaper medicines in hospitals.
After the Act has been amended, doctors will not be allowed to

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mention brand names in their prescriptions. Instead, they will

have to mention the generic name of a drug.
Generic drugs’ share of the market, 80 per cent at present (20 per
cent is accounted for by branded and patented drugs), is expected
to go up to 90 per cent in the next three years.
The pharma industry, meanwhile, does not seem enthused. Industry
players believe the idea will complicate things for doctors and be
very difficult to implement. Doctors may face difficulty in
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prescribing combination drugs or medicines with multiple ingredients,
analysts say.
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mba.knappily.com

Transformative treatment for prostate cancer
21-Dec-2016
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pi A drug derived from deep sea bacteria activated by laser light
successfully destroys early prostate cancer while avoiding side-effects
ap
that commonly occur with surgery, trial results have shown. These
results are excellent news for men with early localised prostate cancer,
offering a treatment that can kill cancer without removing or
destroying the prostate. This is a huge leap forward for prostate cancer
treatment, which has lagged decades behind other solid cancers.
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What are the results of the trial?

A new treatment for early stage prostate
cancer has been described by surgeons as
“truly transformative”.
The approach, tested across Europe, uses
lasers and a drug made from deep sea
bacteria to eliminate tumours, but without causing severe side
effects.
Trials on 413 men at 47 hospitals across Europe - published in The

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Lancet Oncology - showed 49% of them had no remaining trace

of cancer.
And during the follow-up, only 6% of patients needed to have the
prostate removed, compared with 30% of patients that did not have
the new therapy.
Crucially, the impact on sexual activity and urination lasted no
more than three months. No men had significant side effects
after two years.
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What is the treatment?
The new treatment is called vascular-targeted photodynamic
therapy (VTP) involves injecting a light-sensitive drug into the
pi bloodstream.
It uses a drug, made from bacteria that live in the almost total
darkness of the seafloor and which become toxic only when
exposed to light.
ap
Ten fibre optic lasers are inserted through the perineum - the gap
between the anus and the testes - and into the cancerous prostate
gland.
When the red laser is switched on, it activates the drug to kill the
cancer and leaves the healthy prostate behind.
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Why is it a transformative
treatment?
Lifelong impotence and incontinence
(loss of bladder control) are often the
price of treating prostate cancer with
surgery or radiotherapy.
Up to nine-in-10 patients develop erectile problems and up to a
fifth struggle to control their bladders. That is why many men
with an early stage tumour choose to “wait and see” and have

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treatment only when it starts growing aggressively.

“This changes everything,” said Prof Mark Emberton, who tested the
technique at University College London. Prof Emberton said the
technology could be as significant for men as the move from
removing the whole breast to just the lump in women with breast
cancer.
He said:“Traditionally the decision to have treatment has always
been a balance of benefits and harms. The harms have always been
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the side effects - urinary incontinence and sexual difficulties in the
majority of men.”
“To have a new treatment now that we can administer, to men who
pi are eligible, that is virtually free of those side effects, is truly

transformative.”
When will it be mainstreamed?
The VTP treatment is now being
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reviewed by the European
Medicines Agency (EMA) for
possible license and if passed will
need to be approved by the
National Institute for Health and Care Excellence before it can be
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used in the National Health Service (NHS) of the United Kingdom.

Thus, it is likely to be several years before it can be offered to
patients more widely.
New procedures are generally associated with a learning curve, but
the lack of complications in the trial suggested that the treatment
protocol is safe, efficient and relatively easy to scale up.
The chances of cancer progressing to a more dangerous stage
were three times lower for patients on VTP, and the treatment
doubled the average time to progression from 14 months to 28

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months.
The benefits of the new therapy may not stop at prostates,
however. Emberton expressed hope that it would be useful in
killing other types of cancer as well. “The treatment was developed
for prostate cancer because of the urgent need for new therapies,
but it should be translatable to other solid cancers including breast
and liver cancer,” he said.
Where are the other available
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treatments?
There is no “one size fits all”
treatment for prostate cancer.
pi Because men diagnosed with localized

prostate cancer today may live for
many years, any decision made will probably reverberate for a long
time. Some of the treatment options available include:
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Active Surveillance: Because prostate cancer often grows very
slowly, some men (especially those who are older or have other
serious health problems) might never need treatment for their
prostate cancer. Instead, their doctors may recommend approaches
known as watchful waiting or active surveillance. These
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approaches are not likely to be a good option if you have a fast-

growing cancer or if the cancer is likely to have spread outside the
prostate.
Radiation Therapy: Radiation therapy uses high-energy rays or
particles to kill cancer cells. It is generally used as the first
treatment for cancer that is still just in the prostate gland and is low
grade.
Surgery: Surgery is a common choice to try to cure prostate cancer
if it is not thought to have spread outside the prostate gland. The
main type of surgery for prostate cancer is a radical prostatectomy.

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In this operation, the surgeon removes the entire prostate gland

plus some of the tissue around it, including the seminal vesicles.
Cryotherapy: Cryotherapy (also called cryosurgery or
cryoablation) is the use of very cold temperatures to freeze and
kill prostate cancer cells. Despite it sometimes being called
cryosurgery, it is not actually a type of surgery. Most doctors do
not use cryotherapy as the first treatment for prostate cancer, but it
is sometimes an option if the cancer has come back after radiation
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therapy.
Hormone therapy: It is also called androgen deprivation
therapy (ADT) or androgen suppression therapy. The goal is to
reduce levels of male hormones, called androgens, in the body, or
pi to stop them from affecting prostate cancer cells. Androgens

stimulate prostate cancer cells to grow. The main androgens in the
body are testosterone and dihydrotestosterone (DHT). Most of
the androgens are made by the testicles, but the adrenal glands
ap
(glands that sit above your kidneys) also make a small amount.
Lowering androgen levels or stopping them from getting into
prostate cancer cells often makes prostate cancers shrink or grow
more slowly for a time. But hormone therapy alone does not cure
prostate cancer.
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Chemotherapy: Chemo treatment uses anti-cancer drugs injected

into a vein or given by mouth. These drugs enter the bloodstream
and go throughout the body, making this treatment potentially
useful for cancers that have spread (metastasized) to distant organs.
Chemo is sometimes used if prostate cancer has spread outside the
prostate gland and hormone therapy isn’t working.
Who is at risk of prostate cancer?
Prostate cancer is the fourth most common cancer in both sexes
combined and the second most common cancer in men.

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An estimated 1.1 million men worldwide

were diagnosed with prostate cancer in
2012, accounting for 15% of the cancers
diagnosed in men, with almost 70% of the
cases (759,000) occurring in more
developed regions.
Prostate cancer incidence varies more than 25-fold worldwide; the
rates are highest in Australia/New Zealand and Northern America),
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and in Western and Northern Europe, because the practice of
prostate specific antigen (PSA) testing and subsequent biopsy has
become widespread in those regions.
Incidence rates are also relatively high in certain less developed
pi regions such as the Caribbean (79.8), Southern Africa (61.8) and

South America (60.1), but remain low in Asian populations with
estimated rates of 10.5 and 4.5 in Eastern and South-Central Asia.
ap
With an estimated 307,000 deaths in 2012, prostate cancer is the fifth
leading cause of death from cancer in men (6.6% of the total men
deaths).
Because PSA testing has a much greater effect on incidence than
on mortality, there is less variation in mortality rates worldwide
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(ten-fold from approximately 3 to 30 per 100,000) than is observed

for incidence, with the number of deaths from prostate cancer
larger in less developed than in more developed regions
(165,000 and 142,000, respectively).
Mortality rates are generally high in predominantly black
populations (Caribbean, 29 per 100,000 and sub-Saharan Africa,
19-24 per 100,000), very low in Asia (2.9 per 100,000 in South-
Central Asia for example) and intermediate in the Americas and
Oceania.
How do marine microbes impact human health?

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Marine organisms such as bacteria,

algae, and viruses can be sources
of human illness. Although these
microorganisms exist naturally in
the ocean, human actions can lead
to ocean conditions that greatly
increase their growth, harming the health of humans, marine species,
and ecosystems.However, marine organisms also produce a vast
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array of chemical compounds that can be developed into products
with beneficial medical and industrial uses.
Since the 1970s, scientists have been isolating and characterizing
pi molecules from ocean organisms that have unique chemical

structures and bioactivities. In recent years, several of these
compounds have undergone clinical testing in the United States as
potential treatments for cancer.
ap
Progress has also been made in finding treatments for other human
ailments, such as infectious diseases, multiple sclerosis,
Alzheimer’s, chronic pain, and arthritis.
For instance, the harmful algae Karenia brevis produces
Brevetoxin, a very potent toxin that could aid in stroke recovery.
Other potentially useful chemicals extracted from the same
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microalgae include Brevenal, for treating cystic fibrosis, as well

as Escortin that has the potential to transform cancer treatment
by escorting anti‐cancer drugs directly into cancerous cells.
The drug used in the current VTP treatment, WST11, is derived
from bacteria at the bottom of the ocean. To survive with very
little sunlight, the bugs have evolved to convert light into energy
with high efficiency. This property was exploited to develop the
drug, a compound that releases destructive tumour-busting “free
radical” molecules when activated by laser light.

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Realization of the importance of microbes in marine biotechnology has

stimulated efforts for the sustainable exploration of marine microbe
resources.
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pi
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SCIENCE & TECHNOLOGY / Medicine / Beating

the most complex disease ever
9-Dec-2017
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pi The unpredictability associated with multiple sclerosis and that it
affects almost no two individuals in the same manner make it one of
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the most complicated diseases known. As research advances, new
discoveries and potential treatments emerge, we are significantly better
off than two decades ago. But even as this offers hope, the battle
against MS, whose exact causes are yet to be determined, is one to be
actively fought.
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What is Multiple Sclerosis (MS)?

MS is a demyelinating disease of the
nervous system that causes damage to
the insulating covers (myelin sheath) of
the nerve cells of the central nervous
system. It is characterized by the
presence of several scars (plaques or lesions – also called sclerae) on
the white matter of the brain and spinal cord. This is due to
disappearance of the myelin sheath in multiple areas.

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Due to this damage, the communication capabilities of parts of

the nervous system are affected leading to a range of signs and
symptoms, including physical, mental, and at times, psychiatric
problems.
The three main characteristics of MS are the formation of lesions in
the central nervous system (also called plaques), inflammation, and
the destruction of myelin sheaths of neurons.
Specific symptoms can include double vision, blindness in one eye,
ly
muscle weakness, hampered sensation, or difficulty with
coordination.
While the cause hasn’t been conclusively determined, the driving
mechanism is thought to be either failure of the myelin-producing
pi cells or destruction by the immune system. Causes put forth for this
include genetic and environmental influences such as being
triggered by a viral infection.
The numbers of people affected are more for regions farther from
ap
the equator, though there are exceptions. While not considered a
hereditary disease, several genetic variations have been revealed to
increase the susceptibility. While several microbes have been
suggested as triggers of MS, confirmation remains elusive. Other
factors have been put forth too.
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It is the most common autoimmune disorder – arising from an

abnormal immune response to a normal body part – affecting the
central nervous system.
Currently four types of MS have been described: clinically isolated
syndrome (CIS); relapsing-remitting MS (RRMS); primary
progressive MS (PPMS); and secondary progressive MS (SPMS).
MS takes several forms, with new symptoms either manifesting in
isolated attacks (relapsing forms) or intensifying over time
(progressive forms).Between attacks, symptoms may vanish
completely; however, permanent neurological problems often

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result, especially as the disease advances.

A cure for MS is yet to be found. Treatments try to improve the
ability to recover following an attack and prevent further attacks.
Note:
As imaging techniques and research progress, the traditional way
of describing MS as a mainly white matter disease is being
challenged.
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While ‘signs’ exhibited by a patient are externally visible to others
(such as rashes on the body), ‘symptoms’ can be felt only by the
patient (for example, pain).
pi Why is MS hard to treat?

“Multiple sclerosis is arguably the
most complex disease ever
described,” says Sergio Baranzini, a
ap
geneticist at the University of
California, San Francisco.
The disease is so intricate, he says, because it concerns two of the
body’s more complex systems — the nervous and immune
systems.
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Scientists are yet to understand where the damage starts. Is it a

problem in the nervous system that triggers an immune
response leading to further damage to the brain and spinal
cord? Or does the immune system make the first move, sending
disease-fighting cells into the brain, where they damage and
destroy nerve cells?
Another puzzle is over the cause of the initial nerve damage or the
immune attack. Scientists aren’t even sure if multiple sclerosis is a
single disease or a multitude of maladies.
Diagnosis can be tough to confirm, mainly early on, since the signs

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and symptoms may be similar to those of other medical problems.

It is impossible to predict the progress of the disease. A 2008
article in NY Times said, “Rarely are any two patients alike in the
presentation, duration and progression of symptoms; even the
underlying cause of disability in MS is being reconsidered. And
rarely do any two patients respond in the same way to a given
therapy, be it medically established or alternative. Trial and error
is the name of the game, experts say, because it is often not
ly
possible to know in advance what will work best for individual
patients.”
When did research on MS begin?
pi History
Towards the late 18th century and into
the 19th, the clinical information on
MS increased, and French neurologist
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Jean-Martin Charcot was the first
person to identify multiple sclerosis as a distinct disease in 1868.
While Charcot established the first set of conditions to identify MS,
Schumacher, in 1965 made the first attempt to standardize criteria
and laid out some fundamental requisites: “Dissemination of the
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lesions in time (DIT) and space (DIS), and that”signs and

symptoms cannot be explained better by another disease
process“”.
These were inherited in the McDonald criteria, the current criteria
for diagnosis. The 2010 revision of the McDonald criteria
permitted the diagnosis of MS with only one proved lesion (CIS).
The 2013 revision of the “phenotypes for the disease course” were
forced to recognize CIS as one of the phenotypes of MS, rendering
obsolete some expressions like “conversion from CIS to MS”.
In October this year, new proposed revisions to the 2010 version,

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should facilitate earlier diagnosis in several patients, authors said.

Research
Research on more effective, appropriate treatments, treatments
with weaker side-effects for relapsing-remitting MS; therapies for
the progressive subtypes; neuroprotection measures; and effective
symptomatic treatments continues. The 21st century has witnessed
the approval of many oral drugs even as studies also focus on bettering
existing therapies.
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Monoclonal antibodies – antibodies that are clones of a unique
parent cell and can bind to the same epitope (part of an antigen
that the antibody recognizes) unlike polyclonal antibodies – have
pi also drawn a lot of attention.

As of 2012 alemtuzumab, daclizumab, and CD20 monoclonal
antibodies such as rituximab, ocrelizumab and ofatumumab had all
shown some efficacy and were under study as potential
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treatments,and the FDA sanctioned ocrelizumab for relapsing and
primary MS in March, 2017.
But their use has also revealed potentially dangerous adverse
effects, notably opportunistic infections taking advantage of the
weakened immune system.
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Research has also explored the combined effectiveness of two or more

drugs.
Regenerative and neuroprotection therapies like stem cell therapy
have also been subject to research
Autologous hematopoietic stem cell transplantation (AHSCT) – a
multistep procedure enabling destruction of the immune system
and its reconstitution from haematopoietic stem cells – may be
effective for slowing the progress of MS and for repairing damage
to the nervous system, according to an article in Medscape.

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In a retrospective study – a study that takes into account past

history, usually from medical records and interviews with patients
who already known to have a disease – between 1995 and 2006,
281 patients were evaluated.
But 8 patients died within 100 days of transplant.
Also, patients with relapsing form of MS responded better than
those with progressive MS.
According to a 2017 article in Nature, “Results from ∼20 years
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of research make a compelling case for selective use of AHSCT
in patients with highly active multiple sclerosis (MS), and for
controlled trials… Current evidence indicates that the patients
who are most likely to benefit from and tolerate AHSCT are
pi young, ambulatory and have inflammatory MS activity.

Clinical trials are required to rigorously test the efficacy, safety
and cost-effectiveness of AHSCT against highly active MS
drugs.”
ap
Research is also focused on development of biomarkers that aid
diagnosis and prediction of disease progression.
Treatment
Fifteen medications are available to treat multiple sclerosis, each
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curbing the immune system and at least a dozen other drugs are in
various stages of development.
The four main MS types
Clinically Isolated Syndrome (CIS)
It is the first episode of neurological symptoms lasting at least 24
hours.
Not everyone who experiences CIS goes on to develop MS, figures
vary from 30% to 70%.
Research suggests that early treatment of CIS with disease

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modifying drugs can delay onset of MS for high risk patients. The
ABN guidelines state that neurologists may consider the employing
beta interferon or glatiramer acetate for people within 12 months of
a clinically isolated syndrome when MRI scans suggest a strong
risk of further episodes.
Interferons are made by the body to calm inflammation. These
drugs are manmade versions. They can reduce (and might prevent)
the inflammation that damages nerves in MS.
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Relapsing Remitting MS
Relapsing-remitting MS is characterized by unpredictable
relapses interspersed with periods of months to years of
pi relative quiet (remission) with no new signs of disease presence.

It is the most common disease course; approximately 85 percent of
people with MS are initially diagnosed with RRMS.
Disease-modifying drugs are those that slow down the progress of
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the disease and prevent flare-ups for they work by suppressing the
immune system so it doesn’t target the myelin surrounding nerve
cells.
As of 2017, eleven disease-modifying medications have been
approved by regulatory agencies for relapsing-remitting
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multiple sclerosis (RRMS).

Primary progressive MS (PPMS)
It is marked by progression of disability from onset, with no, or
only rare and minor, remissions and improvements.
Approximately 15 percent of people with MS are diagnosed with
PPMS.
It can be hard for doctors to diagnose PPMS as the disease is
complex and is different for everyone who has it. Some people
have symptoms for a few years before doctors can conclude

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that their condition is gradually deteriorating without flare-

ups.
The medications doctors usually prescribe for MS seem less
helpful for PPMS as these drugs mainly calm inflammation and
reduce frequency and intensity of relapses, both which aren’t a
major part of PPMS.
As of 2017, rituximab, a monoclonal antibody against CD20
protein, has been widely used as off-label - the medication is being
ly
used in a manner not included in the FDA’s approved packaging
label, or insert – to treat progressive primary MS. In March 2017
the FDA approved ocrelizumab, as a treatment for primary
progressive MS, the first drug to gain that approval, with
pi requirements for several Phase IV clinical trials.

Secondary progressive MS (SPMS)
SPMS follows an initial relapsing-remitting course. Most
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people who are diagnosed with RRMS will eventually develop a
secondary progressive course in which there is a progressive
worsening of neurologic function (accumulation of disability)
over time. SPMS can be further defined at different points in
time as either active (with relapses and/or evidence of new MRI
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activity) or not active, as well as with progression (evidence of

disease worsening on an objective measure of change over time,
with or without relapses) or without progression.
Due to the complexity of MS, it can be hard to identify the changes
that signal SPMS, even for health professionals. Doctors frequently
wait at least 6 months before they diagnose SPMS.
While disease modifying drugs may help, as symptoms gradually
worsen in people, they become less and less effective.
Only one drug, mitoxantrone (Novantrone) has FDA approval
to treat SPMS. Its primary function is to address relapses.

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Serious side effects include leukemia and heart problems.

It is usually used only when other treatments don’t work.
Where did Rab32 enter the scene?
Due to MS being almost always
associated with nerve cell damage,
researchers have started to focus on the
mitochondria – the powerhouse of the cell
– and endoplasmic reticulum – which,
ly
among other functions, is instrumental in the synthesis of folding,
modification, and transport of proteins, writes Ashley Yeager in
Science News.
pi While these organelles are responsible for nerve cells performing

their functions, in MS, they are stressed and under pressure.
More recently, MS has been added to the list of
neurodegenerative disorders whose link with improper
ap
functioning of mitochondria has been explored by researchers.
In a study published in January in the Journal of
Neuroinflammation, researchers concluded that “ER stress is
strongly associated with Rab32 upregulation in the progression of
MS, leading to mitochondrial dysfunction and neuronal death.” In
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upregulation, the cell increases the quantity of a cellular component

such as protein in response to an external stimulus.
ER and mitochondria are functionally linked by the
mitochondria-associated membrane (MAM). Researchers
wanted to find out if Rab32 – a known regulator of MAM,
mitochondrial activity and cell death – could potentially be
associated with ER stress and mitochondrial dysfunction,
according to an article in MS News Today.
“Scientists have been pointing to the mitochondria, the powerhouse
of the cell, as a possible link to MS but have not been able to

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decipher how they malfunction. Ours is the first study that

combines clinical and lab experiments to explain how
mitochondria become defective in MS patients,” said Thomas
Simmen, a cell biology researcher and co-author on the study.
Their research which used brain tissue samples from MS-affected and
healthy brains provided a clue. “A part of the cell that stores calcium
(endoplasmic reticulum or ER) gets too close to the part of the cell that
creates energy (mitochondria) when massive amounts of Rab32 are
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present in the brain of MS patients. The resulting miscommunication
with the calcium supply triggers the mitochondria to misbehave,
ultimately causing toxicity for brain cells in MS patients,” explained
pi Simmen. Healthy brain tissues however had virtually no Rab32.

The researchers clearly pointed out that the exact cause of increase
in Rab32 levels remains unclear though they postulate that it is
linked to ER stress. They also observe that Rab32 is likely not
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singly responsible for the mysterious behavior of MS. Further
studies are needed to understand better the proteins that are
involved in mediating the connection between ER and
mitochondria.
Note:
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At least some media coverage of this research appears to be overtly

positive.
The BartsMS Blog, the Barts and The London Neuroimmunology
Group, aiming to communicate the latest news and research on MS,
and one of the notable blogs, has explained and commented on this
research in a more critical light.
So has Dr Karen Lee, the current Vice-President of Research at the
Multiple Sclerosis Society of Canada, in her blog.
The links have been shared in the Reference section and should be

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visited for a more detailed and critical explanation.

Who are more susceptible to MS?
In 2015, about 2.3 million people
worldwide had MS; with rates largely
dependent on region and population.
The disease, which had claimed 12,000
lives in 1990, took 18,900 lives in
2015.
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The disease usually sets in between the ages of 20 and 50 and is
twice as common in women as in men.
It occurs more frequently among people living farther from the
pi equator despite exceptions such as the low-risk ethnic groups of

Samis, Amerindians, Canadian Hutterites, New Zealand Māori, and
Canada’s Inuit who live farther from the equator and relatively
high-risk groups such as Samis, Amerindians, Canadian Hutterites,
ap
New Zealand Māori, and Canada’s Inuit who live near the equator.
However, a methodical review by Alonso and Hernán showed a
decline in this latitude gradient after 1980, apparently due to
an increased incidence of MS in lower latitudes.
If an individual stays in an area with low incidence of MS until age
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15 years, that person’s risk remains low even if they subsequently

shift to an area of high incidence.
MS is more common in regions with northern European
populations. Decreased sunlight exposure leading to decreased
vitamin D production has also been put forward as an
explanation.
Relatives of the affected person have been found to possess higher
risk of developing MS; with risk proportional to degree of
closeness though it is not considered an inheritable disease.
A number of genetic variations have revealed an increased risk.

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Some of these genes seem to have higher levels of expression in

microglial cells – which serve as the first and foremost form of
active immune defence in the CNS – than expected.
Among miscellaneous factors considered but needing
substantiation are stress, association with occupational
exposure and toxins – mainly solvents, diet and hormone
intake. Vaccinations were studied as causal factors but most
studies show no association.
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Stronger miscellaneous factors are smoking and lower levels of
uric acid.
How do the patients cope with MS?
pi While one section or even an entire

knapp cannot in any way encompass the
experiences, struggles, and successes of
MS patients, it is important to know that
ap
people have gone through the most
despairing of phases – patients and caregivers – and emerged fighters.
Several reliable online resources empower with awareness and
connectedness.
Health magazine had presented insights from some individuals with
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MS
For Meagan Freeman, a family nurse practitioner in her 40s, her
coping mechanism has been finding a way to take on the roles of
caregiver and patient since her diagnosis. “I have drastically
changed my diet, tried to reduce stress as much as possible, and I
have learned that I need to say ‘no’ sometimes in order to remain
healthy.”
For her, people’s dual perception of patients with MS has come as
a surprise. “Either complete and total disability, or a perfectly

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normal person with a minor illness,” In reality, flare-ups can

severely impede a person’s normal abilities, but patients remain
comparatively functional at other times.
Now a blogger for MSAA, she acknowledges the commonly shared
fear of future and says she deals with it by telling herself It could
always be worse. “There is always something to be grateful for,”
she says, “no matter how small.”
Hers is just one of a myriad of stories ranging vastly in physical and
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psychological challenges and coping mechanisms and yet connected to
show that there are numerous technological, medical, physical and
psychological assists to live with MS. They also reinforce the need and
pi urgency of furthering research on MS and finding a cure.

—– | —–
ap
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Eliminating Hepatitis
29-Jul-2017
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pi World Hepatitis Day is observed annually on July 28 and this year’s
theme was Eliminate Hepatitis. Viral hepatitis, which accounts for the
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majority of the disease burden, claims about 1.4 million lives
worldwide every year. In low- and middle-income countries and
among vulnerable populations which are hit hardest, barriers to access
of diagnostics and treatment are primary constraints. Awareness and
advocacy are essential to timely diagnosis and curbing disease
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transmission.
What is Hepatitis and its common

causes?
Hepatitis is a condition in which the
liver is inflamed. Acute or temporary
hepatitis lasts less than six months;
hepatitis that lasts longer is chronic.
Acute hepatitis may be self-limiting – it automatically suppresses
itself – or might worsen into chronic hepatitis or in rare instances

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lead to acute liver failure.

Hepatitis is mostly the result of viral attack but can also be
caused by other infections, harmful substances like alcohol or
certain drugs, and autoimmune diseases.
Common distinct viruses recognized as causes are HAV (Hepatitis
A Virus), HBV, HCV, HDV and HEV.
HAV occurs in the faeces of infected persons and spreads
frequently through consumption of contaminated water or food;
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certain sex practices also enable transmission. While infections are
in several cases mild – the person recovers completely and is
immune to further infections – they can also be serious and a threat
pi to life. Areas with poor sanitation are vulnerable but preventive

vaccines are available.
Infected blood, semen, and other body fluids carry HBV from
one person to another. Mother-to-child or family-member-to-
ap
baby transmissions are also possible. Transfusion of infected
blood, contaminated injections either during medical procedures
or while taking drugs are also means of transmission. Preventive
vaccination exists.
Exposure to infected blood is the chief way HCV spreads.
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Transmission through injections and in rare cases, sexual

transmission is also possible. There is no vaccine.
HDV infections happen only in patients who have contracted the
HBV virus. Together, they can worsen the condition of the
individual. HDV can be warded off with HBV vaccines.
HEV, like HAV is mostly spread by contaminated water or food. It
is a common cause of hepatitis epidemics in the developing world
and has been increasingly identified as a crucial cause of disease in
developed countries as well. While preventive vaccines have been
developed, they cannot be accessed widely.

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Autoimmune hepatitis happens when the liver is attacked by the

immune system.
Why is awareness important?
Viral hepatitis claims about 1.4 million
lives from the world annually and hits
about hundreds of millions: HCV accounts
for about 48 percent of fatalities; HBV, 47
percent; and the other three, the remaining
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5 percent. Lack of definite symptoms in the early stages means
many people do not realize they are infected until a long time
elapses.
pi While around 325 million people worldwide live with chronic

Hepatitis due to B or C virus, vaccines and medicines are not
reaching all who need them. One reason for this is poor
identification rates – just 9% of all hepatitis B infections and
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20% of all hepatitis C infections were diagnosed in 2015. This
makes millions vulnerable to gradual progression to chronic
liver disease, cancer and death, says the W.H.O.
The W.H.O. places India at an intermediate level in terms of
endemicity of hepatitis; 2 to 3 percent of the population is infected.
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Dr O.P. Kansal, public health specialist and advocate of hepatitis

awareness called it a silent pandemic and said, “Viral hepatitis
affects millions of people without them being aware. In India,
about 4% of the population is either a Hep B or Hep C carrier.
This number is alarming because it translates to approximately 52
million carriers, who could transmit the disease unknowingly.
These are all conservative estimates but even this is a huge disease
burden. Thus, greater awareness and understanding of the disease
and the risks is a must.”
Dr B R Das, mentor, Molecular Pathology, SRL Diagnostics,

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observed, “Hepatitis has largely been ignored as a health and

development priority. With time, there has been huge influx of
people into urban areas of India and significant changes in lifestyle
of the urban population. For HEV and HAV infections hygiene
and sanitation practices play major roles, while for HBV and
HCV, lifestyle and awareness are very important.”
People unaware of their hepatitis status can also
unintentionally further the disease spread. This can be
ly
prevented with proper awareness.
When was an international initiative
taken?
pi In May 2016, the Global Health Sector

Strategy (GHSS) on viral hepatitis
2016–2021 – the world’s first global
hepatitis strategy – was endorsed by the
ap
World Health Assembly. It aims to eliminate viral hepatitis as a
public health threat by 2030 – reduce new infections by 90 percent
and mortality by 65 percent.
It observed, “The scale and complexity of the hepatitis pandemic,
along with growing recognition of its massive public health burden
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combined with new opportunities for action necessitates the need

for concerted global action. To date, few countries have seized
these opportunities; action has tended to be fragmented and
inadequate. The time has come for a coherent public health
response that is guided by clear targets, identifies essential
interventions, promotes effective service delivery approaches and
establishes clear institutional responsibility and accountability.”
It put forth first-of-their-kind opportunities to prepare an expansive
viral response capable of halting the pandemic as a major public

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health burden.
Preventive vaccines for HBV, HAV, and HEV
Improved prevention and control measures like injection and
surgical safety and safe blood transfusions could drastically
decrease HBV and HCV transmissions – these viruses account for
96 percent of all Hepatitis mortality.
Medicines to cure chronic HCV
Lifelong treatment for chronic HBV patients saves lives and betters
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health.
Enabling access to key populations and enabling greater access to
affordable treatments.
pi It was adopted by 194 countries. The Indian government, with

W.H.O’s assistance, set viral hepatitis elimination as a priority.
In 2017, W.H.O in its Global Hepatitis report of the global and
regional estimates of viral hepatitis in 2015. Its key inferences
ap
included:
The number of viral hepatitis fatalities in 2015 was comparable to
TB fatalities and higher than HIV fatalities. But while deaths from
TB and HIV are declining, viral hepatitis is causing more
deaths than before, which show a rising trend over time.
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Global coverage with the three doses of Hepatitis B vaccine in

infancy reached 84 percent and reflected as a decrease in HBV
prevalence among children to 1.3 percent. But initial birth dose
vaccination had a low coverage of 39 percent.
Globally, 5% of health-care-related injections remained unsafe.
As a result, an estimated 1.75 million new HCV infections
occurred worldwide in 2015.
The access to affordable hepatitis testing remains inadequate.
Early adopter countries are implementing speedy scale up of
testing and treatment through dedicated political initiative, and

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a decrease in prices of essential medicines and diagnostics.

Dr Gottfried Hirnschall, from W.H.O. said, “We are still at an early
stage of the viral hepatitis response, but the way forward looks
promising… But the data clearly highlight the urgency with which we
must address the remaining gaps in testing and treatment.”
Raquel Peck, from the World Hepatitis Alliance, said, “We need to use
this report to advocate for a public health approach, so that testing
and treatment are rolled out at the scale necessary to ensure that every
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person has the opportunity to live a healthy life.”
Where else are current and
emerging concerns in India?
pi Reused needles and syringes

Blood-borne infections like hepatitis
can be transmitted through infected
ap
needles and syringes as well. But a
2016 article in Scroll notes that even as needles are being discarded
after one use, it is not so with syringes.
Despite conventional medical advice to at once get rid of
needles, syringes and all material that may contain traces of
remnant blood, reuse continues.
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A 2012 study noted that “46% of hepatitis B cases and 38% of

hepatitis C cases in India spread through the reuse of needles and
syringes”. These cases can be easily prevented as the cost of
disposable injections has fallen to as low as 6 Rs.
Shortage of syringes
Healthcare experts say the shortage of injections leaves nurses
with two options – reuse the injection or ask the patient to
purchase a new one. If they opt for the latter choice, the fear is
that they will be confronted for not providing the injection for free

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as expected. So they choose to reuse the injection.

Despite denial, studies have shown that unsafe injections are
widely used in India as healthcare providers do not adhere to
W.H.O. safety guidelines.
One study by doctors from Pandit JNM Medical College in Raipur,
Chhattisgarh, found that at a government hospital there, 9 out of 10
times, the nurse reused the needle. Another study found “five
different instances where the nurse instead of disposing of the
ly
needle and syringe, only disposed of the needle and reused the
syringe with a new needle.”
It also found that in 26 percent of the cases, the used syringes were
placed in an area where there was a risk of public coming in
pi contact with them.

Improper handling of biomedical waste
In 2014, Mumbai generated about 12 metric tonnes of biomedical
ap
waste, according to official estimates. The city has implemented a
system for biomedical waste disposal – an agency appointed by
the local corporation gathers biomedical waste from healthcare
establishments and burns it. But carelessness continues in
biomedical waste disposal.
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Infectious disease expert Dr Om Shrivastav said the increase in

viral hepatitis infections is evidence of improper biomedical
waste disposal.
Doctors in Haryana and Mumbai have also raised concerns over
the existence of an illegal recycling industry which recycles
used medical equipment and sells it.
“We suspect that some waste is being siphoned off from hospitals
to the grey market where they are perhaps recycled”, an operator
of biomedical waste disposers in Mumbai told Scroll. TOI reports
earlier this year highlighted Kolkata as another place where this

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illegal practice is being carried out.

The Maharashtra Pollution Control Board authorities said despite
prompt responses to complaints, in very small clinics the
biomedical waste disposal mechanism cannot be monitored. The
local corporations should take this responsibility and cancel
licenses when biomedical waste is disposed like garbage, they said.
But Mumbai Municipal Corporation authorities say the pollution
control board should own responsibility for monitoring and
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punishing those disregarding biomedical rules.
This blame game facilitates healthcare establishments to
continue dangerous disposal practices.
Even distribution of free burners among doctors in localities with
pi high incidence of Hepatitis still leaves room for doctors and nurses
to choose not to adhere to safe disposal practices.
Many states in India have responded to W.H.O’s appeal to use
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smart injects which self-lock after the injection is given once.
But while government can afford the extra cost – 20 percent higher
than conventional disposable injections, according to industry
experts – the concern of private clinics, especially in poorer
neighborhoods remains.
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Nonalcoholic Steatohepatitis (NASH)

NASH is said to occur in four stages; fat accumulates in the liver in
the first three and can cause chronic inflammation and scarring
known as fibrosis. Over a long time, fibrosis can worsen to the
fourth stage: liver cirrhosis – severe liver scarring and poor
function.
Formerly, alcohol was the main driver of fatty liver. Presently,
as the proportion of obese people increases, NASH incidences
have also risen noticeably.

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“Even in vegetarian population and those people who do not drink

liquor, are being diagnosed with fatty liver, which is a bad sign.
Over the past few years, the consumption of food which helps
building up of fat in the liver has increased”, Dr Ashok Jhajharia,
assistant professor, gastroenterology department, SMS Hospital
said.
“We can see that 10% of all the cases of fatty liver are non-
alcoholic in the hospital. It was not so in the past,” Dr Sandeep
ly
Nijhawan, senior professor and head of gastroenterology
department, SMS Hospital, said.
He said NASH is prevalent in American and European
countries and India currently is witnessing report of more
pi cases. Carbohydrate-rich diet without adequate protein and

sedentary lifestyle are causes.
A report in January this year raised concerns on the safety of newly
ap
approved drugs, noting they could have severe side effects. While the
findings were not conclusive and the incidence of adverse effects
seems relatively low, experts said the warning it gave should not be
treated lightly. The drugs studies included Sovaldi and Harvoni, both
made by Gilead Sciences and priced at $1,000 a pill, which had
generated billions of dollars in sales. Last year, India reversed its
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earlier decision and granted Gilead a patent for Sovaldi, a move that
provoked backlash; civic groups raised concerns that the move would
severely hinder access to the drug.
Who have taken commendable
efforts?
According to W.H.O’s global
hepatitis report:
China reached coverage of 96

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percent for birth dose of HBV vaccines on time, and had met
the hepatitis B control goal of less than 1 percent prevalence in
children below five years of age as of 2015.
Mongolia made hepatitis treatment more accessible by
bringing hepatitis B and C drugs in its National Health
Insurance scheme, which covers 98 percent of the population.
Egypt witnessed a decrease in cost for a three-month hepatitis C
cure, from $900 (£700) in 2015 to less than $200 in 2016 thanks to
ly
market-price competition.
Who are most vulnerable?
The report also highlighted that “viral hepatitis disproportionally
pi affects certain population groups”.

Health-care workers have a higher risk of contracting HBV and
HCV due to inadvertent contact with contaminated blood and body
fluids. A safe working environment for them should include the
ap
option of HBV immunization.
People who inject drugs. 1% of new HBV infections and 23% of
new HCV infections are due to injection drug use. It is also
responsible for few chronic infections and increases mortality rate.
It should be dealt with by a public health approach involving
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“prevention of initiation of injection drug use, prevention of

stigma and discrimination, and the provision of a full spectrum of
harm reduction interventions”.
Indigenous populations and minorities in several regions of the
world need to be targeted specifically to provide them greater
access to prevention, treatment and care.
Prisoners have higher prevalence than the general population in
most countries.
Migrants from countries with high prevalence of HBV or HCV.
Despite the high prevalence, risk of the destination country’s

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population contracting the infections is likely to be low. The needs

of migrants pertaining to hepatitis should be addressed through
specific prevention and care services and accessible opportunities
for prompt testing and treatment.
Men who have sex with men are at greater risk of HAV and
HBV infection. Also, a higher incidence of HCV cases has been
documented among HIV-positive men who have sex with men.
In case of the former, a catch-up vaccination – vaccination given
ly
after the recommended age – for HBV was suggested. For the
latter, “testing for HCV infection, and more extensive risk
behaviour counselling and targeted HCV prevention services, as
well as access to treatment” would be beneficial.
pi People living in low- and middle-income countries face the highest

burden and greatest challenges in expanding testing and treatment
for affected populations.
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How can these countries tackle
Hepatitis?
The report concludes that low- and
middle-income countries need to adopt a
public health approach that strengthens
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the health system. This will achieve

maximum coverage and narrow inequities in healthcare. The
public health approach develops political dedication; collectivizes
resources; brings down medicine and diagnostic cost; equips
health workers through training programmes; develops a
financing mechanism; uses effective, affordable and scalable
methods in settings of resource scarcity.
A robust and adaptable health system should have a strong health
information system; efficient delivery service models; substantial

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numbers of a skilled workforce that is appropriately distributed;

reliable and continuous access to essential medical technologies
and products; proper health financing; and strong leadership and
governance.
Telemedicine distance-learning systems which equip trained
providers to sensitize and treat patients have been used in over 20
countries including Egypt, India, Georgia, Kenya, Tanzania,
Nambia, Ukraine and Vietnam. The W.H.O. said these systems
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decrease disparities in treatment practices, widen access, better
quality and reduce costs in some settings.
Active advocacy and information sharing is part of the successful
pi battle against the disease.” Health authorities across the region can
increase the prominence of hepatitis-related information and
advocacy. Clear, concise and accurate messaging regarding how
Hepatitis infection can be prevented, what its signs and symptoms are
ap
and how it can be treated is essential to empowering people to take
action,” said Poonam Khetrapal Singh, WHO Regional Director for
Southeast Asia in a statement. “Each of us can contribute to raising
awareness and helping eliminate the disease in our own way. We can
share our experiences of hepatitis infection openly, challenging social
taboos”
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India is yet to come up with an official study and estimate of the

disease burden of hepatitis
HT reported that India is working on a National Action Plan for
Hepatitis C which will come into effect next year.
Indian Society for Clinical Research (ISCR) said “a major focus
area for Hepatitis is treatments with new drugs and therapies for
people with chronic Hepatitis. This goal can be achieved, but a lot
more effort needs to be made in terms of hepatitis clinical
research, particularly in India which carries a high burden of

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this disease group”.

Hepatitis B was added to India’s Universal Immunization
Program, a vaccination program, in 2007. But this has reportedly
not reflected as a decline in cases. “These are just rough
estimates and a majority of people doesn’t even know they are
infected,” said Dr SK Sarin, director, Institute of Liver and Biliary
Sciences (ILBS) in New Delhi. “The numbers are increasing as
more people now are getting tested, but we need to make sure
ly
everyone, including adults, gets vaccinated against hepatitis B.”
What can India learn from Egypt?
Egypt’s success is reflected in statistics; over a decade the country
pi brought down Hepatitis prevalence from 4.5 percent to 1 percent

Paediatrician Manal El Sayed, a member of the Egyptian national
hepatitis committee, emphasized the necessity of syringe safety.
In Egypt, she said, this was done through awareness on sterile
ap
razors in barber shops, new instruments for pedicure and
manicure, and disposable syringes for patients. “It’s all about
advocacy. There should be multiple stakeholders like the
government, politicians, the media and individuals from different
sectors who wish to bring this health problem into the limelight”.
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The government also engaged Hepatitis drug manufacturers to

lower costs.
Egypt has now brought into effect a birth dose policy to forestall
new infections. “ Our aim is to reach most isolated and rural
areas ”, she said adding that India needs a similar approach.
In India, since 2014, over 40 lakh children have been covered
under Mission Indradhanush that is aimed to prevent seven
diseases including HBV in infants. Hepatitis adult patients
however, do not have recourse in the form of active diagnosis
or free treatment. Bollywood celebrity Amitabh Bachchan has

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also been brought in as an advocate for the campaign.

Indian states like Maharashtran and Punjab are responding to the
call for disposable syringe usage and India is a part of WHO’s
Global Campaign for Safe Injection Practice. While initial cost will
be high as is prevalence, “But what is the cost of a human life?”
asks WHO’s Dr Henk Bekedam. “The cost will come down once
enough awareness is created.” He said a system should be
implemented to identify blood donors with the virus from massive
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blood donation drives and bring them in for treatment.
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UNAIDS report: A mix of progresses and
challenges
22-Jul-2017
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pi The UNAIDS report on the current situation of the global fight against
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AIDS with reference to the 90-90-90 target reveals that the world has
successfully crossed a new milestone. For the first time, more than 50
percent of all People Living with HIV (PLHIV) can now avail
treatment. While this and other cherishable milestones have been
crossed, the progress is not uniform. India among other countries needs
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to act effectively.
What positive indicators does the

UNAIDS report highlight?
With treatment made accessible for
more than 50 percent of all People
Living with HIV (PLHIV), a new
milestone has been achieved.
Moreover, AIDS-related deaths worldwide have reduced

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nearly by 50 percent since 2005.

As of 2016, 19.5 million of the 36.7 million PLHIV could avail
treatment. AIDS-related deaths declined from 1.9 million in 2005
to 1 million in 2016.
“We met the 2015 target of 15 million people on treatment, and we are
on track to double that number to 30 million and meet the 2020
target,” said Michel Sidibé, Executive Director of UNAIDS. “We will
continue to scale up to reach everyone in need and honour our
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commitment of leaving no one behind.”
The report analyzed the progress towards the 90-90-90 targets and
the challenges to be overcome. As per the 90-90-90 targets, “By
pi 2020, 90% of all people living with HIV will know their HIV
status. By 2020, 90% of all people with diagnosed HIV infection
will receive sustained antiretroviral therapy. By 2020, 90% of all
people receiving antiretroviral therapy will have viral
ap
suppression.”
Note: Viral suppression is reached when a HIV-infected person’s viral
load amount of virus in the blood expressed as number of copies of
HIV per mL of blood is successfully stemmed to undetectable levels.
This suppresses virus replication and hence reins transmission.
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Towards this end, in 2016, more than two-thirds of PLHIV were

aware of their HIV status; 77 percent of those aware had access
to treatment and 82 percent of this subset had suppressed viral
loads.
The report’s summary held that iff this scale-up is maintained
the worldwide target of treatment access by for 30 million
PLHIV can be met successfully.
Why then is there cause for concern too?
When taken together, the effect of the narrowing gaps in achieving

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the target translate to just 44 percent

of PLHIV being virally suppressed in
2016 markedly lower than the 73
percent required to reach the 90-90-90
target.
The proportion of patients in whom
the disease has reached the advanced stage at the time of
treatment has continued to be alarmingly high in several
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countries: among the 85 countries that submitted data to UNAIDS
in 2016, under a third of HIV-infected patients had D4 T-cell count
of less than 200 such a low count is indicative of a greatly damaged
pi immune system leaving the body vulnerable to vastly varied

opportunistic infections, several of which can lead to death.
Not all regions are making progress. Lack of access to treatment
in the Middle East and North Africa, and in Eastern Europe and
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Central Asia caused AIDS-related deaths to rise by 48 percent and
38 percent respectively. The report observed, citing examples of
exceptions such as Algeria, Morocco and Belarus that “when
concerted efforts are made, results happen”.
At the global level, while new HIV infections are on a decline,
the rate falls short. Worldwide, new infections fell by 16 percent
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from 2010 to 1.8 million in 2016. While declines were estimated in

69 countries, alarming increases have been observed in eeastern
Europe and central Asia.
While a 33% decline in tuberculosis deaths of PLHIV is the result
of effective global response, almost 60 percent of people with
tuberculosis among PLHIV were not diagnosed or treated.
Just 43 percent of children living with HIV are reached by
antiretroviral therapy (ART), in comparison with 54 percent of
adults. In almost two-third of children below 2 years of age,

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detection and treatment happens at an advanced stage, driving

up mortality rate for children in this age group.
Less than 50 percent of young men are equipped with
knowledge of preventive measures. Later diagnosis, poorer
access to treatment, and therefore higher rate of deaths are
observed among men. Deaths caused by AIDS-related illnesses
were 27% lower among women than among men.
However, AIDS-related illnesses have remained the chief cause
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of death among women of reproductive age (15-49 years)
worldwide and in Africa, for young women in the age-group
15-24 years, they are second leading cause of death.
Financial support remained flat. Against an estimated need of
pi $26 billion for global response to HIV by 2020, around $19 billion
had been raised in low- and middle-income countries.
There were 1.8 million PLHIV in 2016. Experts say the decline
in new infections has been a low 16 percent since 2010. This
ap
makes the milestone of 500,000 a year by 2020 seem
unreachable.
Outside of sub-Saharan Africa, key populations and their
sexual partners accounted for 80% of new HIV infections in
2015 and even in sub-Saharan Africa key populations account
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for 25% of new HIV infections.

Note: Key populations are people who inject drugs, men who have sex
with men, transgender persons, sex workers and prisoners. Around the
world, key populations face much higher rates of HIV and AIDS than
the general population and are most at risk for contracting HIV.
When must India ramp up its efforts?
New infections in India fell from 150000 in 2005 to 80000 in 2016; the
country had 2.1 million PLHIV at the end of 2016. There were at least
62,000 AIDS-related deaths last year; a decline by 58.6 percent from

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2005.
India is among the 10 countries in
which almost 95 percent of the HIV
cases in 2016 are concentrated. “India is
the country where most new HIV
infections are occurring in the Asia-
Pacific region. While India has made big progress with new
infections dropping significantly, the emergence of HIV in some
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locations that were earlier considered ‘not high-burden’ areas is a
cause for concern.,” said Eamonn Murphy, Director, UNAIDS
Regional Support Team for Asia-Pacific.
pi After South Africa and Nigeria, India has the third highest
number of HIV-infected people. Only 49 percent of patients
underwent antiretroviral therapy in 2016. For pregnant women and
children living with HIV, access to treatment was poor; 41 percent
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for the former and 33 percent for the latter.
Just 25.7 percent of PLHIV in India in the age group 15 to 24
years are equipped with awareness of preventive measures.
A respondent-driven sampling survey across 26 cities revealed that
just 41 percent of PLHIV who injected drugs were aware of
their status. Among gay men and other men who have sex with
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men living with HIV who also were surveyed, 30% knew their
HIV status.
Where else must efforts be directed
at?
First 90
HIV self-testing should be promoted
for its high rate of acceptability.
Assisted partner notification

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involving couples and partners testing, including encouragement

for mutual disclosure.
Early infant diagnosis.
Second 90
Diagnosis must be followed with immediate linkage to treatment
and care.
Speedy roll-out of new and bettered antiretroviral drugs.
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Ensuring that antiretroviral medicines are affordable
Inadequate availability and poor affordability of essential
medicines are major obstacles in low- and middle-income
pi countries.
This is all the more true for India, which supplied almost 90% of
antiretroviral medicines in low- and middle-income countries in
2015.
ap
Third 90
Higher retention in care that boosts benefits of ART and realizes
and maintains viral suppression.
Broadening the scope of viral load testing to hasten test results
and facilitate speedier treatment or changes in regimen.
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Addressing stigma, discrimination and human rights violations

at all levels, including the creation and implementation of a legal
environment and strong rule of law that safeguards and empowers
individuals with their fundamental right to the highest attainable
standard of health.
The report observed that for the Asia-Pacific region, HIV is highly
“concentrated among key populations, including sex workers and their
clients, gay men and other men who have sex with men, people who
inject drugs, and transgender people.”

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“We must not fail children, women and girls, young people and key
populations,” Sidibé said. “We must engage with men differently,”
also noting that efforts need to focus on male PLHIV who have
been left behind in the march to 90-90-90.
Who have made the most progress?
Countries in Eastern and Southern
Africa, which has been hit hardest by
HIV and accounts for more than 50
ly
percent of all PLHIV has made the
maximum progress.
HIV treatment and prevention efforts have placed eastern and
pi southern Africa on track towards ending the AIDS epidemic. Life

expectancy increased by nearly 10 years in the last decade.
Since 2010, AIDS-related deaths declined by 42 percent and
new HIV infections fell by 29 percent, including a 56 percent
ap
decline in new HIV infections among kids. Malawi,
Mozambique, Uganda and Zimbabwe have reduced new HIV
infection by nearly 40% or more since 2010.
Eastern and Southern Africa, Western and Central Europe,
North America and Latin America are set to achieve the 90-90-
Kn
90 targets by 2020. “In eastern and southern Africa, 76% of

people living with HIV know their HIV status, 79% of people who
know their HIV-positive status have access to antiretroviral
therapy and 83% of people who are on treatment have
undetectable levels of HIV—this equates to 50% of all people living
with HIV in eastern and southern Africa with viral suppression.”
Botswana, Cambodia, Denmark, Iceland, Singapore, Sweden
and the United Kingdom of Great Britain and Northern
Ireland have already reached the 90-90-90 targets.
Caribbean and Asia Pacific can also achieve the 90-90-90

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targets if programmes are sped up.

How does India plan to proceed?
The Union Health Ministry recently
reached out to all states and UTs,
asking them to instruct private clinics
and hospitals in their region to prepare
and present a list of HIV/AIDS cases
they are treating. “Because there is a taboo associated with HIV/AIDS,
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and patients feel shy of coming to a government hospital, we miss a
considerable data on HIV/AIDS. We want to get an accurate and
authentic data on HIV/AIDS. The government will also duly validate
pi the data from private clinics and hospitals keeping the patients’ details
confidential,” said Dr. Arun K. Panda, additional secretary, National
Aids Control Organization (Naco).
“We have recently launched ‘Test and Treat Policy for HIV’
ap
policy. As soon as a person is tested and found to be positive, s/he
will be provided with ART. We have intensified our efforts to find
all those who are infected with HIV,” he said.
The Yaari Dosti programme in India was lauded by the UNAIDS
report for reducing risk behaviors in men, including intimate
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partner violence.
But crucial challenges that India needs to overcome include
frequent stock outs of anti-HIV drugs throughout the country and
its criminalization of homosexuality. The United Nations has urged
India to decriminalize homosexuality, saying it would help the
fight against HIV/AIDS by allowing intervention programmes,
much like the successful ones in China and Brazil.
How else must one proceed?
Prevent mother-to-child transmission

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Many of the 23 Start Free Stay Free AIDS Free priority countries,
where 88% of pregnant women living with HIV reside, have
successfully reduced mother-to-child transmission rates to less than
5 percent, including throughout breastfeeding.
Botswana, Namibia, South Africa, Swaziland and Uganda have
already reached a major milestone towards elimination of mother
to-child transmission of HIV: at least 95 percent of pregnant and
breastfeeding women living with HIV have been administered
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diagnosed and administered ART.
Challenges
Several mothers who contract HIV when pregnant or in the post-
pi partum (post childbirth) and breastfeeding stages. Some pregnant

mothers who begin ART discontinue after childbirth and some are
hesitant to take it.
Tackling the challenges
ap
Routine and regular provider-initiated voluntary screening for
HIV needs to be part of basic pre-pregnancy, antenatal and
postnatal services in countries where HIV prevalence
consistently exceeds 1 percent among pregnant women
(generalized HIV epidemic) and worldwide for women within key
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populations.
Testing of partners can identify women in serodiscordant
relationships (relationships in which the partners HIV status
differs) who are extremely vulnerable to the virus.
Better counseling and preparation prior to ART and support at
family, community and facility levels, helps women continue the
treatment and get maximum benefit.
Infants need early diagnosis and if found infected, speedy
initiation of paediatric treatment.

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Increased usage of condoms

Male and female condoms are effective, cheap and can be used
easily. All 11 countries with high HIV prevalence (>2%), a
decline of greater than 30% in new infections, and adequate
data on condom use between 2000 and 2016, recorded an
increase in condom use among both men and women.
They continue to be a central HIV prevention tool for sex workers.
Post-test counselling is a great way to introduce and emphasize
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condom use and other preventive measures
Harm reduction
Needle-syringe programmes and opioid substitution therapy
pi are included in the formal recommendations for harm

reduction in case of people who use drugs and their sexual
partners.
Unfortunately, only one-fifth of 60 reporting countries fulfilled
ap
the internationally recommended 200 sterile needles and syringes
distributed per person who injects drugs as per the most recent data
available from 2014 to 2016.
Even countries with strong harm reduction systems need to be on
alert to forestall outbreaks; analysis of a 2014 outbreak in Glasgow
Kn
stressed that people in dire living conditions who inject drugs

should be able to access harm reduction services.
Pre-exposure prophylaxis
Pre-exposure prophylaxis, or PrEP, is a way for people without
HIV but are significantly vulnerable to the infection to prevent
contracting it by taking a pill every day. The pill (brand name
Truvada) consists of two medicines (tenofovir and emtricitabine)
that are used in combination with other medicines to treat HIV.
Its availability is limited; it is mostly available in high-income

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countries and has, in many cities in North America and

Western Europe, seems to be a factor in reduction of newly
infected cases.
Globally, access to PrEP remains limited. Regulatory approval
had been granted in 50 countries by June 2017, but only 15 of these
countries had established or committed to establishing a PrEP
programme at scale.
All PrEP services, national and private, need to be controlled to
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ensure that the prerequisites of a prescription, a negative HIV
test, clinical follow-up of safety risks and screening and
treatment of other STIs are met.
pi Voluntary medical male circumcision

Efforts to voluntarily circumcise men in 14 priority countries in
eastern and southern Africa accelerated rapidly from 2008 to 2014,
achieved 3.2 million circumcisions per year. In 2015 and 2016,
ap
however, the annual number of circumcisions fell to about 2.6
million circumcisions.
A target of 25 million circumcisions between 2016 and 2020 in the
14 countries needs strengthening programmes.
The global strategic framework for voluntary medical male
Kn
circumcision provides guidelines towards including this

particular intervention into wider service packages for men
and boys of different ages, including those for sexual and drug
use counselling, masculinity issues and gender norms, condom
provision, HIV testing and referral for treatment. The
framework aims to voluntarily circumcise 90% of males (aged
1029 years) in priority settings by 2021.
Empowerment of youth should be an immediate priority
School-based sex and sexuality education makes an important

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contribution towards bettering HIV-related knowledge and

decreasing risk.
While most countries outline policies or strategies towards this
end, there is ambiguity on effective implementation.
Barriers include consent laws, and laws that require parental
or spousal consent for the use of HIV and sexual and
reproductive health services.
Putting a stop to violence against women and girls
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Gender inequality, discrimination and violence have placed
women, girls and key populations at increased risk of HIV
infection and undermined the benefits of HIV and health
pi services.
Violence or fear of violence obstructs the ability of women to
assert the need for safer sex and avail the benefits of HIV
prevention, testing and treatment interventions, and sexual and
ap
reproductive health services.
It is also associated with weakened compliance with preventive
measures.
Social interventions such as group training for men and women
and community involvement have helped decrease intimate
Kn
partner violence in China, South Africa and Uganda.

The Safe Homes and Respect for Everyone (SHARE) project in
Uganda realized that a combination of community programming
and clinic-based services can decrease both intimate partner
violence and HIV incidence in women. Economic empowerment
and cash transfers also can help protect women against gender-
based violence.
Clear, directed legal reforms can make a tremendous
difference. The Violence Against Women Act passed in 1994 is

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said to have helped reduce intimate partner violence by 53 percent

between 1993 and 2008.
Active efforts to convince men to disregard harmful versions of
masculinity and to connect with young women and key
populations are a must to close the gaps in service coverage.
“Addressing stigma, discrimination and human rights violations
at all levels through the creation of a protective and empowering
legal environment and strong rule of law is an imperative for
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both the AIDS response and the wider 2030 Agenda for
Sustainable Development”
Interventions that enable adolescents, especially girls, to enter
primary school and extend their schooling to secondary
pi education are linked with many benefits, including decreased

levels of unwanted and unintended pregnancy, lower rates of
HIV infection and reduced risk of partner violence. Evidence
shows that cash transfers enable girls to remain in school, and that
ap
they also empower women, reduce intimate partner violence and
contribute to safer sexual healthall outcomes that can support more
equitable social and economic development and reduce HIV
vulnerability and risk.
Stronger collaboration between health programmes can better
Kn
efficiency.
Multidisease devices that test for different conditions such as
diagnose tuberculosis and HIV, and measure the viral loads of HIV
and Hep-C can better efficiencies and access to prevention and
treatment options.
Criminalization of same-sex sexual relations is a huge barrier in
countries like India with anti-gay legislation.
“Communities will again need to be at the centre of the response—in
this case, by delivering testing and treatment services, by continuing to

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innovate and by holding stakeholders accountable for results. Only a

genuine partnership—combining the energy, know-how and
commitment of communities, governments, health-care providers,
private industry and other vital stakeholders—will enable the world to
reach a major milestone on the road to our ultimate destination of a
world without an AIDS epidemic”
—– | —–
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pi
ap
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SPORTS / Litmus test for Kohli’s men
4-Jan-2018
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pi The Indian men’s cricket team have had an exceptional 2017.
Consolidating their position as the No.1 Test team, Virat Kohli’s men
routinely bullied the opposition in the shorter forms of the game.
ap
However, a tough year awaits the men in blue as the tour overseas
starts with a three-Test series in South Africa. Knappily analyses the
year bygone and previews the challenges India will be up to in 2018.
What are the highlights of 2017?

Nine series wins for India
Kn
With India winning the Test series

against Sri Lanka 1-0 at home, Virat
Kohli’s team had achieved what no
other Indian team had done before. The
victory was the ninth consecutive series win for India and they
have now matched Australia’s winning streak of nine between
the year 2005-06 and 2008.
India started off the streak by beating Sri Lanka in 2015 and
haven’t lost a series since. Out of the nine India, just like Australia,

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have won six in their home soil while three have come in overseas
conditions.
Anil Kumble’s resignation as Team India coach
Anil Kumble resigned as the head coach of the Indian team after
the ICC Champions Trophy as he was not interested in an
extension. Hours after resigning, the former India captain put out a
statement on Twitter and wrote, “The captain had reservations
with my ‘style’… In light of these ‘reservations’. I believe it is best
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I hand over this responsibility to whomever the CAC and BCCI
deem fit.”
BCCI tried its level best to resolve the misunderstandings between
pi the captain Virat Kohli and Kumble but it was apparent that the
partnership was untenable that led to Kumble’s resignation. Ravi
Shastri was appointed as the head coach in place of Kumble in
July.
ap
IPL rights
Star India got the better of Sony Pictures in their attempt to secure
the Indian Premier League (IPL) media rights with a whopping bid
of Rs 16,347.50 crore that made it the hottest property in world
cricket. The bidding was held in Mumbai for a five-year period
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from 2018-2022 for various media rights of the cash-rich league.

With the new FTP, the ICC has only made it certain that there will
be a separate window for IPL that only makes it bigger and
stronger.
Why was 2017 special for the men?
The Indian men’s cricket team had an
exceptional 2017 — statistically, its best
year ever. Virat Kohli’s side didn’t merely
consolidate its hold on the No. 1 spot in

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Tests; it also routinely bullied the

opposition in the shorter forms of the game.
The lone blip came in the Champions Trophy in England,
where India unravelled against a feisty Pakistan. But few will
complain when a runner-up finish in a global tournament is the
year’s biggest failure.
That match apart, an inevitability seemed to accompany India’s
success: whether it was a Test, a One-Day International or a
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Twenty20, the team took the field noticeably stronger than its
adversary, and calmly, ruthlessly, set about proving it.
India’s victory over Sri Lanka in the final T20I at Mumbai meant
pi that the hosts finished 2017 with 37 wins across all formats out of
a total of 57 matches. This is the highest India have achieved in
any year and only the second best in history behind Australia’s
record of 38 wins in 2003.
ap
India’s win/loss ratio of 3.1 is also the second best in history
behind the same Aussie side of 2003 which had a staggering
ratio of 4.8. Overall, India won 37, losing 12 along with four
matches with no result.
It is often said that a side fashions itself in its captain’s image.
There were certainly moments during the year when India played
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with the glowering intensity Kohli is famous for. Ajinkya Rahane

and Rohit Sharma stepped successfully into the breach when Kohli
was absent; and both brought to the job the subtle impress of their
personality.
When will they face their biggest Test?
Overseas performances, it is said, often
define characters of an international
cricket. And in South Africa, India faces
its biggest test.

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Kohli’s men will kick-off a tough patch

away from home with the full series in South Africa starting on
Friday, which will feature three Tests, six ODIs and a T20I.
Later in 2018, India will tour England for five Tests, five ODIs and
a T20I and at the turn of the year will start a four-Test series in
Australia. It will be followed with a limited overs series in New
Zealand before the 2019 World Cup will unfold in England.
It’s going to be a battle between the top-two ranked teams in the
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world so there’s been a lot of talk in the build-up to the series.
Virat Kohli will be captaining India once again post his marriage
while for South Africa, their two stalwarts in Dale Steyn and AB
de Villiers, will be keen to prove their mettle in the whites on their
pi return.
History might discourage India as they have not won even a single
Test series in South Africa yet. The Proteas have been on winning
side six times when it comes to India-South Africa Test battles.
ap
South Africa have always been ruthless in their own den as India
have won only two Tests in South Africa which is the joint fewest
for them away from in a single country.
The recent form is with India as they have won nine consecutive
Test series but they last won a Test series outside Asia except
Kn
Zimbabwe and West Indies back in 2008-09 when they defeated

New Zealand by 1-0. However, South Africa have won only five
Tests out of their last 10 which is not up to their own high
standards.
Recent form (last 10 Tests, starting from the most recent)
India: D, W, D, W, W, W, W, D, W, L
South Africa: W, W, W, L, L, W, L, D, W, D
Where is the challenge?

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The series in South Africa can be seen

as a clash between pace bowlers of both
the teams as India are well-equipped
with in that department this time around
and possibly go to South Africa with its
best Indian pace bowling attack. All of
the Indian pacers can hit the 140 kph mark consistently, and that’s
bound to cause the South Africans some problems.
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South African pacers have taken 15 wickets per Test against
India in South Africa which is the most by them against a country
among Test nations against which they have played atleast 20 Tests
at home. The stat indicates the threat which the Proteas’ pacers
pi pose.
Morne Morkel’s height will help him generate extra bounce
while Rabada with his hit-the-deck bowling has an outstanding
record in his short Test career. Vernon Philander shines when
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it comes to bowling in South African conditions and Steyn will
use all his experience to dismantle Indian batsmen.
If India’s quartet of Vijay, Pujara, Kohli and Rahane play well
India will be able to fancy their chances.
India are heavily dependent on their top-five batsmen but if the
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batsmen who will play at No.6, No.7 and No.8 can do what they
did in the last two years then that can be the difference between the
two sides at the end of the series. In the last two years, their
batting average of 39.80 was the second most among all the
teams.
Selection dilemmas
The No.6 spot
After Hardik Pandya’s bumper first series in Sri Lanka last year, in
which he scored a fifty on debut, followed by a record-breaking

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century and partnership-snapping wickets, India’s new allrounder

was born. But Pandya has not played a Test since mid-August, and
such has been Rohit’s form across all formats since he returned to
international cricket in June - 1793 runs in 32 games - that he is
proving extremely difficult to leave out.
Since he returned to India’s Test XI, Rohit has scores of 102, 65
and 50. Then, in the span of a week, came a third ODI double-
century and the joint-fastest century in Twenty20 internationals, off
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just 35 balls.
Given the potency of South Africa’s pace attack, exposing Pandya, all
of three Tests old, at No.6 could be a tricky decision.
pi The lone spinner spot

During the last tour there in 2013, R Ashwin played one Test and
Ravindra Jadeja the other. Ashwin went wicket-less in the
Johannesburg draw, sending down 42 overs, and was dropped for
ap
Jadeja in Durban, who took six wickets in one innings.
Jadeja is currently the No. 3 spinner in Tests, with Ashwin at fourth
(in the allrounder rankings, they are second and third) and are
coming off successful years, with 54 and 56 wickets respectively.
India have come close to winning the Test match many-a-times in
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most recent years in overseas conditions but the real challenge for
India will be to win the sessions consistently. Indian skipper Kohli
too admitted this when he said, “For us, it’s about winning sessions.”
Who is the focus on?
R Ashwin
The last two years, starting from the
2015 home Test series against South
Africa, have been especially rewarding
for Ashwin. While he made full use of

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the rank turners in the subcontinental conditions to progress from

200 to 300 Test wickets in a couple of giant strides, it will be a
completely different ballgame once he lands in Cape Town.
Such has been the nature of the Newlands pitch that it only
starts to aid spinners from the fourth, or in most occasions, the
fifth day.
Ravindra Jadeja, who is down with flu, is a doubtful starter for the first
Test.
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Shikhar Dhawan
Since he returned to India’s starting XI in July, on account of
injuries to Murali Vijay and KL Rahul, Dhawan has made 550 runs
pi in eight innings, with two centuries and two half-centuries, all at an

alarming strike-rate of 92.43. But all five Tests were played against
Sri Lanka, home and away.
Dhawan averages 19 in two Tests in South Africa, with a best of
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29. Away from Asia, in 13 Tests his average is 29.91, with a
century in New Zealand and one fifty each in Australia, West
Indies and New Zealand. These are numbers that need improving,
if India are to succeed overseas and if Dhawan is to keep KL Rahul
on the bench.
Kn
Ajinkya Rahane
35 of Rahane’s 64 dismissals in Tests have come to spin. Widely
acknowledged as India’s most improved Test batsman overseas in
the past four years, he managed a paltry 17 runs in five innings
against Sri Lanka. That translated to his first Test series without a
single meaningful contribution.
Ravi Shastri, India’s coach, has seen Rahane’s development as a
world-class batsman from close range and recently commented that
he did not feel there was much tinkering to be done to his game.

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Rahane is tentative at the start, and has plenty of issues against spin
early in an innings, so how he approaches Keshav Maharaj, a
deceptive left-arm spinner who took 48 wickets in 11 Tests last
year, could be crucial.
How are the men poised?
Barring a few newcomers, the nucleus
of India’s 17-member squad would
resemble with the one that toured
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South Africa in 2013-14. Kohli was
quick to point out the bunch has come a
long way in terms of experience.
pi “Back in 2013, we were all really excited to firstly play in South

Africa. As I just said, we were looking forward even then to go there
and take up the challenge. The bowling attack back then compared to
now what South Africa has was more experienced and we did really
ap
well against them,” he said.
“We almost won the Test in Joburg (Johannesburg), it was a sea-saw
game, we lost in Durban, but we played some really good Test cricket.
The bowling and the batting has come a long way, all the guys are
much more experienced now, but the hunger remains the same. We still
Kn
want to go back and try to do what we couldn’t do last time around.

That’s the kind of challenge you need to take up when you go to places
like South Africa, England and Australia because you go there once
and you are not going to go there for a long time, which is the nature
of how scheduling is done. So as Ravi bhai rightly mentioned it is an
opportunity for us and try to do the same things in much more
consistent way and we can get the results we are looking forward to.”
Kohli has stressed that the team is not taking undue pressure of
faring well away from home.

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“For us playing cricket for the country is the most prestigious thing
and it is an honour for us to do that. And we know what we want to do
as a team. When you do things in conditions that are more challenging,
that gives you more job satisfaction that’s for sure. You win any game
of cricket anywhere you play well that gives you satisfaction as well,”
Kohli said ahead of the team’s departure to the rainbow nation in the
wee hours of Thursday.
“We have gotten rid of all the mental pressures of touring abroad and
ly
wanting to prove to people. We are not wanting to prove anything to
anyone and our duty is to go out there, give our 100 per cent effort for
the country and get the result that we want to. Sometimes we will get it,
pi sometimes we won’t. It happens at home, it will happen away as well.

We need to be realistic with what we are doing and that the only way
we will be staying in the present and execute the things we want to. We
are going there to just play cricket and it does not matter whether we
ap
are in South Africa, Australia, England or India.”
Neither Kohli nor coach Ravi Shastri, however, shied away from
the fact that the tour to SouthAfrica, where India have failed to
clinch any series across formats so far, will be a tough challenge.
“It’s going to be a challenge. We all know how tough a tour South
Kn
Africa is but that’s the beauty about their profession. Wanting

challenges and embracing and that’s what we are looking for and we
toured Australia three years ago and we did a pretty good job,”
Shastri said.
—– | —–

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SPORTS / 2017 – Indian football awakens
4-Jan-2018
ly
pi India’s quest to join the elite of world football was rekindled recently
when several new initiatives were kicked off simultaneously in hopes
of rejuvenating the dormant love for the beautiful game, a fervour that
ap
was lost over the decades of cricket fanfare. In the last decade, a lot has
been done in this regard. Knappily looks at the status of Indian football
in the modern game.
What is the current scenario?

2017 was quite a year for India in football,
Kn
as the subcontinent assumed major

professional duties in the world of the
sport.
A country that has looked to
revolutionize its national interest in football, India had some
serious opportunity to wow the world – unfortunately, India did not
step up to the task.
The country ended the calendar year ranked 105 in the world
FIFA rankings, but that reflects minor progress in professional

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play.
In terms of organizational ability and planning, Indian football
experienced certain highs and lows – the highlight of 2017 was
the FIFA U-17 World Cup, while the long-awaited merger of
the Indian Super League and the I-League was a disappointing
eventuality.
As we head into the 2018, a three-tier Indian football system is due
for some major uplifting changes and with the right structural
ly
incentives and involvement, we could see India rise as a major force in
the global game.
Why is the situation both
pi chaotic and hopeful?

It is a tense, and not necessarily
optimistic, time in the scenario of
Indian football – the
ap
infrastructure and its components
are collapsing from within in an implosion created by the organizing
body.
The Indian Super League (ISL) was formed three seasons ago as
a means of rekindling the fire of football frenzy in the hearts and
Kn
minds of an Indian public that the All India Football Federation

(AIFF) thought had sold their attention to other sports.
However, one must remember that it is the I-League that is the
primary competitive domestic league and the only one with
direct potential entry to the AFC Champions League, making it
an obvious primary target.
It came as quite a blow to fans of the game in India when they
learnt that the I-League and the ISL would be televised at the
same time, sometimes being played on the same days in

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conflicting schedules.
That being said, the incorporation of sides like Bengaluru FC to the
ISL has proved to be nothing more than a routine exercise, as the
men in blue are 1 point off top spot in what should have been
unfamiliar territory.
The former AFC finalists have shown that there is still quality in
the I-League that can be translated into potentially transformative
setups for improving the overall standard of the game, and that
ly
instils hope in all those involved.
When were some major
breakthroughs?
pi In July, India’s men’s national senior

football team achieved 96th place on the
FIFA world rankings, which was the
highest placing in 21 years that the team
ap
had achieved.
In October of this year, India hosted the coveted FIFA U17 World
Cup across the country, and even registered the highest
attendance ever at the U17 version of the event.
India’s first ever (and only) goal at a FIFA tournament came
Kn
through the head of Jeakson Singh against Colombia in the second

of three group games. India lost all three games, conceded nine
and crashed out of the highest stage, but were extremely
competitive in all three games – they never threw in the towel, and
even almost nicked a draw against Colombia.
The senior side won their share of silverware as they clinched the
trophy at the end of a tri-nation series against St Kitts and Nevis
and Mauritius.
Later that month, India confirmed their presence at the Asia
Cup by beating Macau 4-1 and securing their place at the 2019

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edition.
The national team is now 13 games unbeaten.
Where does this mission go from
here?
The 2019 Asia Cup is the next
destination for the senior men’s team,
as they look to continue the good work
ly
they have already put in during
qualification.
Winners of the I-League last year, Aizawl FC, worked hard to
pi bring the league title back to Mizoram, and this season’s winners
will qualify for the AFC Champions League, but for the first time,
the winners of the newly constructed Indian Super League will
enter the playoffs for the AFC Cup.
After a phenomenal show of sporting greatness by Indian
ap
women in 2017, the football world is due for a complete revamp
of the women’s game in India. The current planning and
infrastructure is woefully inadequate, but there is hope for that to
change in the near future.
The long-awaited merger between India’s top two leagues was
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finally carried out, but tensions have flared and the transition has
been far from smooth, so the top priority for domestic authorities
will be to ensure that these kinks are ironed out.
Who are some influential names?
The managers of the senior and U17
men’s teams must be lauded for their
constant efforts to bring their respective
sides up to an international standard,
amidst all the chaos and lack of

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infrastructure.
Luis Norton de Matos led an Indian side to a FIFA tournament
for the very first time, and stressed his desire to ensure that
India’s U17s be at a level to compete in any professional league in
the country when he said“these U-17 teams are so good that they
can give any league side a run for their money”, and with the
rebirth of the Indian Arrows (formerly Pailan Arrows), the U17s
are now playing regular football at the highest domestic level.
ly
Senior side boss Stephen Constantine is facing the messier of the
two ends of the spectrum as his national team players now shuttle
between I-League and ISL duties, but he has managed to get the
pi best out of the side in the year past.

Household football hero and heir to the throne Bhaichung Bhutia
forged, senior men’s captain Sunil Chhetri scored his 54th
international goal in 2017, becoming the world’s fourth highest
ap
scorer in international fixtures amongst those who are
currently playing. This unique record meant that he had now
surpassed Wayne Rooney in this regard (Rooney has since retired
from internationals).
Prafful Patel, the president of the AIFF, is perhaps the leading
man in this quest to ascertain India’s gradient of progress in
Kn
the football world, and his plans for the structural development
and media coverage of the Indian game are influential in the way
this story goes in the future.
Perhaps the real heroes in this story are the Indian football fans,
who have turned up in incredible, never-seen-before numbers to games
and tournaments, voicing their opinions and inputs through social
media and creating a system by which the whole transition process can
be benefited, while still maintaining their love for the game – during
the U17 World Cup, Indian fans from Kerala and Wes Bengal showed

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enormous support for sides like Brazil and England, proving that love
for the game is their top priority.
How do we expect 2018 to look?
A number of international friendlies
are lined up for the men’s teams at the
senior and junior levels that will keep
both sides in tip top form for the
upcoming major tournaments.
ly
The winners of the ISL and the I-League will now play continental
football next season, and that is really something to look forward to
for India as a country, as their representation in Asia’s setup
pi becomes stronger.
The merger of the ISL and the I-League will become clearer as
the blurry lines come into focus, with even FIFA and AFC
offering to help the AIFF work out the kinks in the blueprint of the
ap
sport, which means that more structural changes are in the pipeline.
At the end of the day, representation matters a lot – and the fact
that there is so much talk and televised display of football in India
means that more youngsters are taking up football more seriously at
school or domestic levels, forcing a raise in the standards of grassroots
Kn
development of the sport in the country, which has historically proven

to be the precursor to immeasurable greatness for a nation in football,
and that gives the greatest hope in the new year.
—– | —–

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SPORTS / When boys became men
31-Dec-2017
ly
pi While it is the Indian women who typically return home with Olympic
and World Championship medals, 2017 belonged to the men as K.
Srikanth, H.S. Prannoy and B. Sai Praneeth outshone their women
ap
counterparts. Srikanth, in particular, has been the breakout superstar by
cementing his place in the big league. Five men made it to the top 20,
but can they make the excruciating leap into the top 10 in 2018?
What have the men achieved?

Sameer Verma started the year by
Kn
trumping B Sai Praneeth at the Syed

Modi Grand Prix Gold final in January.
Thereafter, Praneeth took charge by
pocketing his first Super Series at the
Singapore Open in April. Interestingly, here too, Praneeth's
opponent was none other than Srikanth.
Praneeth also clinched the Thailand Open Grand Prix Gold in June.
A fortnight later Srikanth triumphed in the Indonesia Open, the
richest Premier event of the year. The 24-year-old went on to

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clinch back-to-back titles, a first in his career, by emerging

victorious at the Australian Open Super Series the very next week.
Prannoy won a solitary US Open title in 2017 beating compatriot
Parupalli Kashyap in the final.
Srikanth then strained a thigh muscle during the nationals at
Nagpur, and had to miss the China Open and the Hong Kong Open.
Back to full fitness, he unfortunately crashed out of the World
Super Series finals, in Dubai, in the second round.
ly
The year also saw 16-year-old Lakshya Sen winning two titles at
the India International Series and Eurasia Bulgarian Open before
finishing runners-up at the Tata Open India International.
pi Why does the year belong to Srikanth?

Srikanth, 24, was the most successful of
the lot in 2017. While PV Sindhu built on
her success last year to scale new heights,
ap
it was Srikanth who took Indian
badminton by storm with a higher title
count as male shuttlers finally came out of the shadows in a season of
unprecedented success for the sport.
After recovering from an ankle injury that nearly kept him out of
Kn
action for four months last year, the 24-year-old from Guntur hit a
purple patch in April as he reached three successive finals at
Singapore, Indonesia and Australia.
Srinkanth won the last two and it helped him regain his place in the
top 10 and also grab the top spot in the badminton earnings chart.
Srikanth became the fifth shuttler in badminton history to win
four Super Series titles in a calendar year. Incidentally, these
were also Srikanth's second back-to-back titles.
His unbeaten streak, however, ended at the World Championship
when he lost to South Korea's Son Wan in the quarters but the

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Indian soon regained his touch, securing two wins in two weeks
again at Denmark and France in October.
His envious run earned him the World No.2 position and a spot in
the season-ending Dubai Finals.
It was non-stop badminton that took a toll as Srikanth aggravated his
leg injury during the National Championships, where he finished
second to Prannoy and had to stay off the circuit for two tournaments.
When were the Indian men relevant
ly
before?
1980 was the year that Indian badminton
first turned the corner. That year Prakash
pi Padukone won the All England

Badminton singles title which many, at
that time, believed was the equivalent of the Wimbledon
Championship in tennis.
ap
India, of course, had some great players before Prakash made the
national singles title his personal property in the 1970s. Nandu
Natekar, Prakash Nath, Devinder Mohan, Suresh Goel and a few
others showed flashes of brilliance during their careers but never
really broke the barrier of international excellence.
Kn
But Prakash Padukone was different. The Indonesians, the Chinese,

the Danes and the Englishmen feared and respected him. The
crowds in Europe flocked to his matches, in large numbers, just to
see the Indian conjurer weave his spell of magic on court.
Besides winning the All England title, Prakash also won the Alba
World Cup, having won the Commonwealth Games gold at
Edmonton earlier, and then went on to bag a few prestigious titles
on the Asian and European circuits.
The ace shuttler confesses to have turned the corner when he

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watched his idol, Rudy Hartono – six-time All England champ –

train during an event at Jabalpur.
Pulela Gopichand – who also won the All England title once – and
Indonesian coach Mulyo Handoyo are now bringing about Indian
badminton’s second renaissance.
Where do the men stand going into
2018?
ly
Men's players managed to outshine their
women's counterpart as Srikanth, Praneeth
and Prannoy have virtually dominated the
men's singles with elan, shining through
pi on the international stage. They were everywhere this year, winning

titles, stunning champions and dominating the men's singles category.
While Sindhu and Srikanth dominated, Praneeth and Prannoy also
made rapid strides with the former defeating Srikanth at the
ap
Singapore Open in an all-Indian final to lay claim to his maiden
Super Series title. Six weeks later, Praneeth secured the Thailand
Grand Prix Gold title.
Prannoy, meanwhile, notched up wins over Malaysian legend Lee
Chong Wei and China's Chen Long on successive days to reach the
Kn
semifinals at the Indonesia Open. The 25-year-old later scooped the

US Open Grand Prix Gold title beating P Kashyap in another all-
Indian finals.
He again outwitted Chong Wei at the Denmark Open and his
rampaging run saw him reach a career-best ranking of World No.
10, besides becoming the costliest buy at the PBL auction in
October.
There is also a host of other Indians vying for a place in the top 25, in
the men’s section, including Sameer Varma, Ajay Jayaram,

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Parupalli Kashyap and Sourabh Verma.

Who is behind the success?
Pullela Gopichand changed the landscape
of badminton but the Dronacharya
awardee is yearning for more. He has a
few budding shuttlers who are aspiring to
follow the footsteps of their illustrious
seniors.
ly
The appointment of Indonesia's Mulyo Handoyo, best known for
coaching world champion Taufik Hidayat, gave a massive impetus
to Indian badminton, which also saw a change of guard at the
pi association with Dr Himanta Biswa Sarma becoming the

president following the sudden demise of Dr Akhilesh Das Gupta.
It is no secret that the efforts of Gopichand are behind their success
and the newfound vigour. All these players hail from his academy
ap
and have been with him since their childhood.
About five years back, when Saina and Sindhu were making all the
headlines, Gopichand had predicted that the boys too will replicate
the girls' success stories soon. But very few took him seriously at
that time.
Kn
However, once Srikanth burst on the scene with a sensational

mauling of Lin Dan in the China Open finals in 2014, people began
to notice that the boys were coming to the party.
The coach, who is building Indian badminton brick-by-brick, has
immense faith in the abilities of his players and is always confident
about breaching the difficult barriers.
“In my playing days many used to tell us that we can never reach the
level of the Chinese. But I always believed that if we have the facilities
in place we can achieve a lot. I am only putting a system in place and I

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am not surprised with these results,” Gopichand told TOI.

How do the men feed of each other?
The men have displayed fascinating trend
during these stupendous performances.
The Hyderabad boys have been assisting
each other in the victories as if they have
learnt the art of ‘hunting in packs’.
ly
At the Indonesian Open, HS Prannoy had stunned Malaysian
legend Lee Chong Wei and Olympic champion Chen Long to clear
the path for his training partner Srikanth. Later, Prannoy said that
he took tips from seasoned campaigner Parupalli Kashyap on how
pi to beat the Chinese superstar.

Prannoy lost to Kazumasa Sakai in the semifinals but passed on
some key information to Srikanth, who defeated the Japanese
shuttler in the final.
ap
Even at the Denmark Open in October, Prannoy helped Srikanth by
ousting Lee Chong Wei in the second round itself. With easier
opponents to negotiate at the latter stages, Srikanth claimed his
third Super Series title by defeating Korean veteran Lee Hyun Il in
the final.
Kn
The next week at the French Open, Prannoy ousted Lee Hyun in
the first round before going down to Srikanth in a keenly-contested
semifinal.
But despite these fabulous feats, the bigger trophies like Olympic
gold, World Championships crown and All England are missing
from the cupboard. The only way the forthcoming years can beat the
success of 2017 is if the shuttlers bring these elusive trophies home.
—– | —–

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SPORTS / Because women will be women
30-Dec-2017
ly
pi 2017 saw India’s ace shuttler PV Sindhu cement her place among the
world’s very best with three titles - two of which were SuperSeries -
and three silvers – one of which was at the World Championships.
ap
Much to the delight of fans, Saina Nehwal overcame a career-
threatening injury to stage an inspiring comeback and win bronze at
Glasgow. The two women promise more podium finishes in 2018.
What have India’s baddy women

achieved?
Kn
PV Sindhu has made it to six finals this

year, winning three of them, two of which
are SuperSeries.
She won the Syed Modi International,
the India Open and Korea Open titles in 2017. Losing to Tai
Tzu-ying in the Hong Kong Open, she narrowly missed winning
the World Championship title, losing to Japan’s Nozomi Okuhara
in three hard-fought sets.
Despite a debilitating knee injury which she carried into the Rio

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Games, former world number one Saina Nehwal is ranked 10th on

the BWF list.
What was more heartening was the fact that Saina, who is already
a veteran at 27, returning to action to clinch the Malaysia Masters
Grand Prix Gold early in the year. She gave ample proof of her
progress by bagging a bronze at the World Championship.
She was back to her best in the 82nd National Badminton
Championships. There she out-lasted her in-form junior, Sindhu,
ly
beating her 21-17 27-25 in the final.
But the 27-year-old’s fitness remained a concern and she decided
to reunite with her long-time mentor Gopichand after spending
three years under Vimal Kumar.
pi 22-year old Rituparna Das who started with a BWF rank of 63,
also reached her highest rank of 44, promising to make it big.
With his wards dishing out consistent performances, the legend of
ap
national coach Pullela Gopichand only grew but allegations of
favouritism against him following his daughter Gayatri’s selection in
the World Junior Championship team did raise some uncomfortable
questions.
Why has 2017 been special for women?
Kn
If we look at the names of the rivals in the

women’s singles finals of the two most
important tournaments in each of the last
two years, there is just one name that runs
like a common thread in three out of four
summit clashes.
India’s PV Sindhu was in the finals of the 2016 Rio Olympics,
narrowly missed making the title round of the year-ending
Dubai World Superseries 2016 finals, but was there in the

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finals of the 2017 World Championships and the 2017 Dubai

World Superseries Finals.
Even in the 2016 Dubai Finals, Sindhu was present in the final mix
— she lost narrowly in three games to South Korea’s Sung Ji Hyun
in the penultimate round, after clearing the group stage comfortably
with two victories and a solitary defeat.
No other player featured in even two of these finals; it was
Carolina Marin at the Olympics, Taiwan’s Tai Tzu Ying and South
ly
Korea’s Sung Ji Hyun in Dubai 2016, Japan’s Nozomi Okuhara in
the 2017 Worlds and Akane Yamaguchi in 2017 Dubai Superseries
Finals.
pi When did Saina and Sindhu leap to the

fore?
In 2010, Saina Nehwal announced her
arrival at the world stage in style winning
ap
three consecutive titles - the Indian Open
Grand Prix at home and the Singapore
Open Super Series and Indonesia Open Super Series. The shuttler rose
to No.3 in the rankings that year.
Her success propelled Indian badminton to a different plane,
Kn
unleashing a spiraling success rate every year since. Medals in

Olympics and World Championships have now become a regular
feature.
In London, four years after making the quarterfinals of Beijing as
an 18-year-old, Saina won the badminton bronze in the women’s
singles as Wang Xin of China retired with a painful knee while
leading 21-18, 1-0.
Months after breaking into top 20 in 2012, a young PV Sindhu
would announce her arrival at the big state by packing off
Olympics Gold medalist Li Xuerui in a blitzy 45-minute three-

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setter 21-19, 9-21, 21-16 at the China Masters Super Series. Her
first leap into stardom was by creating a ripple in the Chinese pool.
Sindhu made a mark in the badminton circles when in 2013 she
became the first Indian woman to win a singles medal at the
Badminton World Federation (BWF) World Championships in
Guangzhou, China.
Sindhu’s Olympic silver at the 2016 Olympic Games catapulted the
game to new heights of popularity.
ly
Where is the challenge?
The fact that Sindhu has been ending up
on the losing side in every one of the big
pi gold medal matches is being pointed out.

Sindhu lost the Olympic final to
Spaniard Marin, the World
championship final earlier this year to Japan’s Okuhara and
ap
the Dubai Superseries final to another Japanese, Yamaguchi.
And all, by slim margins in the third and deciding games — 15-
21 in Rio, 20-22 in Glasgow and 19-21 in Dubai.
Both Okuhara (22) and Yamaguchi (20), two of the fittest women
on the international circuit, played a game of attrition against
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Sindhu, engaging her in lengthy, energy-sapping rallies and

bottling up her smash with deep, flat clears to the baseline corners,
followed up with crosscourt net-hugging drops.
In both these matches, the 22-year-old Indian demonstrated not just
a willingness to remain patient, but also the ability to push her
long, lean body beyond its limits while playing those interminable
rallies.
Sindhu would be bent over in the shape of an inverted ‘U’, trying
desperately to get the air back into her lungs, but when the next
rally began, she would continue to cover the court with the same

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agility she had displayed right through the encounter. It was a

display worthy of admiration, for she was suffering from a bad cold
in Dubai, and had difficulty breathing after the lengthy rallies.
Where Sindhu perhaps lost out was in the mental department;
she has been consistently having trouble closing out matches, and
that malady returned to haunt her when she made two simple,
unforced errors against Yamaguchi at 19-all. Her excuse was that
her racket strings had snapped at 18-19, and the changed racket had
ly
a slightly different feel in her hand.
It is possible that this flaw in her game will get ironed out
automatically when her fitness level improves just a little bit more,
and match those of the two diminutive Japanese girls.
pi As for Saina, while the Haryana-born, Hyderabad-domiciled player

could not leave her own impression on the world circuit, it is only a
matter of time before we see her back to near-full fitness after the knee
ap
injury, sustained during the Rio Olympics in August 2016 had
threatened to call a halt to her long career.
Who else announced her arrival in
2017?
On 23 December 2013, then World
Kn
Championships bronze medalist Sindhu

was to take on 17-year-old Rituparna
Das for the National title.
It was expected to be a lopsided affair with the 2011 senior national
champion winning her second title in three years.
The final score read 21-11, 21-17 in favour of Sindhu but the
match was anything but a one-sided affair. The scoreline might not
reflect on the performance of the young shuttler who impressed
with her grit and talent.

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A lot was expected from the Haldia-born Rituparna, but her career has
been marred by inconsistencies ever since then.
The under-13 champion in 2008 earned everyone’s attention with
her style of play, including that of Pullela Gopichand who
facilitated her move from West Bengal to train at his Hyderabad-
based academy.
However, things weren’t going right for Rituparna whose biggest
drawback was the tag of being lazy that got stuck to her since her
ly
Junior days. It is said that even Gopichand was miffed at the way
she approached her career and found her too lazy to succeed at
the highest level. This approach also saw her fumbling in the finals
pi of the various national and international tournaments.

Rituparna, who is considered to be the best shuttler in the second
rung of players has also constantly struggled with her fitness.
In 2016, things started looking bright for the 21-year-old who won
ap
a couple of Badminton World Federation (BWF) International
Challenge/Series, the India International Series and the Polish
International. These wins helped her gain important points that held
her in good stead when it was time for World Championships
qualification.
Kn
Earlier this year, in February, Rituparna finally managed to get past the
finish line — she went from being a two-time runner up at the
Senior National Badminton Championships to lifting the trophy,
when the second seed defeated Reshma Karthik in straight sets.
Rituparna finally put an end to the claims of her being a talented
but lethargic opponent to make improvements in her style and
becoming a big-game player.
In the tournaments that followed, she had first-round exits in the
Singapore Open Superseries, Thailand Open Grand Prix Gold and
Canada Open.

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After missing out on playing most of the major tournaments in the

BWF calendar year due to a persistent hip injury, the Tata Open
was her first event since the World Badminton Championships in
August, where she was shown the door in the second round.
Das had skipped the India International Series tournament in
Hyderabad in November but amid training sessions, she discovered
a new problem, this time on her right shin.
“While I was practicing in Hyderabad, I encountered a shin strain and
ly
because of the pain, I started to lose concentration,” a dejected Das
said.
Can Das put fight her inconsistencies and injuries to stage a monkish
pi comeback in 2018?
How have Sindhu and Saina elevated
badminton?
Clubbed with the fact that she has won
ap
medals in three of the last four World
Championships — silver in 2017, and
bronze in 2013 and 2014 — it can be seen
that Sindhu is right up there with the best.
The year Sindhu missed out - 2015 – was when compatriot Saina
Kn
Nehwal took silver behind Marin’s gold.

One bronze is so 2011-14, even one silver was really just 2015-16.
At Glasgow this year, they both managed to shine – one on her
path to the top, another staging a comeback from injuries.
Only two assured medals could’ve lit up the 2017 script. While
Sindhu and Saina have taken turns to brighten alternate
tourneys, at Glasgow both managed to check in.
Over the last two years, Saina’s battle with injuries have been a
cause for frustration for fans. Which is why it was a moment of

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intense satisfaction for Saina when she captured the Nationals

title for the third time in her career, in just as many attempts,
at the expense of Sindhu. The fact that the 27-year-old came back
from a career-threatening injury to eclipse in straight games the
player who bids fair to take over her mantle as India’s premier
shuttler was the icing on the cake.
Saina will always be the pathbreaker, Sindhu will always scale
steeper ascents. Saina will always bare her heart when brought to the
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mixed zone, and Sindhu has always been a tad staid. While Saina is
quieter and monkish on the circuit when travelling, Sindhu has buddies
from every big nation that plays. Together, they have made India one
pi big nation in the world of badminton.

—– | —–
ap
Kn

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SPORTS / 2017: Roger, Rafa and nobody else
29-Dec-2017
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pi Considered to be men walking towards sunset, Roger Federer and
Rafael Nadal defied time to sweep the Grand Slams in 2017 while the
injury curse dogged their rivals Novak Djokovic and Andy Murray.
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Nadal ends the year at No. 1, Federer at No. 2. Djokovic and Murray’s
imminent return, and the rise and resurgence of Alexander Zverev and
Grigor Dimitrov respectively could make 2018 compelling for fans.
What unraveled this year?

Evergreen Roger Federer, who will
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turn 37 in 2018, took his majors tally to

19 with a fifth Australian Open title,
which was secured by a five-set triumph
over Rafael Nadal, and a record eighth
Wimbledon with a stroll past a tearful Marin Cilic.
Nadal, 32 in June next year, was not to be outdone, claiming a
10th French Open, a third US Open crown and the year-ending
world number one spot.
The United States defeated Belarus in the final to win the Fed

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Cup, their 18th crown but first since 2000. France clinched the
Davis Cup, edging Belgium in the summit clash to win their 10th
title, and first since 2001.
India failed to reach the Davis Cup World Group for the
fourth year in a row and will return to Group 1 Asia/Oceania
Round 1 next year. The Mahesh Bhupathi-captained team is seeded
No 1 and hence has got a first-round bye. It will play the winner of
the China-New Zealand tie in Round 2 in April.
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Bopanna’s first slam
For individual Indian tennis players, the highlight of the year was
Rohan Bopanna winning the French Open mixed doubles title,
pi his first Major, partnering Canada’s Gabriela Dabrowski.

He also won the Chennai Open, Monte Carlo Masters and Vienna
Open (the last two with Uruguayan Pablo Cuevas) and finished
runners-up at the Dubai Tennis Championships, Eastbourne
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International and Rogers Cup with separate men’s doubles
partners.
Why did 2017 dazzle tennis fans?
Federer and Nadal seemed to roll back the
years in 2017, winning almost everything
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the sport had to offer. While Federer

won the Australian Open and
Wimbledon, Nadal took the honours at
the French and US Open.
Rewinding to mid-2016, Spaniard Nadal had pulled out of Wimbledon
after almost ‘destroying his wrist’ at Roland Garros. Then Federer
decided to skip the US Open and subsequent tournaments, seeking
rehabilitation after a knee surgery.
The Swiss had previously won a Major in 2012, while Nadal had last

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tasted success in a Grand Slam in 2014. Injuries posed a major threat to

their careers.
Not only were they back on the circuit in 2017, they also provided
fans a dream match on January 29 when Federer took on Nadal in
the Australian Open final, resuming their iconic rivalry, their
first meeting in a Grand Slam final since the 2011 French
Open.
At World No 16, Federer, 35, entered the Australian Open with his
ly
lowest ranking in 15 years. He won the five-setter to clinch his first
Major in five years. Their famed rivalry and age made the match
even more engrossing.
pi Federer finished the year at number two in the world, having

started at 16, and a season-leading seven titles — including three
Masters at Indian Wells, Miami and Shanghai — despite having
skipped the entire clay court season.
ap
“It’s been an amazing year for me,” said Federer who had missed the
last six months of the 2016 season through injury.
Nadal added two Masters titles at Monte Carlo and Madrid to his
triumphs at Roland Garros and Flushing Meadows, finishing the
campaign with six trophies. With six titles, including two Grand
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Slams, and a winning percentage of 86, he ended the year atop

the ATP rankings, and at 31, becoming the oldest male player
to finish as year-end No 1.
The 16-time Grand Sam champion also secured the year-ending top
ranking for a fourth time.
“I never would have imagined I would end up as number one at the
end of the season again,” said the Spaniard.
“It wasn’t one of my goals going into the season — far from it. After
returning from a difficult period in my career and battling through

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injuries, this wasn’t on my mind.”

When did the special moments arrive?
Rafael Nadal hits perfect 10
In the first quarter of the season, Nadal
reached three finals — Australian Open,
Acapulco and Miami — but ended up
on the losing end, twice to Federer. It
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was over the clay-court season that he truly announced that he was
back to his best with near invincible tennis.
Nadal became the first man in the Open era to win a single
tournament 10 times by lifting the Monte-Carlo trophy. He
pi repeated the feat at Barcelona, before adding a fifth Madrid Open

title to his haul.
After failing to clinch a Grand Slam title in 2015 and 2016, the
King of Clay completed La Decima in 2017 — winning an elusive
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10th Roland Garros (French Open) title. Not only did Nadal
create history with the perfect 10, he did so in an utterly dominant
fashion, routing every opponent that he faced and dropping just 35
games over the course of seven matches.
If Nadal’s clay season surpassed all superlatives, it was his US
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Open campaign that defied expectations. The Spaniard hadn’t

made it into the second week of the tournament since winning it in
2013, and had often struggled physically at Flushing Meadows in
the past. This time around, he romped to his 16th Major title by
winning the US Open for a third time.
Nadal capped off an astonishing year by capturing the China Open
for his sixth title of 2017.
Roger Federer stages the father of all comebacks
After winning the Australian Open, continued his breathtaking

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comeback at Indian Wells and Miami, adding the Sunshine Double

for his 90th and 91st career titles. The Swiss ace, who had
undergone knee surgery in 2016, then skipped the entire clay
season to avoid any gruelling battles and be in top shape for the
grass season.
After an early loss at Stuttgart, Federer won at Halle for a record
ninth time in his career. He cruised through the two weeks at
Wimbledon, and lifted his 8th Wimbledon title — his 19th Grand
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Slam title overall. He also became only the second male player in
the Open Era to win the Championships without dropping a set,
after Bjorn Borg in 1976.
In the second half of the season, Federer made the Montreal
pi Masters final, but was hindered by a recurring back injury and lost
to Alexander Zverev. He was knocked out of the US Open in the
quarter-finals by a resurgent Juan Martin del Potro.
Federer bounced back during the Asian swing and went on to beat
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Nadal for the fourth time in 2017 at Shanghai for his sixth title of
the season. He brought up title number seven at Basel and finished
the year with a semi-final loss at the hands of David Goffin at the
ATP Finals.
Where did men’s tennis lose out?
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Amongst all the revivals, the 2017 men’s

tennis season was also hampered by
plenty of injuries. Federer and Nadal also
benefitted from the lack of form and
fitness of the other two in the ‘Big Four’ -
Novak Djokovic and Andy Murray.
At the start of the year, Andy Murray and Novak Djokvoic led
the rankings; they ended the season at 16 and 12 respectively.
The Scot’s hip injury and Djokovic’s right elbow trouble made

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them skip the US Open.

A hip injury and fatigue forced Murray to sit out the second half of
the season while Djokovic was sidelined due to a bruised elbow.
Stan Wawrinka, Milos Raonic, Kei Nishikori and Nick Kyrgios
were other top-20 players who were missing in the closing
months of the season.
Nadal’s long battle with knee injuries continued as he withdrew
after just one round at the World Tour Finals and pulled out of an
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exhibition tournament in the United Arab Emirates from December
28-30.
The increasing number of high-profile retirements and withdrawals
pi could lead to calendar changes in the future, but for now the ATP
views the 2017 season as an anomaly and not the norm.
Who else made their presence felt?
While Nadal and Federer grabbed all the
ap
headlines in 2017, two other players made
their presence felt as well to justify the
hype surrounding them.
The rise of Alexander Zverev
Twenty-year-old Zverev lived up to his billing as the next big star
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with a career-defining season. Zverev clinched his second career

title at Montpellier in February but his big breakthrough came at
the Rome Masters in May, where he handily defeated Novak
Djokovic in the final to become the first player born in the
1990s to win a Masters 1000 title.
The young German followed that up with an impressive showing
over the North American hardcourt season, winning Washington
and Montreal. He rose to a career-high ranking of World No 3
in November and qualified for his maiden ATP Finals.

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Despite all the highs, Zverev had an inconsistent 2017 as he failed

to do much at the Grand Slams. His best performance was a last-16
appearance at Wimbledon and concerns still linger over his stamina
in best-of-five matches.
Grigor Dimitrov’s resurgence
Bulgarian Dimitrov was once heralded as Federer’s heir to the
throne after his splendid early years – in 2014, he broke into the
top-10 after three titles and a maiden Major semifinal appearance.
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But his second Major semifinal only came after a gap of two and a
half years.
In 2017, the 26-year-old finally showed that he belongs at the top
pi of the men’s game with the four titles — Brisbane, where he beat
four top-10 players; Sofia, his hometown event; Cincinnati, where
he did not drop a single set to lift his first Masters 1000 title; and
ATP Finals, where he became the first player outside of the Big
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Four since Nikolay Davydenko in 2009 to capture the year-
ending championship (ATP Final).
How is 2018 poised?
Injury permitting, Nadal will now start
2018 as top seed in Brisbane from next
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weekend with the Australian Open due to

get underway on January 15. The
Spaniard will go into the new season
without his uncle Toni who has been his coach since childhood.
Murray has delayed his departure to Australia while Swiss star
Wawrinka joined Nadal in pulling out of the UAE event.
Novak Djokovic will play in Abu Dhabi as the former world
number one and 12-time Grand Slam winner makes his return
having last played at Wimbledon where he picked up a season-

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ending wrist injury.

Djokovic is now ranked 12 in the world, Murray is at 16 while
Wawrinka starts 2018 at nine.
“I wouldn’t be surprised if 2018 worked out for them as well like it
worked out for me and Rafa,” predicted Federer.
The New Year could also see the highly-regarded Zverev make a Slam
breakthrough after a 2017 which saw him win five titles. 2018 is
pregnant with many possibilities. The tennis fan has every reason to
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look forward to the coming year with excitement. Rafa and Roger
aren’t done yet, Murray and Djokovic will make a comeback, while
Zverev will bring in young blood to replace the old.
pi —– | —–
ap
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SPORTS / Burning England to Ashes
26-Dec-2017
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pi Australia aim to continue their domination as the fourth Ashes Test is
played at the Melbourne Cricket Ground on December 26-30. The
Steve Smith-captained Australia have already pocketed the series and
ap
‘urned’ the bragging rights, having won the first three matches
handsomely – by 10 wickets in Brisbane, 120 runs in Adelaide and an
innings and 41 runs in Perth. An ‘undone’ England plays for pride
now. But the hosts may not be done yet.
What is the status so far?

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England are hoping to restore

battered pride in the December 26
Fourth Melbourne Test (the Boxing
Day Test) after surrendering the
Ashes to Australia.
It’s been a tour from hell for Joe Root’s beleaguered team,
succumbing to three heavy defeats and rendering the last two
Tests in Melbourne and Sydney as “dead rubbers.”
Root has been in the eye of the storm over the tourists

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underwhelming efforts with former Australia captain Ricky

Ponting deriding him as a “little boy” who has been a “bit soft”
during the one-sided series.
Several other under-performing senior players, notably Alastair
Cook, Stuart Broad and Moeen Ali, have also been under the gun
with some critics calling for their axing.
Day 1 of the Boxing Day Test is done.
And it has, unsurprisingly, belonged to Australia who stood at
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244 for 3, though England tried to fight better than it did in the
previous three tests. David Warner scored a century (103), while
‘injured’ captain Steve Smith remained unbeaten at 65. The
pi Australian skipper is gunning for his fourth consecutive

Melbourne Test century after hundreds against Pakistan, the
West Indies and India in the last three Boxing Day showpieces.
The moment of the day came when Warner faced up to debutant
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Tom Curran with just one run required for his century. Drinks were
just around the corner and the English were tempting the opener
with a wide open leg-side area. A packed off-side field had made
scoring difficult for the best part of an hour. Curran dug in a short
ball and Warner fell for the trap and attempted to help it around the
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corner. The ball got big on the Australian and he ballooned it up to

Stuart Broad at mid-on, who took a comfortable catch. The English
celebrated with gusto and Warner flung his head back in despair
and trudged off the ground. But as he approached deep cover en
route to the changing rooms, the big screen showed the Curran
had overstepped. Warner turned around and made his way back to
the pitch, much to the delight of 80,000 MCG fans. The very next
ball, Warner executed a similar shot without issue and punched
the air to celebrate his first ton since Australia’s tour of Bangladesh
midyear.

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These are the final comments on ESPNCricinfo, summing up the

day: “Australia’s day, but it was harder work than it looked it
might be during the morning when David Warner raced away.
Scoring became much harder work against improved bowling, a
softer ball and a hint of reverse swing. Warner reached a century
and Smith is now eyeing another for himself. Tom Curran was
promising on his debut although will still be pondering the no-ball
that cost him Warner’s wicket on 99. Stuart Broad ended his long
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wait for a wicket, but Moeen Ali remains a concern. The run rate
hasn’t got away from England - in fact 141 runs in the last two
sessions - but they need to strike early tomorrow.”
pi What makes the Boxing Day Test special?

December 26-30 is the most anticipated period for cricket fans in
the Southern Hemisphere. For fans in Australia, South Africa and
New Zealand, it is time for the Boxing Day match. It is this event
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in the cricketing calendar that helps end the year in a grand fashion.
Though this Test really became a thing only since the 1980s, the
history of Boxing Day cricket at the Melbourne Cricket Ground
(MCG) is a longer one. In 1892, the stadium hosted a Sheffield
Shield match which started a tradition of Christmas period
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clashes between Victoria and New South Wales. But the first
international Boxing Day Test at the MCG was only held in 1950,
and that Test against England actually started on December 22.
During the 1950–51 Ashes series, the Melbourne Test was played
from 22 to 27 December, with the fourth day’s play being on
Boxing Day, but no test matches were played on Boxing Day in
Melbourne between 1953 and 1967.
Because there were six Tests in the 1974–75 Ashes series, in
order to fit them all in to the overall schedule, the Third Test at
Melbourne was scheduled to start on Boxing Day. That was the

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origin of the modern tradition, although it was not until 1980 that
the Melbourne Cricket Club and the Australian cricket team
secured the rights to begin a test match annually on Boxing Day at
the MCG.
It was the match against Clive Lloyd’s West Indies in 1975 that
showed what the Boxing Day Test could become. A massive crowd
of 85,596 people watched on the first day as Jeff Thomson and
Dennis Lillee ripped into the highly rated side, taking nine wickets
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between them, including that of Viv Richards. The West Indies
made just 224 runs in their first innings and Australia replied with
485, which ultimately proved insurmountable.
However this highly successful Test wasn’t to be the start of a
pi tradition. It was another five years before the next Boxing Day Test
was held at the MCG, but cricket fans have been watching it
annually in the stands and on their couches ever since (except in
1989, when the MCG hosted a one-day international against Sri
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Lanka instead).
This modern tradition too owes its existence to Kerry Packer,
cricket’s greatest marketer. “It’s all the power of marketing,” said
Thomas Heenan, who teaches sport studies at Monash University.
Kerry Packer’s Channel Nine got the broadcast rights to cricket in
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Australia in 1979. Dr. Heenan said it was no coincidence the

Boxing Day Test took off from there.
Note: Boxing Day is a holiday celebrated on the day after Christmas
Day. It originated in the United Kingdom, and is celebrated in a
number of countries that previously formed part of the British Empire.
Boxing Day was traditionally a day off for servants and the day when
they received a ‘Christmas Box’ from the master. The servants would
also go home on Boxing Day to give ‘Christmas Boxes’ to their
families.

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Why is England in such a

pitiable state?
Bowling
Many observers might not have
expected the Australian
dominance to be so
comprehensive. The England bowlers, for example, were not
supposed to be so feeble. James Anderson is the best swing bowler
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in the game and has had his moments this series, as his 12 wickets
suggest. But the others have not been very effective. Stuart Broad,
a vital member of the attack, has only taken five wickets in three
pi games (before the Boxing Day). And Moeen Ali, tasked with the
important spin-bowling duties, has managed only three wickets.
Compare those returns with those of the Australian bowlers.
Mitchell Starc has 19 wickets, Josh Hazlewood 15 and Pat
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Cummins 11. Nathan Lyon has taken 14, and quite unlike Ali, has
looked impressively threatening throughout.
Everyone expected the Australian bowlers to be faster. Worryingly
for England, however, they have also generated more swing and
extracted more seam movement. Much has been made of the
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English seamers’ lack of pace. But they have trailed in other

areas as well. And while pace is always an asset, there have been
bowlers — the great Glen McGrath is one — who has done well in
Australia without having express pace at their command.
Batting
As for the batting, the main difference between the teams has
been Steven Smith. But what a huge difference he has made. The
Australian captain has, for a while now, been unstoppable, even
attracting comparisons with the incomparable Don Bradman. Smith

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is in cracking form and is coming off a Test-best 239 in the third

Test. He is averaging 142 for the series. Smith’s phenomenal
form has him in a rarefied company and occupying the joint
second position in the ICC’s all-time rankings list along with
England’s Len Hutton and only behind the legendary Don
Bradman. Smith has a career average of 62.32 from 59 Tests,
second only to Bradman’s pinnacle 99.94.
His technique may be unorthodox and he may not be the most
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attractive stroke-player in the game, yet his methods have been
frighteningly effective. Runs have been gushing from his bat in
torrents and there appears to be nothing the opposition can do to
stop or even reduce the flow.
pi The scary thing is that Smith is still only 28, and though, like
every batsman except Bradman, he’ll probably have to contend
with the fickleness of form, it may be some time before his
productivity drops. He is the first and largest concern for any team
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lining up against Australia.
In the end, England got little from where they usually get much.
Contributions from the likes of Cook, Root, Broad and Ali
were far too measly. There is no way they could have been
competitive under those circumstances. Ben Stokes’ absence has
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been a huge blow. He would definitely have made them better.

England, however, have been significantly outplayed, and the gulf
between the sides has been so wide that it is unlikely his presence
alone would’ve been enough to bridge it. The Australians, on the
contrary, have come up with big performances from a number of
their more experienced players. Smith carried the batting with
important contributions from the Marsh brothers.
Off field antics
Ben Strokes was absent. It may well be that this series will be

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more remembered for what happened outside a Bristol

nightclub in the early hours of a September morning than
anything that took place on the pitch in Australia. From a
cricketing point of view, it is a shame for England and their fans
that we will never know how their all-rounder and talisman would
have performed in Australia at an age - 26 - where he is in his
prime.
That England somehow managed to twice find trouble in the same
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Perth nightclub is barely believable. Jonny Bairstow’s ‘headbutt’ of
Cameron Bancroft turned out to be little more than a
misunderstanding, yet it still gave ammunition for Australia and
left England’s players under a curfew.
pi Ben Duckett’s drink pouring over James Anderson was ill

advised, even if it sounded nothing more than teammates messing
around. Did they really have an effect on results? Yes, Bairstow
may have been distracted by an on-field mention of the headbutt,
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but England was already sliding to defeat in Brisbane.
England not feeling at home
Maybe it will take something as seismic as an Ashes defeat for
English cricket to confront one of its biggest problems - England
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do not have the tools to succeed away from home.

In the UK, where their skillful, 84mph bowlers swing and seam
the ball, England are a fine team, one who have lost a Test
series only once since 2012.
On foreign soil, where unfamiliar conditions demand extreme pace
or mystery spin, England are woeful. It is a problem not restricted
to Australia - England has won only one away series in the past
five years.
Consider this. Australia are just better than England when it comes
to playing cricket in Australia. The same works the other way, too.

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England are unbeaten in home Ashes series since 2001.

Australia’s home dominance goes back further, though. They
have won seven out of eight Ashes series in this country and 27
out of 38 Tests.
England fans may be struggling to come to grips with the pounding
they’ve been taking but there is little mystery to the team’s
shortcomings and there is little need for scapegoating. England won
the last Ashes series and are not a bad side. Australia just happens to
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be much better on this occasion.
When do we feel for English fans?
At the Ashes out here, you see an
pi older, settled section of society who

are content with the way cricketing
things are. Their memories stretch
back decades, their tastes are set. The
ap
come for cricket, and they come for their team. 2017 is the year
England fans travelled thousands of miles to watch their team crumble
to defeat and meekly surrender the Ashes Down Under. How do they
deal with this heart-break?
Confronted with a highly unfortunate or tragic event, most of
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us go through the process of rethinking the events leading up to

it. Say, for example, a friend or a family member is involved in a
fatal car accident. Many of us will try to redo events in our minds
in a way that would’ve prevented the crash. If only she had left a
few minutes earlier or later; if only she had turned right instead of
left. We try, in some way, to negate the tragedy, to go back and
imagine a few circumstances under which it would not have
occurred.
Israeli psychologists Amos Tversky and Danny Kahneman, the

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subjects of Michael Lewis’ highly acclaimed ‘The Undoing

Project’, call it “undoing.” We all try to undo outcomes we find
traumatic or highly undesirable.
England losing the Ashes with the series just two-thirds of the way,
has been seen as something of a tragedy by a number of English
fans and pundits. If only Ben Stokes had not misbehaved outside a
Bristol nightclub on a night-out and therefore not excluded from
the squad, for instance, or, might there not have been better
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players available but not chosen who would’ve done better than
this lot?
There has been a desperate search for reasons for such a crushing
defeat. There has been a hunt for scapegoats. Is coach Trevor
pi Bayliss the right man for this team? Are Stuart Broad and Alastair
Cook approaching the end? And what about Joe Root? Why has
one of the best batsmen in the game only scored 176 runs in six
innings?
ap
It is obvious from the results that Australia are a better team in
their own conditions. This may be a disappointment for English
fans who have a marked distaste for Australian superiority, but
Australia, at the moment, have better batsmen, better bowlers,
better fielders, and better sledgers.
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It is as simple as that. Perhaps, at the next Ashes encounter, England

will be the better side, especially since it will be contested on English
soil. Teams are up one day, down the next. Some players lose form
while others hit purple patch. And old players retire, allowing new
ones take their place. For now, Australia have the upper hand, so much
so that this could well turn out to be a 5-0 thrashing. But England will
surely be ascendant at some point in the future. The only place one can
go from rock bottom is up. That is the only positive for England and its
fans. That it will rise from its ashes.

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Where are the Ashes from?

“When Ivo goes back with the urn, the
urn;
Studds, Steel, Read and Tylecote return,
return;
The welkin will ring loud,
The great crowd will feel proud,
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Seeing Barlow and Bates with the urn, the urn;
And the rest coming home with the urn.“
The term ‘Ashes’ was first used after England lost to Australia - for
pi the first time on home soil - at The Oval on 29 August 1882. A

day later, The Sporting Times carried a mock obituary of English
cricket which concluded that: “The body will be cremated and the
ashes taken to Australia”. The concept caught the imagination of
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the sporting public.
A few weeks later, an English team, captained by the Hon Ivo
Bligh [later Lord Darnley], set off to tour Australia, with Bligh
vowing to return with “the ashes”; his Australian counterpart,
WL Murdoch, similarly vowed to defend them.
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As well as playing three scheduled matches against the Australian

national side, Bligh and the amateur players in his team
participated in many social matches. It was after one such match, at
the Rupertswood Estate outside Melbourne on Christmas Eve
1882, that Bligh was given the small terracotta urn as a symbol
of the ashes that he had travelled to Australia to regain. On the
same occasion, he met his future wife - Florence Morphy - who
was the companion to Lady Janet Clarke, mistress of Rupertswood,
and governess to the Clark children.
In February 1884, Bligh married Florence. Shortly afterwards,

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they returned to England, taking the urn - which Bligh always

regarded as a personal gift - with them. It stayed on the
mantelpiece at the Bligh family home - Cobham Hall, near
Rochester in Kent - until Bligh died, 43 years later.
At his request, Florence bequeathed the urn to MCC. Today, over 75
years on, the tiny, delicate and irreplaceable artefact resides in the
MCC Museum at Lord’s.
England’s ashes will remain in Australia for at least a year now.
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The urn that they cannot reclaim stands just 11 cm high, and is
believed to contain the ashes of a burnt cricket bail, but weighs heavily
on the player morale.
pi Who has ridiculed England?

Well, the right question to ask is:
who hasn’t? But the Australian
media has ‘urned’ the right to do so.
ap
“Rivalry dead: Brilliant Aussies
humiliate pathetic Poms” was the
take of Sydney’s Daily Telegraph, under the splash headline “God
Save The Ashes”, as England surrendered the urn - and said
farewell to one of their all-time bogey grounds - with a farewell
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whacking at the WACA.

“England are on their knees with several senior players on the
ropes and now facing the stark realisation that they could suffer a
third 5-0 humiliation on Australian soil in the past 11 years,”
wrote Ben Horne in the Adelaide Advertiser. “Smith can smell
blood in the water.”
It had been, said The Australian, “no contest”, with Australia’s
“bragging rights urned” over the course of three one-sided Tests
in which England had their moments, but ultimately proved

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powerless to resist a superior pace and spin attack, not to mention a

captain in the form of his life in Steve Smith.
Chris Barrett in the Sydney Morning Herald hailed Smith’s
“greatest moment of his two years at the helm”, shying away from
the controversial comparison with Bradman, but stating that he had
at least re-written the “post-Bradman record books”.
NewsCorp’s Robert Craddock addressed the elephant in the room
(or rather, the elephant most definitely absent from the room) in
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pointing out that a certain allrounder’s absence from England’s
ranks had been a critical point of difference between the two teams.
“England lost this series the day Ben Stokes punched a man and
put a hole in his own career at Bristol in September,” Craddock
pi wrote. “The vibe around the cricket world was ‘no Stokes, no
England’. It really was that simple.”
“The victors will not ride into town triumphantly clutching a
champagne flute as they do in the Tour de France,” wrote Peter
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Lalor in The Australian, “but there is a sense that what remains
are demonstration matches only.”
Ponting had words of advice for Joe
The 43-year-old Ricky Ponting, who is the only captain in
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Australia’s history to lose three Ashes series, knows a thing or two

about the extreme pressure a skipper can feel in the heat of a
trainwreck summer and gave a frank critique of the struggling Joe
Root. To paint a picture of the horror show, Aussie tailender Pat
Cummins (138 runs) has made almost double the runs of Cook
(83) this series.
“Joe seems like he is under the sort of extreme pressure that he has
never felt before, which is what you would expect in an Ashes
contest,” Ponting said before the historic Boxing Day Test.
“Everything about it is more intense than anything else you play.

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Spotlight and scrutiny is completely different. Even how he is

addressing the media — I know he is not too forthright or too on
the front foot (by nature), but the way he addressed things last
week, it just seemed he was really quiet and too shy to say too
much. I think they need him to step up big time.”
“The way he answered a lot of the questions after the game last
week, and almost the Brisbane game as well, he seemed almost
like a little boy,” he said. “You need to be more than that as a
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leader, especially when things aren’t going well. Even if it is not
natural to you, sometimes you have to put on a different face and
stand up for what you think is right and what you believe in. Not
only inside the dressing room but outside it as well. For me, it just
pi looks like it has been a little bit soft, if anything.”

How important is Boxing Day,
still?
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Important for Joe Root and
England
This Boxing Day Test is
certainly a live one for Joe
Root. His England captaincy is not on the line just yet, but
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should his form and his team’s continue to implode in Melbourne

and Sydney, Root would be at long odds to lead another England
team to Australia.
After the corresponding match four years ago, Root was
dropped. Fifteen games into his England career, the 22-year- old
had already scored two Test centuries, including a 180 against
Australia at Lord’s. After that date, however, the Australian
bowlers whittled away at what they saw as an off-stump weakness
and his average went into freefall, dropping from 46 to 36 in seven
matches from July to December 2013. Aside from a gutsy 87 in the

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last innings in Adelaide, his game was in disarray and his selectors
spared him further embarrassment in Sydney.
Australia has been no kinder to Root as captain. He averaged
27.42 on the last tour before being dropped, and this time his
average is 29.33. Again, his most noteworthy contribution was a
rearguard effort in Adelaide. Failures in Melbourne and Sydney
would raise the question, in other minds but most importantly in his
own, of whether Root can ever score heavily in Australia. He has
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an awful lot on the line this week.
The broader issue about Root is whether he, as his country’s
champion batsman, is the right man to be the long-term England
captain. England is play Test No. 4 for pride and hope to end the
pi year on a high. And there cannot be a better stage and time than
this for Root to show exactly why his fans continue to root for
him.
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For Australia
There is no such thing as a dead-rubber Ashes Test match. You
are representing your country and whether you are an Australian
cricketer or a touring Englishman, the prospect of playing in
front of nearly 100,000 fans at the MCG on Boxing Day is
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reason enough to remember this.

There can be nothing better than a comprehensive rout of England
to end the year for Australian cricketers and its fans. Smith and Co.
are motivated to really reduce England to ashes this series. If they
haven’t done so already.
How does Smith do what he does?
“If everything looks right, if my shoelaces are tucked up and I can’t
see them, if my feet look straight, my bat looks good behind my foot,
then everything’s usually alright and I start to feel good and like I’m

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ready to play.”
A visibly emotional character who has worn his heart on his sleeve
throughout his captaincy, Smith has admitted to reading virtually
everything written about him - both positive and negative. So it’s
perhaps unsurprising that a dropped catch in India continues to play
on his mind months after his side fell short of reclaiming the
Border-Gavaskar trophy.
Smith - who scored a series-high 499 runs from four matches - put
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down an opportunity in the slips early in Cheteshwar Pujara’s
innings during the second Test in Bangalore. Pujara went on to
make 92 and India squared the ledger on the way to a 2-1 series
pi victory.
“I take everything very personally,” Smith said. “I try not to let
things continue to play in my mind too much, you’ve got to let it
go and stay in the moment, but I have played that over in my
ap
head a few times and thought things could have been really
different ”.
Smith freely describes himself as a “headcase” whose obsessive nature
sometimes gets the better of him. But as 2017 draws to a close with
his side having reclaimed the Ashes, the Australian skipper’s
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status as the world’s best batsman has never been more certain.
Comparisons to Don Bradman have grown louder after Smith
racked up 1000 Test runs for a fourth consecutive year, taking his
average to 62.32.
Smith has also become renowned and increasingly emulated for his
unorthodox technique, his constant fidgeting at the crease and his
insistence on having everything just so. “I’m a bit of a headcase
when it comes to everything with my batting,” Smith told ABC
Grandstand in an interview aired on Boxing Day.

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Psychologists would not advise you to follow his strategy of taking

defeats personally. But, then, the strategy – if at all we can call it that –
has worked for him and Australia. Ask England, who better not take
the results personally.
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pi
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SPORTS / IPL retains its commercial appeal
7-Sep-2017
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pi The Board of Control of Cricket in India has granted five-year
television and digital rights for the Indian Premier League (IPL) to a
single bidder, Star India, which made a consolidated offer of $2.55
ap
billion for worldwide rights. Star India out-bade Sony Pictures
Networks India, Facebook and Bharti Airtel. This comes two months
after Chinese mobile-maker Vivo retained title rights and made the IPL
the richest sporting league. Digital is the fastest growing medium.
What has Star India taken up?

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Star India Pvt. Ltd won television, digital,

Indian and global media rights to the
India Premier League (IPL) for the
next five seasons for Rs16,347.50 crore,
outbidding rivals such as Sony Pictures
Networks India, Facebook Inc. and Bharti Airtel Ltd.
“IPL is a very popular property and we believe a lot more value can
be created for the fan across TV and digital,” Star India chief
executive Uday Shankar said at a press conference in Mumbai shortly

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after the results were announced.

“We have significant presence in TV in India, a robust digital platform
that we plan to take global and our channels are globally distributed.”
Star India was the only firm to put in a consolidated global bid.
Its consolidated bid exceeded the Rs15,819.51 crore sum of the top
individual bids across categories.
Broadcaster Sony Pictures, which bid Rs11,050 crore for the
television rights in the Indian subcontinent, had the highest in that
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category. Sony was the official broadcaster of IPL between 2008
and 2017. Facebook had the highest bid for IPL’s internet and
mobile rights for India at Rs3,900 crore. Reliance Jio
pi Infocomm Ltd bid Rs3,075.72 crore for the internet and mobile
rights.
Rahul Johri, chief executive of BCCI, said all bidders played to
their strengths and bid aggressively. BCCI received 14 bids for
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television, internet and mobile rights to IPL.
Why has this come as a surprise?
Star’s winning bid is a 158% increase
in the media rights value for IPL
broadcasting from the previous cycle.
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In 2009, Sony had bought television rights

for US$ 1.63 billion for nine years from
World Sports Group, which had bagged the rights for US$ 918 million
from the BCCI for a ten-year period. That cycle came to an end in
2017.
Star were the previous holders of digital rights in India as well,
having paid INR 303 crore for a three-year digital rights deal
(2015-17).The sale of the rights, which are for the five-year period
from 2018 to 2022, is effectively the biggest television deal in

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cricket.
Social-media commentary apart, the staggering bid for the rights to
the next five seasons of the IPL was a collar-grabbing reminder of
where cricket has come. Ten years ago, the IPL was this animal
muscled into our collective mind space, seeking six weeks of
indulgence. Here it is, a decade on from that leap of faith, having
eviscerated all other cricket as the most valued product of its
kind in modern sport.
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“In isolation, the room to play with these media rights could be
limited,” said Vinit Karnik, business head (entertainment, sports and
live events) at the media buying agency GroupM.
pi “With both TV and digital rights with Star India, there is likely to be
no lag period between the live stream on Hotstar and Star Sports.
Besides that, the Indian media landscape is changing, and the
distribution revenue from channels will be far higher compared to 10
ap
years ago. Both subscription and advertising markets will mature
further, also working to Star’s advantage,” Karnik added.
And it gives Star, the Twentieth Century Fox company which
already has TV rights to all tournaments organized by the
International Cricket Council, including the Cricket World
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Cup, and all matches organized by the Board of Control for

Cricket in India (BCCI), a virtual stranglehold over all cricket
media rights in India.
In 2017, during the 10th edition of IPL, Sony is estimated to have
earned Rs1,200 crore as advertising revenue and Hotstar, which
had the digital rights, Rs120 crore. Star will have to significantly
better those numbers (earning more than double those every year)
for it to make profits on its IPL investment.
When did the digital agenda become clear?

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While Sony’s bid of over Rs 11,000 crores

was a significant mark-up on the price they
paid a decade ago to acquire the rights,
providing an indication that television
continues to reach the largest chunk of the
audience, the contest for the digital
rights told of how those behind the scenes among the vying parties
see the road ahead.
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Three years ago, Star won the IPL digital rights at Rs 100 crore a
year. In this rights cycle, the highest bid received was from
Facebook for Rs 3900 crore for five years period, or approximately
pi Rs 800 crore a year. That is nearly an eight-fold increase.

Several players other than Facebook made equally robust bids for
digital rights, and if it were a standalone process, this would
have been the most fiercely competitive segment. Airtel offered
ap
Rs 3280 crore, Reliance Jio Rs 3075.72 crore, Times Internet Rs
1787.50 crore, and Star themselves, Rs 1443 crores (modest in
hindsight). Essentially, Star assessed that the rights they held were
now three times more valuable than the last time they won them,
and yet ended up grossly underestimating!
That they won the digital rights anyway, on the back of their global
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bid, was fortuitous for them. Star’s global bid was about Rs 528
crore more than Rs 15819.51 crore, the sum total of all the highest
bids put together, a margin of a mere 3.2%. Star would have had to
return empty-handed, without either of the two big-ticket items on
the shop window - India TV rights and India digital rights - if the
other bidders had collectively bid the Rs 528 crore needed to take
the cumulative amount above the Rs 16347.50 crore bid by Star.
In essence, these bids for digital are an investment based on
rapidly changing media-consumption habits across India. As

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handheld devices proliferate, connections get faster, and costs of

data cheaper, the second screen is fast becoming the first port of
call. Live streams of games offer viewers the opportunity to dip
in at their convenience, and clips of fast-paced action produced
for instant consumption are creating an eager audience, seduced
into returning for more repeatedly.
Star has already engaged a large digital user base in leveraging its
rights over the last three years and can now expect to enhance that
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demand. It is a revenue stream to be exploited that may not deliver
instant results, but it holds the promise of substantial returns in the
future.
pi Where was Star’s approach different?

The biggest learning from the bidding
process was to do with Star’s all-or-
nothing strategy. Their officials would
ap
have known that their bid of a shade over
Rs 6000 crore for the TV rights would be
easily outmatched by the incumbent rights holders Sony.
Star also underestimated the eagerness among various parties for
the digital rights. In fact, of the seven rights packages available on
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the day, Star’s bid was the highest in only one category - the
rights for the UK.
Intriguingly, they bid a mere Rs 48.75 crore for those rights, but
there were no other bids in that category. This is surprising as the
UK has a large Indian diaspora and IPL matches are telecast there
at a reasonable viewing hour. Remarkably, the highest bid
received for the Middle East was Rs 390 crore, and for Africa
Rs 120.25 crore; these are markets that aren’t nearly as well
established as the UK for sports rights.

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As Star’s CEO Uday Shankar said later, they were in it for the
whole pie or nothing at all. He said they were keen to create a
“complete experience” for the fan, and were happy continue living
“without the IPL” if they were unable to provide that experience.
Hence, Star presented a global bid that was more than twice the
sum total (Rs 7882.47 crore) of their other bids put together.
They were the only player to have bid in each of the seven
categories, but significantly, they were the only bidders for the
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global package, which carried them over the line with a slim
margin.
Of every player at the auction table, Star is the only group with a
widespread worldwide presence, and so the opportunity to present
pi an all-encompassing global bid undoubtedly worked in their favour

over others who were in the room for slices of the pie.
With rights to ICC events locked in till 2023 and now the IPL in the
ap
bag for the next five years as well, there was immediate conjecture that
Star might be lukewarm when rights to Indian cricket in India
become available at the end of the current season.
However, industry insiders aren’t convinced yet that Star won’t make
an aggressive play once those rights to Indian cricket in India do
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become available. There is a definite upside, an insider argues, to

creating a monopoly, when dealing with advertisers. Once
competition is neutralised, a broadcaster such as Star can essentially
drive up prices in the marketplace for ad space and hope to extract
higher revenues from subscriptions.
Who are the leagues IPL is now being compared to?
This has drawn comparisons with top tier global leagues such as the
UK’s Premier League and the National Basketball Association in
the US.

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While scrutinising the skyrocketing

stature of the IPL, there has been a
temptation to equate it with other big-
ticket sports leagues around the world
that attract massive fan following, and
as a direct result, huge television deals.
However, it is not appropriate to attempt comparisons with the
valuations generated by the likes of the NBA and the EPL.
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Those competitions run seasons that consume a significant amount
of the year, and the players are more or less full-time employees.
The IPL inverts that model, offering short-term contracts to
men who otherwise ply their trade for national teams or in
pi local competitions in their home countries. To this day, it jostles

for, but hasn’t succeeded in, getting a clear window that ensures
key players aren’t whisked away midway on national duty.
ap
On Monday the IPL provided not just a snapshot of its drawing power,
but also a glimpse of the shape and form the game has taken. T20 has
all but been divorced from cricket itself, creating its own
ecosystem, where it no longer seeks attention as an alternative to
the game’s longer versions.
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That battle has been secured and settled. T20 has now convinced
broadcasters that it is the only viable form of the game able to deliver
consistently large audiences in this age of dipping attention spans and
multiple entertainment options.
How will this shape the
perception of leagues?
It is also noticeable that the
acquisition of IPL rights is only
the latest - albeit most high-

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profile - foray by Star into investing in leagues. The unexpected

success of the Pro Kabaddi League in India, and of Star’s similar
investments in competitions for football, badminton, hockey, and
most recently table tennis, point to a trend.
ESPNCricinfo quoted an industry insider that there is a growing
belief among those deciding strategy in organisations such as Star
that audiences are increasingly engaging with fast-paced, quick
turnaround, slickly produced dramatic events.
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Even locally run competitions such as the Tamil Nadu Premier
League and the Karnataka Premier League, both broadcast on
Star, guarantee a faithful fan base, ensuring daily recall and
pi returning audiences for the duration of the league. The common

objectives, this insider told ESPNCricinfo, are not hard to spot - to
thrill, excite and entertain. Most importantly, stage your event at
the right time of the day and get it done quickly.
ap
The IPL is the original guiding light for this principle, which
Star appears to have embraced. As a direct consequence, they may
see little value in making a strong play to retain the rights for
cricket played in England or Australia, where matches are held at
non-peak hours (for India).
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Gobsmacked by the dizzying big bucks the IPL is able to generate,

boards around the cricket globe will surely hasten efforts to upgrade
their own domestic leagues. It is a product that has made considerable
headway in Australia and is being pushed with gusto in South Africa,
West Indies, England and Pakistan. There wasn’t much doubt anyway,
but unquestionably now, T20 is the proverbial goose. And it is laying
the golden eggs.
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WORLD ECONOMY, FREE TRADE / Economic

race to the bottom
22-Jan-2017
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pi An increased fragmentation in international trade, the rise of
protectionism in key world economies, accommodative tax policies,
ap
and deregulation might pose significant challenges to the global
economy this year, IMF head Christine Lagarde said in a speech to the
WEF in Davos. She warned of the risks the world faces from engaging
in a “race to the bottom” on taxes, regulation and trade, driven by
Brexit and Trump.
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What are the fears expressed by

leaders in WEF?
A strengthening dollar (it has been
gaining in strength since Donald
Trump’s victory) and a “race to the
bottom” on taxes, deregulation and
trade policy are the major risks to an otherwise brightening global
economy, financial leaders said on the final day of the World
Economic Forum (WEF) in Davos.

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Christine Lagarde, managing director of the International Monetary

Fund (IMF), also warned of the risks the world faces from
engaging in a “race to the bottom” on taxes, regulation and trade.
The IMF predicted “an upside in the short term,” with possible
“negative spillover” from trade policies that many have worried
will have protectionism, rather than globalization, as an effect. She
questioned what the policy shift would be in the United States
going forward.
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Lagarde remained cautiously optimistic, however, about the overall
global economic outlook for the year.
“In terms of numbers, we are seeing for the first time numbers that
are not being revised down by the IMF,” she explained, noting that
pi economies worldwide were improving, with the euro area doing

notably better and in a recovery period.
She insisted, however, that growth would not be sustainable if it
wasn’t inclusive, and “that means supporting those countries that
ap
are in the development process.”
Ms Lagarde is not the first delegate of this year’s conference to issue a
warning against protectionism.
Earlier in the week Chinese President Xi Jinping used his speech,
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during the opening plenary session of the summit, to spurn

protectionism, but also warn that there’s “no point” blaming the
world’s problems solely on globalisation.
Note: The race to the bottom is a socio-economic phrase which is used
to describe government deregulation of the business environment
or taxes in order to attract or retain economic activity in their
jurisdictions. An outcome of globalization and free trade, the
phenomenon may occur when competition increases between
geographic areas over a particular sector of trade and production. This
will lead to weaker environmental and other regulations, producing a

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downward spiral in socio-economic conditions in the countries around

the world.
Why does the ‘race’ look like a real
possibility?
The policies of the Donald Trump
administration in the US and the post-
Brexit UK spillover, producing a net
negative outcome for the world economy
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overall, and the reshaping of the global economic landscape might turn
out to be painful.
The ongoing revaluation of the dollar poses a disruptive risk to
pi international trade, rendering commodities and primary-processing

manufactured goods cheaper, and technology and sophisticated
machinery dearer. This is putting many emerging markets in an
increasingly disadvantageous position throughout the world.
ap
This situation might entail a “race to the bottom” in the world
economy, which might also include the competition in fiscal
stimuli across the most prominent nations, and the already-
wearing-down “war” of currency devaluations, fuelled by
accommodative monetary policies in the Eurozone, Japan, and
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mainland China.
Should US inflation unwind far beyond the Federal Reserve’s targets,
the regulator will have to increase interest rates at a quicker pace, and
the continued revaluation of the dollar will also hit most economies
across the globe.
When have we seen such races before?
The concept of a regulatory “race to the bottom” emerged in the
United States during the late 19th and early 20th century, when
there was charter competition among states to attract corporations to

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domicile in their jurisdiction. Some

described the concept as the “race to
efficiency”, and others, such as Justice Louis
Brandeis, as the “race to the bottom”.
In the late 19th century, joint-stock
company control was being liberalised in
Europe, where countries were engaged in competitive liberal
legislation to allow local companies to compete. This liberalization
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reached Spain in 1869, Germany in 1870, Belgium in 1873, and
Italy in 1883.
In 1890, New Jersey enacted a liberal corporation charter, which
pi charged low fees for company registration and lower franchise

taxes than other states. Delaware attempted to copy the law to
attract companies to its own state.
This competition ended when Governor Woodrow Wilson
ap
tightened New Jersey’s laws through a series of seven statutes.
In our times, the race to the bottom operates more subtly than most
people suppose. Governments often compromise on labour standards
to decrease the cost of doing business for corporations.
Countries do not compete with each other by instituting laws that
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are unfriendly to workers or environment. The real problem is that

countries compete by enforcing labour and environmental laws
less vigorously than they might — leading to increases in
violations of labour rights and environmental standards prescribed
in local laws.
Competition between countries to attract investment is less in rules
than in their practical application.
Where could the Black Swan of 2017 emerge?
“Black Swan” is a term used to describe an event that is often

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surprising and with a

disproportionately major effect,
often with negative economic
consequences. For example, the
9/11 attacks of 2001 were a Black
Swan event.
There were two Black Swans in 2016: UK’s Brexit vote and Donald
Trump’s win in the US elections.
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It is now believed that Donald Trump’s actions could trigger the
Black Swan(s) of 2017.
During his presidential campaign, Trump announced that financial
pi reforms put in place in the wake of the 2007-2009 global financial

crisis were hurting the economy and that he would dismantle the
majority of them if he came into office. He has also implied that he
will introduce major tax cuts and take a harsher stance when
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negotiating global trade deals.
In a direct reference to some of the new US President’s expected
policies, Ms Lagarde said that major cuts in taxes (Trump wants to
lower the corporate tax to just 15%), regulation and trade could
have “devastating effects” on global economies this year.
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“If the disruptions we are expecting for 2017 as a result of what

has happened in 2016 prove to be all negative and we are to end
up in a race to the bottom on the tax front, on the trade front and
on the financial regulation front, then that for me would be a
really big black swan that would have devastating effects for
countries other than those that are likely to cause it,” she said
during a panel session on the 2017 global economic outlook.
She said protectionist policies from the new U.S. administration
could have a negative impact on the economy, overshadowing any

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positive gains from stimulus measures.“Overall, it probably won’t

be net positive,” she said.
While fiscal stimulus would likely have a net positive on the United
States economy, she said, the combination with trade policies
would probably not be an overall net positive.
Who said what at WEF 2017?
Xi Jinping, President of
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People’s Republic of China:
“Despite the burgeoning new
technologies such as artificial
intelligence and 3D printing, new
pi sources of growth are yet to emerge, and a new path for the global
economy remains elusive……Inadequate global economic
governance makes it difficult to adapt to new developments in the
global economy……In the past few decades the global economic
ap
landscape has changed profoundly, but the global governance
system has not embraced those new changes and is therefore
inadequate in terms of representation and inclusiveness.”
Philip Jennings, general secretary of the UNI Global Union on
Donald Trump: “I think (Donald Trump) is going to turn out to
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be the betrayer-in-chief. If you look at the people that he’s

surrounded with, there’s not one of them that’s got the working
man’s interest at heart.”
U.K. Prime Minister, Theresa May on Brexit: “If we look at free
trade and globalization, I’m a promoter of free trade, I believe in
free trade. I believe that it brings economic growth and prosperity.
And globalization does.”
WTO Director-General, Roberto Azevêdo on trade deals: “The
system is horizontal it applies to everybody, the system that is
perceived to be fair to someone, isn’t fair to someone else. That’s

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the beauty of the negotiations at a multilateral level you try to

strike a balance the balance is never perfect for anyone.”
Barclays CEO, Jes Staley on banks behavior and settlements:
“We believe that the banks need to atone for the mistakes,
transgressions made going into the financial crisis and Barclays is
prepared to pay that price. But in our view the price has to be
fair.”
EY’s CEO, Mark Weinberger on gender and the Fourth
ly
Industrial Revolution: “We cannot be successful in creating jobs
if 50 percent of the workforce is left out……There is unintentional
bias (in the workplace currently) and in some ways, robotics can
remove some of that unintentional bias by objectively looking at
pi criteria, and so I think there’s optimism there.”

Outgoing Vice President of the United States, Joe Biden on the
world’s wealthiest: “The top 1 percent is not carrying their own
weight.”
ap
NATO’s secretary general, Jens Stoltenbergon alliance’s
future: “I am absolutely certain that the new president and the
new administration will be strongly committed to a strong NATO,
because strong NATO is important for Europe, but is also
important for the United States…..Two world wars have learned —
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(from) all of us — that stability (and) peace in Europe is also

important for the United States.”
Crescent Petroleum’s CEO, Majid Jafar on oil’s future: “The
problem over the last year is no one has been investing enough in
the upstream. … [It has been this way] for three years in [a] row,
which is unprecedented, and so there is a real risk a few years
down the line of an oil price shock.”
Sergio Ermotti, chief executive officer of UBS Group AG on
Europe’s future: “2017 will be a very challenging year for
Europe…..You see what’s going on with Theresa May (and Brexit)

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but also we have elections coming in Holland, most likely it’s going
to come out that the Populist party will have a relative majority.
You will see France elections, you will see German elections,
Italian elections and they are all pointing out to a lot of divide
within the EU on how to tackle these issues.”
How can the negative effects of
such a race be prevented?
There are several ways to combat
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negative socio-economic
consequences of the race to the
bottom.
pi One way is to utilize international organizations powerful enough

to make environmental and labor rules on a global level, such as
the World Trade Organization (WTO).
Another method for avoiding races to the bottom is moral
ap
purchasing. This process can involve forbidding or applying
heavy tax, tariff and trade sanctions to nations that permit the
export of offensive goods. This process can redirect the revenues
raised from taxes and tariffs to combat abuses.
Another strong combatant of these races to the bottom are standard-
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based tariffs.
Standard-based tariffs are designed to protect standards. With these
tariffs, a product imported from a country with low labor and
environmental standards will face a higher tariff upon entry
and a product imported from a country with equal or higher
domestic environmental and labor standards will face no tariff.
This removes the incentive for a producer to move their factory to
another country with a lower minimum wage and maintains
environmental and labor standards that are better for the overall

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economy.
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pi
ap
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WORLD ECONOMY, FREE TRADE / Trump

kills TPP
25-Jan-2017
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pi Fulfilling one of his key promises, US President Donald Trump has
signed an executive order to withdraw from the negotiating process of
ap
the Trans-Pacific Partnership. Trump has argued TPP was harmful to
American workers. TPP was key to Obama’s “pivot to Asia”— a
concerted military, diplomatic and economic drive to dominate over
China. With TPP out of the way, China is sure to push for the Regional
Comprehensive Economic Partnership (RCEP).
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What has Trump decided?

President Donald Trump overturned
America’s traditional, bipartisan trade
policy as he formally abandoned the
ambitious, 12-nation Trans-Pacific
Partnership brokered by his predecessor.
Many feel this is a symbolic end to the era of multinational trade
agreements that defined global economics for decades.
With the stroke of a pen on his first full weekday in office, Trump

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signaled that he plans to follow through on promises to take a more

aggressive stance against foreign competitors as part of his
“America First” approach.
In doing so, he demonstrated that he would not follow old rules,
effectively discarding longstanding Republican orthodoxy that
expanding global trade was good for the world and America —
and that the United States should help write the rules of
international commerce.
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“A great thing for the American worker we just did,” he said in
the Oval Office as he signed the memorandum.
President Trump said that he is going to seek one-on-one trade
deals with Asian countries to boost US manufacturing. He also
pi said the deals he will sign will allow the country to quickly
terminate them in 30 days “if somebody misbehaves.”
Note: The Trans-Pacific Partnership (TPP) is a free-trade agreement
ap
between the United States and 11 other trading partners bordering the
Pacific Ocean. The TPP accord never got a formal approval from the
Congress, but was supported by business entities. It served as the
primary economic pillar of Obama administration’s shift towards Asia-
Pacific region to counter China.
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Why is this move not surprising?

As a presidential candidate, Trump had
vociferously campaigned against what he
described as bad or unfair trade
agreements that the United States had
signed onto, claiming that they had led to
the loss of American jobs. Trump criticized the deal during many of
his speeches while campaigning.
In a speech titled “Declaring American Economic Independence,”

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delivered on June 28, 2016, Trump had criticized the TPP. In his own
words:
The TPP would be the death blow for American manufacturing.
It would give up all of our economic leverage to an international
commission that would put the interests of foreign countries
above our own. It would further open our markets to aggressive
currency cheaters.
It would make it easier for our trading competitors to ship cheap
ly
subsidized goods into U.S. markets - while allowing foreign
countries to continue putting barriers in front of our exports. The
TPP would lower tariffs on foreign cars, while leaving in place the
pi foreign practices that keep American cars from being sold

overseas.
The TPP even created a backdoor for China to supply car parts
for automobiles made in Mexico. The agreement would also force
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American workers to compete directly against workers from
Vietnam, one of the lowest wage countries on Earth.
Not only will the TPP undermine our economy, but it will
undermine our independence. The TPP creates a new international
commission that makes decisions the American people can’t veto.
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When was the TPP agreement signed?

The TPP began as an expansion of the
Trans-Pacific Strategic Economic
Partnership Agreement (TPSEP or P4)
signed by Brunei, Chile, New Zealand,
and Singapore in 2005.
Beginning in 2008, additional countries joined the discussion for a
broader agreement: Australia, Canada, Japan, Malaysia, Mexico,
Peru, United States, and Vietnam, bringing the total number of

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countries participating in the negotiations to twelve.

Participating nations aimed at completing negotiations in 2012, but
the process was prolonged by disagreements over contentious
issues, including agriculture, intellectual property, and services
and investments. The finalized proposal was signed on 4
February 2016 in Auckland, New Zealand, concluding seven
years of negotiations.
The agreement was supposed to enter into force after ratification by
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all signatories, if it occurred within two years. If the agreement is
not ratified by all before 4 February 2018, it will enter into force
after ratification by at least 6 states which together have a GDP of
more than 85% of the GDP of all signatories.With US opting out
pi of TPP, it is not possible to fulfill this requirement of 85% of

total GDP anymore (US itself was 40% of the total GDP of the
group).
ap
The 12 countries involved have a collective population of about 800
million - almost double that of the European Union’s single
market. The 12-nation would-be bloc is already responsible for
40% of world trade.
The deal was seen as a remarkable achievement given the very
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different approaches and standards within the member

countries, including environmental protection, workers’ rights
and regulatory coherence - not to mention the special protections
that some countries have for certain industries.
The US pulling out will be seen as big blow for other nations that
signed up, while it has made the ratification of TPP virtually
impossible.
When do we see US interests in TPP?
TPP was designed to advance US interests in three tangible ways.

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By eliminating some 18,000 tariffs and expanding market

access across the region, it would create US export and job
opportunities.
It would establish new and updated rules for international trade
and investment in areas critical to today’s global economy, such
as services, intellectual property protection, digital trade, and
labour and environmental standards, regulatory transparency, and
state-owned enterprises.
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Finally, TPP was designed as an essential complement to US
military strategy in Asia, a region that views economics as the
foundation of security.
pi Where are the pros and cons of this

withdrawal?
Quantifying what the United States is
foregoing by turning down TPP is difficult,
ap
and numbers offered by both critics and
advocates of the deal are disputed.
But labor groups are sure to celebrate the move. They have long
argued it would continue a trend of shifting American
manufacturing jobs overseas to nations with lower wages and
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fewer labor protections.

TPP had failed to prohibit currency manipulation, so there was
threat to the competitiveness of American manufacturing, and
automakers, in particular had asked the administration to
renegotiate TPP and incorporate strong and enforceable currency
rules.
Beyond that, TPP would have reportedly lowered the rules of
origin threshold for automobile manufacturers that dictates how
much of a vehicle must be produced locally, to 45 percent. Thus,
companies could source content of cars from outside TPP and yet

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have all the tariff benefits.

However, businesses will also lose access to potential new markets.
US automakers hoped to see tariffs slashed in Asia. Farmers were
set to see the removal of trade taxes that currently prevent them
from selling products, particularly poultry, overseas.
Pharmaceutical drug-makers had received years of patent
protection that would have lessened the competition from generics
in Asia.
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And tech companies, from Google to cell phone providers, sought
to lessen regulations and gain entry into some of the countries
involved in the deal.
pi The business community sees Trump’s move as detached from

the reality; new technology, rising wages and an increasingly
interconnected world mean that many manufacturing and low-
skill jobs won’t return to the United States; that goods are sold
ap
cheaper in the United States because they are made overseas;
and that American companies also benefit from trade deals,
making trillions of dollars selling their own products overseas.
Critics also worry that Beijing will increasingly set the rules and
global standards that govern trade.
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TPP included provisions that would have required countries like

Vietnam and Brunei to observe international standards relating to
forced labor and collective bargaining - principles that have long
been valued by the U.S.
China is unlikely to seek or support such standards in its own
trade negotiations - allowing those countries to produce
cheaper goods, but with fewer worker protections.
But the most important impact is strategic.
TPP’s failure has reinforced doubts about American credibility in

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the region amid a rising China, as several Asian leaders including

Singapore’s Lee Hsien Loong had warned. TPP also aimed at
providing a check on China’s economic and military ambitions.
This move will also undermine Washington’s efforts to strengthen
the capabilities of its Asian allies and partners, who desire both
diversification in their foreign relations as well as reforms
domestically that TPP would have induced.
It will also make U.S. Asia policy seem unbalanced, since TPP
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was the major plank in the economic realm of the Obama
administration’s so-called rebalance.
The US may also face a crisis of credibility.
pi This is the first time in more than 150 years that US has
withdrawn from a negotiated trade treaty. The frustration of the
other 11 nations who spent substantial political time and will in
making TPP move forward at the behest of America is palpable.
ap
The United States may find it tough to take the lead in negotiating
future trade deals - at least in Asia. And Asia is where growth is.
Who can make good of this vacuum?
Trump’s decision to jettison the largest
proposed free trade deal in history leaves
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the door open for Beijing to push its own

brand of trade in a region that is home to
many of the world’s fastest-growing
economies.
Already, Chinese leaders are angling to take the United States’
place and expand the country’s influence in the region.
Ironically, a communist country is now projecting itself as the
flag bearer of free trade. “We must remain committed to
promoting free trade and investment through opening up and say

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no to protectionism,” Chinese President Xi Jinping said in a speech

at the World Economic Forum in Davos last week.
Beijing is already pushing its own trade deal known as the
Regional Comprehensive Economic Partnership (RCEP). It
includes many countries, such as Japan and Australia, which would
have been in TPP.
The country’s foreign ministry said, soon after the announcement
of the US pulling out of TPP, that good progress was being made
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on RCEP and negotiations could soon conclude.
“We are willing to work with all countries to pull together in times
of difficulties, so that we can fulfill our responsibility and make our
effort in resolving problems facing the world today,” ministry
pi spokeswoman Hua Chunying said.

India also stands to benefit in a plethora of ways if TPP does not
materialize after the US pulling out of it.
ap
Access to lucrative US market to be cut for India’s export
competitors: The TPP positioned textile manufacturer Vietnam
and information technology outsourcing powerhouse the
Philippines in a favourable position to get access to the high-value
American market.
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RCEP to come into focus: Negotiations, which formally began at

the end of 2012, have progressively become more complicated
after 15 rounds and four ministerial meetings. The absence of TPP
will give member nations more reason to push for a successful
RCEP at the earliest.
Pressure to conform with TPP standards in ongoing trade
negotiations to slide: There has been pressure on India to conform
to stricter standards of labour, intellectual property and investment,
officials from the Ministry of Commerce have said. Countries
present at the TPP and RCEP trade deals had been arguing in

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favour of it. India, however, has been opposed to such demands

implementing which will make its domestic industries less
competitive.
Greater chance of boost to bilateral trade with US: The TPP
had been billed as a battle between the US and manufacturing
powerhouse China over domination of global trade. Even if the US
does not enter TPP to contain China, the nature of global
commerce goes against isolationism. Thus, experts point out that
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the US will have to step up bilateral understandings on trade
matters, even with India.
Note: The RCEP is a proposed trade deal between the 10 countries of
pi the ASEAN (Association of Southeast Asian Nations) and six other

countries with which ASEAN has a trade treaty: Australia, China,
India, Japan, South Korea and New Zealand.
How are the other members of TPP
ap
reacting to the withdrawal of US?
Trade ministers from the remaining 11
nations say they intend to press
forward with the deal - but the United
States’ withdrawal could mean a major
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rewrite, or an opening for another global superpower to pursue an

alternative agreement.
While some countries, including New Zealand, have suggested
some sort of alternative deal may be possible without the US,
Japan’s Prime Minister Shinzo Abe has said a TPP without the
US - and its market of 250 million consumers - would be
“meaningless”.
A TPP minus America, even if that were possible (ratification by
the United States was necessary for its entry into force), makes it

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far less attractive for most members.

Immediate reactions from representatives of the member countries:
Steven Ciobo, Australia’s Trade Minister: “The TPP, including
the United States, certainly can’t go forward unless the United
States wants to change its mind … We have an agreement that has
made a lot of very big gains. Gains that Australia, Japan, Canada,
Mexico and other countries want to keep hold of. Which is why a
number of us had a conversation about a possible TPP 12 minus
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one.”
Kristine Racicot, spokeswoman for Global Affairs Canada:
“The agreement cannot enter into force without the United States.”
pi Heraldo Munoz, Chile’s Foreign Minister: “We are interested in

continuing the advancement of integration with countries in the
Asia Pacific region, many of who were part of the TPP … We are
going to persist in the way of the integration and opening to the
ap
world.”
Japan Prime Minister Shinzo Abe, speaking to parliament: “I
believe President Trump understands the importance of free and
fair trade, so I’d like to pursue his understanding on the strategic
and economic importance of the TPP agreement tenaciously. The
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new rules that finalized in the TPP agreement after several years of
negotiation will serve the model for future trade negotiations and
are expected to become the 21st century global standard.”
Mustapa Mohamed, Malaysia’s Minister of International
Trade and Industry: “Should the TPPA (Trans-Pacific
Partnership agreement) fail to enter into force, it will be a missed
opportunity for Malaysia since a number of research houses have
singled us out as a clear winner in the TPPA … Should the TPPA
fail to materialise, our focus would be to enhance the economic
integration of ASEAN. Notwithstanding the current position of the

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new US Administration on TPPA, we will continue to engage with

our American colleagues to strengthen our bilateral trade and
economic relations, given the US’ importance as our third largest
trading partner and a major source of investment.”
Mexican President Enrique Pena Nieto: “Our priority is to
consolidate ourselves as a relevant actor to intensify the flows of
commerce, investment and tourism. And particularly before the
evident difficulty due to the materialization of the TPP. Mexico will
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immediately initiate conversations to generate new bilateral trade
accords with the participant countries in this partnership.”
Todd McClay, New Zealand’s Trade Minister: “The US
position is disappointing but not unexpected as the President
pi Trump’s views have been clear for some time. Our preference was
to have the US involved in the TPP. However, the agreement still
has value as an FTA with the other countries involved.”
ap
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WORLD ECONOMY, FREE TRADE /

Renegotiating NAFTA
24-Jan-2017
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pi U.S. President Donald Trump said on Sunday he plans talks soon with
the leaders of Canada and Mexico to begin renegotiating the North
ap
American Free Trade Agreement (NAFTA), which he has previously
referred to as “the worst treaty ever negotiated”. With both critics and
supporters giving strong arguments in favour of their position,
Knappily analyzes what NAFTA has really meant for the American
continent and if it really needs to be renegotiated.
Kn
What are the reasons for which

Trump hates NAFTA?
U.S. President Donald Trump wants
to start renegotiating the North
American Free Trade Agreement
(NAFTA) “soon” with the leaders of
Canada and Mexico.
“We will be starting negotiations having to do with NAFTA,”
Trump said at a swearing-in ceremony for his top White House

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advisers. “We are going to start renegotiating on NAFTA, on

immigration and on security at the border.”
Trump has said little about what improvements he wants, apart from
halting the migration of U.S. factories and jobs to Mexico.
“NAFTA is the worst trade deal maybe ever signed anywhere, but
certainly ever signed in this country,” Trump has said during his
Pesidential Campaign in the past, referring to the trade deal
between the U.S., Mexico and Canada.
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Trump blames NAFTA for destroying America’s manufacturing
sector. Some manufacturing jobs have certainly been lost to Mexico;
so Trump does have a point.But exactly how many jobs, is highly
pi debatable and hard to pin point.

Today, there are about 12.2 million manufacturing workers,
down from 17 million in 1994, according to the Labor
Department.
ap
Apart from some of the 5 million jobs going to China besides
Mexico, improvements in technology have eliminated lots of
jobs too.
One economist, Robert Scott at the Economic Policy Institute,
estimates the U.S. lost about 800,000 jobs to Mexico between
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1997 and 2013.

However, other economists criticize Scott’s number because it isn’t
a head count. Scott calculates the number based on the size of the
U.S. trade deficit with Mexico. They also argue that it’s very
difficult to count exactly many jobs were lost to Mexico.
However, experts say that means that there’s been a decline in
demand for low-skill labor but not a decline in demand for
manufactured goods in America.
“It’s just nonsense to say NAFTA is responsible for the decline of

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manufacturing jobs in the U.S.” says Alan Deardorff, an economist

at the Gerald R. Ford School of Public Policy at the University of
Michigan.
Congressional research agrees. An analysis of NAFTA’s
economic impact found that it didn’t cause a mass exodus of U.S.
jobs. Instead, it found that NAFTA had a small, positive impact on
the U.S. economy.
Although Trump labels NAFTA as a deal that only benefits
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Mexico, about six million U.S. jobs depend on trade with
Mexico, according to the U.S. Chamber of Commerce.
Some reports also argue that the real reason Trump hates NAFTA
pi is personal.
“It turns out that Trump’s hatred for Mexico comes from some
business deals gone bad. He’s butthurt over the Miss Universe
pageant and over losing some real estate deals,” a New Century
ap
Times report said.
Why NAFTA may actually need
alterations?
Even supporters of keeping NAFTA
admit that it is in need of an upgrade,
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though on different lines.

They would have it include elements of
the TPP - somewhat ironically - such as rules covering digital
trade and the movement of electronic business data.
But few would go so far, as Mr Trump has, as suggesting the deal
should be scrapped altogether.
The National Association of Manufacturers calls the deal “a boost
to US competitiveness”.
Opposition groups have long argued that overarching rules

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imposed by NAFTA undermine local governments by

preventing them from issuing laws or regulations designed to
protect the public interest.
Critics also argue that the treaty brought about a major
degradation in environmental and health standards, promote
the privatization and deregulation of key public services, and
displace family farmers in signatory countries.
There are many NAFTA dispute cases between Canada and the
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U.S., in fact more than between Mexico and the U.S. In recent years,
there have had more trade tensions with the country north of the border
than south. That indicates need for negotiations as well to bring clarity.
pi Key areas where NAFTA could be improved as per experts consist

of the following:
Eliminate the private justice system for foreign investors.
Strengthen the labor and environment obligations (the North
ap
American Agreement on Labor Cooperation and the North
American Agreement on Environmental Cooperation), include
them in the agreement, and ensure they are enforced.
Address currency manipulation by creating binding rules subject to
enforcement and possible sanctions.
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Upgrade NAFTA’s rules of origin, particularly on autos and auto

parts, to reinforce auto sector jobs in North America.
Delete the procurement chapter that undermines “Buy American”
laws (Chapter 10).
Upgrade the trade enforcement chapter (Chapter 19)
When was NAFTA signed?
It is a trade agreement between Canada, Mexico and the United States
that was signed into law in 1994 under President Bill Clinton. The
framework of the deal was first drafted under President Ronald

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Reagan in 1987.
NAFTA’s main provisions called for
the gradual reduction of tariffs,
customs duties, and other trade
barriers between the three members,
with some tariffs being removed
immediately and others over periods of as long as 15 years.
The agreement ensured eventual duty-free access for a vast range
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of manufactured goods and commodities traded between the
signatories.
“National goods” status was provided to products imported from
pi other NAFTA countries, banning any state, local, or provincial

government from imposing taxes or tariffs on such goods.
NAFTA also contained provisions aimed at securing intellectual-
property rights. Participating countries would adhere to rules
ap
protecting intellectual property and would adopt strict measures
against industrial theft.
Other provisions instituted formal rules for resolving disputes
between investors and participating countries.
Among other things, such rules permitted corporations or
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individual investors to sue for compensation any signatory country

that violated the rules of the treaty.
Additional side agreements were adopted to address concerns over
the potential labour-market and environmental impacts of the
treaty.
Further provisions of NAFTA were designed to give U.S. and
Canadian companies greater access to Mexican markets in
banking, insurance, advertising, telecommunications, and trucking.
Although NAFTA failed to deliver all that its proponents had
promised, it continued to remain in effect.

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Indeed, in 2004 the Central America Free Trade Agreement

(CAFTA) expanded NAFTA to include five Central American
countries (El Salvador, Guatemala, Honduras, Costa Rica, and
Nicaragua).
In the same year, the Dominican Republic joined the group by
signing a free trade agreement with the United States, followed
by Colombia in 2006, Peru in 2007, and Panama in 2011.
Where can we see the achievements of
ly
NAFTA?
Economic growth during the post-
NAFTA period was not impressive in any
pi of the countries involved.

The United States and Canada suffered
greatly from several economic recessions, including the Great
Recession of 2007–09, overshadowing any beneficial effects that
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NAFTA could have brought about.
Mexico’s gross domestic product (GDP) grew at a lower rate
compared with that of other Latin American countries such as
Brazil and Chile, and its growth in income per person also was not
significant, though there was an expansion of the middle class in
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the post-NAFTA years.

Little happened in the labour market that dramatically changed
the outcomes in any country involved in the treaty.
Because of immigration restrictions, the wage gap between
Mexico on the one hand and the United States and Canada on
the other did not shrink.
The lack of infrastructure in Mexico caused many U.S. and
Canadian firms to choose not to invest directly in that country.
As a result, there were no significant job losses in the U.S. and
Canada and no environmental disaster caused by

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industrialization in Mexico.
Trade between all three nations has increased significantly, and
particularly between America and Mexico.
U.S. exports to Mexico last year were up nearly 470%
compared to 1993, the year before NAFTA became law.
Mexico experienced a dramatic increase in its exports, from
about $60 billion in 1994 to nearly $400 billion by 2013.
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Who has benefitted from NAFTA the
most?
U.S. companies, especially automakers,
pi are clear winners because they get the

benefit of cheap labor in Mexico.
Ford and GM (GM) have major
operations in Mexico, but both employ far more people in the
ap
United States.
Trump has heavily criticized Ford for announcing that it will move
some of its production from Michigan to Mexico.
Ford has emphasized that the move won’t lead to any lost jobs at
its Michigan plant because it’s going to produce different car
models there.
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The consumers have been winners as well.

On top of exporters, all Americans benefit from cheap prices
for all types of goods – from t-shirts and jeans to cars and air
conditioners.
Because it’s cheaper to produce in Mexico, Americans benefit by
paying lower prices for food, clothes, cars and electronics that
come from Mexico.
The surge in exports for Mexico was accompanied by an explosion
in imports as well, resulting in an influx of better-quality and

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lower-priced goods for Mexican consumers.

How should the US try to change
NAFTA?
Trump could theoretically terminate
American obligations to Canada and
Mexico under NAFTA, but it is
possible that would render the
NAFTA Implementation Act invalid, since it wouldn’t be
ly
implementing anything any longer.
Trump has that said he would submit notice under Article 2205 of the
agreement that America intends to withdraw from the deal.
pi That article states that “a Party may withdraw from this Agreement
six months after it provides written notice of withdrawal to the
other Parties.”
There is ample precedent for U.S. presidents unilaterally
ap
withdrawing from treaty obligations, says Donald Abelson, a
political science professor at Western University and director of the
Canada-U.S. Institute. “My understanding is that [Article 2205] is
a standard clause which allows their president to withdraw their
country from the obligations that they were previously committed
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to.”
Former U.S. president George W. Bush, for example, withdrew
from the Anti-Ballistic Missile Treaty.
However, the U.S. has not withdrawn from a trade agreement
since 1866.
Lawrence Herman, an international trade lawyer based in Toronto,
disagrees; he believes Congress would need to sign off as
well.“It’s not in the purview of the executive branch.”
The murkiness over who has the power to kill NAFTA stems in

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part from the debate over the powers of the American president to
make or break treaties, as well as questions about whether NAFTA
counts as a treaty or executive agreement.
According to Toronto-based international trade lawyer Mark
Warner, while a President Trump could notify Canada and Mexico
of America’s intention to withdraw from NAFTA, leaving would
require Congress to change some of the underlying elements of
the agreement.
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“And I think it would be a mess,” he says.“What [would that
mean] in terms of the statutes? Nobody really knows.”
Michael Dorf, a constitutional law professor at Cornell University,
pi says it’s generally understood that in U.S international law, the

president has the authority to unilaterally terminate an agreement.
But that’s complicated by the fact that while NAFTA itself was
signed by the president, it was Congress that enacted legislation to
ap
implement the deal (the NAFTA Implementation Act), and that
statutes can only be repealed by Congress.
—– | —–
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WORLD ECONOMY, FREE TRADE / Trump 1,

Free trade 0
20-Mar-2017
ly
pi G20, the group representing world's biggest economies, has dropped a
long-standing public endorsement of free trade at the end of the
ap
meeting in Baden-Baden, Germany. Conspicuous by its absence in the
new communiqué was the phrase “we will resist all forms of
protectionism” that had been a constant feature for long. It also did not
contain a pledge to finance efforts to combat climate change. Trump
and his spirit of protectionism are gaining ground.
Kn
What is the development at G20?

Finance ministers from world's biggest
economies have dropped an anti-
protectionist commitment after
opposition from the United States.
The meeting had started so well. The
first annual meeting of the G20 got under way with a reassurance
from the US Treasury secretary Steve Mnuchin that the White
House was not interested in instigating international trade

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wars.
But G20 ministers left the two-day meeting without renewing their
long-standing pledge to bolster free trade. Last year, the group of
the world's 20 largest economies vowed to “resist all forms of
protectionism”.
The combined efforts of Germany, and new free-trade champion
China, it was thought, would temper some of Washington's threats
of imposing punishing border tariffs and renegotiating long-
ly
standing trade agreements.
Speaking after the meeting ended, US Treasury Secretary Steve
Mnuchin said he had been “very clear that we do believe in free
trade but we believe in balanced trade”.
pi The communique, which was published at the end of the meeting in

Baden-Baden with the agreement of all attending delegates, also failed
to include a vow on climate change. US President Donald Trump has
ap
already promised to slash environmental funding.
However, it did include pledges on a determination to fight tax
avoidance, clamp down on terrorist financing and strengthen
private investment in Africa.
Note: The G-20 is an informal forum on economic co-operation made
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up of 19 countries plus the European Union. The finance ministers’

meeting will pave the way for a summit of national leaders in
Hamburg, Germany, on July 7-8. Its decisions don’t have the same
force as an international treaty but simply depend on individual
countries’ promises to follow through on them.
Why is this bad news for the world?
The free trade change comes as a surprise and a body blow to many of
the representatives at the summit including China, Japan and European
countries that have supported the policy for many years. It is set to

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pave the way for increasing

protectionism from the new US
Government.
Dropping the commitment to fight
protectionism reflects serious
disagreements over one of the key
principles that has underpinned the global economy for years.
World leaders redoubled their commitment to free trade in the
ly
wake of the global financial crisis in 2008 as they sought to prevent
recession turning into a global depression.
Experts said before the meeting that a failure by the G20 to commit to
pi free trade would signal that Trump is serious about following

through with his protectionist policies.
Trump, who was elected on an ‘America First’ slogan, blames US
manufacturing job losses on free trade and has already pulled out
ap
of a proposed agreement (the Trans-Pacific Partnership, TPP) with
Japan and 10 other Pacific Rim countries. He has also started
the process to renegotiate the North American Free Trade
Agreement (NAFTA) with Mexico and Canada.
The threat of new protectionist policies and border taxes from the
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White House has created headaches for countries that rely on

America for trade.
The U.S. imports about $2.7 trillion in goods and services
annually, with half coming from G20 members China, Canada,
Mexico, Japan and Germany.
If Trump’s goal was to shake up the G20’s hitherto unquestioned
consensus, he has clearly succeeded.
When did protectionism start raising its head again?
For decades there has been a consensus that globalisation brought more

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jobs, higher wages and lower prices - not

just for richer countries but also for
developing and poorer nations.
But there is now a growing movement of
anger as people see jobs being taken by
machines, old industries disappearing
and waves of migration disturbing the established order.
Global trade flows are falling and trade deals are being ripped up.
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An executive order pulling out of the 12-nation Trans-Pacific
Partnership (TPP) agreement aimed at deepening economic ties
between the twelve countries that border the Pacific Ocean was one of
pi Trump's first acts on moving into the White House.

The rise of political opposition to globalisation has coincided
with - and contributed to - a period of declining world trade
growth since the financial crisis of 2008.
ap
Between 1986 and 2008 world trade grew at an average of 6.5%,
according to the World Trade Organization.
Between 2012 and 2015 that rate has slowed to an average of 3.2%
and is predicted to expand by just 1.7% in 2016.
That slowdown would make it the longest period of relative trade
Kn
stagnation since the Second World War.

Since the financial crisis, the slowing of the Chinese economy
and political and economic stagnation in the eurozone have
contributed to this flat-lining of world trade.
At the same time, in an attempt to insulate companies and
industries at home, politicians have turned to tariffs and restrictions
on imports from other countries.
“Governments worldwide have almost doubled their resort to trade
distortions in the last two years,” says Prof Simon Evenett, a trade

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expert at St Gallen University.

“The recent surge in ‘beggar-thy-neighbour’ activity predates
Trump and Brexit, suggesting that populist pressures are likely to
exacerbate protectionism,” he says.
The flat lining of economic growth has increased pressure on
politicians. “Governments across the world are enacting protectionist
policies often masquerading as 'industrial policy,” according to Prof
Evenett.
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The future of free trade is looking very gloomy.
Where else has the G20 refused to
keep its commitment?
pi After threatening
financing with the
environmental
axe, Trump's
administration on Saturday defied the
international community by refusing to
ap
renew a pledge on combating climate change.
Finance ministers from the G20 top economies meeting in the
western spa town of Baden-Baden were forced to leave out an
entire section related to the Paris accord on combating climate
change, after Treasury Secretary Steven Mnuchin said green issues
Kn
were “not in my track”.

Trump, who once claimed that climate change is a Chinese hoax,
has said he will roll back American environmental regulations
aimed at curbing the problem and has threatened to pull the US
out of the Paris accord on combating climate change.
In his first national budget on Thursday he proposed a drastic cut
in environmental financing, including slashing funds for the
Environmental Protection Agency by a third, as well as eliminating
contributions linked to UN climate change programs.

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John Kirton at the G20 Research Group said it was not surprising
that the Trump administration would resist signing up to such
pledges as it would give the Paris agreement legitimacy -
something that goes against Trump's campaign vow to pull the
US out of the deal.
In Baden-Baden, negotiators drafting a final statement had sought to
renew a pledge at last year's G20 summit in Hangzhou, China, to
provide “strong and effective support and actions to climate change”.
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The 2016 meeting also saw finance ministers explicitly welcome
efforts to bring the Paris agreement into force.
Further, developed nations had pledged to provide “financial
pi resources to assist developing countries with respect to both

mitigation and adaptation actions in line with Paris outcomes.”
Environmental activists condemned the decision, slamming the world's
biggest economy for “keeping ambitions down”.
ap
Who said what?
Steven Mnuchin, the US trade
secretary, described the outcome
as “incredibly productive” and
said he “couldn't be happier with
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the outcome”.
“This is my first G20, so what was in the past communique is not
necessarily relevant from my standpoint,” said Mr Mnuchin. “I
understand what the president's desire is and his policies and I
negotiated from there”.
He added that the US still believes in free trade but that it wants to
“re-examine certain arrangements”.
Some of them played down the fear.

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“It is not that we were not united,” German finance minister

Wolfgang Schaeuble said. “It was totally undisputed that we are
against protectionism. But it is not very clear what (protectionism)
means to each (minister).” He added that some ministers did not
have a full mandate to negotiate since they were not fully in charge
of trade issues.
IMF chief Christine Lagarde said the new White House needed
time to “adapt and learn“. “Whenever there’s a new member at a
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G20 meeting, there is a process of learning and adaptation,”
Lagarde told AFP.
But not everyone was pleased with the outcome.
pi The exclusion of the two issues in the communique was

disappointing, French Finance Minister Michel Sapin said. “I
regret that our discussions today were unable to reach a satisfying
conclusion on two absolutely essential priorities for our world and
ap
which France would have liked to see the G20 continue to take firm
and concerted action on.”
Pierre Moscovici, the EU Economic Affairs Commissioner, said
he hopes the wording will change at the G20's July meeting in
Hamburg. “It is not the best meeting we've had, but we avoided
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backtracking,” he said. “I hope in Hamburg the wording will be

different. We need it. It is the raison d'etre for the G20.”
How can free trade fight back?
With the economic and social benefits of
free trade coming increasingly under
attack, proponents of globalisation have
tried to launch a counterattack.
For example, The World Bank recently
published a study of developing countries showing that average

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incomes for people living in the bottom 40% increased between

2008 and 2013, despite the impact of the financial crisis.
“There is a realisation in rich countries and among rich elites that
there are problems with globalisation,” says Branko Milanovic, an
economist whose work on income inequality has driven much of
the debate. “They realise that for their own political self-
preservation they have to tackle them.”
“The question is not whether there are benefits to globalisation -
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there clearly are. But the question is about who is enjoying those
benefits,” says Andrew Lang from the London School of
Economics.
The International Monetary Fund (IMF) also readily concedes that
pi the benefits of free trade have been uneven across societies, as less
skilled workers lose out and the better trained prosper.
But they argue that trade restrictions will not help those left behind by
ap
the globalized economy and point to better training and education as
part of the answer. While the problem is clear, the solutions are not
obvious, nor easy to implement.
Part of the anger might dissipate if economic growth was to stop its
stubborn flat-lining trajectory, lifting incomes around the world.
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“To help solve these problems you need to get the world economy
revved up. Governments need to commit to fiscal stimulus to get
their economies going again,” says Gary Hufbauer.
Branko Milanovic points to the success of previous politicians in
turning round seemingly intractably weak economies.
“It's not impossible for politicians to address these issues.
Thatcher and Reagan managed to effect change in relatively
short periods of time - a presidential term of four years should be
enough to start making a difference,”_ he say
—– | —–

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WORLD ECONOMY, FREE TRADE / Brexit /

India, EU and Brexit
23-Jun-2016
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pi India has been a crucial partner of the European Union since the 1960s.
Trade, Investment and Security are the major concerns for both sides.
ap
With just hours away from the crucial Brexit vote, Knappily takes a
look at India’s equation with the EU and how that may change and
potentially be adversely impacted by Britain’s Exit (Brexit) from the
EU.
What is the nature of the relationship

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between India and the EU?

India-EU relations date to the early
1960s, with India being amongst the
first countries to establish diplomatic
relations with the European Economic
Community. A cooperation agreement signed in 1994 took the
bilateral relationship beyond trade and economic cooperation. At
the 5th India-EU Summit held at The Hague in 2004, the
relationship was upgraded to a ‘Strategic Partnership’. The two

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sides adopted a Joint Action Plan in 2005 (which was reviewed in

2008) that provided for strengthening dialogue and consultation
mechanisms in the political and economic spheres, enhancing trade
and investment, and bringing peoples and cultures together.
The EU as a bloc of 28 countries is India’s largest regional
trading partner while India was the EU’s 9th largest trading
partner in 2014.
The EU, accounts for 13% of India’s overall trade, ahead of China
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(9.6%) and the United States (8.5%). India is the EU’s 9th largest
partner, with the value of EU exports to India amounting to Euro
38.1 billion in 2015. The total value of EU-India trade stood at
Euro 77.5 billion in 2015.
pi India’s foreign policy has been evolving gradually away from a

philosophy of non-alignment, self-identification with the
developing world, and mistrust towards the West. Since the fall of
the Soviet Union, India’s positions have moved closer to those of
ap
the U.S. and the EU.
EU and India have succeeded in cooperation in areas of geopolitics
and security. India has security interests in, and proximity to,
Afghanistan and Pakistan, a highly volatile area torn by war and
terrorism. This intersects significantly with Europe’s own security
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interests.
In addition, India’s growing influence in the geopolitics of the
Indian Ocean Region (IOR) has significant implications for
Europe, since a major part of the continent’s trade passes through
these sea lanes.
Why should India be concerned about Britain possibly leaving the
EU?
Uncertainty following exit: Since there is no clear trajectory
following the possible exit, global financial market volatility can be

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readily expected. Markets across the

world will tank. The pound will
depreciate against most major
economies. India cannot remain immune
to this. Sensex and Nifty will tumble in
the short-run.
If Britain does exit the EU, the worry is that that it could lead to a
domino effect, as more member states could push for an exit. This
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could dramatically alter trade equations with the EU, which is
India’s largest trading partner.
Traders and businesses are in wait and watch mode.If Britain does
vote for an exit, India will have to renegotiate its trade
pi agreements, which until now, were regulated by the EU. There

was policy coherence and similarities in legal system, and the ease
of language used to make it easier to do business with the United
Kingdom within the purview of the EU.
ap
If Britain exits, Indian exporters will have to adhere to two separate
standards which will increase costs, comments Ajay Sahai of
Federation of Indian Export Organisations.
Trade economist Biswajit Dhar sums up India’s fix: There will be a
churn if Britain exits. The EU is anyway a loose tieup.There could
Kn
be a situation that India might be negotiating with each

individual state and the global crunch will only aggravate the
pain.
According to a Bank of America Merrill Lynch analysis, a Brexit
may create recession risks that could dent IT demand further,
hurting the 10-14% revenue growth forecast for the UK businesses
of the Indian IT companies in FY ’17.
British Prime Minister David Cameron has invoked increasing
trade with India as part of his plea to the public to vote to remain in
the EU in Thursday’s crucial referendum, saying the U.K. could do

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more with the country but cutting off from the main market would
be “economic madness”. He said Britain could “do more with
India” but not at the expense of cutting itself off from the EU.
When have there been troubles in
the India-EU relationship?
The 13th IndiaEU Summit ended
in Brussels without agreement on
the bilateral free trade deal known
ly
as the BTIA (Broadbased Trade
and Investment Agreement) even as progress was made in
bilateral cooperation in other fields – from foreign policy to outer
pi space. While both the parties failed to set a date for the next round
of trade talks, Tomasz Ko-zlowski- EU Ambassador to India, said
that the discussions on trade involved an express of ambitions and
degrees of flexibility from both sides. The EU and India will
ap
continue discussions on a possible FTA at a high level, Mr
Kozlowski said.
One of the ostensible reasons for stalled talks between the
European Union and India has been the EU’s concern over
human right violations in India. Several Members of European
Kn
Parliament (MEP) have, in the past, expressed concerns in this

regard.
A recent letter from Human Rights Watch, an international NGO,
to EU leadership brought up the issues of NGO harassment and the
overlooking of rights of marginal groups in development projects
in India.
Regarding sensitive issues, that were to be discussed at the summit,
both parties have officially expressed their confidence in the legal
processes of the Permanent Court of Arbitration, where the case of
Italian Marine, Massi Miliano Latorre and Salvatore Girone, is

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currently being heard. The EU also expressed a swift solution,

through due process of law in the case of MV Seaman Guard Ohio,
where 14 Estonians and six Britons were arrested in 2013 and
sentenced in India.
Where does India stand to gain in the
event of Brexit?
Investment: India is presently the
second biggest source of FDI (Foreign
ly
Direct Investment) for Great Britain. If
Britain exits the EU, it will not be as
attractive a destination for Indian FDI as before. Having said that,
pi Britain would not want to lose out on capital coming in from India.
Thus, one can expect Britain to try extra hard to woo Indian
companies to invest there by providing much bigger incentives in
terms of tax breaks, lesser regulation and other financial incentives.
ap
Further, if Britain is leaving the EU due to the latter’s complex
bureaucratic regulatory structure; Indian companies can expect a
deregulated and freer market in Britain.
Another EU partner: If Britain exits the EU, India will lose its
gateway to Europe. This might force India to forge ties with
Kn
another country within the EU, which would be a good result in the
long run. India is already trying to build trade negotiations with the
Netherlands, France, Germany, and others, albeit in a small way.
Netherlands is India’s top FDI destination as of now.
The Commonwealth: With Britain cutting off ties with the EU, it
will be desperate to find new trading partners and a source of
capital and labour. There have already been many proponents of
the Leave Campaign that suggest that the UK should look towards
the Commonwealth to forge new alliances. Here India stands to
gain.

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Ties with the EU: With or without a Brexit, it would be in

Europe’s interest to develop India as a strong trade and strategic
partner. Brexit would surely accelerate this process. Thus, even
though Britain stands to suffer from leaving the EU in terms of
reduced trade and a sustained drop in its GDP, the net effect may
turn out to be positive for India.
Who from India business community
have spoken against Britain leaving?
ly
Indian business leaders have spoken out
against Britain leaving the EU, in a blow
to those in the leave campaign – including
pi UKIP leader, Nigel Farage – who have

repeatedly promoted trade with the Commonwealth as an
alternative. The Federation of Indian Chambers of Commerce and
Industry (FICCI), the overall industry body in the emerging
ap
economic power, warned that “Brexit” could harm investment
by Indian businesses in the UK. Growing UK-India trade has
been a priority for governments in both countries in recent years.
There are more than 800 Indian-owned businesses in the UK,
experts estimate, with more than 110,000 employees. The best
Kn
known is Tata Motors, which owns the car manufacturer Jaguar

Land Rover. Others include major information technology,
pharmaceutical, creative and financial services firms.Britain has
always been India’s port of entry into Europe. Most Indian
companies have their European offices in London as it offers the
comfort of doing business in the UK while still being part of
Europe.
India invests more in the UK than in the rest of Europe combined,
emerging as UK’s third largest FDI investor. Anything that lessens
this attractiveness of the UK may have a bearing on future

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investment.
How has India’s relationship been
with the Eurozone?
The Eurozone is a geographic and
economic region that consists of
all the European Union countries
(19 now) that have fully
incorporated the euro as their national currency. The euro zone is
ly
one of the largest economic regions in the world and its currency,
is considered one of the most liquid when compared to others. This
region’s currency continues to develop over time and is taking a
pi more prominent position in the reserves of many central banks.

In the pre liberalization world, India and the Eurozone were
regarded a priori as having little interaction with each other. This
story changes with globalization and relatively free capital
ap
movements.
India was deeply impacted by the Greek debt crisis. There isn’t an
actual assessment of how the crisis affected India in numbers, but
given the globalised nature of the market today, India was and
is not immune to the European debt crisis. There is no reason
Kn
to believe that Indian economy will not be impacted if the

global economy is.
—– | —–

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The carnival against capital
31-Jul-2016
ly
pi The large-scale excitement that globalization generated has been on a
definite decline since the 2008 financial crisis. Brexit – a concrete step
ap
away from globalization - has forced the world to realize that
‘Deglobalization’ may be gaining momentum. Inclusive globalization
– even if economic growth takes a lower priority – seems to be the
need of the moment. But will countries pave the way or remain on the
fence?
Kn
What are the symptoms of anti-

globalization?
A comparison of the global situation before
and after the global financial crisis of 2008
reveals that:
The anti-establishment sentiment is
increasingly making its presence felt across the world. It has been
observed in 30 of the major democracies that the voting populace
has cast in favor of its incumbent in only one-third of the

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national elections each year since 2008 as opposed to two-thirds

before that. Median approval rating of the existing leader has
fallen to 37 percent from 54 percent in 20 top emerging and
developed nations.
This anti-establishment wave is not powered by ideology.
Popularity of Donald Trump (the Republican nominee for the
President of the US), Marine Le Pen (the right-wing Front
National party leader of France) and some Brexit leaders on one
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hand is balanced by support for the likes of Maurico Marci (the
current President of Argentina) and Pedro Pablo Kuczynski
(recently sworn in as Peru’s new president) whose anti-populist
views are in contrast to their predecessors.
pi Hostility to open markets is pervasive. The WTO’s Report on

G20 Trade Measures cautioned that between mid-October, 2015
and mid-May, 2016, G20 economies increased dependence on
protectionist policies (barriers to trade with other countries) was
ap
unmatched since 2008; with about 5 protectionist trade measures
being introduced each week.Global trade growth since the crisis
has dropped to zero from more than 8 percent. Britain alone has
imposed 200 new trade barriers since 2008.
Banks are increasingly favoring domestic lending to cross border
Kn
lending. International capital flows fell from 16 percent of global

GDP in 2007 to 1.6 percent in 2014.
Hostility to immigrants and immigration is being fuelled by
insecurity.
The first and most likely not the last concrete symptom was Brexit; a
manifestation of class resentment and protest against the elite who
benefited from unfettered globalization.
Why is Brexit not an exception, but may be the first of many exits?
Countries that are enjoying the globalization benefits that include

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multiculturalism, economic growth and

alleviation of poverty are still ill-equipped
to deal with its negative facets such as
rising inequality and racial and ethnic
conflicts.
France, Spain, and Denmark among other
European countries are witnessing an increase in popularity of anti-
EU forces and populist movements. These movements will find
ly
Brexit an encouraging sign and use it to fuel the enthusiasm of the
masses. It does not help that almost every other week there is a
terror attack in Europe, often perpetrated by the migrant
community.
pi Scotland wanted another referendum on independence from the

United Kingdom immediately after the UK referendum (because it
had voted to remain with the EU, an assertion which was over-
shadowed by the majority that is England) and Northern Ireland
ap
may choose to follow Scotland too. Many experts opine that Brexit
might spark friction with Brussels that has left countries like
Greece, France, Spain, Sweden and Denmark discontent and pave
the way for them to make their own exits.
The EU, reeling under the twin crises of debt leading to economic
Kn
crisis and influx of refugees from war-ravaged countries has left

several of those who weren’t accorded the benefits of globalization
feeling frustrated.
Since when have we seen movements
against globalization?
Protests to divert a meeting of the
International Monetary Fund (IMF) and
World Bank representatives in Berlin in
1988 ranged from peaceful to violent.

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The protests failed to accomplish their purpose. They are regarded

as the initial signs of a growing anti-globalization movement. A
counter summit against G7 in Paris in 1989 and another protest at
the 50th anniversary of the World Bank and IMF in Madrid in 1994
followed.
The summer of 1999 had around 400 Indian farmers and
representatives from Third World countries travelling through
Europe on invitation from anti-globalization activists. The purpose
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was to bring to notice the ill effects of the global economy on their
lives. One of the first international anti-globalization protests was
organized on June 8, 1999, the day of the 25th G8 summit. The
initiative was called the Carnival Against Capital. A human
pi chain of 35,000 members organized by the campaign for “Debt-

Free 2000” chain surrounded the conference centre of the
economic summit for some time.
The term anti-globalization movement gained widespread media
ap
attention after protests against the World Trade Organization
(WTO) in Seattle in November-December 1999. The WTO
members had convened to launch a new round of trade
negotiations. However, it was the massive scale of protests outside
the convention and in other pockets of the area that forced the
Kn
media to acknowledge anti-globalization as a reality.The Battle in

Seattle as it was known had 40,000 protestors with unions worried
about competition from foreign labor, environmentalists opposing
outsourcing of polluting activities, consumer rights activists
concerned about unsafe imports, laborers worried about miserable
working conditions in other countries and leftists ranting against
capitalism joining forces. The protests were nicknamed “N30”
(they began on November 30) and are said to have ushered in the
second phase of the anti-globalization movement in the United
States.

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From mid 90s onwards, Annual meetings of IMF and World Bank,
G20 and G7 summits are also common venues of protests whose
purpose mostly is to prevent these events from happening; a
mission rarely accomplished. Protests are taken up across a large
scale without a central organizing body. Important plans of the
protest are often made at the last minute to prevent them from
being leaked to law enforcement agencies. One common tactic is to
split up depending on approach chosen. This happened in Prague,
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September 2000. The protests comprised of the peaceful Yellow
March, the distracting Pink March which used costume, dance,
theatre etc. and the Blue March which adopted violent means.
pi Where are the real issues?

Deglobalization
In the US and Europe, politicians are
exploiting and inciting anti-immigrant
ap
sentiment. Alarming violence against
immigrants occurs in these countries and even
South Africa, Africa’s most globalized economy.The politicians
rake up the sentiment by blaming immigrants for high
unemployment levels unabashedly ignoring the fact that it was
Kn
their country’s policies that lured immigrants in the first place.

As we shudder and watch in alarm, politicians like Donald Trump
are increasingly connecting with the masses through this approach.
Throttling migration at a time when the domestic working age
population is decreasing on a much wider scale leads to a decrease
in workforce, reduced production and consumption and hastens the
economic shock.
Emerging markets are estimated to lose as much as $1 trillion over
the next two decades if European banks cease lending them. This
would erode the culture of entrepreneurship as small companies

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will have to struggle all the more to find a financial backer.

Increased state control will also hamper innovation.
With Brexit being the first concrete step away from globalization, the
above issues will now have to be confronted.“For the first time, a
major economy is saying: We will be better off doing things by
ourselves, and making our own decisions. And that’s a bit of a shock to
the system” says Homi Kharas, Deputy Director for the Global
Economy and Development program at the Brookings Institution.
ly
Globalization is not the problem. Ill-managed globalization is.
Concentration of wealth gives rise to social upheavals arising out
of decreased standard of living and denial of opportunities for the
pi once middle class section.

Excessive favoritism to the corporate sections allows them to take
undue advantage of their position.
Inequality is rising due to the previous two factors. In a recent
ap
study of 46 major economies, Credit Suisse found that prior to
2007, wealth inequality was on the rise in 12 of them; but after
2007, that number more than doubled to 35.
Kharas added, ‘We don’t need a faster or slower globalization. We
need a better globalization’
Kn
Whom does the anti-globalization

movement target?
Many anti-globalization activists call for
globalization to progress towards all-
inclusive globalization and not a
reversal of globalization and all its
positive effects. As Noam Chomsky, social critic, logician and political
activist said in 2002, “The term”globalization" has been appropriated
by the powerful to refer to a specific form of international economic

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integration, one based on investor rights, with the interests of

people incidental. That is why the business press, in its more honest
moments, refers to the “free trade agreements” as “free investment
agreements” (Wall St. Journal).Accordingly, advocates of other
forms of globalization are described as “anti-globalization”; and
some, unfortunately, even accept this term, though it is a term of
propaganda that should be dismissed with ridicule.No sane person is
opposed to globalization, that is, international integration. Surely
ly
not the left and the workers movements, which were founded on the
principle of international solidarity — that is, globalization in a form
that attends to the rights of people, not private power systems.”
pi Multi-national corporations that take the icing and an

atrociously huge slice of the cake leaving their workers to
contend with the crumbs and the environment to bear the brunt.
Corporations that seek to maximize profits and the expense of
ap
safety conditions of the workers and the environmental health are
the prime targets of anti-globalization activists.
Global financial institutions like the IMF and World Bank that
favor these MNCs and accord them with special privileges such as
free movement across borders, use of natural and human resources
– opportunities that smaller businesses cannot avail.
Kn
Promoters of unrestricted trade and cross-border investments

that provide investors with complete authority. A few specific
examples are the WTO, the Organization for Economic Co-
operation and Development (OECD) – which, along with the
global entities mentioned above implement treaties like the North
American Free Trade Agreement (NAFTA), Free Trade Area of the
Americas (FTAA), the Trans Pacific Trade Agreement (TPPA), the
Multilateral Agreement on Investment (MAI) and the General
Agreement on Trade in Services (GATS).

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How has the G20 reacted?

No G20 member has promised
specific action at the summit though
they acknowledged the threat to
globalization. Prior to the summit
however, Japan had begun to prepare an
extra budget with proposals for taking lower income households
and improving wages of informally employed workers being
ly
considered. Treasury Secretary Jacob J. Lew, representing United
States said, “The US economy is in good shape” and stopped at
that.
pi China’s government has been dealing with the country’s economic

downturn by using its wealth to pump cheap credit into its banks,
companies and local governments and in June alone the economy
witnessed an inflow of $244 billion in credit. South Korea has
ap
released $9.7 billion to bolster the jobs market, and Canada has
added $8.38 billion in annual spending for the current fiscal year.
“All forms of protectionism will be resisted”, the G20 summit said,
admitting that a less than desirable global economic recovery is
hampered by volatile financial markets and geopolitical conflicts.
The G20 also said that terrorism and refugee flows continue to
Kn
complicate the global economic environment.

Though the G20 had an optimistic view of Brexit’s impact and
discouraged monetary stimulus countries including India, Australia
and South Korea have begun to cut interest rates since February.
Bank of Japan Governor observed that the monetary and fiscal
impetus can help the economy effectively.
Overcapacity in industries like steel making and the challenges to
trade and workers was mentioned.But while the need for a
collective global response was (again) emphasized, no new

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measure to deal with the problem was announced.

—– | —–
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pi
ap
Kn

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WORLD ECONOMY, FREE TRADE / Brexit / EU

offers a painful divorce to Britain
1-May-2017
ly
pi European Union leaders have endorsed stiff guidelines for Britain’s
exit at a Brussels summit, rejoicing in a rare show of unity in adversity.
ap
The EU 27 have insisted on a “phased approach”, namely that Britain
settle the terms of its divorce before initiating talks on a future trade
relationship. Citizens’ rights are the bloc’s first priority, with leaders
calling for reciprocal and binding guarantees for those affected by
Brexit in the UK and the EU.
Kn
What are the guidelines of EU

for the Brexit process?
The message from EU to a
Brexit-hungry Britain is loud
and clear: You can’t have your
cake and eat it too.
European Union leaders approved on Saturday guidelines for their
chief Brexit negotiator, Michel Barnier, setting priorities that the
Union of 27 governments staying in the bloc wants to achieve in talks

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on Britain’s withdrawal.
If “sufficient progress” towards agreeing the terms of an “orderly
withdrawal” on March 29, 2019, is made in a first phase of talks
starting probably in June, the EU27 could launch talks on how a
long-term future free trade relationship could work.
Britain could have a few years after March 2019 when it does not
have to give up all benefits of membership, to ease the shift for
people and businesses. But in that case it would have to accept
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EU rules, e.g. on free migration, and submit to supervision by
the European Court of Justice and other EU authorities.
The EU 27 will stick together against British efforts to divide
pi and conquer and is prepared to play hardball against Prime

Minister Theresa May’s threat to walk out without a deal.
Brussels thinks Britain needs a deal more than the EU.
Free trade will be a good outcome but Britain should not expect to
ap
get that if it seeks competitive advantages for its companies by
state subsidies or by tearing up EU environmental or labor
standards or setting itself up as a tax haven.
Britain cannot have a better deal outside than inside the EU -
that would be a slippery slope inviting others to leave the
Union. The guidelines stress there can be no “cherry picking”
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from the benefits of single market membership without accepting

freedom of movement for EU workers.
Britain must pay its share of potential losses from guarantees
given by the EU, among other things. Until it leaves, the actual bill
probably can’t be calculated with accuracy. The main thing for the
EU is to agree this year on a methodology of how to calculate it
and then put the latest numbers into the formula when Britain
leaves in March 2019.
The EU doesn’t want to disturb peace in Northern Ireland, where

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there will be a new EU land border. It is also paying attention to

British military bases in Cyprus and is giving Spain a special say
on the fate of the British territory of Gibraltar, which is not part of
the UK but is in the EU.
Note: Article 50 of the Treaty on European Union (the Lisbon Treaty)
is a part of European Union law that sets out the process by which
member states may withdraw from the European Union. It has been
extensively debated after the referendum held in the United Kingdom
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on 23 June 2016 in which 51.9% of those voting favoured the United
Kingdom’s withdrawal from the European Union. Once Article 50 is
triggered, there is a two-year time limit to complete negotiations. If
pi negotiations do not result in a ratified agreement, the seceding country

and EU would follow World Trade Organisation rules on tariffs. This
article was used for the first and so far only time by the United
Kingdom on 29 March 2017.
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Why are certain issues difficult to
resolve?
One of the thorniest issues is getting
Britain to guarantee that the three
million citizens of other European
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Union nations who are living in

Britain and the 1.2 million Britons living in the European Union
can maintain their residency rights and other entitlements.
Citizens who have built their lives on the basis of rights flowing
from the British membership of the EU face the prospect of
losing those rights.
Businesses and other stakeholders will lose the predictability
and certainty that come with EU law. It will also have an impact
on public authorities.

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It is also important to push Britain to maintain a free flow of trade

and people between Northern Ireland, which will leave the bloc
with Britain, and the Republic of Ireland, which will remain a
full member of the European Union.
Britain also needs to abide by the terms of the 1998 Good Friday
Agreement, including keeping the door open to the possible
unification of Ireland.
Another issue is that EU wants Britain to meet its outstanding
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financial obligations so that other member states can avoid paying
higher costs after the British withdrawal. The outstanding bill
could amount to as much as 60 billion euros, about $65 billion.
But British citizens and politicians are hesitating to pay such a
pi large sum.
For the EU itself, the decision as to what is “sufficient” to warrant
free trade talks that May wants is the kind of debate that can poison
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relations as the 27 nations seek to protect national interests.
Also contentious will be which countries scoop up the prizes of
hosting two EU agencies set to be moved from London. With
most of the 27 offering to house the European Medicines Agency
and several wanting the European Banking Authority, President
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of the European Council Donald Tusk and EU chief executive

Jean-Claude Juncker will propose criteria for making the choices
to avoid unseemly rows.
Much is at stake for the countries remaining in the bloc. They must
overcome their habitual bickering and balance their desire to
keep trade and military ties with Britain while ensuring that it does
not enjoy the same benefits as a member of the bloc.
They are also wary of Britain turning itself into a low-tax haven
with weakened regulations that would undercut European
neighbors.

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Note:
Ireland – or the Republic of Ireland as it is officially named – is a
completely separate country and has no longer any formal bond to
the UK. Northern Ireland, on the other hand, is still a part of the
UK (the United Kingdom of Great Britain and Northern Ireland),
together with England, Scotland and Wales. Ireland covers about
five-sixth of the island. And, Northern Ireland is considered to be a
part of UK and its capital is Belfast.
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The Good Friday Agreement brought to an end the 30 years of
sectarian conflict in Northern Ireland known as ‘The Troubles’. It
was ratified in a referendum in May 1998. The agreement set up a
pi power-sharing assembly to govern Northern Ireland by cross-

community consent. The deal proved difficult to implement and
was amended by the St Andrew’s Agreement in 2006.
When does even the beginning of
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negotiations appear difficult?
The EU Commission’s chief
negotiator Michel Barnier has made
his view clear - the UK and the EU
should agree the terms of the
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UK’s withdrawal before negotiating any future trade deal. He’s

said “putting things in the right order” maximizes the chances of
reaching an agreement.
However the UK Government takes a different view. Theresa May
says the divorce and the new relationship should be discussed
at the same time, in fact saying the government thinks it’s
“necessary” to agree the withdrawal alongside the future
relationship.
Immigration was a key issue during the referendum campaign, and

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May made controlling migration from Europe to Britain one of her 12

Brexit priorities earlier this year.
However, the EU leaders say that the UK can’t “cherry pick”
between “four freedoms of the single market” - one of which is
freedom of movement. They have warned that if the UK wanted
to remain a member of the single market it would have to accept
the free movement of people. Mrs May has already ruled this out
in speeches in the past.
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Note: The ‘four freedoms’ of the European Union are the freedom of
movement of goods, people, services and capital over borders. These
key principles lie at the heart of the EU and underpin the single market,
pi originally known as the common market. The freedoms, which are

enshrined in EU treaties, aim to remove trade barriers and harmonize
national rules at a EU level.
Where is the complication due
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to Northern Ireland?
The border between Ireland and
Northern Ireland, which is part of
Britain, is also a problem given
the peace process there. It would
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be an EU external border after withdrawal but Dublin has warned of

renewed conflict if the issue is not handled with extreme care.
“In view of the unique circumstances on the island of Ireland,
flexible and imaginative solutions will be required, including with
the aim of avoiding a hard border,” the guidelines say.
The EU 27 are separately expected to also back a clause in the summit
minutes - but not the guidelines - advocating automatic membership
for Northern Ireland after Brexit if it ever reunifies with Ireland.
“It would merely state the obvious, that a united Ireland would

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continue being a member of the EU,” an EU source said.

The inclusion of the text is a victory for the Irish government, which
had pressed for the inclusion of a “GDR clause”, a reference to the
integration of the former east German state into the European
Community after the fall of the Berlin wall.
The declaration is bound to raise fears that Brexit could trigger
the dismantling of the UK, although there is no majority in
Northern Ireland for unification.
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In Northern Ireland, a recent poll found that a clear majority of
62% would vote for the territory to remain in the UK, while only
22% backed a united Ireland. Voters in the republic are also
pi skeptical, especially if reunification comes with a price tag.

The Irish clause is informed by the Good Friday peace agreement,
which states that north and south of Ireland have a right to unify if the
majority in Northern Ireland agrees.
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Brexit may have initiated a parallel process which may see the United
Kingdom losing Scotland (the Scottish National Party wants to remain
in EU and has already called for another referendum) and Northern
Ireland (looks unlikely now, but then Brexit looked highly unlikely
two years ago).
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The desire of the English people to isolate themselves from the rest of
Europe may also isolate them from whatever remains of their
‘Kingdom’.
Who said what?
European Commission President Jean-
Claude Juncker said he felt the UK was
underestimating the challenges of Brexit.
At a press conference after the summit,

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Juncker said: “I have the impression sometimes that our British

friends, not all of them, do underestimate the technical difficulties
we have to face”.
“A single and not simple question of citizens’ rights is in fact a
cortege of 25 different questions which have to be solved. So this
will take time and if we want to be precise and to deliver
guarantees to citizens, this will take a huge amount of time.”
“Although, as a Commission we have already prepared a text
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which could be adopted immediately if our British friends would be
ready to sign it, that will probably not happen.”
French President François Hollande said the UK must “pay the
pi price” for its decision to leave the EU.

“There will inevitably be a price and a cost for Britain, it’s the
choice they made,” Hollande said as he arrived at the summit.
“We must not be punitive, but at the same time it’s clear that
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Europe knows how to defend its interests, and that Britain will
have a less good position outside the EU than in the EU.”
Hollande has only a few weeks left to serve as President of France, as
the country is about to elect his successor, but he dismissed
suggestions that Theresa May could strengthen her negotiating hand
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through the snap general election.

“I can understand the electoral argument but it will not influence
the EU. The EU’s principles and the objectives are already fixed,
these will be the lines chosen by negotiators,” he said.
Luxembourg Prime Minister Xavier Bettel put May’s decision down
to internal, not international problems.
“It’s an internal problem she wants to resolve in the Conservative
party, to have not a hard Brexit or a soft Brexit, but Theresa’s
Brexit,” he said. “We are very united, you seem surprised, but it’s

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a fact.”
The EU’s chief Brexit negotiator, Michel Barnier, said it was in
Britain’s interests for the EU to be unified, as it would improve the
chances of a deal being struck with the UK.
“This extraordinary meeting shows the unity of the 27 on a clear
line, but this unity is not directed against Britain; I think that it is
also in its interest,” he said.
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Donald Tusk, the president of the European Council, had said the
remaining EU states must “remain united”, adding: “It is only then that
we will be able to conclude the negotiations which means that our
unity is also in the UK’s interest.”
pi “As for now I feel strong support from all the EU institutions,
including the European Parliament, as well as all the 27 members
states. I know this is something unique, but I am confident that it
will not change.”
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How have the guidelines catered to the
citizens who would be affected?
The EU plans to proceed according to a
phased approach giving priority to an
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orderly withdrawal. It expects that national

authorities, businesses and other
stakeholders should take all necessary steps to prepare for the
consequences of the United Kingdom’s withdrawal.
The guidelines emphasize that the right for every EU citizen, and of his
or her family members, to live, to work or to study in any EU Member
State is a fundamental aspect of the European Union. Along with other
rights provided under EU law, it has shaped the lives and choices of
millions of people.

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Agreeing reciprocal guarantees to safeguard the status and rights

derived from EU law at the date of withdrawal of EU and UK
citizens, and their families, affected by the United Kingdom’s
withdrawal from the Union will be the first priority for the
negotiations.
Such guarantees must be effective, enforceable, non-
discriminatory and comprehensive, including the right to acquire
permanent residence after a continuous period of five years of legal
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residence. Citizens should be able to exercise their rights through
smooth and simple administrative procedures.
The EU27 plans to take a very hard line on this because – as an EU
pi source notes – these are “real people, with real lives - and real votes” .
In poorer countries, like Poland, the remittances from these
workers are crucial to millions of families back home, so their
importance extends far beyond the UK itself. Protecting the rights
ap
of these people will be more important, indeed, than guaranteeing
future rights to live and work in the UK after Brexit.
Also, the United Kingdom leaving the Union will impact EU
businesses trading with and operating in the United Kingdom and UK
businesses trading with and operating in the Union.
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Similarly, it may affect those who have entered into contracts

and business arrangements or take part in EU-funded
programs based on the assumption of continued British EU
membership.
The guidelines say that negotiations should seek to prevent a
legal vacuum once the Treaties cease to apply to the United
Kingdom and, to the extent possible, address uncertainties.
Note: There were an estimated 831,000 Polish-born residents in 2015 -
a jump of almost three quarters of a million compared to the number in

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2004 - the year the country joined the EU. It means Poland overtook
India, which had 795,000 people in 2014, as the most common non-
UK nation of birth. It is these Polish people who will be most affected
by Brexit.
—– | —–
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pi
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The age of Referendums
23-Jan-2017
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pi Brexit started it. Then there was Grexit. And now there are talks of
Frexit, Nexit, even a Sexit. This is the age when politicians across
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Europe are turning important questions over to direct popular vote. The
questions are around exiting supernational organizations like EU and
NATO or social experiments like Universal Basic Income. These
referendums are presented as the ultimate democratic tool. However,
quite often they offer more questions than answers.
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What has brought ‘referendum’ in

the news again?
Enter Frexit
Frexit: Marine Le Pen, far-right
candidate for the 2017 presidential
elections in France, told - “Frexit
will be a part of my policy. The people must have the opportunity to
vote for the liberation from slavery and blackmail imposed by
technocrats in Brussels (European Union) to return sovereignty to

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the country.”
Referendum to exit NATO: She said she will also hold a Brexit-
style referendum to exit NATO as it exists only “to serve
Washington’s objectives and its existence is no longer needed”.
She has called for closer ties with Russia and has criticized NATO
expansion into Eastern Europe.
On NATO: “It was established when there was a risk from the
Warsaw Pact and the expansionism of the communist Soviet Union
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(SU). Now, the SU no longer exists, and neither does the Warsaw
Pact. Washington maintains the NATO presence to serve its
objectives in Europe.”
Eurosceptic views: She is well known for her Euroscepticism and
pi anti-immigrant views. She also suggested that Portugal, Italy,

Spain, Ireland, Greece and Cyprus should also leave EU. She
supported measures to restrict the flow of asylum seekers into
Europe.
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Referendum on Universal Basic Income (UBI): Rejected by Swiss
voters
Voters in Switzerland have rejected a proposal to introduce a
guaranteed basic income for all. In this referendum, 77% opposed
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the plan, with only 23% backing it.

What is UBI? This proposal is about all adults being paid an
unconditional monthly income, whether they work or not. The
supporters argue that since work was increasingly automated,
fewer jobs were available for workers.Switzerland is the first
country to hold such a vote.
Experts view: Economist Klaus Schwab, founder and executive
chairman of the World Economic Forum, expressed optimism
about unconditional basic income. He called the idea “basically
plausible” and predicted that discussion about it would develop

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over the next decade.

UBI experiment: Finland launched an experiment in 2017 to
address joblessness with basic income, and the Netherlands is also
attempting small-scale trials. A Silicon Valley startup, Y-
Combinator, plans to launch a basic income experiment in
Oakland, California, this year.
These experiments and more referendums to come up about UBI
would increase because futurists see UBI as the solution to the
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automation problem, when robots eliminate all of the human jobs.
Current usage of Referendums:
Nowadays, political elite in many democracies feel that promising
pi a referendum could get them elected. And this trend can be

observed right now in France and the Netherlands – where populist
right-wingers are busy promising referendums.
Referendum – a poll promise: Marine Le Pen has promised
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voters an EU referendum on “Frexit” if she wins the Presidency
this year.Geert Wilders of the far-right Dutch Freedom party in
the Netherlands, an Islamophobic party, has reframed Donald
Trump’s election slogan as “Make The Netherlands Great
Again” and promised a referendum on Dutch EU membership if he
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is elected prime minister in March.

What is a referendum? It is an instrument of direct democracy where
citizens directly vote on specific and important issues as opposed to
representative democracy where the elected representative will make a
choice on citizens’ behalf.
Why are referendums often considered undemocratic?
One has to observe that referendums are democratic tools in the hands
of citizens to make the government serve them in the best of their
interests.

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Though referendums are portrayed as

popular governance in its purest
form, studies have found that they
often subvert democracy rather
than serve it. The worldwide
experiences show that referendums
are vulnerable to a number of serious flaws and governments
should think more than twice before offering them.
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Political analysts opine that most of the recent referendums took
the form of “extreme democracy” - the majority of people voted
against their best interests, for example: Brexit will weaken
Britain’s economy and its ability to influence the world, Thailand’s
pi democracy has been weakened etc.

Following are the reasons why referendums might turn anti-
democratic:
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Popular participation is usually less than General Elections:
Studies reveal that a Referendum usually sees lower turnout than
general elections. With lower turnouts than general elections, how
democratic is it to consider the referendum verdict as popular
voice?
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It is biased towards the more energized groups: This means that

despite their resemblance to direct democracy in action,
referendum results often depend less on the true balance of public
opinion and more on which side has the more energized supporters.
To address this problem of lower turnouts, some countries require
turnout thresholds. But these thresholds are also problematic
because they are arbitrary, encourage nonparticipation for those
who oppose a measure and can make interpreting results difficult.
Cases-in-point: An April 2016 Italy referendum on offshore
drilling and a February 2015 Slovakia referendum on banning

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same-sex marriage failed to drum up enough voters to pass.

Nobody knows how many stayed home out of apathy, and how
many out of strategy.
Binary is not always the best: It leads to confusion
Simple to answer but difficult to understand: The irony of a
referendum is that – while it is to choose - “yes” or “no”, the
policy issues at stake are complex. Even the wording of the
question on the ballot is often technical. While the campaigning
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happens, the voters are bombarded with information. People
usually follow the psychological rule - “If you don’t know, vote
no”, while voting during confusion. It would be too difficult to
pi understand what the voters have understood about the question

under vote, what is the intention behind choosing one of the 2
options given or did the complex ballot wording leave the meaning
too open to voters’ interpretation?
ap
Also, the binaries are not always the best because they are like the
Bush doctrine - you’re either with us or you’re against us (and
probably a terrorist).
People resort to “short cuts”: When a referendum is put forward
by the government, people often vote in support if they like the
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leadership and vote in opposition if they dislike it. A vote that is

supposed to be about an important public issue ends up being about
the popularity or unpopularity of a particular party or leader, the
performance of the government, or some set of issues or events that
are not related to the subject of the referendum. For example - In
Colombia most regions that voted for President Juan Manuel
Santos in 2014, also voted for the peace deal, and vice versa.
Case-in-point: A Constitutional referendum on gender equality in
the Bahamas provides example of similar confusion while voting.
During the campaign phase, rumors spread that voting “yes” could

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lead to same-sex marriage, even though the issues on the ballot

were only about gender equality and its role in citizenship
rights.By Election Day, many were not voting on whether they
supported equal rights for men and women, but whether they
supported same-sex marriage and LGBT rights. Ultimately, 79
percent voted against the gender nondiscrimination bill.
Since when are the referendums being
used?
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History: The history of the referendum
goes all the way back to Roman times. A
Roman historian Tacitus wrote – “On the
pi small matters the governors decide, on

important matters the people do.”
Origins of the name: The name and use of “referendum” is
thought to have originated in the Swiss canton of Graubünden as
ap
early as the 16th century, but their rise to common usage has more
to do with the 1980s.
Rationale: From a political-philosophical perspective,
referendums are an expression of direct democracy. However,
in the modern world, most referendums need to be understood
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within the context of representative democracy. Therefore, they

tend to be used quite selectively, covering issues such as changes in
voting systems, where currently elected officials may not have the
legitimacy or inclination to implement such changes.
Authoritarian usage in the past: In 1934, Hitler held a
referendum on whether he could consolidate the power of the
President and the Chancellor, a job he already held, into the new
role of Fuhrer, and won overwhelming approval. From Mussolini
to Saddam Hussein, authoritarian rulers have used referendums to
justify their grip on power by showing that “the people” support

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them.
Events in the last year: Citizens rejected Colombia’s peace deal,
voted for Brexit (to split Britain from the European Union),
supported a Thai Constitution which is anti-democratic - giving the
military a larger role, voted against Italians constitutional reforms
and, in Hungary, backed the government’s plan to restrict refugees,
but without the necessary turnout for a valid result.
Referendums to look out for: Six more countries also want to
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hold referendums to exit the EU - France, the Netherlands, Italy,
Austria, Finland, and Hungary.
Difference between Referendum, Initiative and Proposition
pi A proposition is a blanket term for any ballot measure to be voted

on by the people – this can be an initiative or a referendum.
A referendum is when the voters decide to approve or reject an
existing law. There are two different ways this can occur: one, if
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there is already a law in place, the voters attempt to repeal the law;
and two, if the legislature decides to not vote on the measure and
places it on the ballot for voter consideration. This makes it
different to an election, where the electorate votes for a
representative, and where the result might change the government.
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An initiative is a brand new law or constitutional amendment

proposed and voted by the people. It is a law started by the
people. It is a referendum which is called for by the electorate. As
the name suggests - the electorate “takes the initiative”, not the
legislative. Usually, a certain number of signatures have to be
obtained on a petition to authorize an initiative.
Where are the other criticisms on referendums?
In the recent referendums, though voters overturned their
governments’ plans, eroded their own rights and ignited political

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crises, they all accomplished one thing:they

demonstrated why many political scientists
consider referendums messy and
dangerous.
Some of the other criticisms on
referendums are as follows:
It is deceptively simple. In fact, it is quite complex.
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Forces voters to rely on political messaging: These referendums
can be extremely volatile, driven by factors unrelated to the
issue’s merits and outside anyone’s control. This is because voters
must make their decisions with relatively little information, forcing
pi them to rely on political messaging — which (again) puts power

in the hands of political elites rather than those of voters.
They are weather dependent? The referendum held in Colombia
on the government’s landmark peace deal with the rebel group
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FARC was greatly impacted because of hurricane weather
conditions in parts of the country. The deal was rejected by the
voters. In that weather, they were more likely to say no.
Democracy can still survive even if referendum fails: The
Colombian peace deal with FARC is a prime example of where
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democracy (representative) can succeed when referendums fail.

The historic peace accord was initially put to a national referendum
by President Santos (who won the Nobel Peace Prize 2016 for the
accord). With 38% turnout, the vote failed. But Santos returned to
the negotiation table with a revised peace deal. The new agreement,
largely reflective of the original deal, skipped a second referendum
and was sent to the Colombian Congress, where it was easily
passed.
Closed questions and the separability problem

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Some critics of the referendum attack the use of closed questions.

A difficulty which can plague a referendum of two issues or more
is called the separability problem.If one issue is in fact, or in
perception, related to another on the ballot, the imposed
simultaneous voting of first preference on each issue can result
in an outcome that is displeasing to most.
Driven by emotions rather than consequences
Many a time, the result reflects that votes were less about the actual
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policy question than about contests between abstract values and
emotions attached to a particular opinion.
Case-in-point: During “Brexit” campaign, neither side emphasized
pi the specifics of membership in the bloc. The “Remain” campaign

presented membership as a matter of economic stability. The
“Leave” campaign emphasized on immigration. And people who
voted to remain expressed great concern about the economy, but
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not much about immigrants. People who voted to leave said they
were very concerned about immigration, and less so about the
economy.
Based on unrealistic assumptions
Not united but divided: Referendums are associated with a
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romantic tradition of thinking of ‘the people’ as a single united

entity. The truth is - the people are usually deeply divided.
More indifferent than responsible: Holding referendums assumes
that the public is passionate about political and social issues. This
practice assumes that every citizen is responsible. But it doesn’t
take into account that the people are frequently indifferent. In
general, a large portion of the public has a greater sense of balance
about what is important in their lives than these issues.
Misused by dictators

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Some opposition to the referendum has arisen from its use by dictators
such as Adolf Hitler and Benito Mussolini who used the plebiscite to
disguise oppressive policies as populism.
Dictators may also make use of referendums to further legitimize
their authority; examples include Benito Mussolini in 1934, Adolf
Hitler in 1936, Ferdinand Marcos in 1973, Park Chung-hee in 1972
and Francisco Franco in 1947.
Hitler’s use of plebiscites is argued as the reason why, since
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World War II, there has been no provision in Germany for the
holding of referendums at the federal level.
Also, the practice of referendums is criticized for being a cruel waste
pi of time on a process that does not address the issue completely, diverts
attention from other urgent problems and is usually a “Russian roulette
for republics”. One just has to look at the United Kingdom to
appreciate just how messy the results of a referendum can get. The
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nation is set to be locked in with Brexit results for the next many years.
Who said what on referendums?
Margaret Thatcher, in a debate over
Britain’s place in the EU in 1975,
argued that referendums are “a
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splendid weapon for demagogues

and dictators”.
James Madison argued that direct democracy is the “tyranny of
the majority”.
Michael Marsh, a political scientist at Trinity College Dublin,
when asked whether referendums were a good idea, said, “The
simple answer is almost never. I’ve watched many of these in
Ireland, and they really range from the pointless to the
dangerous.”

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Slovak Prime Minister Robert Fico called on EU leaders to stop

holding referendums on domestic issues, saying that it is a threat to
the future of the EU and its currency. Matthew Goodwin, Associate
Professor at University of Nottingham, however, says – “Calls to
stop referendums signal the democratic deficit of the EU.”
Also, according to several studies conducted it is observed that
whenever there is a referendum in almost any EU state on a topic
to do with EU integration they vote against the EU.
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Growth of nationalist political parties: One of the key
developments in European politics is growing support for openly
nationalist political parties that want to offer referendums in
many cases like – on the issue of EU membership, or the Euro
pi single currency, return more power to the nation-state by taking

away from the EU. These developments are further strengthened by
the vote for Brexit and by the election of Donald Trump in the US.
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Who have used referendums the most?
Referendums by country: Since the end of the 18th century,
hundreds of national referendums have been organized in the
world. Almost 600 national votes were held in Switzerland since
its inauguration as a modern state in 1848.Australia ranks second
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with dozens of referendums.

Is it always a binary vote? A referendum usually offers the electorate
a choice of accepting or rejecting a proposal, but this is not
necessarily the case.
In Switzerland, for example, multiple choice referendums are
common. Two multiple choice referendums held in Sweden, in
1957 and in 1980, offered voters three options; in 1977, a
referendum held in Australia to determine a new national anthem
was held in which voters had four choices; and in 1992, New

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Zealand held a five-option referendum on their electoral system.

Challenges: A multiple choice referendum poses the question of
how the result is to be determined if no single option receives the
support of an absolute majority (more than half) of voters. There
are different approaches adopted by different nations to deal with
this challenge.
How relevant are referendums in the
Indian context?
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India and referendums: One
significant observation is that India,
unlike Europe, doesn’t take chances.
pi Referendums were called only when

the result was known. The Indian subcontinent has actually seen
six referendums, with one pending referendum in Kashmir.
When? Sylhet, Junagadh and North Western Frontier Province
ap
referendums were held in 1947 as British India was partitioned into
India and Pakistan. Referendums have also been held in Sikkim
and Pondicherry to decide if they wanted to be a part of India. In
1967, Goa voted to not be included in Maharashtra, establishing
their Konkani identity as distinct from Marathi.
Kn
The case of Kashmir and ground reality:

Instrument of Accession: Maharaja Hari Singh, during the time of
India’s Independence, chose to keep Kashmir independent.
However, when Pakistan sent ‘tribals’ to annex Kashmir, the king
asked India for help. India extended help on the condition that the
king signs a treaty/instrument of accession, which he promptly did.
This treaty/instrument of accession entails that the Indian
government will intervene in matters of defense, communication,
foreign affairs and other ancillary terms, while the state will still

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hold power over the governance of the valley.

When can a plebiscite be conducted?
Withdrawal of Pakistani troops: According to the Treaty of
Accession and the UN Resolution of 1948, the first condition for a
plebiscite to be conducted is that Pakistan should withdraw its
troops and its nationals who have entered J&K for the purpose of
fighting and not for residing in the territory. Once the above
condition has been established, Indian government should reduce
ly
its forces to the minimum strength, as required to maintain law and
order.
Change in demographics
pi There have been several changes made to the demographics of the

State of J&K since 1948. India has always respected the sanctity of
demographics in Kashmir through Article 370 in India’s
Constitution.
ap
The only change in the demographics of Kashmir was the one that
came in 1990’s when Pakistan sponsored Muslim radicals inflicted
violence and drove away 300,000 Hindus (the Kashmiri Pandits)
out of Kashmir, in order to make the area a Muslim dominant
region.
Kn
In this backdrop, for a fair plebiscite to be conducted, pre-1948

demographics need to be restored. This requires that the non-
Kashmiris be moved out of Pakistan occupied Kashmir and the
Kashmiri Hindus should be brought back into Kashmir.
According to the Treaty/Instrument of Accession, a plebiscite in
Kashmir can only be carried out after the withdrawal of forces, of
Pakistan and then of India. Since both India and Pakistan troops
are present in the region, the possibility of a plebiscite is not seen
anytime soon.

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The emerging Indian needs

Strengthening of representative institutions, the separation of powers,
and increased participation in elections are good signs of a strong
democracy, which India is enjoying now.
But how many of its citizens are aware of the implications of the
legislations being made on their names indirectly? Should they
search for other tools that make Indian democracy more
accountable, participatory and deliberative? The answer definitely
ly
would be in affirmative. Tools like referendums could be
considered to increase the participation of citizens in the
governance.
pi But given the level of awareness majority of the citizens have,

there is still a lot of time for such options to come into action.
Before that, India should focus on raising the awareness of its
people and make sure the elections are conducted in a free and fair
ap
manner with increased participation levels.
—– | —–
Kn

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Scottish re-Referendum
13-Mar-2017
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pi A second Scottish independence referendum is now inevitable, with
Nicola Sturgeon, Scottish first minister, confirming she will ask the
ap
British Parliament for permission to hold a second referendum. The
move, she says, is needed to protect Scottish interests in the wake of
Brexit. Although the British government could withhold the legal
authority for a vote, it now appears focused on determining the date
instead. England may not be second time lucky.
Kn
What has Scotland demanded?

Nicola Sturgeon has confirmed she
will ask for permission to hold a
second referendum on Scottish
independence.
Ms Sturgeon said she wanted a vote
to be held between the autumn of 2018 and the spring of the
following year.
The Scottish first minister said the move was needed to protect

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Scottish interests in the wake of the UK voting to leave the EU.

She said she would ask the Scottish Parliament next week to
request a Section 30 order from Westminster.
The order would be needed to allow a fresh legally-binding
referendum on independence to be held.
This announcement has surprised nobody. The morning after the EU
referendum (Brexit) - before she had even been to bed - Scotland’s
First Minister Nicola Sturgeon said she thought another independence
ly
referendum was “highly likely”.
Since then she has upgraded that prediction several times from
“more likely” to “almost necessary”. The SNP (Scottish National
pi Party) argue that this is about Scotland democratic wishes being

ignored. Scotland had voted to remain in the European Union.
A second Scottish independence referendum is now looking inevitable
and ministers in the UK government have now concluded it is a
ap
question of when such a vote will be held.
If there is another referendum, Sturgeon says, the fault lies with a
Conservative government in London that is ‘dragging’ Scotland out
of the European Union against its will — that Scotland is “being
bullied by its neighbor” and must now make a choice for itself:
Kn
independence or a Brexit Britain.

What are the economic conditions in Scotland right now?
At first glance, conditions for independence seem unpromising.
The Scottish economy is stagnant, growing at just a third of the
speed of the whole UK.
Oil revenues, once seen as the lubricant of a newly independent
country, have collapsed. Scotland’s share of North Sea oil revenue
amounted to £60 million in 2016.
Above all, the Scottish government’s own figures admit that

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Scotland would begin its independent life with a deficit

amounting to almost 10 per cent of GDP. On those terms, that
would make it the worst economy not just in Europe, but also in the
developed world, and by some margin.
The £9 billion fiscal transfer — or Union dividend — it currently
enjoys would disappear. Separation would be eye-wateringly
expensive. But for nationalists this is a worthwhile risk.
Why will this complicate
ly
Britain’s Brexit process?
An independence referendum
would complicate the path to
pi Brexit, potentially throwing a

grenade into the negotiations
between London and Brussels.
An Ipsos Mori poll released showed Scots were split 50-50 on
ap
independence, after a series of polls giving unionists (those Scots
who want to remain in the UK) a clear lead. Scots voted 62 per
cent to 38 per cent against Brexit. In the new Ipsos Mori poll, 52
per cent of respondents said there should be a second referendum
on the terms of the Brexit deal. Only 24 per cent said that PM
Kn
Theresa May was doing a good job of representing Scotland’s

interests in the exit process.
Downing Street and the Cabinet Office are looking at delaying the
referendum until May 2019 or later, when Britain is scheduled to
leave the EU if everything goes right between now and then.
In contrast, the Scottish National Party is expected to demand
a vote in August or September 2018, making it easier for
Scotland to become an independent member of the EU.
Late 2018 would be four years after the last independence
referendum, which was billed as a “once-in-a-generation” event. It

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is also when PM May’s government is due to be in the final stretch

of negotiations with Brussels. It will be trying to convince
Brexiters that they have struck a sufficiently strong deal over
immigration and payments to the EU budget.
When did the previous referendum
take place?
A referendum on Scottish
independence took place on 18
ly
September 2014. The referendum
question, which voters answered with
“Yes” or “No”, was “Should Scotland be an independent country?”
pi The “No” side won, with 2,001,926 (55.3%) voting against

independence and 1,617,989 (44.7%) voting in favour.
The turnout of 84.6% was the highest recorded for an election or
referendum in the United Kingdom since the introduction of
ap
universal suffrage.
The Scottish Independence Referendum Bill, setting out the
arrangements for this referendum, was passed by the Scottish
Parliament in November 2013, following an agreement between
the Scottish and the United Kingdom governments, and was
Kn
enacted as the Scottish Independence Referendum Act 2013. To

pass, the independence proposal required a simple majority. With
some exceptions, all European Union (EU) or Commonwealth
citizens resident in Scotland aged 16 or over could vote, a total of
almost 4.3 million people. This was the first time that the electoral
franchise was extended to include 16 and 17 year olds in Scotland.
Yes Scotland was the main campaign group for independence,
while Better Together was the main campaign group in favour of
maintaining the union. Many other campaign groups, political
parties, businesses, newspapers and prominent individuals were

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also involved. Prominent issues raised during the referendum

included which currency an independent Scotland would use,
public expenditure, EU membership, and North Sea oil.
The then British Prime Minister David Cameron campaigned
extensively for the Better Together side and was overjoyed when
Scotland voted No. He would learn two years later in the Brexit
vote that if he keeps calling for referendums, sooner or later the
result will turn against him. After the United Kingdom voted to exit
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EU Cameron tendered his resignation and Theresa May was
elected as Prime Minister.
And now Mrs. May may have to face the Scottish referendum sooner
pi than she expected. The British love for referendums is proving to be

the undoing of Britain.
Where are the roots of this complicated
relationship?
ap
Here is a chronology of the 300-year-old
union:
The crowns of England and Scotland
were united in 1603, when James VI of
Scotland succeeded Elizabeth to the English throne as James I.
Kn
With the economy crippled by limits on trading imposed by England,

the Scots launched an ill-fated attempt to set up a colony in what is
now Panama. A series of poor harvests and a failed attempt to establish
a Scottish colony at Darien in Panama left Scotland with an empty
treasury entering into the eighteenth century.
May 1, 1707 - Act of Union came into effect and England granted
Scotland 400,000 pounds to clear debts from the Darien disaster.
1746 - The pretender to the Scottish throne, Bonnie Prince Charlie,
was defeated by royal troops at the Battle of Culloden, the last

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battle fought on British soil.

1759 - National Scottish poet Robert Burns was born on January
25. He is regarded as a pioneer of the Romantic movement, and
after his death he became a great source of inspiration to the
founders of both liberalism and socialism, and a cultural icon in
Scotland and among the Scottish diaspora around the world.
1783-1881 - About 150,000 people were forced off their land to
make way for large-scale sheep farming.
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1934 - Scottish National Party was founded after a merger of the
National Party of Scotland and the Scottish Party, and won seats in
the British parliament in 1945 and again in 1967.
March 1979 - A referendum in Scotland failed to produce clear
pi support for devolution from London to a Scottish assembly.

1989 - Prime Minister Margaret Thatcher’s government introduced
hugely unpopular poll tax in Scotland a year before England. The
tax was abolished in 1993.
ap
September 1997 - In a two-part referendum, 74.3 per cent of Scots
voted for a 129-member parliament to administer many aspects of
Scottish life, and 63.5 percent voted to give it tax-varying powers.
May 12, 1999 - New parliament convened. “This was the
parliament adjourned on the 25th of March in 1707 and is hereby
Kn
reconvened,” said the SNP’s Winnie Ewing.

October 9, 2004 - Queen Elizabeth opened Scotland’s new
parliament building, which was finished late and cost 430 million
pounds ($845 million), 10 times over budget.
May 2007 - The Scottish National Party became the largest
parliamentary force, ending 50 years of political dominance in
Scotland by Britain’s ruling Labour Party.
August 2007 - The SNP set out plans for a referendum on
independence from England.

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Note: The Scottish Parliament can pass laws on devolved matters – in

general, those affecting most aspects of day-to-day life in Scotland.
The UK Parliament at Westminster can pass laws on reserved matters
– in general, those with a UK-wide or international impact.
Who is supportive of this idea in
British political circles?
First he said it on the camera, and
then he blamed the media for
ly
propagating ‘fake news’, drawing
comparisons with Donald Trump.
Jeremy Corbyn said on Saturday that a second Scottish independence
pi referendum would be “absolutely fine” and that it “should be held” if

there was demand for it.
The Labour leader indicated that he did not believe England should
seek to block a second vote if Scottish First Minister Nicola
ap
Sturgeon brought one forward.
Labour’s only MP in Scotland, Ian Murray, tweeted that
Mr. Corbyn was “destroying the party” - but Ms. Sturgeon, the
Scottish first minister and SNP leader, tweeted that it was “always
a pleasure to have Jeremy Corbyn campaigning in Scotland”.
Kn
On Monday Corbyn denied he supported another Scottish referendum.

He blamed the Press Association for ‘mischievous misreporting’
after they wrote down verbatim what he said on camera.
Some have accused the Labour leader of Trumpian ‘fake news’
tactics after he hit out at the press for transcribing what he said in
an interview.
Irrespective of Corbyn’s support for the referendum, Labour Party
continues to oppose a further referendum in the Scottish Parliament
and would campaign against independence if one were held.

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How will the second referendum play

out?
Next week Nicola Sturgeon will go to
Holyrood (the seat of Scottish Parliament)
seeking a Section 30 order for the second
referendum, or “indyref2”.
This part, at least, should be pretty simple. There is a pro-
independence majority at Holyrood; the Greens should back
ly
the SNP, so Holyrood should return a call for a second
referendum.
Will the UK government give permission? Technically, they could
pi say no. But politically, it might be very difficult for them to refuse
outright.
The real battle here may not be over whether there is a
referendum, but when.
ap
Ms Sturgeon is clear she wants the vote to take place before Brexit
is complete, in the spring of 2019.
The UK government may well argue it should take place after that,
so there can be full focus on the tricky task of Brexit itself.
—– | —–
Kn

mba.knappily.com

The mess that is Brexit
14-Dec-2017
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pi British lawmakers defeated Prime Minister Theresa May in a key
Brexit vote on December 13, asserting their authority over the EU exit
ap
process by demanding a final say on the ‘divorce deal’. Eleven
members of May’s Conservative party joined with opposition
lawmakers to inflict the government’s first defeat over the flagship EU
(Withdrawal) Bill. Britain, which is due to leave the EU bloc in March
2019, has managed to make matters even messier.
Kn
What happened?
British lawmakers delivered a
blow to Prime Minister Theresa
May’s Brexit plans on December
13 by giving Parliament the
final say on any exit agreement
the government reaches with the European Union.
The House of Commons voted 309-305 to give lawmakers what is
essentially a veto on the terms of Brexit, a challenge to May’s

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fragile authority amid the already strained Brexit process. The vote
came on the eve of a major E.U. summit.
Shockingly for May, 11 lawmakers from the prime minister’s
governing Conservative Party sided with the opposition to insist
that any withdrawal deal with the E.U. requires an act of
Parliament to take effect.
May had promised lawmakers a “meaningful vote” on the
departure agreement, but political opponents and some within her
ly
own party said her assurance was not enough of a guarantee. The
vote was the government’s first defeat in Parliament on its
Brexit legislation.
pi It came as an amendment to the E.U. Withdrawal Bill, the

government’s flagship piece of Brexit legislation. The bill itself, which
still is moving through Parliament, would convert some 12,000 E.U.
laws into British statutes on the day the U.K. leaves the bloc in
ap
March 2019. Without it, Britain could face a legal black hole the day
after Brexit.
The government said it was disappointed with the result and would
see whether changes were now needed to the “essential”
legislation. If the amendment survives a final vote on the
Kn
withdrawal bill, it would not have a direct impact on Britain’s

negotiations with the E.U. But it could reinforce perceptions in
the bloc that May lacks authority. It increases pressure on May,
who is caught between the opposing wings of a government and
Parliament deeply split over Brexit.
The vote was hailed by those who support a “soft Brexit” — in
which Britain continues to align closely with the E.U. — as a
sign that the government will have to pay more attention to
Parliament, where pro-EU forces are in a majority. Pro-E.U.
Conservative lawmaker Dominic Grieve, who drafted the

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amendment, said it ensured Parliament did not give the

government a “blank check” on Brexit.
Why does this complicate things for
May?
E.U. leaders, including May, open a
two-day summit on December 14
during which they are slated to agree
that there has been “sufficient
ly
progress” for Brexit talks to move to the second phase of future
relations and trade, a subject Britain wants to open as soon as possible.
But Theresa May is set to arrive in Brussels for the key EU summit
pi on December 14 having suffered a damaging defeat in Parliament

over her central piece of Brexit legislation.
The Prime Minister is to use the EU event to try and make the case
for moving Brexit talks on to trade negotiations quickly, but
ap
European leaders will now be left wondering if she still has the
political support in London to deliver any deal.
May was supposed to enjoy something of a victory at the EU
council summit on December 14, expected to rubber-stamp the
judgment that “sufficient progress” has been made on divorce
Kn
issues to move on to the next phase of talks. But with difficult

obstacles already arising in Brussels, the defeat in London lays
bare the difficulties May will have in delivering anything she
agrees on the continent.
Following the blow, the Government immediately hinted it might
try a parliamentary counteroffensive later in the legislative process
to undo the change forced upon it.
Up to now May had promised Parliament a say of sorts over the final
deal she agrees in Brussels, but as it stood it would be a ‘take it or

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leave it’ vote and ministers would retain powers to enact any deal
without first gaining Parliament’s permission. The change means the
terms of any Brexit deal must now first be approved with a full Act
of Parliament – effectively allowing MPs to re-write parts of the
deal before any of it is implemented by May.
Britain is due to leave the bloc in March 2019, but a Brexit deal will
have to be agreed by the fall of 2018 to give national parliaments time
to approve it.
ly
When did the Brexit Secretary
complicate things?
Theresa May secured a significant
pi achievement last week when she moved

the Brexit negotiations forward from
discussions of divorce to talks about
transition and trade. Five days later, some of the shine is coming off
ap
the prime minister’s success. The mood over Brexit has turned sour
once more because the UK government is engaged in two
arguments, one with diplomats in Brussels and the other with its
own MPs at Westminster, over its approach to Brexit talks. At the
heart of both issues is a single factor — the growing unwillingness of
Kn
key players in the Brexit saga to trust the words of David Davis.
The first argument arose following remarks that the Brexit
secretary made at the weekend over the newly agreed divorce pact.
In what seemed an attempt to appease hard Tory (Conservative
Party) Brexiters, he said the agreement on divorce money,
citizen’s rights and Ireland was “more of a statement of intent
than it was a legally enforceable thing”. This has infuriated
diplomats in Brussels. Michel Barnier, EU’s Brexit negotiator, has
insisted that the EU will “not accept any backtracking from the UK

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on their commitments”. And he warned that the EU would only

conclude a final deal on trade and transition if last week’s divorce
deal with Mrs. May was honoured. “There is fury in Brussels at the
idea that anything decided in phase one will not be legally binding
in the Article 50 agreement,” says Professor Catherine Barnard of
the UK in a Changing Europe. “At the Brussels summit, European
leaders will tighten up the terms of the guidelines for transition
negotiations to make sure they are ‘David Davis proof’.”
ly
The second set of skirmishes regards the EU Withdrawal Bill, the
domestic legislation to enact Brexit. Mrs. May is fighting a
rebellion by pro-European Conservatives who want a full
parliamentary vote on the terms of Brexit, even if there is no
pi deal. Again, the trust of Tory MPs in Davis is part of the problem.
On Dec. 13, he promised Conservative MPs a vote on the Brexit
agreement “as soon as possible” after negotiations are concluded.
But Dominic Grieve, the former attorney general and chief rebel,
ap
was having none of it. He has retorted that he wants a “meaningful
vote in parliament and a statute to approve any deal that the
government has done”. Now that the rebels have succeeded, many
believe the lack of trust in David is a big part of the problem.
Note: David Michael Davis is a British politician of the Conservative
Kn
Party serving as Secretary of State for Exiting the European Union

since 2016.
Where is the source of this mess?
The ruling party members have brought
this upon themselves.
Just two years ago, it was all going so
well. The Tories were celebrating
their first working majority in the

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House of Commons for 23 years. Their leader David Cameron

was popular and the organisation that sees itself as the natural
party of government appeared unassailable. Yet by this
summer, its fortunes had been dramatically reversed.
The fateful decision to hold a referendum on EU membership
unleashed the demons of populism, pushing the Tories into a self-
induced nervous breakdown. Day by day, week by week,
calamities continue to unfurl in front of the country’s increasingly
ly
weary gaze: the decision to begin the process of leaving the EU
without a clear distinction, the misjudged snap election last
summer, the incessant bickering about leadership, the lack of
an intelligible domestic agenda.
pi The rallying cry of the Brexiteers prior to the European Union

membership referendum was “take back control”. This slogan
resonated with those who felt ignored, not listened to and
struggling to pay for the necessities of life. They wanted to deliver
ap
a slap in the face to the country’s elite who were urging them to
vote remain. The Leave campaigners managed to convince enough
people that being in the EU is the reason for their misery. With
that, plus the false promise of £350 million a week for the NHS
(National Health Service) if Britain left the EU, the Brexiteers won.
Kn
However, the latest twists and turns in the Brexit negotiations have
shown that the EU is in the driving seat and in control of events with
Britain having to make concession after concession even before
moving to trade talks. Britain is losing control.
Who said what?
The government said in a statement:
“We are disappointed that Parliament
has voted for this amendment despite the
strong assurances that we have set out.

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We are as clear as ever that this Bill,

and the powers within it, are essential. This amendment does not
prevent us from preparing our statute book for exit day. We will
now determine whether further changes are needed to the Bill to
ensure it fulfills its vital purpose.”
Speaking after the vote chief party rebel Grieve struck a sorrowful
tone, saying he “didn’t wish to rebel against the Government, it’s
not something I make a habit of doing”. He added: “To my mind I
ly
had no option but to continue with this. I had hoped even during
the course of the afternoon that the Government would try to do
something. But the proper thing to do was to table their own
amendment, and so when five minutes before the end they come
pi along and say well actually they are going to make a concession
that was not fully explained, and I have to say falls a bit short of
what’s needed, I had to make an immediate decision.”
Another ex-minister Stephen Hammond was sacked from his
ap
party role of Conservative vice-chairman after he rebelled with
a “heavy heart”. He said afterwards: “I made it very clear that for
me this was a point of principle and just occasionally in one’s life,
one has to put principle before party. I know that sounds pompous,
but I’ve never done it before.” He added: “The Government could
Kn
have been a little bit swifter of foot. I think there was a way out of
this, we were all very close, but the Government chose not to go
that way.”
Ex-cabinet minister Nicky Morgan, also among Conservatives,
who refused to budge, tweeted that Parliament had acted to take
back “control of the EU Withdrawal process.”
Meanwhile Anna Soubry MP, another rebel, said the Government
had “got to stop playing silly games” and realise that times had
changed since the Bill was drafted before the election, when May
had a Commons majority.

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Leave-supporting Labour Party MPs (in the Opposition now)

all backed the Tory backbench amendment to inflict defeat on
the Government. Labour leader Jeremy Corbyn said: “This
defeat is a humiliating loss of authority for the Government on the
eve of the European Council meeting. Labour has made the case
since the referendum for a meaningful vote in Parliament on the
terms of Britain’s withdrawal from the European Union.”
Liberal Democrat Brexit Spokesperson Tom Brake said: “This is a
ly
momentous day for Parliament and a humiliating defeat for
Theresa May.”
Nadine Dorries demanded her fellow Tory MPs be stripped of their
seats in Parliament, tweeting that they had, “put a spring in
pi Labour’s step, given them a taste of winning, guaranteed the party

a weekend of bad press, undermined the PM and devalued her
impact in Brussels.”
London Mayor Sadiq Khan hailed the result: “Victory for
ap
democracy in Parliament tonight. Londoners & Brits across the
country voted against an extreme Tory hard Brexit - the
government must now listen,” he wrote online.
How has the EU parliament
conducted itself?
Kn
With grace, so far. There has been

progress at EU Parliament.
The European Parliament has
voted to back a move to the
next phase of Brexit talks. MPs voted by 556 in favour to 62
against for the non-binding motion judging that “sufficient
progress” has been made in talks to open discussions on the
transition period.
The final decision on whether to move to the next phase of talks

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will be made by EU national leaders at the European Council in a

meeting on December 15 afternoon. The 27 other EU leaders are
all but certain to approve the deal to move to ‘phase two’ on
Friday, after May has left Brussels, launching a new stage of
talks that could be hampered by divisions at home and
differences with the EU.
The European Commission also recommended last Friday that the
next phase begin, following late night and early morning talks with
ly
Theresa May.
The resolution passed by the Parliament however notes five
outstanding areas where more progress had to be made, including the
pi extension of coverage of citizens’ rights to future partners, a light-

touch procedure for declaring settled status and the right to free
movement for UK citizens currently living in EU member states.
Other areas included a binding role for European Court of Justice
ap
decisions on citizens’ rights and the implementation of the
Northern Ireland agreement.
—– | —–
Kn

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CLIMATE CHANGE / 200,000 years of climactic

history
26-Feb-2017
ly
pi Near the Siberia’s Yana river basin, in a vast area of permafrost, there
is a dramatic tadpole-shaped hole in the ground: the Batagaika crater.
ap
Locals in the area avoid it, fearing it is a “doorway to the underworld”.
But for scientists, the site is of great interest. During the last 200,000
years, Earth’s climate has alternated repeatedly between relatively
warm “interglacial” periods and chilly “glacial” periods. This crater
carries imprints from all those years.
Kn
What is the story?

Over the last few decades, a rapidly
growing crater has shaken the Siberian
taiga with terrifying ‘booms,’ causing
locals to believe it is the ‘Gateway to the
Underworld.’
Since the massive Batagaika Crater opened suddenly toward the
end of the last century, it has expanded rapidly.
While it may not actually be a portal to the next life, scientists have

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their own concerns regarding the crater as it hints at the threats of

melting permafrost due to climate change.
The crater formed in Siberia’s permafrost is growing at an alarming
rate. The crater is also known as a “megaslump” and it is the
largest of its kind: almost 0.6 miles (1km) long and 282ft (86m)
deep. But these figures will soon change, because it is growing
quickly.
It has expanded at a rate of roughly 60 feet each year, now
ly
stretching almost a mile long.
One study, published in the journal Quaternary Research in
February 2017, found that analysing the layers now exposed could
reveal 200,000 years of climatic history.
pi Note: Permafrost is soil, rock or sediment that is frozen for more than
two consecutive years. In areas not overlain by ice, it exists beneath a
layer of soil, rock or sediment, which freezes and thaws annually and is
ap
called the “active layer”.
Why did this crater develop?
The trigger that led to the crater started in
the 1960s.
Rapid deforestation meant that the
Kn
ground was no longer shaded by trees in

the warmer summer months. This
incoming sunlight then slowly warmed the ground. This was made
worse by the loss of cold “sweat” from trees as they transpire,
which would have kept the ground cool.
This combination of less shading and transpiration led to warming
of the ground surface.
As the ground surface warmed up, it caused the layer of soil right
above the permafrost to warm. This caused the permafrost itself to

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thaw. Once this process started and the ice was exposed to warmer
temperatures, melting escalated.
When has Siberia experienced
this kind of slumping before?
The last time Siberia saw this kind
of slumping occur was around
10,000 years ago, as Earth
transitioned out of its last Ice Age.
ly
And today greenhouse gas levels in our atmosphere are much
higher than they were back then - we are now at 400 parts per
million (400 ppm) CO2, compared to 280 parts per million when
pi the last Ice Age ended.

In the past, researchers at the site have found the remains of ancient
bison, horses, elk, mammoths, and reindeer, some dating back as
far as 4,400 years. They have even discovered the mummified body
ap
of a bison calf. As the work continues, researchers will examine the
permafrost and sedimentary layers to understand ancient changes in
the landscape, and their implications for the future.
In recent decades, numerous similar craters have opened up in
Siberia, and many scientists believe this is a result of the warming
Kn
temperatures from global climate change.

However, it will be sometime before Siberia begins to melt
dramatically. It can still experience temperatures as low as minus
-68C.
Where are the dangers of this
growing crater?
The head wall of the crater has
grown by an average of 33ft (10m)
per year. In warmer years, the

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changes have been even greater,

sometimes up to 98ft (30m) per year. The sidewall of the growing
crater will reach a neighbouring eroding valley in the coming summer
months. This in turn will “very likely” be a new trigger for more
growth.
Continuous growth means that the crater gets deeper and deeper
every year. Many of the ice deposits that are now being exposed
formed during the last Ice Age. This ground ice contains a lot of
ly
organic matter, including plenty of carbon that has been locked
away for thousands of years.
As more permafrost thaws, more and more carbon is exposed to
pi microbes. The microbes consume the carbon, producing methane

and carbon dioxide as waste products. These greenhouse gases
are then released into the atmosphere, accelerating warming
further.
ap
Who are scared of this crater?
The local Yakutians do not find this
crater as an academic subject. They
would rather leave it alone.
The Sakha (Yakutia) Republic is a
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federal subject of Russia (a republic).

It consists mainly of ethnic Yakuts and Russians.
The republic occupies the basins of the great rivers flowing to the
Arctic Ocean — the Lena, Yana, Indigirka, and Kolyma — and
includes the New Siberian Islands between the Laptev and East
Siberian seas. Sakha was created an autonomous republic of the
Soviet Union in 1922; it is now the largest republic in Russia.
More than twice the size of Alaska, Yakutia would be the world’s
eighth largest country by area if it were independent, barely trailing

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India.
Scientists have however confirmed that they have not found any
sign of a mysterious tunnel leading to an underworld, physical or
spiritual.
How could the crater help
understand climactic history?
Looking at the layers exposed by
the slump can give indications of
ly
how our world once looked – of
past climates.
For these reasons, scientists are actively monitoring the crater.
pi Studies found that analyzing the layers now exposed could reveal
200,000 years of climatic history.
During the last 200,000 years, Earth’s climate has alternated
repeatedly between relatively warm “interglacial” periods and
ap
chilly “glacial” periods in which ice sheets expanded.
The Batagaika sediment layers provide a “continuous record of
geological history, which is fairly unusual,” scientists say.“That
should allow us to interpret the climate and environmental history
there.”
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However, for now the dates are not certain. Next, scientists need to
gather and analyze more sediment. Ideally, these will be collected
using a drill in order to get a “continuous sediment series”, which
will help give more accurate dates. The permafrost record could
then be compared with data from other temperature records, such
as ice-cores from ice sheets.
By reconstructing environmental changes that happened in the past,
scientists could help forecast similar changes.
—– | —–

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CLIMATE CHANGE / The heat is on
24-Dec-2016
ly
pi 2016 is likely to be the warmest year since records began. According
to provisional data, global temperature has already risen by around 1.2
degrees Celsius compared to pre-industrial times. Global warming of
ap
just 1.5 degrees above pre-industrial levels can have dramatic
consequences. The effects are starting to show and certain steps have
been taken to tackle climate change. However, a few still remain
skeptic even as much more needs to be done.
What do the provisional data on global

Kn
temperatures show?
The pre-industrial carbon dioxide (CO2)
level was 280 parts per million (ppm).
According to the US National Oceanic and
Atmospheric Administration (NOAA), it
had risen to nearly 400 ppm in 2015, up by 2.2 ppm on the previous
year. Growing concentration of CO2 in the atmosphere contributes to
global warming.The year 2016 looks likely to set new temperature
records. The two previous years each set new records for highest

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average global temperature since precise measurements were first

taken in 1880.
According to NOAA, the planet’s temperature above land and sea
averaged 14.94 degrees Celsius from January to November - 0.06
degrees warmer than the same period last year.
The World Meteorological Organization (WMO) also predicts
2016 is likely to be the hottest year on record.
According to UN estimates, the global temperature in 2016 was
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14.88 degrees - 1.2 degrees higher than before the industrial
revolution began in the mid-19th century.
The British Met Office has projected that 2017 is likely to be the
pi third-warmest year, behind 2016 and 2015.

Why is this situation alarming?
According to provisional data by
UN, global temperature has
ap
already risen by around 1.2
degrees Celsius compared to pre-
industrial times.
According to NOAA data, average Arctic surface temperature in
2015 was 2.8 degrees above that at the beginning of the 20th
Kn
century.
The US National Snow and Ice Data Center reports that Arctic ice
cover in November was at its lowest in the 38 years since
satellite measurements have been available. At just 9.08 million
square meters, it was nearly 2 million square meters less than the
average for mid-November between 1981 and 2010.
Without ice cover to reflect the sun’s rays, the sea temperature
rises rapidly.“The ocean is going crazy,” concluded the NOAA,
referring to the Arctic region and heavy storms in the Bering Sea

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which tormented the Alaskan region in 2014 and 2015.

Climate scientists predict that with the current CO2 concentration in
the atmosphere, temperatures will rise further in the coming decades. If
CO2 emissions continue at this rate, the agreed global warming limit of
1.5 or 2 degrees Celsius is unlikely to be met.
Note: The Bering Sea is a marginal sea of the Pacific Ocean. It is
separated from the Gulf of Alaska by the Alaska Peninsula. A marginal
sea is a division of an ocean, partially enclosed by islands,
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archipelagos, or peninsulas, adjacent to or widely open to the open
ocean at the surface, and/or bounded by submarine ridges on the sea
floor.
pi When can this trend become

catastrophic?
According to climate research
data, global warming of just 1.5
ap
degrees above pre-industrial
levels will have dramatic
consequences. Weather would continue to become more extreme,
coral reefs around the world would be at risk, and the sea level could
rise 1.5 meters by the year 2300.
Kn
The Potsdam Institute for Climate Research predicts that a

temperature rise of 2 degrees would result in a sea level rise of
between 2 and 3 meters by 2300.
The giant Greenland ice sheet could reach a tipping point - for
islands and many coastal cities, this would be a disaster.
Beyond 2 degrees, the world would be heading for complete ice
loss in the northern hemisphere, with even more dramatic rises in
sea level.
The case of the ‘tiny’ island nations

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Climate change may still seem far off for some, but for the people of
the island nations of Fiji, Tuvalu, Kiribati, Vanuatu, and the
Marshall Islands, it is already a disturbing reality.
In recent years, cyclones, droughts, and other natural disasters have
become commonplace for these Pacific island nations. If sea levels
continue to rise at their current rates, some of them will be
completely submerged within just a few decades, according to a
UN report released at the UN Climate Change Conference in Paris
ly
in December 2015.
Kiribati, a nation of 105,000 people in the central Pacific, could be
completely submerged in the ocean in as little as 50 years, Kiribati
pi President Anote Tong said at the climate conference.

Others, like Fiji and the Marshall Islands, have suffered floods and
droughts that have destroyed crops and forced entire communities
to relocate.
ap
Bracing for the worst, several island nations are drawing up plans
to relocate their entire populations to other countries.Kiribati has
already purchased land in Fiji - more than 2,000 miles away -
should climate change render the homes of its people
uninhabitable.Fiji, with its advantageous mountainous
topography, is expected to become a hub for Pacific climate
Kn
refugees, along with Australia and New Zealand.

Where are the effects most visible?
Hurricanes like Matthew, which
ravaged Haiti and parts of the
southeast of the USA, are fueled by
rising ocean temperatures.
For low-lying countries like
Bangladesh, which already suffered catastrophic flooding in
2015, the resulting sea level rise is a major threat.

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The US National Snow and Ice Data Center reports that Arctic ice
cover in November was at its lowest in the 38 years since satellite
measurements have been available.
Greenland - the second-largest ice sheet in the world after
Antarctica - is losing mass at an accelerating rate. To date,
much of this ice loss has occurred in the southern part of the
landmass, but it now appears that these losses are spreading to the
northwest. Additionally, in July 2012, Greenland saw melting
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occur across approximately 97 percent of its surface ice.
Almost 93% of reefs on the Great Barrier Reef have been hit
by coral bleaching. The Great Barrier Reef is the world’s largest
coral reef system composed of over 2,900 individual reefs and 900
pi islands stretching for over 2,300 kilometres over an area of

approximately 344,400 square kilometres. The reef is located in the
Coral Sea, off the coast of Queensland, Australia.
The frequency of wildfires, droughts and epidemics like malaria
ap
has increased all over the world.
Who says what on Climate Change?
The 2015 United Nations Climate
Change Conference was held in Paris from
Kn
30 November to 12 December 2015. The

conference negotiated the Paris
Agreement, a global agreement on the
reduction of climate change, the text of which represented a consensus
of the representatives of the 196 parties attending it.
In the context of the negotiations for the agreement and subsequent to
it, world leaders expressed their commitment to containing global
emissions.
President of USA, Barack Obama set out “one possible future”

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of unchecked global warming:“Submerged countries, abandoned

cities, fields that no longer grow. Political disruptions that trigger
new conflicts, leaving more floods of desperate people seeking
sanctuary in nations not their own.” He said USA recognizes its
role in creating this problem and embraces its responsibility to do
something about it. President-elect Donald Trump, however, says
he will abandon his predecessor’s global climate change deals. On
November 6, 2012, he tweeted:“The concept of global warming
ly
was created by and for the Chinese in order to make U.S.
manufacturing non-competitive.”
Pope Francis said at Paris summit, “Every year the problems are
getting worse. We are at the limits. If I may use a strong word I
pi would say that we are at the limits of suicide.”

Russian President Vladimir Putin said an agreement reached in
Paris should be legally binding and should include both developed
and developing nations.“Russia will continue to contribute to joint
ap
efforts at preventing global warming.”
Chinese President Xi Jinping said, “Tackling climate change is a
shared mission for mankind… Let us join hands to contribute to the
establishment of an equitable and effective global mechanism on
climate change, work for global sustainable development at a high
Kn
level and bring about new international relations featuring win-win

cooperation.”
“Climate justice demands that the little carbon space we still have,
developing countries should have enough room to grow,” said
Indian Prime Minister Narendra Modi, a key player because of
India’s size and its heavy dependence on coal.
How can we deal with climate change?
In general, there are two different strategies when it comes to dealing
with climate change. We can try to stop future warming (mitigation

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of climate change) or we can find ways to

live in our warming world (adaptation to
climate change).
Mitigation involves attempts to slow the
process of global climate change,
usually by lowering the level of
greenhouse gases in the atmosphere. Planting trees that absorb CO2
from the air and store it is an example of one such strategy.
ly
Adaptation involves developing ways to protect people and
places by reducing their vulnerability to climate impacts. For
example, to protect against sea level rise and increased flooding,
pi communities might build seawalls or relocate buildings to higher

ground.
Of course there is a third option too:to do nothing.
The triangle diagram above taken from the IPCC Fourth Assessment
ap
Report (Chapter 18) sums up these options. The corners of the triangle
represent 100% of each of these three options. Areas in the middle of
the triangle represent a combination of approaches. There are costs
associated with mitigation and adaptation.
It is quite unlikely that we will be able to clean up the extra
Kn
greenhouse gases and halt climate change entirely through

mitigation efforts. Thus, some adaptation will be necessary.
Strategies to mitigate and adapt to climate change range from an
individual, to local, national and global efforts.
—– | —–

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CLIMATE CHANGE / The inevitability of an

Antarctic implosion
29-Nov-2016
ly
pi Warm ocean waters appear to have melted Pine Island Glacier from
underneath, causing a deep subsurface crack that split the ice from the
ap
inside out, Ohio State University researchers found. Their finding
offers further evidence that large parts of the West Antarctic Ice Sheet
could collapse in coming decades as human-caused climate change and
other forces weaken glaciers. This would trigger catastrophic sea level
rise and coastal flooding around the world.
Kn
What have the researchers

discovered?
Ohio State University researchers
have found that a key glacier in
Antarctica is breaking apart from
the inside out, suggesting that the
ocean is weakening ice on the edges of the continent.
The Pine Island Glacier, part of the ice shelf that bounds the West
Antarctic Ice Sheet, is one of two glaciers that researchers believe

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are most likely to undergo rapid retreat, bringing more ice from the
interior of the ice sheet to the ocean, where its melting would flood
coastlines around the world.
A nearly 225-square-mile iceberg broke off from the glacier in the
summer of 2015, but it wasn’t until Ohio State University
researchers were testing some new image-processing software that
they noticed something strange in satellite images taken before the
event.
ly
In the images, they saw evidence that a rift formed at the very
base of the ice shelf nearly 20 miles inland in 2013.
The rift propagated upward over two years, until it broke through
the ice surface and set the iceberg adrift over 12 days in late July
pi and early August 2015.

Why is this rift unusual?
While similar breakups are seen in the
ap
Greenland Ice Sheet – in spots
where ocean water has seeped inland
along the bedrock and begun to melt
the ice from underneath – this is the
first time researchers have witnessed a deep subsurface rift opening
Kn
within Antarctic ice.

“Rifts usually form at the margins of an ice shelf, where the ice is
thin and subject to shearing that rips it apart,” study leader Ian
Howat, associate professor of earth sciences at Ohio State,
explained." However, this latest event in the Pine Island Glacier
was due to a rift that originated from the center of the ice shelf
and propagated out to the margins.”
This implies that something weakened the center of the ice shelf,
with the most likely explanation being a crevasse (a deep crack,
or fracture, found in an ice sheet or glacier) melted out at the

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bedrock level by a warming ocean.

Another probable reason for weakening of the center of the ice
shelf is that the rift has opened in the bottom of a “valley” in the
ice shelf where the ice had thinned compared to the surrounding ice
shelf.
The valley is a sign of something researchers have long suspected:
Because the bottom of the West Antarctic Ice Sheet lies below sea
level, ocean water can intrude far inland and remain unseen. New
ly
valleys forming on the surface would be one outward sign that ice was
melting away far below.
When do we see the scale of the
pi impending crisis?
More than half of the world’s fresh
water is frozen in Antarctica. The Pine
Island Glacier and its nearby twin, the
ap
Thwaites Glacier, sit at the outer edge of
one of the most active ice streams on the continent.Like corks in a
bottle, they block the ice flow and keep nearly 10 percent of the
West Antarctic Ice Sheet from draining into the sea.
If valleys under the center of the ice shelf are the real reason
Kn
behind the recent rift, it is a troubling thing as there are many of

these valleys further up-glacier. Ian Howat added that, “If they are
actually sites of weakness that are prone to rifting, we could
potentially see more accelerated ice loss in Antarctica.”
“It’s generally accepted that it’s no longer a question of whether
the West Antarctic Ice Sheet will melt, it’s a question of when,”
warned Howat.
“This kind of rifting behavior provides another mechanism for
rapid retreat of these glaciers, adding to the probability that we

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may see significant collapse of West Antarctica in our lifetimes.”

Studies have suggested that the West Antarctic Ice Sheet is
particularly unstable, and could collapse within the next 100 years.
The collapse would lead to a sea-level rise of nearly 10 feet, which
would engulf London and major U.S. cities such as New York and
Miami and displace 150 million people living on coasts worldwide.
Where is the Pine Island
Glacier?
ly
Pine Island Glacier (PIG) is a
large ice stream glacier, and the
fastest melting glacier in
pi Antarctica, responsible for about

25% of Antarctica’s ice loss.
The glacier ice streams flow west-northwest along the south
side of the Hudson Mountains into Pine Island Bay, Amundsen
ap
Sea, Antarctica.
It was mapped by the United States Geological Survey (USGS)
from surveys and United States Navy (USN) air photos, 1960–66,
and named by the Advisory Committee on Antarctic Names (US-
ACAN) in association with Pine Island Bay.
Kn
A total area of 175,000 km2 (68,000 sq mi), 10 percent of the

West Antarctic Ice Sheet, drains out to the sea via Pine Island
Glacier, this area is known as the Pine Island Glacier drainage
basin.
Who is responsible for this
meltdown in Antarctic sea?
While the polar ice cap at the
Arctic has been shrinking at an
alarming rate due to human-induced

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climate change and global warming,

sea ice on the Antarctic behaved to the contrary and expanded at
least in much of the last three decades. This has baffled scientists
and one that is often used by deniers of climate change as evidence in
support of their arguments.
Two new studies published last week to understand the changes in
Antarctic sea ice, however, provide evidence that human-induced
climate change and global warming have had its negative effect
ly
on Antarctic ice as well.
One study, published on November 21 in the Cryosphere journal, looks
through the logbooks of early Antarctic explorers from the “Heroic
pi Age of Antarctic Exploration (1897-1917)” and compared the recorded

observations of Antarctic ice from the time with satellite images from
today.
Carried out by climate scientists from the University of Reading,
ap
United Kingdom, the study analyzes “observations of the summer
sea ice edge from the ship logbooks of explorers such as Robert
Falcon Scott, Ernest Shackleton and their contemporaries during
the Heroic Age of Antarctic Exploration (1897–1917).”
The researchers estimate the extent of Antarctic summer sea
Kn
ice is now at most 14 percent less than it was about 100 years
ago.
Explaining the reason for the increase in Antarctic sea ice seen in
the last 30 years, Jonathan Day, leader of the study, said: “We know
that sea ice in the Antarctic has increased slightly over the past 30
years, since satellite observations began. Scientists have been
grappling to understand this trend in the context of global
warming, but these new findings suggest it may not be anything
new. If ice levels were as low a century ago as estimated in this
research, then a similar increase may have occurred between then

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and the middle of the century, when previous studies suggest ice
levels were far higher.”
The second study, published on November 23 in the journal Nature,
explained that the thinning and retreat of the Pine Island Glacier in
the West Antarctic Ice Sheet has been underway for at least 70
years. The melting of the glacier and those of others near it is one of
the biggest contributors to the rise of sea levels.
Titled “Sub-ice-shelf sediments record history of twentieth-century
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retreat of Pine Island Glacier,” the study was led by researchers
from the British Antarctic Survey.
A BAS press release said: “Seabed sediment cores obtained from
pi beneath the floating part of Pine Island Glacier have revealed that
a cavity started to form beneath the shelf prior to the mid-1940s.
This allowed warm sea water to flow under the shelf, and cause it
to lift-off from a prominent sea-floor ridge which held it in place.
ap
This strongly suggests that current retreat was initiated by strong
warming of the region associated with El Niño activity.”
How can Trump’s win cause further
damage to anti-global warming
measures?
Kn
Trump, the US president-elect, regards

global warming as a Chinese hoax.“[It]
was created by and for the Chinese in order
to make US manufacturing non-competitive,” he declared in 2012.
Consequently, he has vowed to withdraw America from the
recently-signed Paris Agreement and to end funding for UN
programs.
The US is theoretically prevented from leaving the Paris
Agreement for four years, though Trump is exploring escape

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routes.
His election alone, however, may have lethal consequences for the
environment.It will embolden climate change deniers in the US,
elsewhere and disincentivise efforts to deliver emissions
reductions.
Trump appears to have little knowledge of the issue (or he pretends to
not have any knowledge) and has continued to express skepticism at
the near-universal scientific consensus on climate change.
ly
After Trump’s triumph, the quiet threat of climate change risks being
further relegated. And unlike foolhardy economic policies, the
consequences of not heeding to environmental warnings cannot be
pi easily reversed.
There isn’t an alternative planet if the experiment goes wrong.
—– | —–
ap
Kn

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CLIMATE CHANGE / The Dying River
14-Oct-2017
ly
pi The Nile, which traverses through 11 countries, and is the lifeline for
communities and nations is bearing the brunt of population explosion,
negligence, climate change and disputes. While it once fed flourishing
ap
civilizations, water pollution has hurt the health of the river and
consequently the jobs, lifestyle and health of those who rely on it.
Disputes usually resolved amicably have been embittered since the
GERD project. The world’s longest river is also the saddest.
What ails the Nile now?

Kn
Over the decades

Population explosion and
exploitation of resources that
accompanies it, have, along
with the dirtying habits of
human habitats, taken their toll.
Human-fueled climate change has had its impact on the Nile and
threatens to cut its flow.
Politics of East Africa and the Horn of Africa have involved

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disputes over sharing of the river’s waters. As the water dries out,
the threat of eruption of a regional conflict looms large.
Rains are less bountiful than required and that signals disaster
throughout the basin.
The long summer wet season will set in late, and rains earlier this
year have ranged from negligible to none.
When the rain does fall, it falls fiercely, the storms, with utmost
ferocity, add a billion tons of Ethiopian sediment into the Nile
ly
annually. Blocked dams and paucity of nutrient-rich soil ensue.
“It’s so inconsistent now. Sometimes stronger, sometimes lighter,
but always different,” said Lakemariam Yohannes Worku, a
pi lecturer and climate researcher at Arba Minch University.

With the population explosion, trees are felled to make way for
people and for their houses. Monster floods also hit the region
much more frequently.
ap
Rural communities suffer from crop failure and rising food
prices. This has pushed these communities, who have historically
depended on consistent rains for irrigation, deeper into poverty.
Note: National Geographic says that the Nile is now considered the
longest river in the world. At one time, the Para River was considered
Kn
to be part of the Amazon’s mouth, so when added to the length of the

Amazon, its distance exceeded that of the Nile. Most geographers now
agree that the opposite is true, that the true mouth is on the north side
of the Island of Marajo, where it flows straight through the Canal de
Norte and out into the Atlantic. The length of Nile River is 4,238 miles
(6,825 kilometers), while that of Amazon River is 4,000 miles (6,437
kilometers).
Why is the most beautiful and isolated region most troubled?
Ethiopia’s Wild West is sparsely populated but is a hotspot of

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disturbances and disagreements at

the local and international levels.
From the controversial
construction of the Grand
Ethiopian Renaissance Dam
(GERD), Africa’s biggest
hydroelectric power plant, to Addis Ababa’s alleged removal of
tens of thousands of locals to lease out the land to foreign
ly
agribusinesses, tension hangs heavily over the area.
The fear of locals when the topic of land acquisition is broached is
acute. “You have to understand there are things we cannot talk
pi about. These are the questions that get you into trouble.” Samuel,
a restaurant chef in Injibera, told BBC’s Peter Schwartzstein.
Schwartzstein added, “He was not exaggerating. Days later,
security forces raided my hotel room, taking only my reporting
ap
pads (and some of my Snickers stash). On another occasion, I was
turned back at a police roadstop near Chagni while trying to reach
some of the largest chunks of confiscated farmland.”
GERD has had the strongest impact on the current situation in this
region - it has fuelled optimism and alarm.
Kn
Several Ethiopians view it as a concrete path to progress

following their country’s emergence from the famine crises of
the 80s and 90s. There is anticipation across western Ethiopia.
But go downstream and the mood is drastically different. A
majority of this area is desert and depends on the river to meet
more than 95 percent of its water needs. The possibility that
GERD might reduce Nile’s flow is considered an existential
crisis here.
A 1959 treaty between Egypt and Sudan known as Nile Waters
Agreement allocated Egypt 55.5 billion cubic meters of water

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annually and Sudan, 18.5 billion cubic meters. But the treaty was
signed before the upriver states of Uganda, Rwanda, Burundi, and
Kenya became independent. This has caused upstream states to
challenge the treaty’s validity in today’s situation.
Though Egypt had maintained it would not allow Nile politics to
escalate to war, threats of war have been issued by Cairo and fierce
tensions on both side.
Some issues from GERD whose stated crucial benefit will be
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hydropower production which will be channeled to support the
development of the whole country, were brought up in a 2015
convention of experts from around the world
pi GERD is the second large reservoir on the Nile after the Aswan
High Dam. The countries of Egypt and Ethiopia should implement
a plan to coordinate the operation of both dams, to allow for fair
sharing of Nile waters during reservoir-filling and extended
ap
drought.
The risks arising from possible failure of the “saddle dam” meant
to prevent water stored behind the GERD from spilling out of the
reservoir’s northwestern end need to be foreseen to the fullest and
carefully addressed.
Kn
The concentration of salts in agricultural lands of the Nile Delta

could escalate; also, Egypt will confront reduced water supply.
Note: As of August 2017, the work stood at 60% completion. After
completion, the reservoir will take from 5 to 15 years to fill with water.
When else has river pollution taken
its toll?
In Fuwwah, a small fishing town
around 150 km north of Cairo, dead
fish has become a common catch.

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Even as they overwhelm the shores

every January, the government evades responsibility.
The fate of these fish dictates the fate of thousands of jobs and of
the feasibility of a once thriving industry that at its prime, exported
abroad and fed thousands of Egyptians.
The General Authority for Fish Resources Development, the
government body in charge of developing national fish resources
says Nile resources do not come under it, and holds the Ministry of
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Irrigation responsible. The ministry in turn holds the fishermen
responsible.
The government brought silver carp to the Nile in the 80s, as a
pi measure to wipe off water pests - mainly plankton - and prevent

schistosomiasis (a parasitic disease caused by freshwater snails
and worms).
Fishermen realized that the population of silver carp grew
ap
faster than that of other fishes and that they were simpler and
cheaper to breed. They put them in cages and fed them with
poultry waste which led to river pollution. They also planted tree
trunks on river banks allowing them to decay and serve as
favorable habitat for fish to lay eggs. This led to oxygen depletion
in the water and worsened the damage.
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The irrigation ministry attempted to address river pollution in 2013

by introducing the Nile Protection Act which criminalized fishery
cages and punished those found violating the law
“The Ministry of Irrigation did not consult with us on the matter,
nor did they give us time to find solutions”, said a fisherman. He
told Worldcrunch that to escape raids, fishermen hide the cages in
deeper water - this renders the fish hidden but also kills several of
them due to lack of oxygen
But the larger reason lies in the city’s high vulnerability to

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pollution, said Kawthar Hefny, head of the central department for

crisis management at the Egyptian Environmental Affairs Agency.
The gradual flow of water toward the end of the Rosetta
branch — the tributary along which Kafr al-Sheikh sits —
enables pollution to build and greatly hurts the river’s
ecosystem, pushing fish species like the Nile toward extinction.
High concentration of ammonia in the water is another issue.
Hefny said absence of a sewage system for expanding
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communities in Kafr al-Sheikh means human waste goes
directly into the river.
During late December and early January, the “winter closure”, in
which the irrigation ministry reduces the flow of water through the
pi Aswan Dam for up to 40 days happens. The reason given is that

winter crops need little water, which causes the ministry to lighten
the burden on its irrigation canals and treatment plants. It also
means lesser water to dilute pollutants at this time, a time when the
ap
fish die.
When Ahmed Farouk, assistant professor at Kafr al-Sheikh
University’s faculty of aquatic sciences and fisheries and part of a
university committee that tests the water, went to the contaminated
areas, he realized the effect has spread. In 2016, the committee
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also discovered dead tilapia, the fish most widely eaten in

Egypt, which is the second large producer of this fish.
The government’s response was delayed. While Hefny said the
ministry among several other safety measures will conduct regular
testing of water samples and monitor factories near the Nile,
fishermen, locals and NGOs are skeptical. One NGO, the Habi
Center for Environmental Rights, said government targeted
only fishermen, without approaching the root causes of
pollution.
A report by the Egyptian Initiative for Personal Rights noted that

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the 2013 amendments forbid dumping untreated industrial waste

into fresh surface water and groundwater reservoirs. But they do
not mention non-fresh surface waters, thereby providing a
loophole for factories to discharge untreated industrial waste
into other waterways, including irrigation canals that
eventually stream into the Nile. The report also highlighted weak
oversight and poor enforcement of existing measures.
Even the fish resources development authority owns a fish farm
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next to the water treatment facility which serves most of Kafr al-
Sheikh and Beheira. Waste from that farm has been noted inside of
the water plant.
While doctors warn citizens to avoid consuming tap water,
pi people are forced to make do with boiled tap water, placing

public health at risk.
Also, fish traders are at risk of losing their jobs. With shortage of
fish, poultry and meat prices have risen. Even consumers of fish
ap
are at risk as organic pollutants and poisons can be passed through
the food chain.
Where else is human impact felt?
Khartoum, the capital and largest
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city of Sudan, is situated at the

meeting place of the Blue Nile, flowing
from Ethiopia westwards, and White
Nile, flowing from Lake Victoria,
northwards. As the first meeting point of the river with a crucial
metropolis, this marks the place where Nile’s water begins to decline
in quality.
Greeted with sewage the moment it arrives into the city, Nile
through Khartoum is a glaring example for how population
explosion can hurt the water’s health.

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Population boom has occurred in Ethiopia, Egypt, Uganda, Sudan

and South Sudan and the basin’s overall population rose from 53
million in 1950 to 300 million now and is set to reach 500 million
by 2050.
“We’ve always treated the river badly, we’ve always assumed it
was big enough,” said Youssef Abugroun, an engineer and part-
time fisherman, whose regular evening sessions now raise around
10% of his catch a decade ago. “But maybe we’re just too many for
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that now.”
To a large extent, other booming cities pose the same problems as
Khartoum. The municipal wastewater system falls severely short
against the tremendous expansion of the city.
pi This has allowed factories to throw everything from toxic waste

to exotic animal remains into the fast-dirtying river.
The aggressive suppression of civil societies in Sudan has
worsened the situation. Imprisonment of a consumer protection
ap
group in 2014 for its persistent voice has made other
environmentalists cautious. “We do advocacy, sometimes we go to
court against government actions,” said Mutasim Bashir Nimir of
the Sudanese Environment Conservation Society (SECS) to BBC.
“But we need to balance. We try to survive.”
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Who are at their wit’s end?

Through the Sahara, the Nile takes on a
languid flow and arrives at Karima
(Sudan), considered the hottest town on
the river.
Farmers here have endured with
nature’s and humans’ harshness. By noon, when the temperature
reaches 45 degree centigrade, they grow fruit and vegetables, most
which can survive under the thick trees canopies planted with this

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in mind.
When the erratic power supply is cut – an occurrence increasingly
common since the turbines of Roseires and Sennar dams clogged
up with Ethiopia’s Nile sediment, they switch on their diesel
generators to operate their water pumps.
They have successfully navigated every challenge so far
Now, the desert is encroaching upon the narrow farmable
stretch of land along at a pace never known before. With sands
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menacingly advancing, conventional preventive efforts like
planting deep-rooted mesquite trees or stringing up fences of
yellowing palm leaves around fields are rendered ineffective.
pi The desert is greedily engulfing farms whole.

Climate change seems to be the primary driver and the
encroachment and is taking place up and down the Nile valley.
Temperatures too have hit new highs, increasing evaporation rates.
ap
In northern Sudan, the tipping point has arrived, mainly
because young farmers whose labour is instrumental in fighting the
desert’s advance have been bribed away with the hope of greener
pastures at nearby gold mines. This has led to significant
relocation.
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The land around Karima is a center for cultivation of Barakawi

dates. The hill farmers who have suffered long and battled through
tough times confront the crisis too and wonder if it is worth holding
on.
“ In the past, summer was summer, and winter was winter, but now
everything’s mixed up, ” said Awad Hawran, who grows mangoes,
sugar cane, dates, and watermelons on a one-and-a-half acre plot aside
the Nile. “ It’s hard to continue farming when even the desert and
weather are against you. ”

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How has friction fuelled the crisis?

Farmers are expressing concern over the
scarcity of water in the northern Delta, the
triangle where the Nile spreads out and
drains into the sea and where Egypt grows
most of its crops. As GERD approaches
completion, authorities in Cairo have enhanced their strategic
positions; procuring two French Mistral long range-strike
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warships in a move analysts believe is at least partly calculated to
send a message to Ethiopia.
“All options are on the table,” said Ahmed Abu Zeid, the foreign
pi ministry spokesman and a former Nile talks negotiator, when asked

whether military action remains an option. “The Nile is everything
to us - what we drink, what we eat,” said Ali Menoufi, from the
Ministry of Water Resources. “It would be a disaster if anything
ap
happened to it.”
Though past experiences record peaceful resolutions over
transboundary water quarrels and Egypt seems to have come to
terms with GERD, Ethiopia’s severe secretiveness over the
project’s ramifications remain an obstacle, as do negotiations over
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time taken to fill the dam’s reservoir.

And the verbal war has taken on troubling forms
Ethiopian Oromo refugees in Egypt report increased harassment
whenever GERD captures headlines. Some Ethiopian monasteries,
including Lake Tana’s island churches, which have traditionally
enjoyed strong ties with their Coptic Orthodox brethren, have cut
off relations, sending Egyptian monks home.
As Sudan leases millions of acres of fertile Nile land to Gulf Arab
agribusinesses, the path becomes even more trouble-ridden.

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“We worshipped the river, but now we want nothing to do with

it,” said fisherman Khamees Khalla. “We all have the same tactic -
get as far away from the river as possible.”
Crime and illegal activities have risen in the fishing town of
Rosetta as fishing is a dwindling opportunity. Mohammed, a
Rosetta-based fisherman, who has ferried migrants and refugees part of
the way to Europe, and has twice nearly been caught said, “I would
prefer to make my living from the Nile, like my father, like my father’s
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father, but that’s just not possible any more,” he said.
—– | —–
pi
ap
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CLIMATE CHANGE / US reaffirms exit from

Paris Climate Accord
5-Aug-2017
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pi The United States has issued a written notification that the US intends
to withdraw from the 2015 Paris climate agreement. Interestingly, the
ap
US state department said Washington would remain in the “talks
process”. President Donald Trump drew international condemnation in
June when he announced the US intention to withdraw. He said the
deal would cost millions of American jobs. But the rest of the world is
determined to save the accord – and the world.
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What is the notification about?

The Trump administration has outlined the
United States’ intention to withdraw from
the Paris climate change agreement in an
official notice delivered to the United
Nations on August 4.
It was the first written notice to the U.N. that the administration
plans to pull out of the 2015 pact, which has won the support of
nearly 200 nations.

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“Today, the United States submitted a communication to the

United Nations in its capacity as depositary for the Paris
Agreement regarding the US intent to withdraw from the Paris
Agreement as soon as it is eligible to do so,” the US statement
read.
But the State Department's announcement doesn't formally
start the process of the U.S. getting out of the voluntary
agreement. That's still to come.
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President Donald Trump surprised the world in June when he first
announced the US intention to withdraw from the landmark climate
deal. He said the deal “punished” the US and would cost “millions
of American jobs”.
pi Trump also cited unfair standards between developing and

developed nations. “I was elected to represent the citizens of
Pittsburgh, not Paris,” the president said at the time.
Trump indicated he was open to another climate deal “on terms
ap
that are fair to the United States.” However key signatories to the
accord quickly ruled that out. The Paris Agreement took
decades to finalise.
Earlier this week, two studies concluded that global temperatures are
likely to rise more than 2 degrees Celsius (3.6 degrees Fahrenheit) by
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the end of the century - a symbolic threshold the Paris agreement

explicitly seeks to avert.
Why is there reason to remain
positive?
The Trump Administration pledges to
stay engaged on the issue of climate
change. State Department indicated it
would remain somewhat engaged on
the issue of climate change, announcing plans to participate in a major

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international climate conference in November.

“The United States supports a balanced approach to climate policy
that lowers emissions while promoting economic growth and
ensuring energy security,” the State Department said in a statement
to reporters announcing the UN notification.
“We will continue to reduce our greenhouse gas emissions through
innovation and technology breakthroughs and work with other
countries to help them access and use fossil fuels more cleanly and
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efficiently and deploy renewable and other clean energy sources,
given the importance of energy access and security in many
nationally determined contributions,” the statement added.
pi In the June speech in which Trump announced he would pull out, the
president held out the possibility that the U.S. would “begin
negotiations to re-enter either the Paris accord or a really entirely new
transaction on terms that are fair to the United States.”
ap
When Trump visited Europe for the G20 in July, many leaders
sought to lobby him on the issue. French President Emanuel
Macron took it upon himself in particular to try and persuade
Trump that his decision was wrong.
He even invited Trump to attend Bastille Day in Paris as his special
Kn
guest, where the two men discussed the issue. At a press

conference with the two leaders, Trump said: “Something could
happen with respect to the Paris accords, let's see what happens”.
With Trump, something is always a possibility.
When do we appreciate the
significance of Paris 2015?
Climate change, or global warming,
refers to the damaging effect of
gases, or emissions, released from

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industry, transportation, agriculture

and other areas into the atmosphere. The Paris accord aims to limit
the global rise in temperature attributed to emissions. Only Syria
and Nicaragua did not sign up.
Key features and aims
To keep global temperatures “well below” 2.0C (3.6F) above pre-
industrial times and “endeavour to limit” them even more, to 1.5C
To limit the amount of greenhouse gases emitted by human activity
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to the same levels that trees, soil and oceans can absorb naturally,
beginning at some point between 2050 and 2100
To review each country's contribution to cutting emissions every
pi five years so they scale up to the challenge

For rich countries to help poorer nations by providing “climate
finance” to adapt to climate change and switch to renewable
energy.
ap
In the Paris Agreement, each country determines, plans and regularly
reports its own contribution it should make in order to mitigate global
warming. There is no mechanism to force a country to set a specific
target by a specific date, but each target should go beyond previously
set targets.
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When do we see the opportunity for India and China?

Commentators feel that the US exit from the Paris Agreement has
paved the way to global climate leadership for China and India. India
and China are countries that have both displayed immense credentials,
commitment and leadership potential by taking affirmative action in
significantly reducing carbon emissions.
Particularly in the matter of climate governance, China has been
seen making a shift from its insular foreign policy towards a
more internationalist stance.

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The US’s withdrawal from the Paris Agreement has hastened

China’s alliance with the European Union (EU) to lead the
transition to a low-carbon economy.
President Xi Jinping’s push for a $900 billion Belt and Road
project to create markets for Chinese solar panels and wind
turbines, massive investments in renewable energy and cutting
down on coal dependence are all evidence of Chinese aspiration for
attaining influence on world stage.
ly
Though China’s climate action is commendable, however, the country
is not in a position yet to independently assume the leadership that
climate governance requires.
pi First, despite its aggressive efforts in climate action, China

remains the world’s largest greenhouse gas (GHG) emitter,
contributing twice the amount of emissions compared to the
US. This does not leave China in a principled position to pursue
ap
other countries to take up more ambitious climate targets.
Second, for a long time now, China has followed a hands-off
approach in regional and global diplomacy. Tackling climate
change and reforming global energy systems would require a more
assertive leadership, as well as propose ambitious climate goals in
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future - a position where China is yet to demonstrate requisite

potential.
Third, until as recent as 2011, climate scepticism dominated the
national discourse in China. Climate change was largely seen as a
“western conspiracy to constrain the development of China and
other developing nations”. Climate change has primarily been
viewed by China’s policy establishment through the lens of
managing US-China relations. This raises doubts about China’s
commitment to active climate leadership.
Enter India

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Between the US withdrawal and China’s dubious climate

credentials, immense opportunities exist for India to
counterbalance the existing climate leadership equilibrium. India’s
Prime Minister Narendra Modi has vowed to go “above and
beyond” the Paris Agreement on climate change. This is indicative
of India’s intention for a decisive leadership on Climate Change on
a global scale.
India is already on the path of clean energy revolution and is
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making significant accomplishments in achieving its pledge to the
Paris Agreement. As a strategy to reduce its emission, India has
embarked on a massive renewable energy program. Upscaling the
National Solar Mission, India has set a target of 100 gigawatts
pi (GW) of installed solar energy capacity by 2022. This is five

times higher than the original 20 GW target.
India also recently became the fourth largest producer of wind
energy in the world and announced plans to cancel 14 GW of coal
ap
plants.
Indeed, India is currently in a strong position not only to meet, but
exceed its Paris climate targets.
Where are the reasons for US pullout?
Kn
Many reasons have been given for

Trump’s decision to pull out of the Paris
Agreement. The first relates to the US
economy, which is evident in Trump’s
statement that “the agreement is less
about the climate and more about other countries gaining a financial
advantage over the United States and it had disadvantaged the US to
the exclusive benefit of other countries leaving American businesses
and taxpayers to absorb the cost.”

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Trump believes that “the concept of global warming was created

by and for the Chinese in order to make U.S. manufacturing non-
competitive.” Announcing the decision to withdraw from the
Agreement, Trump complained about the unequal treatment
meted out to the US in the pact.
He said: “China will be allowed to build hundreds of additional
coal plants. So we can’t build the plants, but they can, according to
this agreement. India will be allowed to double its coal production
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by 2020. We’re supposed to get rid of ours.”
It is argued that if the US implements the regulations to comply
with the Agreement, it will severely affect the carbon-based
industries in America and, consequently, its economy and quality
pi of life.
According to the Heritage Foundation, implementing the Paris
agreement would result in “increased U.S. electricity expenditures
of 15-20 percent over the next decade, 400,000 fewer American
ap
jobs, a total income loss of over $30,000 for an American family of
four, and a loss of over $2.5 trillion in U.S. gross domestic
product.”
Exiting the agreement will also help Trump withdraw from the
multilateral financial commitments made by his predecessor. At
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Paris, the Obama government had not only promised a 28

percent cut in US greenhouse emissions by 2025 but also
pledged USD 3 billion to the Green Climate Fund (GCF),
which aims to help developing countries deal with global
warming.
In his ‘America first’ budget blueprint in March 2017, Trump
proposed a 20 percent cut in US funding to the UN climate body,
the Framework Convention on Climate Change (UNFCCC).
Another factor in Trump’s decision is pressure from the coal
lobby as well as from advisors. Like Trump, many in the White

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House believe that the Paris Agreement is “a bad deal for the US”
and further that climate science itself is “deliberate
misinformation.”
Environmental Protection Agency (EPA) Chief Scott Pruitt, White
House Chief Strategist Steve Bannon, and Attorney General Jeff
Sessions are some of the prominent climate change deniers in the
Trump administration. They also believe that the Paris deal is
one-sided and that “the U.S. is shouldering the burden of billions
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of dollars whereas countries like China, India, and Russia will
contribute nothing.”
In April 2017, when he visited Harvey Mine in Pennsylvania, a
part of Bailey Mine Complex, the US’ largest underground mine,
pi Who
Scott Pruitt talked about the “Back to Basics” agenda of the
Trump administration against Obama’s “Clean Power Plan.”
is engaging in pointless
ap
symbolism?
This latest move is largely symbolic,
solidifying the administration's plans to
the international community. Trump
announced in June that the U.S. would
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leave the agreement.

The notification comes two months after President Donald Trump
announced his intention to leave the accord, fulfilling a longtime
campaign promise and rejecting appeals from other world leaders to
stay in the deal.
U.N. spokesman Stephane Dujarric confirmed that Secretary-General
Antonio Guterres received “a communication” from U.S. Ambassador
Nikki Haley “expressing the intention of the United States to exercise
its right to withdraw from the Paris Agreement, as soon as it is eligible

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to do so under the Agreement, unless it identifies suitable terms for

reengagement. “The secretary-general welcomes any effort to re-
engage in the Paris Agreement by the United States,” he said.
Under the terms of the Paris deal, the U.S. can’t fully withdraw
until Nov. 4, 2020 — one day after the next presidential election.
The next president could decide to rejoin the agreement if Trump
doesn’t win a second term.
In addition, the U.S. can’t even formally notify the United
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Nations that it is withdrawing until 2019. As a result, Friday’s
notice is a largely symbolic statement with no legal weight.
International diplomats are still holding out hope that Trump might
pi change his mind, or reach some kind of compromise that would

allow the United States to stay in. And they argued that Friday's
statement leaves some wiggle room for the U.S. to remain.
No matter what the U.S. does, the Paris agreement remains in
ap
effect because enough other countries ratified it.
It remains unclear what the Trump administration’s next steps might
be.
How may this proceed?
A domino effect, prompting other
Kn
signatories of the accord to leave or

reconsider their efforts and expenses of
cutting emissions, is the first scenario
that emerges when we reflect upon the
future of the Paris agreement after the US pull out.
The second possibility is exactly opposite to the first. In the
absence of the US, which almost always plays a significant role in
building multilateral treaties and regimes, other countries may
come forward to fill the leadership vacuum.

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One should also not discount the possibility of Trump pushing for a
renegotiation of the Agreement. Chances are higher for such
renegotiations since that would be the only win-win option for
both the US and the rest of the world. However, such a
development would mean global recognition of the fact that the
future of climate negotiations will be dark without the US, the
second largest greenhouse gas emitter and the major contributor to
the Green Climate Fund.
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And for its part, the Trump administration needs to reconsider its
position that climate change is a hoax and instead accept it as reality.
—– | —–
pi
ap
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CLIMATE CHANGE / It’s not aid, stupid
6-Jun-2017
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pi India has hit back at U.S. President Donald Trump after he suggested
India’s decision to sign the Paris climate change agreement was
financially motivated. Trump, who withdrew the U.S. from the Paris
ap
deal last week, claimed New Delhi would receive “billions and billions
and billions of dollars in foreign aid from other nations” if it signed the
agreement. Knappily examines India’s past foreign aid needs and its
current status as a net foreign aid donor.
What is India refuting?

Kn
India on Monday rejected U.S.

President Donald Trump's
comments that it had linked its
accession to the Paris climate
control accord to receiving
foreign aid and said it was committed to protecting the
environment on its own.
Trump withdrew the United States from the 2015 agreement to cut
emissions saying it undermined the U.S. economy, cost U.S. jobs,

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and put it at a disadvantage to other nations.

He also complained that China and India were getting favourable
terms under the accord, saying New Delhi had made its
participation contingent on receiving “billions and billions and
billions of dollars in foreign aid” from developed nations.
India’s Foreign Minister Sushma Swaraj has firmly asserted that
India was not in the Paris accord for money or because it had
faced pressure from other countries.
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“Anyone who says we have signed Paris because of the lure of
money, I reject that as baseless. This is not the reality,” she told
reporters. “Our signature is not out of greed or fear.”
pi India is the world's third-biggest emitter of greenhouse gases that

cause global warming. It has said it remained committed to
carrying out its obligations under the accord despite the U.S.
Swaraj said India had a long tradition of respect for the environment.
ap
“Our commitment to the environment is 5,000 years old. We are a
people who worship rivers, mountains, trees.”
Why are Trump’s claims against India
factually wrong?
Trump was never expected to offer any
Kn
cogent reasons for pulling the United

States out of the Paris Agreement on
climate change, but what he came up with,
on Thursday night, was not even factually correct, especially his two
references about India.
Trump’s main justification for walking out of Paris Agreement was
that it was “unfair” to the United States, and that it did not put
similar level of obligations on “top polluters” like China and India.
He went on to claim that India was participating in the Paris

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Agreement because it wanted billions of dollars in foreign aid

from donor countries.
At another point, he said India “will be allowed to double its coal
production by 2020” while the United States was being asked to
“get rid of ours” .
Both his assertions are far from being true. India’s participation in
Paris Agreement is not contingent on even a single dollar of
foreign aid.
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Neither is any other country’s participation.
As part of its contribution to the global fight against climate change,
India had promised to achieve three main quantifiable targets.
pi It had said it will reduce its emission intensity — emissions per

unit of GDP — by 33-35 per cent from 2005 levels by the year
2030.
It had also promised to increase its forest cover to create an
ap
additional carbon sink of 2.5 to 3 billion tons of carbon dioxide
equivalent by the year 2030.
The third promise was to ensure that at least 40 per cent of its
total installed electricity generation capacity would comprise of
non-fossil fuel sources.
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None of these goals is backed by any foreign “aid”. In fact, India had
said it would be in a position to scale up the ambition of its targets
if it was in a position to access international finance and
technology.
Trump’s second reference to India was also dubious. India might be
“allowed” to double its coal production by 2020 — no country,
including the United States is banned from doing this under the
provisions of the Paris Agreement — but has no such plans.
India’s current annual production of coal is between 650 and

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700 million tons. Until a couple of years earlier, the domestic

demand for coal was slightly higher and coal used to be imported.
But more recently, the coal demand has gone below the amount of
production, thereby building up of stocks.
With not many new coal power plants being set up, the demand is
unlikely to reach levels where India would have to double its
production to around 1.2 to 1.3 billion tons every year.
In fact, the draft National Electricity Plan of 2016, finalised a
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year after Paris Agreement, clearly says that no additional coal-
based power plant would be needed to be set up beyond 2022,
after the current set of under-construction projects become
operational.
pi Interestingly, US, even in the current phase-down mode of its coal

power plants, still produces more coal than India every year.
Clearly, Trump ignored the fact that US continues to be the world’s
ap
biggest polluter historically by a long distance even though China
now emits more every year than the US. He ignored the fact that
many others, like the European Union or Brazil or even India, had
far more ambitious action plans on climate change than the US.
As part of the Paris Agreement, the United States had offered to
Kn
cut down its emissions by 26-28 per cent from 2005 levels by the
year 2025. That roughly translates to a 17 per cent cut from 1990
levels.
The European Union, which emits far less than the United States,
has a target of 40 per cent cuts from 1990 levels.
Brazil, a much smaller emitter and a developing country with far
less resources, has promised to reduce its emissions by 37 per cent
from 2005 levels by the year 2025 and 43 per cent by 2030.
When do we find the assumption that India needs foreign aid

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unreasonable?
Trump's claim that India was
seeking “billions and billions and
billions” was typical of the
hyperbolic falsehoods he often
indulges in.
Total foreign aid to India in 2015 was only $3.1 billion. The
largest provider of aid to India in 2015-16 was the Global
ly
Fund, the international financing organisation that gives aid to
fight HIV/AIDS, Tuberculosis, Malaria and other diseases that
provided Rs 1477.72 crore. The second largest donor is the
pi European Union.
The other top donors include World Bank, Japan, Germany, Asian
Development Bank, United Kingdom, France, and the United
States.
ap
US aid to India was only around $100 million. This is being
whittled down to $34 million in 2018, pocket change for one of
India's unicorns.
Compared to the peanuts in US aid (which New Delhi prefers is
completely stopped), India buys $100 million worth of
Kn
California almonds alone every year, besides billions in

armaments. India also receives many times more in foreign
investment and remittances than foreign aid.
But this is not the first time a developed country has pointed out that
India receives foreign aid. Britain had in February this year mocked
that India received £279 million in 2014 alone – despite the fact the
country has its own space program and is planning to spend £10bn
on a fleet of warships. Plans are in place to give India a further
£130million in “technical assistance” by 2018.

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India’s High Commissioner to the UK, in a fitting reply, had then

said, India never asked Britain for hundreds of millions of pounds
in foreign aid and doesn’t even need it.
“We are grateful for any assistance we received in the past or will
get in the future. But if it suddenly stopped would it make a huge
difference? No. Did anyone in the Government of India ask for
assistance? No,” he had said.
“India has developed over the last 70 years in ways unimaginable
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to my parents’ generation. In the 1960s and 1970s we required a
lot of assistance. We were importing food grains. Now we’re
exporting,” he had said.
Interestingly, the United Kingdom, the former colonial rulers
pi of India, have the balance sheet in negative for the year 2016-17
in foreign aids. They are the net recipient of foreign aid.
Moreover, foreign aid is not the charity that the rich countries
ap
occasionally do.
In the contemporary times, it is used as a strategic tool for various
ends – consolidation of donor’s status of regional, continental or
global power, strengthen cultural or diplomatic relations, to reward
the recipient country for favourable decisions/actions, to provide
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infrastructure needed by the donor for resource extraction from the

recipient country or to gain other kinds of commercial access.
In fact, as reported by The Guardian, India’s decision to buy
French Rafale jets rather than the Eurofighter Typhoon gave
rise to accusations of ‘ingratitude’, as India seemingly did not
return the favour of receiving hundreds of millions of dollars in
aid.
British International development secretary Andrew Mitchell even
admitted that the focus of aid to India included ‘seeking to sell the
Typhoon’ – in violation of the stated rationale of British overseas

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aid, to fight poverty and promote health and education.

Where was India placed right after
independence?
India was once the world’s largest
foreign aid recipient with some $55
billion funneled to the country
between 1951 and 1992. It needed aid,
a lot of it, back then.
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In 1947, undivided India had a population of 390 million. But
overnight, on August 15, India was responsible for the destiny of
330 million people.
pi A majority of these 330 million people were rural, quite poor,

illiterate, and had a very short life expectancy.
For decades, as India made its haphazard transition from being a
British colony to an economic powerhouse, it depended heavily on aid
ap
from prosperous nations and international institutions.
In 1958, for instance, Britain offered India some ₤40 million in
foreign aid, as India struggled to build a nation and implement its
second five-year economic plan.
British Treasury officials referred to the “long-term problems of
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Indian development” when announcing the package.

For food, India relied on supplies from the United States under
Public Law 480 (PL-480) against rupee payments, as India did not
have much foreign exchange to buy large quantities of food in
international markets.
The folly of this set-up became apparent in the mid-1960s, when
the US suspended wheat supplies temporarily (due to some
political differences) at a time when India was facing back-to-back
droughts and the country was literally living from “ship to

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mouth”.
India was quick to learn from its PL-480 mistake and neglect of
agriculture. It realised that its political freedom could be imperiled
if it was not self-reliant in basic food production.
But all of India’s foreign exchange reserves in the mid-1960s
could not buy more than eight million tons (mt) of wheat in the
international market, while it was importing 10 mt under PL-
480.
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So, India did not have much of an option but to become self-sufficient
in the production of basic staples. India imported 18,000 tons of high
yielding varieties (HYV) of wheat from Mexico in 1966, and ushered
pi in the Green Revolution.

Who was responsible for India's
poverty?
Two hundred years of British Raj
ap
reduced India from one of the
richest and powerful nations in the
world to one of the poorest.
The constant flow of wealth from India to England for which India
did not get an adequate economic, commercial or material return
Kn
has been described by Indian national leaders and economists as

‘drain’ of wealth from India.
The colonial government was utilizing Indian resources- revenues,
agriculture, and industry not for developing India but for its
utilization in Britain. Had these resources been utilised within
India, they could have been invested and the income of the people
would have increased.
The drain of wealth was interpreted as an indirect tribute
extracted by imperial Britain from India year after year.

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Dadabhai Naoroji was the first man to say that internal factors were
not the reasons of poverty in India but poverty was caused by the
colonial rule that was draining the wealth and prosperity of India.
The drain of wealth was the portion of India’s wealth and economy
that was not available to Indians.
In 1867, Dadabhai Naoroji put forward the ‘drain of wealth’
theory in which he stated that the Britain was completely draining
India. He mentioned this theory in his bookPoverty and Un-British
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Rule in India. He put forward the idea that Britain was draining
and bleeding India and that, too, for nothing.
Further in his book, he stated the loss of 200-300 million pounds of
pi revenue to Britain. Dadabhai Naoroji considered it as a major evil

of British in India.
Naoroji observed in 1880, “It is not the pitiless operations of
economic laws, but it is thoughtless and pitiless action of the
ap
British policy; it is pitiless eating of India’s substance in India
and further pitiless drain to England, in short it is pitiless
perversion of Economic Laws by the sad bleeding to which India
is subjected, that is destroying India.”
John Sullivan, President of the Board of Revenue, Madras, had written,
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“Our system acts very much like a sponge, drawing up all the good
things from the banks of the Ganges, and squeezing them down on
the banks of the Thames.”
More recently, Shashi Tharoor during his book launch - ‘An Era of
Darkness: The British Empire in India’ - said, “ The truth is that prior
200 years, the British entered to one amongst the richest nations in
the globe - a nation which had 23% of world GDP… a nation where
deficiency was not present.”
He went on to say, “A nation that was the global king in at least

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three industries - steel, textiles, and ship building. A nation that

possessed almost all everything…and post 200 years of
expropriation, exploitation, and clean straight looting, this nation
was lowered to one amongst the poorest nations in the globe by the
time the British left the nation in 1947.”
The debt is on the British
Around two and a half million Indians fought alongside British
forces in the Second World War, helping to defeat Hitler’s
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forces in North Africa and halting the advance of Japanese
troops at Kohima in north-east India in heroic hand-to-hand
combat.
pi By the end of the war Britain owed £1.25 billion of its total £3
billion war debt to India, but also much more that could not be
quantified.
Since the Brits never bothered to pay that debt back to India, they can
ap
be considered a thankless defaulter. But yes, in return they ‘civilized’
the country that gave birth to the world’s earliest civilization.
How has India transformed into a
donor while she still receives aids?
From one of the highest recipient of
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multi-lateral development aid, India has

quietly transitioned into the role of
provider as in the last three years it has
given more aid to foreign countries than it has received. In the
financial year 2015-16 India gave Rs. 7719.65 crores as aid
whereas it received Rs. 2,144.77 crore in aid from foreign countries
and global banks.
South Asia is one of the major recipients of aid from India. India
emerged as a benevolent donor for her immediate neighbours with

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total foreign assistance, including technical and economic

cooperation, and loans to foreign governments, increasing
dramatically over the past years.
During 2009-10, India provided US$ 383.01 million in aid and
loans to South Asian countries (except Pakistan), which has
expanded to US$ 1,149 million in 2015-16.
Out of India’s total foreign aid budget in 2015-16, about 74.6
percent was pledged for Bhutan, followed by 9.1 percent for
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Afghanistan, 6.6 percent for Sri Lanka, 4 percent for Nepal and
2.8 percent each for Bangladesh and Maldives.
The pattern of aid allocation in South Asia has however remained
constant during 2009/10 — 2015/16, with Bhutan continuing its
pi reign over the aid budget.

It should be clear that aid by India to smaller nations in the
neighbourhood also goes beyond altruism. The relative shares of
ap
these economies in the aid outlay indicate their reliance on India on the
one hand, and India’s strategic and economic interests in them on
the other.
Bhutan has remained India’s unfailing priority because of its
strategic location, its dependence on India and its hydropower
Kn
potential.
Bhutan holds greater significance for India as it is an important
source of India’s imports of electricity, base minerals, cement,
chemicals and wood products.
Particularly, hydropower electricity is central to cooperation
between India and Bhutan. Developing large hydropower projects
in Bhutan is in India’s economic interests as it gets easy access to
cheap electricity, especially during times of power shortages.
Driven by similar interests, India has endeavoured to strengthen
relations with Afghanistan, which provides an easy route to Central

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Asia — the hub of energy, minerals and gas resources and access to
markets in the Middle East and Europe.
India’s foreign aid activities are mainly focused on reconstruction
and development of Afghanistan, which would provide security
and economic benefits to India in the longer term.
India is also funding various infrastructure development projects in Sri
Lanka, Bangladesh, Nepal and the Maldives.
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These are typically ‘aid for trade’ projects as they aim at
developing these countries’ trade capacity and infrastructure
(roads, sea ports and airports), which significantly alters the time
and costs of trading with them.
pi Due to limited transport arrangements connecting countries in

South Asia, trade costs (or transport costs) are typically high for
traders in this region.
India intends to reduce the cost of trading by directing aid
ap
towards improving regional transport connectivity, especially
between north-eastern states in India and landlocked countries like
Bangladesh, Bhutan and Nepal.
Enhancing connectivity among countries in South Asia fosters
regional growth and prosperity.
Kn
It should be highlighted that foreign assistance from India however

does not promote a culture of pauperization (or absolute
dependence) in the recipient country as advocated by traditional
foreign aid theorists.
India’s aid strategy in South Asia rests on tenets of common
development, equality and mutual benefit. In addition, Indian
aid projects provide autonomy to the recipients as these are based
on a demand-driven approach wherein aid-receiving countries
identify priority sectors for investment and development

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cooperation.
These sectors are predominantly energy and transport, which are
pivotal to development of the entire South Asian region.
India’s aid strategy in South Asia is focused on enhancing the
export potential of the recipients’ priority sectors by providing
them support in the form of technical knowledge, capital resources,
capacity building etc.
Indian aid programs also do not interfere with recipient’s domestic
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policies and respect their sovereignty.
—– | —–
pi
ap
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CLIMATE CHANGE / Above and beyond Paris
4-Jun-2017
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pi India and France vowed to work together for the successful
implementation of the landmark Paris climate agreement and fight the
challenge posed by terrorism, as Prime Minister Narendra Modi met
ap
newly-elected French President Emmanuel Macron. The meeting,
which came days after U.S. President Donald Trump withdrew from
the Paris Agreement, was dominated by discussion on climate change,
which Modi called the “biggest threat facing humanity, along with
terrorism.”
Kn
What were the outcomes of Modi’s

France trip?
Prime Minister Narendra Modi and
French President Emmanuel Macron
not only recommitted their countries to
the Paris climate accord but also
referred to global responsibilities in veiled criticism of US President
Donald Trump's withdrawal from the pact.
Modi vowed after meeting French President Emmanuel Macron on

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Saturday to “continue working above and beyond” the Paris

Agreement on climate change, two days after Donald Trump had
announced America's exit from the deal.
Saying that the accord represented “sanjhi virasat” (shared
heritage) of the whole world, Modi said India believed protection
of the environment is an article of faith and part of an ancient
tradition that respects nature. “It is our duty to give a gift to the
next generation,” he said, in repudiation of Trump's rant against
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India for allegedly seeking billions and billions of dollars to sign
the deal.
The agreement signed by 195 countries in the French capital in
2015 “can protect future generations and give new hope,” the
pi prime minister said. However, Modi avoided direct criticism of

Donald Trump's move.
The PM said protecting “mother Earth” was part of Indian culture.
“For Indians, environmental protection is a profession of faith
ap
because we learn it in the Vedas,” he said.
Like India, France is committed to fighting climate change, acting
within the Paris pact as well as bilaterally, Macron said.
Macron said he would visit India, the world's third-largest polluter,
by the end of the year for a summit on solar power, an area where
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the two planned greater cooperation and on which they hoped to

rope in “many other countries”.
The new French President has led Europe's defence of the
Paris accord in the face of Mr. Trump's climate skepticism.
The two leaders also voiced their concerns over the growing threat
of terrorism worldwide. “Terrorism is one of the biggest
challenges the world is facing today,” Modi said, adding that he
and Macron discussed extensively on how to save the world from
terrorism and radicalization.

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The two leaders also agreed to fight terrorism in all its forms and to
work on concrete plans to fight terrorism on the internet before the
end of the year.
Why is India's commitment to the
Paris Agreement important?
The Paris agreement's central aim is to
strengthen the global response to the
threat of climate change by keeping the
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global temperature rise in this century
well below 2 degrees Celsius above pre-industrial levels and to pursue
efforts to limit it to 1.5 degrees Celsius.
pi The significance of New Delhi’s support to the climate pact lies in

the fact that India accounts for over 4% of global emissions and
is the third largest greenhouse gas emitter. It is also a primary
leader of the “G-77” group of developing nations. Analysts expect
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the country of 1.2 billion people to continue to rise in the rankings
of top emitters as its economy grows and as a greater share of its
population gains access to electricity.
India is already enduring summers that melt roads and kill people.
India accounts for the highest number of premature deaths due
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to ozone pollution, its toll 13 times higher than Bangladesh's,

and 21 times higher than Pakistan's.
India has tried to balance its carbon emissions with its economic
growth objectives by not setting an outright pollution reduction
goal. But, being a part of the global climate change regime,
India will have significant obligations to meet under the treaty.
The country will have to reduce its carbon footprint by 33-35%
from its 2005 levels. This has to be achieved by 2030. A key
result area for India will come in the form of the reduction of
emission intensity targets.

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The country will have to diversify its power generation sources and
shift them significantly towards renewable energy sources to
reduce volumes of emissions per unit of GDP. In numbers, by
2025, India will need a 175 gigawatt-power production capacity
from non-fossil fuel sources.
Note: An emission intensity is the average emission rate of a given
pollutant from a given source relative to the intensity of a specific
activity; for example grams of carbon dioxide released per megajoule
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of energy produced, or the ratio of greenhouse gas emissions produced
to gross domestic product (GDP).
When did India ratify the Paris
pi Agreement?
India's decision to ratify the Paris
climate change agreement on 2nd
October 2016 gave New Delhi a role in
ap
shaping global rules of the emerging
climate order. It's a statement that India is no longer a compulsive
contrarian, but wants to be in on the creation of new global
movements.
India’s ratification of the Paris Agreement signaled its active
Kn
participation in and support for the implementation of a finely

balanced and hard-won international agreement to address climate
change, an agreement India helped shape and secure in Paris.
The Paris agreement was seen to be one of those things where
India was part of the leadership that actually hammered out a
deal, with Modi and Obama working the phones and working
together to get there.
It was one of those rare moments when India played a proactive
role, different from a traditional carping and blocking approach.

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India submitted its Intended Nationally Determined

Contributions (INDC) to the UNFCCC in October 2015,
committing to cut the emissions intensity of GDP by 33-35 per
cent by 2030 from 2005 levels. On its submission, India wrote that
it needs “at least USD 2.5 trillion” to achieve its 2015-2030 goals,
and that its “international climate finance needs” will be the
difference over “what can be made available from domestic
sources.”
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Note: Intended Nationally Determined Contributions (INDCs) is a
term used under the United Nations Framework Convention on
Climate Change (UNFCCC) for reductions in greenhouse gas
pi emissions that all countries that signed the UNFCCC were asked to
publish in the lead up to the 2015 United Nations Climate Change
Conference held in Paris. The INDCs contain steps taken towards
emission reductions and also aim to address steps taken to adapt to
ap
climate change impacts, and what support the country needs, or will
provide, to address climate change.
Where are the other areas of
cooperation between France and
India?
Kn
India and France have a longstanding

relationship of trust. The strategic
partnership dates back to 1998 that
developed a strong cooperation on the most sensitive issues such as
defence, energy, space and security.
These include the purchase of 36 Rafale aircraft by India, the
planned construction of six nuclear reactors at Jaitapur, an
enhanced cooperation on counter-terrorism, as well as a rapidly-
growing dialogue on maritime security in the Indian Ocean, with

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the signing of a white shipping agreement.

The Rafale agreement signed in September last year will take the
defense cooperation to an unprecedented level. France is
committed to assisting India in building its own capabilities and
skills: the Rafale agreement, with 50% offsets (local
manufacturing), will greatly benefit the Indian defense sector and
its technological know-how in key areas.
French companies are investing massively in India. The French
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investment stock is set to grow at over 1 billion Euros annually
over the years to come. This clearly shows how much faith French
companies repose in India's future.
The reforms undertaken by Prime Minister Modi to facilitate FDI
pi — for instance, with the GST — are seen as a positive step that
will help catalyze investment inflows. Furthermore, the Indian
government has shown its resolve to prioritize economic and social
development, and guarantee a climate conducive to economic
ap
growth.
Alain Vidalies, the French Minister of State for Transport, Marine
Affairs and Fisheries, visited India from 11 to 13 April, 2017, to
strengthen cooperation and offer wide-ranging French expertise in
this domain.
Kn
He had fruitful meetings with his counterparts in railways, civil

aviation and urban development. On railways in particular, the two
ministers announced ambitious projects on high-speed and semi-
high-speed trains, maintenance, renovation of stations, safety and
security.
Attracting more Indian talent and businesses to France is an
absolute priority to the French Government. France ranks
among the top destinations for students, offering world-class
education opportunities at low costs. They have a target intake of
10,000 Indian students by 2020 and have developed a very

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attractive visa policy.

Whose foreign policy is unclear yet?
While a good deal is known about the
domestic and European ambitions of
French president-elect Emmanuel
Macron, the same cannot be said of his
goals for France’s connections with the
rest of the world.
ly
With a few exceptions — such as criticism of Russia over alleged
interference in the presidential elections and his commitment to
reinforcing alliances such as NATO — much of his campaign
pi focused on the social and economic reforms he hopes will help

revive France’s fortunes, as well as the strengthening of the
European project he hopes to champion (dependent of course on
other partners, not least Germany).
ap
His election “program” (manifesto) makes just a few mentions of
other nations or regions beyond Europe, including China, Russia
and the US and Africa (towards which he pledges a new policy
approach). While there is no mention of India, it is possible to
get a sense of what will lie ahead for France-India relations
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from the trajectory of his strategy to date.

The initial signs are that relations will follow the same track they
have under past presidencies, which has seen a gradual
strengthening of ties following the 1998 strategic dialogue,
which led to strategic partnerships in areas such as space, defence
and civil nuclear cooperation.
The continuance of strong ties with India was likely to be
supported by the decision of Jean-Yves Le Drian, the defence
minister under President Francoise Hollande who worked hard to
get the Rafale deal done.

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While defence and strategic cooperation has been strong, a Macron

presidency could spur greater cooperation in the areas of business
and economy, says Francoise Godement, director of the Asia
Program at the European Council on Foreign Relations.
France is the ninth largest foreign investor in India while around 75
Indian companies operate in France, employing around 7,000 people.
How has India's relations with
France evolved?
ly
Both nations have a centuries-old
history of trade relations. From
the 17th century until 1954,
pi France maintained a colonial

presence in the subcontinent; Puducherry (erstwhile Pondicherry),
one of its former Indian territories, is a popular tourism destination for
French travellers to India.
ap
The Strategic Dialogue in 1998, soon after India’s nuclear tests, led
to India and France entering into a strategic partnership
encompassing security, space, defence and civil nuclear
cooperation sectors.
France was the first country with which India entered into an
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agreement on nuclear energy following the waiver given by

International Atomic Energy Agency and the Nuclear
Suppliers’ Group enabling India to resume full civil nuclear
cooperation with the international community.
There is also a growing and wide-ranging cooperation in areas such
as trade and investment, culture, science and technology and
education.
India-France relationship enjoys bipartisan support in France and
has been accorded a high priority by all the Presidents of

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France. With the establishment of the strategic partnership, there

has been significant progress in all areas of bilateral cooperation
through regular high-level exchanges at the Head of State/Head of
Government levels.
Indo-French relations have received a boost in the last two years
with high level engagements and expansion of the already strong
cooperation. Prime Minister Narendra Modi paid a landmark visit
to France from 09-12 April, 2015.
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Prime Minister Modi and President Hollande again met in Paris on
30 November 2015 at the Leaders’ Event of CoP-21 (21st Session
of the Conference of the Parties to the United Nations Framework
Convention on Climate Change) in Paris. President Hollande paid
pi State visit to India during 24-26 January, 2016 for India’s Republic
Day celebration.
There has been a significant progress in bilateral relations through
regular Ministerial and official visits and exchanges in strategic
ap
areas of security, defence, nuclear energy, space as well as in other
areas of bilateral cooperation like science and technology, culture,
education etc.
France has continued to support India’s permanent
membership of the UN Security Council and multilateral
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export control regimes like the Nuclear Suppliers Group (NSG)

and Missile Technology Control Regime (MTCR).
—– | —–

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CLIMATE CHANGE / China’s challenges in the

face of climate change
7-Jul-2017
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pi China’s central and southern provinces have been hit by floods this
year causing the death of at least 56 people and evacuation of at least
ap
1.2 million. These floods provoke the larger question of China’s
relevant challenges and threats as adverse effects of climate change
lash out. China has woken up to the challenge but needs a fundamental
shift in policy and implementation, one that takes the long-term view.
What toll have the floods taken so

Kn
far this year?

The deluge in China has killed at least
56 people, with 22 people confirmed
missing as of Wednesday. The floods
have caused more than 1.2 million
people to evacuate earlier this week.
More than 60 rivers were set to overflow as since last Thursday
nearly 20 inches of rainfall was witnessed by numerous cities. The
floods, landslides and storms affected more than 11 million

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people in 11 southern provinces, China’s Ministry of Civil

Affairs said.
“More than 750,000 hectares (1.85 million acres) of crops have
been damaged and direct economic losses totaled more than 25.3
billion yuan ($3.72 billion),” it said.
The Yangtze River and several of its branches overflowed leading
to the destruction of crops and houses and forcing inhabitants to
move out. In Hubei Province, officials stemmed water discharge by
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70 percent Sunday to alleviate some of the damage.
“We hope the reduction of outflow will give soldiers and the people
enough time to evacuate and stack up sand bags to battle the flood,”
pi Wu Zhaohui, an official with the water resources bureau in Hubei

Province told Xinhua.
The storms hit road, rail and air transport. They cut off roads to
many towns and villages in the region and also caused helplessness
ap
to thousands as dozens of flights connecting key cities including
Chengdu, Changsha, Guangzhou, and Shenzhen, were canceled or
delayed. Trains were halted too.
The government said it had distributed 700 million yuan ($103
million) in emergency aid to four flood-hit provinces - Zhejiang,
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Jiangxi, Hunan and Guizhou.

Why was China’s power sector
affected?
In a move called the first-ever in its
scale, two of China’s main
hydropower plants cut their
capacity by as much as two-thirds
to ease pressure on the Yangtze River.
The Three Gorges dam, the world’s biggest power station, with

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an installed generation capacity of 22.5 GW, cut capacity to 6GW

from 18.12GW, while Gezhouba, 38km away, halved capacity to
1.5GW from 2.9GW. This has stopped 26 generators and raised
concerns about electricity supplies; hydropower is China’s
second-biggest source of electricity following coal. The 13.52-
GW-decrease in capacity led to a surge in coal export prices in
Australia.
Shutdowns of hydropower schemes can happen and are common in
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China during times of severe rainfall to prevent flooding
downstream or to safeguard plant turbines and critical
infrastructure. But analysts say the extent of shutdown –
equivalent to around 40 per cent of Shanghai’s power demand
pi during the summer demand peak – is unusual.

Traders said it would take “at least a dozen large fossil fuel or
nuclear power stations to make up for the hydro restrictions.”
While the south is heavily flooded, a heat wave has led to
ap
drought-like situation in the north and severely hit crops and
water levels. This could require more power from coal plants.
When have short-term views
and negligence proven costly?
Kn
Between 2008 and 2015, the

number of cities hit by flood
more than doubled, though the
country’s major rivers mostly
remained stable. 2013 witnessed the flooding of more than 200 cities.
The government woke up to the problem of flooding in the late
1990s, following the death of thousands of people by a massive
flood along the Yangtze River but policymakers in Beijing
viewed it largely as a rural concern.
While the building of massive dams received generous funding,

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the state of the urban drainage system suffered neglect.

China’s impulsive approach to urban planning is also
responsible. When planners laid out Beijing’s roads a few decades
ago, among other choices, they favored sunken underpasses over
elevated exchanges; the former presented a better picture to the
eye and were cheaper to construct. Fuelled by a weak drainage
system, even a single bout of heavy rain can turn these underpasses
into swimming pools disrupting movement.
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Rapid urbanization goaded on by the quest for short-term
GDP growth has increased the damage exponentially. With the
threats of climate change growing more imminent, several cities
are vulnerable.
pi A worldwide study of flood losses published in 2013 placed the

southern metropolis of Guangzhou as the most vulnerable of the
world’s 136 major coastal cities, measured in terms of potential
damage. If no forward-looking measures are implemented, by
ap
2050 the city could confront damages amounting to $13.2
billion in a single year.
Last year’s floods, one of the worst in China’s history had
citizens protesting against officials for neglecting basic
precautions and downplaying the death toll. The floods last
Kn
year also showed how corruption and bureaucratic hurdles

could result in loss of lives and utter devastation through the
example of Wuhan.
Where are the affected regions
so far?
Central and Southern provinces
especially Guangxi,
Guangdong, Hunan, Hubei,
Jiangxi, Jiangsu, Anhui,

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Zhejiang, Shandong, Sichuan, Guizhou and Henan were affected;

Hunan was the worst-hit.
Xiangjiang, a major tributary of Yangtze, overshot its record flood
level in Changsha, capital of Hunan. In Guangxi, a storm was
followed by a flood leading to casualties.
Some of China’s important crops are produced in southern
provinces: Guangxi is China’s top sugarcane-growing region;
Hunan is its third-largest hog-farming province and rice is
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grown south of the Yangtze. More than 750,000 hectares (1.85
million acres) of crops have been damaged and direct economic
losses totaled more than 25.3 billion yuan ($3.72 billion),
according to the Ministry of Civil Affairs.
pi By contrast, Northern provinces including Beijing, Hebei and

Henan battled a heat wave.
Note: The Yangtze is the longest river in Asia and the third-longest in
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the world (behind Amazon and Nile). The river is the longest in the
world to flow entirely within one country. It drains one-fifth of the
land area of the People’s Republic of China (PRC) and its river basin is
home to one-third of the country’s population.
Who in China live in “infrastructure
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hotspots”?
Research by the U.K.’s Oxford University
in collaboration with Beijing Normal
University identified China’s
infrastructure hotspots – geographical
regions most susceptible to serious economic damage from climate
change. The extreme weather patterns China is increasingly
expected to confront, present a huge threat to fundamental
infrastructure that serves running water, electricity, road, and
railway connections to at least 100 million people.

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These hotspots are most vulnerable as they are located in areas

where there is a high concentration of essential infrastructure such
as power plants, transport systems (air, rail, and road) and water
treatment centres and contain high number of users – individuals
and companies.
The top infrastructure hotspots identified by this research are
Beijing, Tianjin, Jiangsu, Shanghai, and Zhejiang.
For individuals living in these areas, the risk of experiencing a
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loss in one or more of these services is higher. Companies face
the increased risk of production losses, damage to property
and/or industrial accidents on an unprecedented scale .
For China, its scale of manufacturing production and role in the
pi global supply chain give rise to astronomical risks. The study

found that “the average number of infrastructure (rail, aviation,
shipping and water) users whose services could be disrupted by
the impacts of flooding stands at 103 million. Drought, on the
ap
other hand, whereby a lack of water supply may result in
suspension of energy production, could affect an average 6
million electricity users.”
While individuals can make only a small difference, companies can
take strong measures through risk assessments that analyze the
Kn
impact of climate change and implement plans to curb it.

The government can and should put in the utmost efforts towards
strategic infrastructure planning.
The research concluded that China’s planners need to do much more
to account for the impacts of severe droughts, heatwaves, rising sea
levels and floods by making infrastructure more resilient and
“climate-proof”.
How is the government dealing with the threats?
To combat the crises of flooding and water scarcity China announced

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its sponge city programme

(SPC) in 2015. The infrastructure
aims to manage storm water
and store it for irrigation,
street cleaning or fire fighting,
to deal with rapid groundwater
depletion.
The Chinese government has been vocal about tackling climate
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change. President Xi Jinping has urged the signatories of the 2015
Paris Climate agreement to keep their pledge and the state-run media
have expressed disapproval at the Trump administration for “brazenly
pi shirking its responsibility on climate change.”

China has become the world’s leader in domestic investment in
renewable energy, and over the past decade, central authorities in
Beijing have prioritized environmental performance of civil
ap
servants.
But more stringent requirements are yet to overtake the speed
of expansion, a decentralized fiscal system, weak enforcement,
and a culture that often trades green for growth. The country’s
coal consumption still equals the rest of the world combined
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and it increases its steel capacity.

Death tolls across China have trended towards a decline owing to
better emergency relief measures but in urban areas, where
“overdevelopment continues to outpace the country’s appetite for
climate change adaptation and natural disaster preparedness”, the
damage is increasingly felt.
“China’s feelings about modernization keep changing”, Zhou Ming,
an urban planner in Shenzhen told Michael Kimmelman is the
architecture critic of The New York Times.

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Some environmentally-unfriendly factories have been leaving

Guangdong in response to rising wages and threats of firmer
pollution standards; this can be harnessed by China to shift
towards greener pastures. Planners and environmentalists discuss
about an opportunity to reshape “Guangdong Province as a global
leader in green, cutting-edge industrial technology and urbanism
— to go beyond token green skyscrapers and really get ahead of
climate change. To make China the leading green global
ly
superpower.”
The opportunity has grown with the Trump administration
championing the cause of coal. China recently made it known
the intention to set up a national market for greenhouse gas
pi quotas to incentivize innovative methods of decreasing

emissions.
“What climate change says is that if you want to maintain the city as a
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good place to live and work for everyone, business as usual won’t do,”
said Robert J. Nicholls, a professor of coastal engineering at the
University of Southampton in England.
He noted that flooding is not a hurdle that cannot be overcome.
“The Chinese can build smarter cities — healthier, safer, more
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equitable and humane ones, with restored waterways and

waterfronts, flood-proof buildings, wide-reaching air-pollution
controls, earlier warning systems, levees that double as parks,
retention ponds that provide recreation, neighborhoods less
dependent on cars.”
“The challenge for the Chinese, as it is for so many others,” he
said, “is taking the long view.”
—– | —–

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RELIGION & SOCIETY / Mothers without

benefits
23-Dec-2017
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pi Top economists of India recently wrote to Finance Minister Arun
Jaitley on the delay in the roll-out of the maternity benefit scheme
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announced by Prime Minister Narendra Modi last year. Besides
suggesting various reforms urgently needed for women, the letter also
demands that the central government's contribution to old-age pensions
should be raised. The ‘welfare state’ provides its destitute old citizens a
pension of ₹200 per month, while the helpless widows have to do with
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₹300.
What does the letter say?

In a televised address to the nation on New
Year’s Eve, Modi had announced pan-India
expansion of the maternity benefit program
which was being implemented on a pilot-
basis across 56 districts.
In May, the Union Cabinet approved the Pradhan Mantri Matru
Vandana Yojana for pregnant women and lactating mothers.

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Under the scheme, a woman would receive ₹5,000 in three

installments upon meeting different requirements and remaining
₹1,000 under Janani Suraksha Yojana after institutional
delivery.
The benefits would be offered only for the birth of the first living
child.
Cut to today, top economists of the country have written to Finance
Minister Arun Jaitley on the delay in the roll-out of this maternity
ly
benefit scheme. The letter is signed by 60 economists, including
Jean Dreze, Jayati Ghosh, Kirit Parikh and Sukhadeo Thorat.
“On 31 December 2016, Prime Minister Narendra Modi finally
pi announced that maternity benefits would be provided very soon.

One year later, however, the new scheme framed for this purpose
(Pradhan Mantri Matru Vandana Yojana) is yet to be
operationalised,” according to the letter on December 20.
ap
The letter also points out that restricting the benefits to only the
first-born is in violation of the National Food Security Act
(NFSA).
The economists have appealed that the government set aside
sufficient funds in next year’s budget for the scheme as ₹2,700
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crore for the program as per the 2016-2017 budget is a third of

what is required based on norms under National Food Security Act.
“ The Union Budget 2018-19 should provide for full-fledged
implementation of maternity entitlements as per NFSA norms.
This requires at least ₹8,000 crore, based on a 60:40 ratio for
centre: state contributions,” according to the letter.
Maternity benefits became a legal entitlement in 2013 under
the National Food Security Act which states that “Subject to such
schemes as may be framed by the central government, every
pregnant and lactating mother shall be entitled to [nutritious food

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and] maternity benefit of not less than rupees six thousand, in such
instalments as may be prescribed by the central government”.
“Along with this, it is very important to streamline payment
systems so that pensions and maternity benefits reach the
recipients on time every month, e.g. by the 7th day of the month as
directed by the Supreme Court in its order of November 28, 2001,”
the letter said.
The letter also demands that the central government’s contribution
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to old-age pensions under the National Old Age Pension Scheme
(NOAPS) scheme should be raised from ₹200 per month to ₹500.
“The Central Government’s contribution to old-age pensions under
pi the National Old Age Pension Scheme (NOAPS) scheme has

remained at a measly ₹200 per month since 2006 ,” the letter
said.
“This is extraordinarily stingy. It is also a missed opportunity:
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NOAPS is a good scheme (with low leakages and administrative
costs) that reaches some of the poorest members of society.”
“Similarly, widow pensions should be raised from ₹300 per
month to ₹500 at the very least,” they said.
Why is this scheme needed?
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Under-nutrition continues to adversely

affect majority of women in India, where
every third woman is undernourished
and every second woman is anaemic.
An undernourished mother almost
inevitably gives birth to a low birth-weight baby. When poor
nutrition starts in-utero, it extends throughout the life cycle
since the changes are largely irreversible.
Owing to economic and social distress many women continue to

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work to earn a living for their family right up to the last days of
their pregnancy.
Furthermore, they resume working soon after childbirth, even
though their bodies might not permit it, thus preventing their
bodies from fully recovering on one hand, and also impeding their
ability to exclusively breastfeed their young infant in the first six
months.
Thus, Pradhan Mantri Matru Vandana Yojana (PMMVY), a Maternity
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Benefit Program in accordance with the provision of the National Food
Security Act, 2013 was launched with the following objectives
Providing partial compensation for the wage loss in terms of
pi cash incentive s so that the woman can take adequate res t before
and after delivery of the first living child.
The cash incentive provided would lead to improved health
seeking behaviour amongst the Pregnant Women and
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Lactating Mothers (PW& LM).
Note: The scheme had existed under a different name earlier. When it
was launched in 2010 by the Union women and child development
ministry, it was called the Indira Gandhi Matritva Sahyog Yojana.
After coming to power in 2014, the Bharatiya Janata Party-led
Kn
National Democratic Alliance government dropped “Indira Gandhi”

from the scheme. The Centre in May 2017 renamed the Matritva
Sahyog Yojana as Pradhan Mantri Matritva Vandana Yojana
(PMMVY) in yet another instance of ‘Prime Minister’ being prefixed
to a government program. The logic behind assigning this prefix is
simple: people in rural areas pay more attention to the program when
they feel it is ‘directly from the Prime Minister’.
When do we see women not getting their share in budget?
The women and child development ministry received a 20%

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increase in budget allocation for

2017-18 with the total money set
aside climbing to ₹22,095 crore from
Rs17,640 crore last year.
However, even this budget
allocation was a mere 1 per cent
of the total outlay and gender budgeting across ministries
remains at 5 per cent of the total outlay, the same as it was ten
ly
years ago.
Some ministries such as Water and Sanitation, Urban Development
and Law and Justice did not even present gender budgets for FY18.
pi An analysis of the supposed hike showed that the bulk of it is in

Integrated Child Development Scheme (ICDS) and the maternity
benefit scheme, both underfunded.
The amount budgeted for Pradhan Mantri Matru Vandana
ap
Yojana (then called Matritva Sahyog Yojana) saw a four times
jump with ₹2,700 crore being set aside this year as compared to
₹634 crore in 2016-17.
However, the allocation for the in-principle universal scheme
still covers just a third of the estimated 2.6 million pregnant
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women.
The allocation for core ICDS has also long remained neglected.
The budgetary increase is marginal and barely enough to even
pay minimum wages to the poorly paid aaganwadi workers.
When it comes to education, which is a big part of gender-responsive
budget, the allocation for Sarva Sikshya Abhiyan was only four per
cent more than last year’s.
Not only allocation, even existing funds meant exclusively for
promoting education of girls have remained largely under-

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utilised.
Revised Budget for 2016-17 showed that of the ₹100 crore
earmarked for PM Narendra Modi’s pet Beti Bachao Beti Padhao
scheme, merely ₹42 crore was spent.
Note: Gender budgeting means preparing budgets or analysis them
from a gender perspective. It was introduced in India in 2005 in
recognition of the fact that policies meant for the general population
may not necessarily benefit women unless reviewed under the gender
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lens.
Where do we see the impact of delay
in implementing PMMVY?
pi The states have to either provide more

funds to their existing maternity benefit
schemes or launch entirely new
schemes. Karnataka is a case in point.
ap
With the Pradhan Mantri Matru Vandana Yojana yet to be rolled out in
the state, expectant mothers can only expect to get a maximum of
₹2,000 under the Karnataka government. The state Women and
Child Development Department neither received the funds nor the
guidelines on how to roll it out.
Kn
Meanwhile, the state’s Prasuti Araike, maternal care scheme for

expectant mothers from Below the Poverty Line (BPL) category,
after coming to a standstill for nearly a year, is back on track. The
Health Department had not released monetary benefits to pregnant
women under Prasuti Araike for almost a year due to fund crunch
in 2015-16.
But according to latest figures, 4,935 women belonging to BPL,
SC, ST categories, have been paid between ₹1,300 and ₹1,400
each in the first quarter the current financial year, totalling

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₹64.16 lakh, depending on whether they hail from rural or urban

areas.
The funds under this scheme come directly from the state
government unlike schemes like Janani Suraksha Yojana where it
comes from the National Rural Health Mission.
The state has already given a silent burial to the ‘Madilu’ kit
scheme in favour of providing the monetary benefit. It used to
contain 19 items such as linen, mosquito net and consumables
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which are very useful to the newly delivered poor mother and her
infant.
Karnataka Chief Minister Siddaramaiah also launched the ‘Mathru
pi Purna’ scheme in October, which aims to provide nutritious meals to

about 12 lakh pregnant women and lactating mothers in the state.
A provision of ₹302 crore has been made by the state government
during the 2017–18 financial year for the implementation of the
ap
scheme in all the 30 districts of Karnataka.
One hot cooked meal consisting of rice, dal with leafy
vegetables/sambar, a boiled egg/sprouted legumes along with 200
ml of milk would be provided to women for 25 days a month,
according to an official release.
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The scheme aims to bridge the gap between the recommended

dietary allowance and the average daily intake of pregnant
women and lactating mothers in the state while trying to
reduce the prevalence of anaemia among the pregnant women.
Anganwadi workers would also benefit from the scheme.
Who else needs help?
Aged people need intensive and long term care, which may increase
financial stress on a poor family that has little time and money to cater
to such needs. The welfare state must then live up to its name and care

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for its senior citizens.

Social security elsewhere in the
world is a term used interchangeably
with retirement benefits for old age.
The Indian context of social security
is much broader, given the fact that
delivery of even basic necessities like food and health is
completely inadequate.
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In such a situation, it is pitiable that old age pension and savings
for retirement receive the least priority in the burdened ladder
of social security itself.
pi Case-in-point: Muniraju
Muniraju worked as a night guard at a posh apartment complex in
Bengaluru at the age of 70.
He used to stay up all night and get a monthly salary of ₹3000. He
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had a family of three to support including a mentally challenged
daughter. His elder son worked at a shop in Domlur and the
younger one was also a watchman. Neither did his sons stay with
him, nor did they earn enough to spare some for Muniraju.
His wife, Saraswati, 64, worked as a housemaid and earned
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around ₹4500 per month. But with age not on her side, she could
not find work in more houses.
“I spend almost ₹1000 per month on medicines. My wife and I are
old and have health issues. I also need medicines for my daughter
who cannot move from her bed,” explained Muniraju.
This is not a one-off case. It is not uncommon to find old men
working as security in apartment complexes. When a 72-year old,
good-natured security guard in an apartment complex in Kormangala,
Bengaluru passed away due to heart attack while on duty last year, the

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residents had to pool in money to provide for his funeral. It really

doesn’t matter what his name was. Nobody knew the guard’s name,
and the very who cared did so only after he died. The state, meanwhile,
was absent before and after death.
Dipstick surveys reveal that no pension is the norm among the poor.
The Constitution of India, in Article 41 of the Directive Principles of
State Policy specifies that the state shall within the limits of its
economic policy provide for assistance to the elderly.
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National Old age Pension Scheme (NOAP) was thus introduced
by the Indian government to provide ₹200 per month to the old and
destitute people. Under NOAPS, this modest pension is provided to
pi people aged 65 or above, with no regular income or family support.

The Central Government’s contribution to old-age pensions under
NOAPS has remained at a measly ₹200 per month since 2006
when the cost of living has increased many times over.
ap
And even this pittance is not received by the needy.
One study found that only about 40% of the people started receiving
their pensions within the mandated period of three months after
application under the NOAPS. The Wire reported in May 2017 even
worse examples of bureaucratic negligence, such as the Rajasthan
Kn
government cancelling 0.7 million pensions and stopping 0.3 million

pensions after (wrongly) finding reasons such as death, duplication of
accounts, etc.
India’s above-60 population crossed 100 million (10 crore) as of 2011,
and is the second largest in the world. Pensioners want it to be
increased to at least 1000 rupees per month, an amount we can all
agree must be agreed to.
How is the government currently dealing with maternal health?

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The recent World Bank data puts

the maternal mortality rate
(MMR) for India reported in
2015 at 174 per 100, 000 live
births, which is a significant
decline from the 215 figure that
was reported in 2010.
While the MMR, which highlights the number of mothers dying
ly
per 100,000 live births, may be on a decline, still about five
women die every hour in India from complications developed
during childbirth.
pi In absolute numbers, nearly 45,000 mothers die due to causes

related to childbirth every year that accounts for 17% of such
deaths globally. The major cause — Post-Partum Haemorrhage -
is often defined as the loss of more than 500-1,000 ml of blood
ap
within the first 24 hours following childbirth.
The key to the progress of a country lies in reducing its maternal and
child mortality and morbidity. Over the years, the Government of India
has taken many initiatives, and the improved health indicators are a
result of that.
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“After the launch of National Rural Health Mission (NRHM) in

2005, significant improvements have taken place in building the
health infrastructure in the country,” said a senior health ministry
official.
The visibility of NRHM, now called National Health Mission, is
reflected in progress towards achieving targets for the reduction of
Maternal Mortality Rate (MMR), Infant Mortality Rate (IMR),
Total fertility Rate (TFR) and other indicators.
The Janani Surkasha Yojna (JSY) scheme has brought about a
surge in institutional deliveries and huge financial uptakes in most

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states.
Launch of Janani- Shishu Suraksha Katyakram (JSSK) in 2011
has further strengthened maternal health initiatives by entitling free
deliveries and Caesarean-Sections to every pregnant woman
coming for deliveries at government health facility.
The transport from the health facility, drop back and any
referrals between facilities is also free for pregnant women
coming to any government health facility. This theoretically
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ensures zero out of pocket expenditure for the women and their
families.
Even the sick newborns are treated free without any expense on
diagnostics, drugs, consumables, diet, transport, etc.
pi The JSY and JSSK programs have incentivised pregnant women to

access healthcare in greater numbers.
Last year, the health ministry also launched an innovative scheme to
ap
provide free health check-ups to pregnant women at government health
centres and hospitals by private doctors under Pradhan Mantri
Surakshit Matritva Abhiyan.
Popularly referred to as ‘I pledge for 9’ that was announced by
Prime Minister Narendra Modi during his monthly radio address
Kn
Mann Ki Baat, it invites the private sector to provide free ante-

natal services (ANC) on the 9th of every month on a voluntary
basis to pregnant women, especially those living in underserved,
semi-urban, poor and rural areas.
“More than 2 lakh high-risk check-ups have happened under the
scheme and we expect to cover many more in future. We are happy
with the results as our rate of improvement is faster than other
countries,” said JP Nadda, Union health minister.
—– | —–

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RELIGION & SOCIETY / Saudi women get the

driver’s seat
27-Sep-2017
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pi Saudi Arabian King Salman has ordered that women be allowed to
drive cars, ending the conservative kingdom's ignominious status as
ap
the only country where that is forbidden. This is the latest in the set of
widely anticipated moves amid a transformation of many aspects of
Saudi society that has been branded by one senior minister as “cultural
revolution disguised as economic reform”. The kingdom, however,
continues to restrict women under the male guardianship system.
Kn
What has Saudi Arabia announced?

Women in Saudi Arabia have been
granted the right to drive, overturning a
cornerstone of Saudi conservatism that
had been a cause célèbre for activists
demanding reforms in the fundamentalist
kingdom. King Salman ordered the reform in a royal decree
delivered on Tuesday night, requesting that drivers’ licences be
issued to women who wanted them.

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Following the decree, women will no longer need permission from

a legal guardian to get a licence and will not need a guardian in
the car when they drive, said the new Saudi ambassador to
Washington DC, Prince Khalid bin Salman bin Abdulaziz.
“I think our leadership understands our society is ready,” he told
reporters.
Asked by reporters if Saudi Arabia planned to relax the
guardianship laws, or take any other steps to expand women’s
ly
rights, Salman did not comment.
Saudi Arabia had been the last country in the world in which
women were banned from driving – a fact that was frequently used
pi by critics as proof that female citizens of the kingdom were among

the world’s most repressed.
The most recent campaign to allow female drivers started in Saudi
Arabia about 10 years ago, and reached a peak in 2013, when
ap
several women who had sat behind the wheel on the country’s
roads were briefly arrested by police.
In response to the announcement, Manal al-Sharif, who became the
public face of the campaign, after she was imprisoned for driving,
tweeted: “Today the last country on earth to allow women to drive
Kn
… we did it.”
The US state department welcomed the move as “a great step in the
right direction”.
Loujain Hathloul, who was detained for more than two months
after she tried to drive into Saudi Arabia from Dubai tweeted
simply: “praise be to God.”
Strict guardianship laws, which mean that husbands or fathers can
prevent their wives or daughters from leaving the home gave cover
to the driving ban, which has long been accepted by many in the

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intensely conservative kingdom.

A committee formed by senior officials will now have 30 days to study
how to implement the move.
Why has this come as a pleasant
surprise?
The decision comes amid a broad reform
program that last week led to women
ly
being allowed into a sports stadium for
the first time. It is the most significant
change yet to a rigidly conservative social order in Saudi Arabia that
has strictly demarcated gender roles, and severely limits the role of
pi women in public life.

Saudi Arabia’s extreme repression of women has long been
illustrated by their prohibition from driving. Some women who
have protested that restriction — or flouted it — have been harshly
ap
penalized or arrested.
Saudi Arabia is the birthplace of Islam. The ban on women
drivers has long been explained as being religiously motivated,
but it is the only country in the world, of any religion, that had
instituted such a ban.
Kn
The events are part of the government’s Vision 2030 reform

programme launched two years ago to diversify the economy away
from oil, create new sectors to employ young citizens and open up
Saudis’ cloistered lifestyles.
In a country that adheres to the austere Wahhabi brand of Sunni
Islam, which bans gender mixing, concerts and cinemas, the plan’s
seemingly anodyne goals to empower women, promote sports and
invest in entertainment have been criticised.
The decree is a win for women, but it’s also a tactical win for

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the state. Refusing to allow women to drive has been a public

relations disaster for the Saudis for years. Giving them the keys,
they hope, will not only ease public international pressure but also
give women the chance to contribute more to the economy.
Of course, Saudi women will still be subjected to the repressive male
guardianship system, which requires women to seek permission from
a male relative (father, brother, husband, son) to do almost anything,
from getting married to working outside the home to even basic
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freedom of movement within and outside the country. Saudi women
were only given the right to vote in December 2015.
When did Saudi Arabia turn extra
pi conservative?
In 1979, the Grand Mosque seizure
occurred as extremist insurgents called for
the overthrow of the ruling House of
ap
Saud and took over Masjid al-Haram in
Mecca, Saudi Arabia.
The seizure had a massive effect. It challenged the legitimacy of the
ruling family and its governance. It was one of the three events of 1979
that propelled Saudi Arabia in a retrograde orbit, unwinding civil
Kn
liberties and freedoms that had gradually been accumulating.

1979 was already bad year for Saudi Arabia. It started with the
Iranian Revolution that chased the Shah from the country in
January and led to the return of the Ayatollah Khomeini in
February, followed by the establishment of the Islamic
Republic in March. Suddenly, Saudi Arabia had not only a
challenger to its claim as protector of Islam, but a regional one
at that.
The Iranian Revolution destabilized parts of the Gulf, including the

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Shi'a majority regions of Saudi Arabia. This triggered an echo of

Wahhabi antipathy toward the Shi'a. The Saudi government got
very nervous.
In October, the Saudis became even more nervous with the taking
of the US Embassy in Tehran and the seizure of the diplomats
working there. American response seemed weak, so the Saudis
started to doubt if their principal protector, the US, was going to be
able to protect the Kingdom if push came to shove with Iran.
ly
And then the Grand Mosque event happened on November 20.
The leader of the seizure, Juhayman al-Otaibi, came from a noble
family. His grandfather had fought with in Saud in the wars to
pi create the Kingdom. He himself had been a student of Saudi

Arabia's Grand Mufti, Abdul Aziz bin Baz. He had many friends
and ideological partners in the Saudi Ulama. His opposition to
things that the conservative Saudis were already skittish about –
ap
girls' education, TV, close ties with the West – resounded in certain
quarters.
Even though the government tried to hide, or at least downplay the
seizure of the Mosque at first, it was too big an event to ignore. The
government needed to respond in a way that was respectful of the
Kn
place, respectful of religious principles, and in a way that did not

undercut their own legitimacy.
The Saudi government at the time was headed by King Khaled, a
compromise choice to be king, who left the running of things to his
Crown Prince, Fahd. In order to get a handle on things, Fahd found
himself having to agree with the religious conservatives on many
issues, even though they went against the liberalization trend that
had been government policy. The religious authorities gained
powers at the expense of the Crown and weren't shy to use them.
Where did this leave Saudi Arabia?

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Saudi Arabia took an enormous step

backwards in terms of social and political
development. It was only in the 2000's,
under the authority of Crown Prince - and
later King - Abdullah that the lost ground
was regained. In some areas, progress
went beyond the past. Abdullah gave women the political
franchise; he removed girls' education from the fist of the religious
ly
authorities; he limited the role of the religious police.
In effect, the seizure of the Grand Mosque sent Saudi Arabia into a
30-year time warp that cut it off from the social development
pi trajectory it had been on. In the end, it took an overplaying of

their hand by the religious zealots, in the form of Al-Qaeda
attacks within the Kingdom, to put limits on the most
conservative aspect of Saudi religion and politics.
ap
The male guardianship system in Saudi Arabia is not just law: it is
a set of bylaws and state-sanctioned discriminatory policies and
practices that restrict a woman’s ability to have a wide range of
choices unless permitted by her male guardian – typically a father,
husband, brother or even a son.
In practice, it means women are unrecognised by the state as
Kn
full legal adults. As a result, any attempts to reform had up until

recently had been met with resistance. Most of them have been
denounced such calls as a crime against Islam.
In November 1990, 47 Saudi women drove their cars around Riyadh to
protest the driving ban. They faced severe punishment at the time and
the campaign died away until 2008, when Wajiha Huwaider dared to
drive a car around the eastern provinces, escaping arrest.
From 2011 Sharif and another woman, Najla al-Hariri, became global
figureheads of a cause that drew the attention of global leaders, who

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had urged the kingdom to overturn the ban.

Who is at the core of this turn around?
Over the past three years, as Saudi
Arabia’s new heir to the throne was
plotting his ascendancy, he surrounded
himself with public accounts and private
advisers who all drew the same
conclusion – the kingdom itself was at serious risk if its people didn’t
ly
change their ways.
On every front, the house of Saud faced a struggle – that it would
probably lose – to retain its grip on a country that was moving
pi towards implosion. Culturally, socially and economically, Saudi

Arabia needed an overhaul and Mohammed bin Salman, who
sensationally ousted his uncle, Mohammed bin Nayef, as crown
prince earlier this year, pinned both his startling rise and eventual
ap
legacy to the most comprehensive reform attempt that kingdom has
yet seen.
Mohammed bin Salman, had viewed allowing women to drive as a
key plank of reforms, insisting that the move would lead to higher
female participation in the workforce and a breakdown of gender
Kn
roles that limit social interaction between men and women outside
immediate family environments.
Restrictions on women are already being relaxed in Saudi Arabia's
major cities. At a business conference in Riyadh earlier this month,
men and women were allowed to sit together. That is still a rare
sight in a country where gender segregation is imposed in many
public places.
The religious police, who enforce Islamic law, are still present
but have a less prominent role. A year ago, they were stripped of
their power to arrest and can now only report people to the state

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police. Women can sometimes be seen with their hair showing but
are still expected to wear an abaya, a long robe-like dress, and a
headscarf.
Laws preventing women getting a job or some healthcare services
without male permission are already being less rigorously applied,
according to a member of the Shura Council, which advises the
King on legislation.
As well as being allowed to enter the National Stadium in Riyadh
ly
on Saturday to celebrate the 87th anniversary of the founding of the
kingdom, women were also allowed to attend a musical concert in
Jeddah.
Earlier this month, a Saudi cleric was banned from preaching after
pi saying that women should not be allowed to drive because their

brains shrink to a quarter the size of a man’s when they go
shopping!
The move had been widely anticipated amid a transformation of
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many aspects of Saudi society that has been branded by one senior
minister as “cultural revolution disguised as economic reform”.
Recent months have seen live concert performances in Riyadh –
albeit to male-only audiences – while the powers of the once-
omnipresent religious police have been curtailed.
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However, the Crown Prince and his father, King Salman, had feared
that moving too quickly on reforms would cause anger among the
clerical establishment and elements of Saudi society who adhere to
rigid interpretations of Sunni Islamic teachings that have taken root in
large parts of the country over more than a century.
How could this turn things around?
More than 60% of the Saudi population is aged under 30 and among
that demographic are large numbers of disenfranchised youngsters
dissatisfied with the current social contract, which is bound up in

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rigidly conservative rules governing social

interactions.
Entertainment and fraternisation are
mostly outlawed. Jobs are few, and often
menial. There are fears that in the
absence of credible alternatives,
extremist groups may provide a lure.
“This is cultural revolution disguised as economic reform,” one
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senior minister told the Observer in Riyadh earlier this year.
“Everything hangs on it.”
Overhauling the way that Saudis live is intertwined with changing how
pi they work. Despite enthusiasm among many sectors in society, there is

broad resentment among other communities to the scale and scope of
the plans. “The leadership is significantly less conservative than the
base,” said the senior minister.
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“None of this will be easy at all. “They are hoping for whole shift in
values set within a generation. To do this, they will have to take on the
clerics at the same time as building a new economy.”
The stakes involved in such a transformation are enormous. But the
price of failure may eclipse them all. A juggernaut has started
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rolling, and the young prince has staked his kingdom on being able
to control it.
These are signs of progress towards increasing the participation of
women in the workforce - a key Vision 2030 goal - particularly in
finance and technology. In February, three top jobs in finance,
including the head of the stock exchange, were filled by women.
Citigroup has just appointed a woman to head the bank's operations
in the kingdom.
Saudi Arabia is going through a transitional phase that requires a

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change in thinking, she added.

“This is a new modernity in Saudi Arabia and it is specific to Saudi
Arabia with its identity and religion,” Al-Helaissi said.
—– | —–
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pi
ap
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RELIGION & SOCIETY / Five years and many

more rapes later
16-Dec-2017
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pi Today is the fifth anniversary of 16 December 2012, when Jyoti Singh,
a 23-year-old medical student, was brutally gangraped in a moving bus
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in Delhi – and died of her grievous injuries. ‘Nirbhaya’ is one of those
few cases that attracted widespread media attention and led to India’s
rape laws being made more stringent. Knappily analyses if India can
confidently say that the five bygone years have made India safer for its
women.
Kn
What does India remember

today?
“She asked me if I had taken my
dinner. I said yes. She then told
me that I should sleep. She said
‘you go to sleep, I will also sleep’.
Then she embraced my hand and slept as a tear dropped from the
corner of her eye. Those were her last words to me. Thereafter, she
never gained consciousness and didn’t talk to any of us.” ~ Jyoti

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Singh’s father
“The last words we shared are with me every day. I remember trying
to make her eat. But she was in so much pain she couldn’t even eat a
spoonful. I was begging her to eat just something but she wouldn’t. She
kept telling me to sit and hold her hand instead.” ~ Jyoti’s mother
Five years after the brutal gang rape of a 23-year-old physiotherapy
student in the Indian capital turned the focus to violence against
women, small groups turned out in New Delhi and several other
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cities on Saturday to highlight the need for safety for women in
public spaces.
The 23-year-old paramedical student was assaulted and raped by
pi six persons in a moving bus in south Delhi and thrown out of the
vehicle with her male friend on the night of December 16, 2012.
She died during treatment at a Singapore hospital on
December 29 that year.
ap
The panel of judges called the case an instance that sent a “tsunami
of shock” over the country and counted it as the “rarest of the rare”
of incidents. Terming it a most brutal and diabolical attack and
taking into account the long list of dehumanizing acts the victim
was subjected to, the Court awarded capital punishment to the adult
Kn
offenders.
However, five years on, Nirbhaya is still waiting for justice. The
Supreme Court had awarded death sentence to four convicts —
Mukesh, Pawan, Vinay Sharma and Akshay Kumar Singh — in the
brutal case. A fifth convict allegedly committed suicide and died in
custody. A sixth — a juvenile convict — was sent to a
reformation camp, from which he was released in 2015.
The candle light marches, protests in Delhi and across other cities in
India, and massive campaigns on both conventional and social media

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that followed the incident awakened the people of India to the horror of
rape in a way no other incident had ever before.
Why is Delhi still deemed unsafe for
women?
A look at the National Crime Records
Bureau (NCRB) statistics suggests
women are still not safe.
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The number of rape cases in Delhi
stood at 706 in 2012. For 2014, 2015 and 2016 these numbers
are above 2000.
Cases of assault on women with the intent to outrage modesty
pi were 727 in 2012. For the last three years, these numbers have
been above 4000.
Does this mean crimes against women have increased in the city? Not
necessarily. These numbers might be a result of better reporting
ap
and recording of crime by sufferers and police.
In many states the police refuse to even record such crimes.
Women are often weary of going to the police due to victim
blaming and the fact that a large number of perpetrators of such
crimes are familiar to the victim.
Kn
The 2012 movement might have helped in breaking such taboos

in Delhi.
IDFC Institute conducted a survey on Safety Trends and Reporting of
Crime among 20,597 households across Delhi, Mumbai, Chennai and
Bengaluru in 2015-16.
The survey shows that Delhi is the worst in terms of perception
of women being unsafe. 87% of respondents in Delhi start
worrying about the safety of an unaccompanied woman if she is
out of home after 9pm.

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The numbers are much lower in the other three cities. Mumbai
had the highest share of respondents who felt that women are
always safe in the city.
Preventing crimes against women is not just a subject of better
policing. Social attitudes matter a lot. The #MeToo campaign has
highlighted this aspect. Sexual harassment is rampant across the board.
Silence, both of the victim and those who witness such acts, only
emboldens the perpetrators. Such apathy also exists in India.
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The Association for Democratic Reforms (ADR) conducted a
survey among 2.71 lakh people across 527 Lok Sabha
constituencies. It shows that safety and empowerment of women
pi figures low on priority list of voters in the country.

Delhi fares only marginally better than all-India average on this
count. One would have expected that the 2012 movement would
have made safety of women a bigger issue.
ap
While one should be careful in jumping to conclusions on the basis of
these statistics, there is little doubt that Delhi needs to do more to do
justice to the spirit of the December 2012 movement.
When were reforms
implemented?
Kn
A week after the horrific attack on

Nirbhaya on 16 December 2012,
the Justice JS Verma Committee
was set up to review India’s
criminal laws and recommend amendments to them. The
Committee’s huge 644-page report, which was published within a
month, for once didn’t just end up gathering dust at the Law Ministry.
Instead it formed the basis of the Criminal Law (Amendment) Act of
2013, after first being implemented as an ordinance.

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Unfortunately, not all the Committee’s recommendations were

accepted, including some that really should have been, such as
criminalising marital rape. But the country did see some significant
changes to the law because of this.
Reforms to the Law on Rape
The headline reforms in the 2013 Amendment Act were of course
about rape. One of the more horrific aspects of the Nirbhaya case
had been the way in which an iron rod was used to penetrate her,
ly
damaging her intestines and eventually causing her death. Under
the old definition of rape, this part of the assault on her
wouldn’t have been classified as rape, and nor was forced oral
pi sex.
The 2013 Act expanded the definition of rape to include oral
sex as well as the insertion of an object or any other body part
into a woman’s vagina, urethra or anus.
ap
The punishment for rape was also made stricter. The courts’
discretion to give rapists a sentence lesser than the minimum of
seven years was abolished.
Separate punishments for repeat offenders were also
introduced, including the possibility of the death sentence.
Kn
The amendments also included an improved standard of consent

– consent now needs to be unequivocal and clearly communicated,
and lack of physical resistance isn’t assumed as consent.
The Parliament also officially repealed several rules of evidence
that were regressive, that encouraged victim-shaming, and
actually had nothing to do with the crime, like the two-finger test,
or questioning the victim’s previous sexual history.
Finally, fast-track courts were also set up for rape cases, which
were to conduct trials on a day-to-day basis and not stretch them
over several months. Trials also need to be completed within two

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months of the chargesheet now.

New Sexual Assault Offences
Next, India defined new sexual assault offences. Previously, the
IPC had to tackle sexual assault offences using the archaic section
354: “outraging the modesty of a woman.”
Now, under sections 354A-D, stalking, voyeurism, unwanted
sexual advances and touches are all specific offences – which
helps ensure that these extremely dangerous behavior can no longer
ly
be ignored or trivialised.
Provisions on Acid Attacks
pi And in a crucial move, recognising India’s massive problem with

acid attacks, the 2013 Act also introduced provisions specially
criminalising them, and for protecting victims of these attacks.
Where do we see other social
ap
changes?
In a bid to make cities safer, the
government has set up help
lines and installed security
cameras, although that has
Kn
failed to be a deterrent, according to rights activists. They express

disappointment that despite the tightening of laws for rape and sexual
harassment, crimes are still surging, sometimes against very young
girls.
“ We feel very, very let down by the system, by the government.
The gruesomeness of crime has increased ,” says Ranjana Kumari
at the Center for Social Research in New Delhi. “There have been
very, very young children who have been assaulted in most brutal
way.”
Less than a week ago, a six-year-old girl was found murdered

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with grave sexual injuries in the northern state of Haryana - a

case whose brutality led to comparisons with the 2012 bus gang
rape.
Asha Devi, the mother of Jyoti Singh, also shared her anguish with
reporters asking, “Women and girls are still being raped, what
changed? The city is as unsafe as it was five years ago.”
Activists also worry about what they feel are efforts to dilute the
tough laws that were instituted after the gang rape to punish men and
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point to a judgment.
Earlier this year, a judge set aside the conviction of a Bollywood
filmmaker for rape after ruling that a “feeble no” could
pi indicate willingness on the part of the victim.

Women’s rights activists say the biggest change, however, is that
women have become more vocal in demanding their freedom and
safety and that the subject of violence is now discussed openly in a
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country where talk of sex crimes previously had been considered
taboo.
“ In the past five years, one of the most positive things I think is
that those kind of agitations have taken teeth and grown ,” said
Kavita Krishnan from the All India Progressive Women’s
Kn
Association.
Kavita Krishnan stresses the need for more mobilization of the kind
that was seen in the wake of the 2012 gang rape to continue to keep
the focus on women’s safety and freedom.
“ We cannot celebrate the 2012 movement without realizing what is
happening around us right now. It has to be a continued fight. It can’t
just be a ritual obeisance paid to the 2012 moment ,” she said.
Who is still escaping justice?

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“When my daughter took her last breath

my only wish from that day forward was
to see her killers hanged from the
gallows. They are not humans. After what
they did to my girl, they don’t deserve to
be treated like humans.” ~ Badri Singh,
Jyoti’s father, who says he will watch the execution of her killers.
“She kept saying her only wish was to see them hanged. I know this
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result will help her be at peace now.” ~ Asha Devi, after the death
sentence was announced
“We are proud that our daughter fought back with all her strength.
pi No woman would want this to happen to her. Whatever he is saying

reflects his low mentality.” ~ Asha Devi, after a BBC Documentary
featured one accused Mukesh Singh saying that Jyoti “was asking for
it”. He also claimed it was Jyoti, and not her attackers, who was
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responsible for her murder - because she fought back.
“But why is he even alive to talk?”
But five years since December 16, 2012 gang-rape case of
Nirbhaya, the four convicted rapists are yet to be hanged. The four
convicts - Pawan, Vinay, Mukesh Singh and Akshay Kumar Singh
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- were awarded death sentence by the High Court.

The top Court, on May 5, 2017, upheld the death penalty awarded
to all four convicts in Nirbhaya gang-rape case by the High Court.
On Dec. 15, two convicts – Vinay Sharma and Pawan Kumar
Gupta – moved the Supreme Court for review of its verdict
upholding the capital punishment awarded to them. The top
court, on December 12, had allowed the counsel to file review
petition for another convict Akshay Singh and listed the matter for
hearing on January 22.

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The fifth accused, Ram Singh, committed suicide in jail. The

juvenile accused has been released after completing mandatory
probation period in a remand home.
Last month, the victim’s mother Asha Devi asked why the
accused have not yet been hanged. Her questioning comes after
five months of Supreme Court’s verdict. “Even after 5 years, her
culprits are alive. If justice isn’t served on time, people cease to be
scared of law. A strong law needs to be formulated & mindset of
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everyone, be it a politician or a common man, needs to be
changed,” said Asha Devi.
The Delhi Commission for Women (DCW), in November 2017,
pi issued a notice to Tihar Jail Administration and Deputy

Commissioner of Police (DCP) South District, questioning the
delay in execution of death penalty to rapists.
Urging Prime Minister Narendra Modi to create a stringent law to
ap
punish rapists, DCW chief Swati Jai Hind said, “At least when minor
girls are raped there should be a law in this country in which such
rapists should be punished and given death penalty within six months.
This should be done in all the cases and we are requesting the Prime
Minister to create a law which is there for the entire country in this
Kn
regard.”
How much more must India do for its
women?
One can have different views on whether
after the Nirbhaya reforms, cities are safer
for women or not, but one thing remains
unchanged: After every rape or sexual
harassment case which garners nationwide outrage, politicians and
policymakers resort to temporary solutions to pacify citizens.

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However, it must be noted that rape is not a random event. It is an

outcome of multiple factors in interaction with each other, the
process of which keeps on repeating. And at a broader level, the
issue of rape needs to be tackled from a multidimensional approach
rather than using piecemeal approaches such as more CCTV cameras,
lighting up streets, constituting countless commissions for relooking at
laws, etc.
Here is a list of issues which play a role in the causal chain of rapes,
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each of them being critically important in tackling the menace.
Lack of Efficient Public Transport
After watching a movie at Select City Walk, Saket, Jyoti Singh
pi tried to board an auto to return home, but all autowallahs

refused to go, due to which she had to board that bus. Had an
auto agreed to go, would she have been alive? Probably.
Thus, from a broader perspective, lack of efficient and safe public
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transport systems was a critical factor in endangering her life.
Countless debates and efforts have been made by advocacy NGOs
and civil society organisations regarding the need for safe and
efficient public transport systems, but not much has changed.
Gender Bias and Discrimination
Kn
During the bus ride, the rapists assumed that she was a
‘characterless’ girl as she was out with a man late at night. In the
BBC documentary ‘India’s Daughter’, one of the convicts
Mukesh Singh, who was interviewed, said, “A decent girl won’t
roam around at nine o’clock at night. A girl is far more responsible
for rape than a boy.”
Just because Jyoti was with a male friend at late night, Mukesh
thought that she deserved to be raped. There is no easy answer
to how to change such mindsets though several organisations and

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NGOs have been working with communities for decades.

Lack of an Efficient and Gender-Sensitive Police Force
Ask anyone about challenges faced by women in fighting crimes,
the most commonly cited problem would be the lackadaisical
attitude and derogatory behavior of police personnel.
Recently, a policeman’s daughter was gangraped in Bhopal and
he had great difficulties in filing an FIR against the culprits.
Only after social media outrage was the case taken seriously.
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Till a woman feels safe and confident to report a rape without
being fearful of judgement or victim-blaming, India cannot lay
any claim to be a safe country.
pi “Stringent implementation of laws and strict policing will help, but

the real change will come when abusers and rapists are
consistently convicted for their crimes, survivors are not doubted,
judged or shamed,” says Preethi Pinto, Program Coordinator on
ap
Prevention of Violence against Women and Children at Mumbai-
based SNEHA (Society for Nutrition, Education and Health
Action).
In 2016, one in four rape cases in India ended in conviction –
the lowest since 2012–according to national crime data.
Kn
Judicial Progress
Despite attracting nationwide outrage and attention, it took
around five years for the final convictions in the Nirbhaya case.
This itself is an indicator of how terribly slow Indian judiciary is
due to overburdened courts and lack of adequate judges.
One can only imagine the condition of cases which don’t get the
kind of media attention Nirbhaya did.
Without fast-track trials and timely convictions, it is difficult to
prevent rapes. India needs more than 70,000 judges to clear

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pending cases, which highlights the severe shortage.

Recognition of Rape Statistics
While Nirbhaya was raped by strangers, 95% of rapes in India
are committed by a person known to the victim. Therefore, the
governments’ piecemeal approaches of restricting women’s
movements, more policing in buses and installing CCTVs fall flat.
There is no magic bullet to solve this issue, but before any solution,
it is critical that governments recognise that a woman is more at
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risk from known persons rather than unknown ones, which is why
fast-track trials and higher conviction rates are critical, as they
can act as deterrents.
pi It is critical to address multiple issues if India is serious about reducing

the shocking rapes. Resorting to one-stop solutions or temporary short-
term measures to appease the public and win elections leaves women
without justice.
ap
—– | —–
Kn

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RELIGION & SOCIETY / Delhi: still unsafe for

women
9-Jul-2017
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pi According to data released recently by Delhi Police, the capital of
India has seen tripling of the number of reported rapes, with an
ap
increase of 277% from 572 in 2011 to 2155 in 2016. The government
initiatives to ensure the safety of women have failed to result in a
measurable drop in rape and other sex-related crimes. Knappily
analyses the reasons for this rise and suggests long-term solutions for
dealing with crime against women.
Kn
What are the latest statistics on crime

against women in Delhi?
The number of rapes reported each year in
Delhi has more than tripled over the last
five years, registering an increase of 277%
from 572 in 2011 to 2,155 in 2016,
according to data released recently by the Delhi Police.
The year after the ghastly December 16 gang rape in 2012 — in
which a 23-year-old paramedical student was raped by a group of

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men in a moving bus in Delhi — saw a 132% spike in the

number of cases reported, with a sustained 32% increase
thereafter, from 1,636 cases in 2013 to 2,155 in 2016.
Cases pertaining to “assault on a woman with intent to outrage her
modesty” (under Section 354 of the Indian Penal Code) have
increased by 473% from 727 in 2012 to 4,165 in 2016.
The first five months of 2017 saw 836 rape cases being reported to
the police. The figure does not quite capture the continuing horror that
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women in the National Capital Region (NCR) face.
In the 48 hours from June 19, 2017, for instance, five rape
incidents were recorded. In addition to these, a 24-year-old woman
pi was raped in a car parked outside a mall in Delhi on June 20, 2017,
and another in which a 26-year-old woman was gangraped in a
moving car on the outskirts of Delhi.
In 2015, the latest year for which National Crime Records Bureau
ap
(NCRB) data are available, the NCR region reported 3430 rape
cases, of which the Union Territory (UT) of Delhi alone reported 64%.
The other most commonly reported crimes against women in Delhi are
cruelty by the husband and the in-laws, kidnapping, and “insult to
the modesty of women”.
Kn
Crimes covered under “assault on woman with intent to outrage her

modesty” include relatively more serious crimes such as ‘sexual
harassment’, ‘assault or use of criminal force to women with intent
to disrobe,’ ‘voyeurism’ and ‘stalking.’
“Insult to modesty of women” covers sexually-motivated
comments or gestures in a place of work, on public transport, and
so on.
Note: The National Capital Region (NCR) and its planning board were
created under the National Capital Region Planning Board Act of

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1985. Today, the NCR comprises of the whole Delhi; the Haryana
districts of Gurgaon, Faridabad, Rohtak, Sonipat, Rewari, Panipat,
Bhiwani, Jind, Karnal and Mahendragarh; the Uttar Pradesh districts of
Bulandshahr, Meerut, Muzaffarnagar and Ghaziabad, and Bharatpur
and some of the district of Alwar in Rajasthan. There are now a total of
22 districts within NCR, covering a total area of 50,566 sq. km.
Why are these incidents rising?
The rise in the number of cases does not
ly
necessarily imply an increase in the
number of rapes; it can mean greater
willingness on the part of survivors to
pi approach the authorities, as well as a

greater propensity among police officials to register complaints.
One government official, speaking on condition of anonymity, told
IndiaSpend that the rise in the number of reported rapes is due to
ap
advisories issued by the government and the Supreme Court of
India that action would be taken against police personnel who
fail to register a First Information Report (FIR) for rape and
other cognisable offences.
Anant Kumar Asthana, a Delhi-based activist and lawyer, agreed:
Kn
“Reporting of sexual offenses against women has gone up with stricter

implementation of laws like Protection of Children from Sexual
Offences Act, 2012, and the [enactment of the] Criminal Law
Amendment Act 2013.”
The Protection of Children from Sexual Offences (POSCO) Act,
2012, obligates citizens to lodge complaints of sexual offences
against children.
The Criminal Law Amendment Act, popularly known as the
Nirbhaya Act, came into force on April 2, 2013, and inserted a

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provision in the Code of Criminal Procedure to make it mandatory

for criminal complaints of a sexual nature to be recorded by
women police officers, and prescribes rigorous imprisonment of
between six months and two years in addition to a monetary
penalty for a public servant who fails to register a complaint of a
cognisable offence.
“With more stringent laws being passed, public awareness being
created, and the media reporting more cases of sexual assault,
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reporting of cases has increased, but this is still far from being
representative of the number of cases that occur,” Preethi Pinto,
Program Coordinator on Violence against Women and Children at
pi Mumbai-based SNEHA (Society for Nutrition, Education and Health

Action) told IndiaSpend.
Only 50% of all crimes are reported, and only half of these are
registered as FIRs, a 2015 public survey entitled ‘Crime
ap
Victimisation and Safety Perception’ conducted by the
Commonwealth Human Rights Initiative (CHRI) among
households in Delhi and Mumbai, found.
CHRI estimated that one in 13 cases of sexual harassment were
reported in Delhi.
Kn
When did the government take

steps to counter such crimes?
After the Nirbhaya incident, the
Delhi Police set up 161 help-
desks staffed by female officers,
and announced that 70% of
female officers would report for over eight-hour shifts each day,
according to 2014 Bureau of Police Research and Development study
on national police working conditions. However, those who deal with

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these help-desks question their competence, IndiaSpend reported on

August 12, 2016.
In 2013, the ministry of finance announced it would set up a Rs 1,000-
crore ($156 million) Nirbhaya Fund to drive initiatives aimed at
enhancing the safety of women in the country.
Thus far an amount of Rs 3100 crore has been allocated,
according to the government’s reply to the Rajya Sabha on April 6,
2017.
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As many as 16 proposals amounting to Rs 2348.850 crore have
been received, of which 15 amounting to Rs 2047.85 crore have
been approved.
pi The Ministry of Women and Child Development (MWCD) has

initiated three schemes under the Nirbhaya Fund — One Stop
Centre (OSC) for women affected by violence, under which 84
centres are currently operational; Universalization of Women
ap
Helpline, under which 18 states and UTs have set up helplines; and
Mahila Police Volunteer (MPV), whose pilots are currently running
in several states.
Due to intense public scrutiny, the ministry issued a clarification on
January 27, 2017, enumerating the various schemes being run by
Kn
various ministries under Nirbhaya Fund. However, it made no

mention of funds utilized or spent on these schemes individually,
although an overall allocation of Rs 1,530 crore and an estimated
expenditure incurred of Rs 400 crore was cited.
In a May 26, 2016, order, the Supreme Court asked the Centre to
formulate a national policy for providing relief to rape survivors,
saying the Nirbhaya Fund amounted to “just paying a lip service”.
A scheme, ‘Security for Women in Public Road Transport in the
country’ was approved by Cabinet Committee on Economic Affairs in

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2014 with the objective of providing safe and secure public road
transport to people of the country, particularly to women and girl child
in 32 cities in India having population of more than one million.
Accordingly in 2016, it was made compulsory for all transport
vehicles to be equipped with vehicle location tracking device,
CCTV based surveillance system, and one or more panic /
emergency buttons which would be fitted by the manufacturer
or their dealer or the respective operator.
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The railway ministry is also working on a pilot scheme of setting
up an SOS alert system in trains in select zones.
Despite the initiatives under Nirbhaya Fund, crime against women
pi continues unabated, amicus curiae and senior advocate Indira Jaising

told the Supreme Court, The Hindu reported on February 7, 2017.
“What is the purpose of having a fund when it does not reach the
needy hands? It is hardly utilized and the only purpose it appears to
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have been used is setting up of ‘one stop crisis centres’ in different
states,”Jaising said.
Where are the reasons for low
conviction rate?
The conviction rate for rape in Delhi,
Kn
though better than the all-India average,

dipped to 29.7% in 2015, the latest year
for which data are available from the
National Crime Records Bureau. Across India, one in four rape trials
leads to conviction, IndiaSpend reported on March 9, 2015.
Among the reasons for low conviction rates, according to Majlis, a
Mumbai-based legal advocacy, are: victims withdrawing
statements, delays in registering a first information report,
faulty investigation, indifferent prosecutors, inconsistencies

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and contradictions in witness statements, insensitive judges and

gruelling cross-examination of even minor children by astute
criminal (defence) lawyers.
A comparison of Delhi Police reports from 2014 and 2015 reveals
a rising trend in the number of rape cases withdrawn, from 81 to
104, possibly indicating a lack of faith in the criminal-justice
system, especially as cases fail judicial scrutiny, IndiaSpend
reported on August 12, 2016.
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“Declining conviction rate in rape cases ordinarily means lesser
number of registered cases could be proved in court and this gives
rise to the suspicion that maybe false cases are also being
registered,” Asthana said, “But it could also mean that police is
pi not able to do good investigations or that victims are not getting

quality legal representation during trial. Whatever may be the
reason, declining conviction causes concern and must be examined
for possible reasons.”
ap
Who are the perpetrators?
The statistics of rapes across the
country showcase a similar
pattern. Out of a total of 34,651
Kn
cases of rape registered in India in

2015, the accused was known to the
survivor in 33,098 cases and in 488 of them, the accused was a father,
a brother, a grandfather or a son.
NCRB data has thrown light on the “offender’s relation and
proximity to rape survivors” under Indian Penal Code (IPC)
Section 376 (rape) during 2015.
Flavia Agnes, noted gender rights lawyer and director of Majlis, a
Mumbai-based organisation that provides legal initiatives for women,

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stated that statistics should make us change the way we look at

rapes.
“Most of the rapes are happening at home, either at survivors
place or at the place of the accused. Most of these cases are not
immediately reported as victims desist to speak or family also
doesn’t like to speak up,” said Agnes.
“After the Delhi gang rape case, there has been a lot of talk about
street lighting, mobile apps, toilets and rapes while lurking in bad
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zones. However, girls and women are vulnerable at home,
workplace and other places,” she added.
Case-in-point: Maharashtra
pi Out of every 100 cases of rape registered in Maharashtra, the accused

is known to the survivor in 99.3 of them, the National Crime Records
Bureau (NCRB) statistics revealed.
In mere 29 cases out of the total 4,144 rape cases registered in
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state, the survivors did not identify the offenders.
The analysis of rape cases in Maharashtra in 2015 has revealed that
in 99.3 per cent cases, the accused was someone the survivor
already knew.
The offenders ranged from grandfathers/fathers/brothers/sons (69
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cases), close family members (70), relatives (262), neighbours

(729), employer/co-workers(91), live-in partner/husband/separated
ex (34), known persons on promise to marry (974), other known
persons (1,786) and offenders not identified by victims (29).
How can such crimes against
women be tackled?
Laws and policing alone cannot
prevent crimes of a sexual nature.
Violence against women and girls

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is rooted in gender-based
discrimination and social norms and gender stereotypes that
perpetuate such violence.
Given the devastating effect violence has on women, efforts have
mainly focused on responses and services for survivors.
However, the best way to end violence against women and girls is
to prevent it from happening in the first place by addressing its
root and structural causes.
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Prevention should start early in life, by educating and working with
young boys and girls promoting respectful relationships and gender
equality.
pi Working with youth is the “best bet” for faster, sustained progress
on preventing and eradicating gender-based violence.
While public policies and interventions often overlook this stage of
life, it is a critical time when values and norms around gender
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equality are forged.
“Preventing sexual assault is a long-term process and the most
important way to do so, is to change individuals’ and society’s
attitudes and behaviour. Stringent implementation of laws and strict
policing will help, but the real change will come when abusers and
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rapists are consistently convicted for their crimes, survivors are not
doubted, judged or shamed,” Preethi Pinto, Program Coordinator on
Violence against Women and Children at Mumbai-based SNEHA
(Society for Nutrition, Education and Health Action) told IndiaSpend.
Pinto emphasized the need to change societal attitudes by
instilling healthy notions of gender equality and masculinity
among children, and removing unhealthy underpinnings of
patriarchal biases among adults.
This can only happen when “violence against women and girls is

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not considered a private matter, but a public problem, with

societies, public and living spaces are designed and developed for
women and children as much as for men,” Pinto added.
Prevention should also be done through the promotion of women’s
empowerment and their enjoyment of human rights.
It also means making the home and public spaces safer for women
and girls, ensuring women’s economic autonomy and security,
and increasing women’s participation and decision-making
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powers—in the home and relationships, as well as in public life
and politics.
Working with men and boys helps accelerate progress in
pi preventing and ending violence against women and girls.

They can begin to challenge the deeply rooted inequalities and
social norms that perpetuate men’s control and power over women
and reinforce tolerance for violence against women and girls.
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Awareness-raising and community mobilization, including through
media and social media, is another important component of an
effective prevention strategy.
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RELIGION & SOCIETY / #WeToo
19-Oct-2017
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pi In the wake of the Harvey Weinstein expose, a hashtag campaign
#MeToo has been bringing countless survivors of sexual harassment
— mostly women — together on social media platforms this week.
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The personal accounts of harassment have raised questions over our
routine assumptions of rarity and triviality of its prevalence. Knappily
explores the roots and contours of MeToo, and analyses just why is it
that we demonstrate a far greater tolerance for sexual harassment than
we should.
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What is the #MeToo campaign about?

The campaign was born out of the
troubling news that renowned Hollywood
producer Harvey Weinstein had
allegedly been sexually harassing dozens
women who had worked with him.
The news inspired dozens of female celebrities – including
Gwyneth Paltrow, Angelina Jolie, and Kate Beckinsale – to
open up about being harassed by Weinstein and other Hollywood

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bigwigs. Even male celebrities also spoke up about the need to put
a stop to sexual violence in their industry.
But the #MeToo campaign was born when singer/actress Alyssa
Milano, in order to who address the prevalence of sexual assault
and harassment, urged people who had experienced sexual violence
to reply “me too” to her tweet.
She explained the idea behind the action in an accompanying
screenshot thus:
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“If all the women who have been sexually harassed or assaulted wrote
‘Me too’ as a status, we might give people a sense of the magnitude of
the problem,” she wrote.
pi The hashtag soon took over Instagram, Facebook, and Twitter, so

much so that it was impossible to scroll through social media this
week without seeing a post tagged #MeToo. And along with the
hashtag were horrific personal accounts of harassment stories that
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women had to endure.
The women writing these accounts include lawyers, journalists,
doctors, bankers, development activists, managers, teachers,
students, and the list goes on. They are from different nationalities,
religions and languages. They have been whistled at and leered at,
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brushed past and pawed, groped and squeezed, humiliated and

embarrassed.
What constitutes sexual harassment?
Sexual harassment includes anything ranging from an indecent remark,
unwanted touching, inappropriate behaviour, demands for sex to the
dissemination of pornography. Typically, at the work place, it is
making someone feel that their physical attributes are their main
value, and thereby undermining the skills or talent or insights or
hard work they may also have brought.

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In India, it is governed by the following laws

The Sexual Harassment at the Workplace (Prevention, Prohibition
and Redressal) Act, 2013
Under the Act, sexual harassment includes:
Physical contact and advances (so, you can’t touch someone
inappropriately and think I am innocent because, you know, I
didn’t rape her)
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A demand or request for sexual favours
Making sexually coloured remarks (so, no sexist jokes or
misogynist humour)
Showing pornography
pi Any other unwelcome physical, verbal or non-verbal conduct of

sexual nature.
Under the Act, the below five also count as sexual harassment:
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Implied or explicit promise of preferential treatment in her
employment.
Implied or explicit threat of detrimental treatment in her
employment
Implied or explicit threat about her present or future employment
status
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Interference with her work or creating an intimidating or offensive

work environment for her (e.g. the St. Stephen’s College sexual
harassment case)
Humiliating treatment likely to affect her health or safety.
Laws under Indian Penal Code (IPC)
Section 354 (A): A man committing any physical contact, advances
involving unwelcome and explicit sexual overtures; or demanding
or requesting sexual favours; or showing pornography against the
will of a woman; or making sexually coloured remarks, shall be

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guilty of the offence of sexual harassment. (Punishment: Rigorous

imprisonment for a term which may extend to three years)
Section 209: Obscene acts in any public place, singing obscene
songs to the annoyance of others (Punishment: Imprisonment for a
term of up to 3 months or fine, or both).
Section 509: Uttering any word or making any gesture intended to
insult the modesty of a woman. (You cannot call her “mast”.)
Punishment: Imprisonment for 1 year, or fine, or both.)
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The Indecent Representation of Women (Prohibition) Act (1987)
If an individual harasses another with books, photographs,
paintings, films, pamphlets, packages, etc. containing ‘indecent
pi representation of women’; they are liable for a minimum sentence

of two years.
Why has this taken the world by storm?
The viral hashtag has conclusively shown
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that sexual harassment is not a one-off
incident but an ongoing one, and a
persistent backdrop in the lives of many
women.
The imbalance of power at the top in Hollywood is hardly
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surprising. But the plethora of posts and stories that have been
doing the rounds after Milano’s suggestion shows the ubiquity
of sexual assault.
The campaign has brought the conversation back into familiar
places - home, school, work, streets, where women have been
harassed.
All these women posting #MeToo aren’t celebrities. These are
ordinary women being assaulted by ordinary men with just enough
power to keep them from speaking up. This is what makes it makes

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it ordinary and everyday. And most of them typically shrug off

these assaults and ignore the scares because they are numbed by it.
The idea of women being sexually assaulted is a staple in
movies, and this thread has shown a haunting connection
between those in our TV screens with those watching them.
The most disturbing part of this is that the men involved in these
incidents aren’t always strangers. It is often the men they know,
they work with, they are related to and sometimes even
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confided in.
Many of these are scars that were formed when they were young girls.
Most uncles, auto-drivers who touched them asked them to not tell
pi anyone. The ages that are supposed to evoke nostalgia about their
learning to ride a bicycle now lingers in the memory with a haunting
episode of harassment and abuse of trust.
When did the #MeToo campaign
ap
originate?
While the credit for the recent MeToo
campaign goes to Milano, the movement
was started by a Black activist Tarana
Burke in Harlem more than a decade ago.
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Burke is the founder and director of Just Be Inc., a nonprofit

organization that is “focused on the health, well-being, and
wholeness of young women of color.” She started the movement in
2006, to shed light and spread awareness about sexual assault in
underprivileged communities of colour.
Since initially launching the #MeToo movement, she founded an
online support network of the same name that aims to support and
amplify the voices of survivors of sexual abuse, assault, and
exploitation.

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Now, her organisation coordinates outreach in local schools and

provides educators with resource kits to use in their classrooms.
“[Me too] was a catchphrase to be used from survivor to survivor to
let folks know that they were not alone and that a movement for radical
healing was happening and possible,” Burke says.
Talking about the recent campaign, Burke added, “In this instance, the
celebrities who popularized the hashtag didn’t take a moment to see if
there was work already being done, but they also were trying to make
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a larger point.”
For her part, Burke isn’t upset to see people taking her idea and
running with it.
pi “What’s happening now is powerful and I salute it and the women who
have disclosed but the power of using ‘me too’ has always been in the
fact that it can be a conversation starter or the whole conversation –
but it was us talking to us.”
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Where is the problem?
As it can be observed with the Weinstein
issue and the subsequent MeToo
campaign, very few victims and observers
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report sexual harassment. Here are some

reasons why women and people who
witness sexual harassments are reluctant to report them:
Fear of retaliation
Harassments are usually not condemned by those in positions of
power – elders, bosses, politicians, etc. It is instead met with
comments like “boys will be boys”. Due to this trivialising of
harassment, reporting it could lead to retaliation against the victim.
It would simply be career suicide to report harassment.

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The bystander apathy

According to this social psychological phenomenon, people are
less likely to help a victim when other people are present - the
greater the number of bystanders, the less likely it is that any
one of them will help. As a result when people witness harassment
in a large group, the bystanders tend to first observe others’
behavior to determine the correct behavior, and not intervene if no
one else is. People thus abide by the status quo.
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This is also made further ambiguous on the grounds that it’s hard to
tell the difference between a bit of banter and a sexually colored
remark.
pi Masculine culture
Gender hierarchies are an automatic product of masculine cultures.
In a male-dominated organisation, men use subjugation of women
to prove their masculinity to their fellow men, while reinforcing
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women’s lower status.
The paradox here is that, in such organisations, while the men keep
the women in line, the women often come across as trying to fit
into this culture. This has led to women using their own survival
mechanisms.
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Patriarchal women
The part that is harder to digest is that many women can be part of
the problem by practising patriarchy equally. In India, the accused
in case of dowry harassment are typically the mothers and sister-in-
laws. These women have gotten accustomed to their place in the
social hierarchy.
Sometimes even a mass protest is still not enough. Over the last few
years, India has seen quite a few protests. The process goes like this:
Rape case happens (90 per cent go unreported because 73 per cent

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of rapes are committed by men trusted by the victim and are

associated with shame, stigma and disbelief)
People talk about it in the news (some for sensationalism if the
woman belongs to a high income background or is a celebrity; low
income women don’t get talked about as much)
NGOs and students come forward in huge protests (the burden of
rectifying the nation’s conscience often rests on the shoulders of
activists)
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Government is forced to take action after things go ‘viral’ (these
days social media has more impact on government officials than
direct pleas from victims)
Legal procedures take over from here. And then the law takes its
pi own course, which usually means trial-court, High Court verdict,

challenge in the High Court, another verdict, challenge in the
Supreme Court, years of wait, verdict by the Supreme Court…
Justice is usually denied, and when it is not denied it is delayed.
ap
The entire legal spectrum demands huge patience, time and a lot of
money to be travelled through.
Who is the typical victim?
The targets of sexual harassment typically
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have a low bargaining power at the

workplace and are unable to push back.
The ones creating a fuss are unlikely to
get hired again, so they grit their teeth and
put up with harassment.
“Vulnerability” is constantly cited as a factor, and there is no single
source for powerlessness. The operative vulnerability is usually
rooted in race/caste and age.
The problem is not industry-specific, but some industries are worse

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than others. In male-dominated industries like construction,

where women are seen as interlopers, women experience high
levels of harassment. Women in low-wage jobs, like hotel
cleaners or farm workers, experience high levels of harassment.
In India, for example, there are hierarchies in the form of caste
system, based on the occupations of their early ancestors. Dalits
comprise 16 percent of the population and usually work in menial
jobs; as janitors, sewage workers, dead animal disposers and
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removers of human excrement. The subjugation of Dalits has long
been rampant, even following Gandhi’s ‘anti-untouchability
movement’ of the 1930s. For women, it is worse. Not only are
they discriminated by gender, but also by their caste.
pi Harassments are also common among women who are better off. It
becomes something they endure until women move to a different
phase of their careers or a different job, where their credentials get
bolstered by that very man’s reference.
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Social media, the birthplace of the MeToo movement, itself
abounds with particularly vicious misogyny. Women are
constantly picked on, ridiculed, subjected to sexually suggestive
insults, and bombarded with rape threats.
The harassers are overwhelmingly male, and in a position of authority
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over the target. However, several posts have pointed out that men can
be victims of sexual violence too, albeit at a statistically lower rate
than women. Women have countered this saying that the campaign is
about putting the onus on survivors, and is far removed from blaming
men.
How could this campaign help?
Not every woman can rise up against forces she might see as beyond
her control. It is important to remember that the women who are
speaking up now belong to a particular socio-economic class, with

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access to social media. And justice

reaches women unequally. A well-
educated women who belongs to elite
class families, have it much better.
While many have chosen to speak up, it
is important to understand many haven’t
and they don’t have it easy in a society which is often unforgiving
of women who speak up.
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In fact, even when women do come together to have a voice it
seems that little change is effected. Rape and sexual assault are
still largely believed to be a woman’s fault, despite educational
pi campaigns and public service announcements saying otherwise.

We live in a system where people in power don’t condemn
harassments, several movies condone such acts, and the freedom of
the victims is further stifled as they are told how to dress, when to
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go out, and whom to talk to.
This is why individual shaming of sexual harassment is the
equivalent of bringing a knife to a gun fight. This systematic
oppression cannot be brought down by bringing down one man. This is
why the fight should be against the system, and not one guy. The
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system can only happen through collective rage, and not individual
shame.
Natasha Walter, feminist author and campaigner, tells The Guardian:
“People often misunderstand patriarchy as a totalitarian system, in
which all the women feel powerless all the time, and all the men feel
powerful all the time. That isn’t how it works, a lot of women do feel
powerful and a lot of men don’t. The imbalance doesn’t necessarily
manifest in every interaction; rather, a large structural inequality
interlocks with an individual interpersonal moment. Women,
culturally, are evaluated by their appearances, so when women

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individually are harassed, that feeds into a wider awareness that their
voices won’t be heard and their view won’t be understood.”
Walter continues: “It’s hard for us to battle it without turning into a
stereotype of the feminist. As soon as you say, ‘You’ve got to take the
cultural denigration of women seriously’, you get the Woody Allen
reaction: ‘Every man who winks at a woman is going to be scared of
the lawyers.’ It’s quite easy to make an act sound trivial once it’s
decontextualised. A wink from a greengrocer is different from a wink
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from somebody who could fire you, or has contrived some way to
catch you on your own, or has any other mutually understood
circumstantial dominance over you.
pi “The other hard one,” Walter continues, “which I think is why the
Weinstein story is so compelling to us, is that we feed off that culture.
We value those actresses party because they’re so young, beautiful and
sexy. How do we enjoy our sexuality without buying into a culture in
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which women are downgraded, reduced to that and nothing else?”
A hashtag is just a tiny symbol against the big guns, but now we are at
least talking about possible crimes instead of just bad behaviour.
—– | —–
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RELIGION & SOCIETY / Triple Talaq, Multiple

Issues
30-Dec-2017
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pi The Muslim Women (Protection of Rights on Marriage) Bill, 2017 to
make instant triple talaq a criminal offence has attracted criticism that
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marriage is a civil contract and breaches therein should not invite penal
consequences. While the bill was needed to bolster the Supreme
Court’s decision, the bill seems to be drafted without adequate
deliberations. Knappily explores if and how the bill, recently passed by
the Lok Sabha, can truly result in empowerment of Muslim women.
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What is the status of the Bill?

The Muslim Women (Protection of
Rights on Marriage) Bill, 2017 was
recently passed in Lok Sabha. It was
introduced by the Minister of Law and
Justice, Ravi Shankar Prasad, on
December 28, 2017. The Bill will now be sent to the Rajya Sabha for
passage before it is forwarded to the President for signing it into law.
The Bill’s prospects in the Rajya Sabha are uncertain as the

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government lacks majority and the Congress’ support for the Bill is
conditional.
The Bill makes all declaration of ‘talaq’, including in written or
electronic form, to be void (i.e. not enforceable in law) and illegal.
It defines talaq as talaq-e-biddat or any other similar form of talaq
pronounced by a Muslim man resulting in instant and irrevocable
divorce. Talaq-e-biddat refers to the practice under Muslim personal
laws where pronouncement of the word ‘talaq’ thrice in one sitting
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by a Muslim man to his wife results in an instant and irrevocable
divorce.
Offence and penalty: The Bill makes declaration of talaq a
pi cognizable and non-bailable offence. (A cognizable offence is

one for which a police officer may arrest an accused person
without warrant.) A husband declaring talaq can be imprisoned for
up to three years along with a fine.
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Allowance: A Muslim woman against whom talaq has been
(already) declared is entitled to seek subsistence allowance from
her husband for herself and for her dependent children. The amount
of the allowance will be decided by a First Class Magistrate.
Custody of minor children: A Muslim woman against whom such
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talaq has been declared is entitled to seek custody of her minor

children. The determination of custody will be made by the
Magistrate.
Why was the legislation required?
The government says that doing so was
necessary as even after the landmark
Supreme Court verdict on August 22,
2017 that banned instant triple talaq,
the social malaise continued unabated.

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The top court in its verdict had struck down the practice as illegal and
violative of certain Fundamental Rights.
If we see available data, the government stand looks logical. The
numbers suggest that the Supreme Court ruling has failed to
deter the erring Muslim husbands from divorcing their wives
by saying ‘talaq-talaq-talaq’ in one go.
Before the landmark ruling by the Supreme Court in August, 177
triple talaq cases were registered, i.e., 22 cases a month. The
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situation has become worse since then. As Law Minister Ravi
Shankar Prasad revealed in the Parliament, around 100 triple
talaq cases have been registered since the Supreme Court
pi verdict, i.e., 25 cases a month.

Union Law Minister Ravi Shankar Prasad also argued that while 22
Islamic countries, including Pakistan and Bangladesh, had regulated
instant triple talaq, there was no effective law in India.
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The Supreme Court verdict
In a landmark decision, a five-judge inter-faith constitution bench
of the Supreme Court by 3:2 majority struck down triple talaq, or
instant divorce, practice as unconstitutional. The practice of instant
Triple Talaq (talaq-e-bidat) was deemed to be unconstitutional and
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violative of Articles 14 and 15.

Three judges said it is unconstitutional; the other two dissented but
wanted it banned for six months till the government introduces new
law.
After deciding that the practice is not integral to Islam, the apex court
struck down that part of 1937 Sharia Law that gave legal sanctity
Triple Talaq.
When does the bill contradict itself?
The fundamental flaw in this whole argument of criminalising the mere

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utterance of triple talaq is the fact

that if pronouncement by the
man does not eventually dissolve
the marriage, why then
criminalise an offence that did
not even take place?
The SC judgment effectively means that even after the
pronouncements of talaq three times at one go, the marriage in still
ly
intact and the man and the woman remain husband and wife.
The law, if implemented, will take away the husband of the
Muslim woman and end all possibilities of any reconciliation,
pi making her socially and financially insecure.

Looking at it from the other end of the gender debate,
criminalising Muslim men for a civil wrong is an outright
abuse of human rights. One does not need to be a legal expert to
ap
understand something as basic as this.
Another glaring internal contradiction is found in Sections 5 and 6
which discuss post-divorce issues such as a “subsistence allowance”
for the woman upon whom instant talaq “is pronounced” and the
“custody of her minor children” as if her marriage is dissolved by
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the mere pronouncement of talaq-e-biddat.

How could the authors of this Bill talk of post-divorce matters ignoring
the fact that the pronouncement (instant talaq) has already been
voided in Section 3 and cannot result in a divorce?
Where does the defence of the Bill
come from?
The Centre’s bill to make instant triple
talaq a criminal offence has attracted
criticism that marriage is a civil

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contract and breaches therein should

not invite penal consequences. Wherever the bill is faulty, Parliament
can cure the defects through debate.
However, the fact remains that Triple talaq was held to be
violative of Article 14, with the SC saying it was “manifestly
arbitrary in the sense that the marital tie can be broken
capriciously and whimsically by a Muslim man without any attempt
at reconciliation so as to save it”.
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Cruelty in a matrimonial home could be without physical assault,
as the SC ruled in several cases making verbal abuse and mental
torture part of cruelty.
pi To eradicate social evils, Parliament has taken steps from time to time
and prescribed penal consequences. The bid to punish those who may
wish to take recourse to triple talaq even after the SC order has
parallels too.
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To eradicate the evil of dowry, Parliament enacted the Dowry
Prohibition Act in 1961, and later went on to add Section 498A
in the Indian Penal Code, which jails a husband and his relatives
on a mere complaint from a woman about cruelty.
Untouchability was abolished by the Constitution when it came
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into force in 1950. Yet, the practice continued, forcing

Parliament to enact the Untouchability (Offences) Act in 1955,
renamed as Protection of Civil Rights Act in 1976. It punished
those practising untouchability, directly or indirectly, with
imprisonment of six months.
This tells us that even if the SC declared triple talaq unconstitutional,
the practice will continue in the absence of penal consequences.
Who said what?
Fulfilling its electoral promise, the BJP-led government moved swiftly

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to draft the legislation following the

Supreme Court order, striking down
the practice of instant triple talaq as
unconstitutional.
“It is a historic day. We are
making history today,” Law
Minister Ravi Shankar Prasad told the House after tabling the Bill.
Soon after the introduction of the Bill was approved, Prasad
ly
wondered whether Parliament could remain silent if the
fundamental rights of women were being trampled. He said the
legislation was not aimed against any religion but was framed to
pi provide a sense of justice, security and honour to women.

He said the law was required as even after the Supreme Court had
struck down the practice of ‘talaq-e-biddat’ in August, it was
continuing.
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He claimed that as recently as that day, a woman in Rampur was
given instant triple talaq by her husband for getting up late.
ANI reported that the woman Prasad mentioned in Parliament came
out in support of the Bill.
Parliament has to decide whether the victims of triple talaq have
fundamental rights or not, Prasad said, after some Opposition
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members claimed it violated the fundamental rights guaranteed

under the Constitution.
While many were not happy, especially regional and Muslim parties,
the Congress said it supports the Bill but with strengthened
safeguards for divorced Muslim women.
It asked for the Bill to be sent to a Standing Committee, instead
of being decided upon outrightly. However, their demand was
turned down.
Although Congress supported the Bill, senior leader Salman

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Khurshid, a former law minister, said the proposed law is an

intrusion into the personal lives of individuals, and would bring
the civil issue of divorce into the realm of criminal law.
Members from the Congress and the Left were not allowed to
speak on the Bill as they had not given notice.
The Congress’ Sushmita Dev later said, “I moved an amendment
over compensation for Muslim women in cases of triple talaq. It
was negated by the government.”
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The bill was passed after the House rejected a string of amendments
moved by Asaduddin Owaisi from the AIMIM and Bhartruhari
Mahtab from the BJD. MPs from the RJD, AIMIM, BJD,
pi AIADMK and All India Muslim League opposed the bill, calling it
arbitrary in nature.
One of Owaisi’s amendments saw 241 voting against it, and only
two voting in its favour. Owaisi said Parliament lacks the
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legislative competence to pass the law as it violated
fundamental rights.
Taking a dig at Prime Minister Narendra Modi, Owaisi said that
while the Bill talks only about Muslim women being abandoned,
the government should also worry about nearly 20 lakh women of
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various religions who are abandoned by their husbands, “including

our bhabhi from Gujarat.”
Owaisi also slammed Prasad, saying, “The Union law minister has
failed to discriminate between civil law and criminal law. Not a
single Muslim country has a penal provision. Triple talaq is a
form of verbal and emotional abuse”. Owaisi alleged that the
Centre was giving an advantage to the offenders and was not
helping the situation.
“Your dream of having more Muslims in jail will be achieved.
Please send the Bill to the Standing Committee. You are forcing a

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Muslim woman to file an FIR against her husband. You are giving
a handle to the Muslim man, who will have 90 days. If you are true
to your intentions, create a corpus of 1,000 crore,” he said.
RSP leader NK Premchandran said: “The main apprehension is the
over enthusiasm of the NDA government led by the BJP. There is a
cloud of suspicion. Triple talaq is already declared by Supreme
Court as null and void. It has become the law of the land. Then
the question is what is the need of further legislation?”
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SP leader Mulayam Singh Yadav was also seen opposing the Bill.
The TMC, which had opposed the draft bill earlier, was silent. JPN
Yadav of RJD questioned the proposed three-year jail term.
Muslim League’s ET Mohammed Bashir said the proposed law
pi was violative of personal laws and was a politically motivated

move. He said that given the population of Muslims in the country,
triple talaq cases were negligible. “You are unnecessarily taking
gun to kill the mosquito. You have jeopardised the sanctity of the
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House,” he said.
B Mahtab (BJD) said while he would not talk about the merits of
the bill, its framing was “faulty and flawed”. He said if the
proposed law makes the practice of instant triple talaq illegal
and void, how can a person be jailed for pronouncing ‘ talaq-e-
Kn
biddat? ’
How can the bill be made more
effective?
A true reforms Bill would have been
one that relooked family laws in Islam
and allowed both men and women a
court-driven solution when it comes
to divorce.
Muslim women are allowed, as per the Dissolution of Muslim

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Marriage Act, to seek divorce by approaching the court. A

Muslim man, on the other hand, must turn to the clergy.
Also, the talaq in Islam is unilateral — only the man can
pronounce it. Even the so-called benign forms of talaq are not
available to women.
So, a Muslim man just has to wait for a period of three months,
in keeping with the Sharia, instead of taking the triple talaq route,
and he would have achieved the same ends — that is, had his
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marriage dissolved with the wife having no say in the matter.
The center may also consider something similar to Sections 7(1), (3),
(4) and (5) of Pakistan’s Muslim Family Laws Ordinance, 1961
pi According to these clauses, ‘any man who wishes to divorce his

wife shall, after the pronouncement of talaq in any form
whatsoever, give the chairman of the state-appointed Union
Council notice in writing of his having done so, with a copy
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submitted to the wife.
Within 30 days of receipt of notice, the chairman should constitute
an arbitration council that comprises himself and a representative
of each of the parties, for the purpose of bringing about a
reconciliation between the parties.
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And talaq shall not be effective until the expiration of 90 days

from the day on which notice is delivered to the chairman. If the
wife is pregnant at the time of the pronouncement, talaq shall not
be effective until the termination of her pregnancy’.
It may be noted here that the Muslim Family Laws Ordinance does
prescribe, in Section 7(2), a simple imprisonment of one year. But this
is not for the mere “pronouncement” of talaq, as envisaged in the
Centre’s draft law.
The husband will incur this punishment only when he

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pronounces talaq with an intention to divorce but fails to

inform the chairman and the wife (in writing) about his
pronouncement.
To be sure, there is a section of public opinion that argues that reforms
in Islam in India must be organic and must come from the community.
But, it is important to keep in mind that the government has a role to
nudge communities on the path of reform, by forming enabling
laws — many a reform in the Hindu society would have been half-
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baked had they not received support from policy. Some may argue that
Muslim women will be better off if the Act is passed than they were
before, but the fact is they would not have moved substantially ahead
pi of where they were after the SC ruling.

—– | —–
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RELIGION & SOCIETY / Of strengths,

weaknesses and honest feedbacks
16-Aug-2017
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pi Sarahah, an app that lets users receive anonymous feedback from their
friends and colleagues, has become a digital rage. Developed by a
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Saudi programmer, it uses a combination of honesty and anonymity to
create a fun-filled confession system. The English version has been
widely adopted by the under-25s, reaching the top of the download
charts. But then, what if the reviewers of your profile ask you to ‘go
kill yourself’?
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What is the App?

The current top app on Apple's and
Google’s mobile marketplaces isn't
Facebook or Snapchat, but a new social
media app called Sarahah. The app
created by Saudi developer Zain Alabdin
Tawfiq allows users to receive anonymous comments.
According to a description of Sarahah, the app “helps you in
discovering your strengths and areas for improvement by receiving

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honest feedback from your employees and your friends in a private

manner.”
The idea is simple - you create a Sarahah profile, which anyone can
visit. Even without logging in, people can visit your profile and
leave messages, anonymously. If they have logged in, messages
are still anonymous by default, but users can choose to tag their
identity. On the receivers app, all the incoming messages show up
in an inbox, and you can flag messages, delete them, share, or
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favourite them to find them easily later.
This isn't the first anonymous messaging app we've seen that blew up
in popularity though.
pi Yik Yak, Secret, and Whisper are some of the popular apps in
recent times to try and fill this function. For the most part, those
apps have been more social, making the interactions more public.
Sarahah's focus is more on messaging and less on social media,
ap
and so visiting another users' profile won't show anything, unless
they choose to make the posts public.
The Sarahah app has taken hold in the social media sphere over the
past week, joining trends such as Prisma app that rose quickly in
public consciousness. Whether it will remain a hit or fade away in a
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few weeks is anybody's guess, but for now Sarahah app is something
difficult to avoid seeing in your Facebook news feed.
Are you ready to know what others (really) think about you? Nah? Or
Sararah?
Why is it being seen as unhealthy?
Although the app has become very
popular, it's quite polarizing.
On Google Play, parents Paul and Olivia
Parsons wrote: Our daughter used it for a

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day and at first nice comments but slowly

more mean comments started coming in … the last one before she
deleted it told her to kill herself.
Not everyone agrees with the mission of the app, and some users say it
will facilitate and encouraging bullying online. Critics on social
media have said the anonymity granted by Sarahah gives users “an
excuse to bully people” and that it will lead to abuse. There is evidence
of this. Since teenagers are the majority users of this app, parents are
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concerned.
While anonymity gives this app an edge above the rest, cyber
bullying can be an obvious flipside to this issue. The fact that it
pi allows anonymity would be a fertile space for cyber bullies to post

denigrating messages or harass the user at the receiving end.
Harassment through social media is not a new phenomenon.
People, especially teenagers, can be exposed to threats and
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harassment.
A concept that seems like a great platform for receiving and
sharing all the mutual admiration — or constructive criticism —
has turned into a nightmare for some, no thanks to the trolls who
are unforgiving and relentless when it comes to slinging the
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worst kind of mud in the guise of ‘honest feedback’.

Delhi-based psychologist Ankit Katyal feels that users should be
ready for everything when signing up for such an app. “Sarahah is
meant for honest feedback, and honest does not mean nice in any
way. Youngsters expect to get only good messages that will give
them something to share on social media, but [they] should be
well aware of the fact that hate, too, will find its way. Bullying
isn’t justified, and one can choose to stay away from the app or
uninstall it when they feel it’s getting to them, but users should
know what they’re signing up for,” he says.

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Anushri Jain, a media researcher who specializes in social apps,

feels that the Sarahah app is just a small part of the hate circle that
is social media. “Isn’t all of social media just the same? Hate is
everywhere, and when you add the benefit of anonymity to it, it
grows. People who have to bully others or call them names do it
even in the open. Sarahah shouldn’t be taken too seriously and
users should learn to segregate the bad from the good. There’s a
lot of good that the app gives you,” she says.
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When do we see the positive side to this?
Created by Saudi programmer Zain al-
Abidin Tawfiq, Sarahah was initially
pi launched in Egypt. Sarahah, which

means ‘honesty’ in Arabic, was launched
as a website to allow employees to give
their bosses anonymous feedback.
ap
In an interview with Financial Times, Tawfiq said that a lot of the
feedback showed that users were interested in knowing what their
friends and family, and not just coworkers, really thought about
them. So in February 2017, he opened Sarahah up to the
general public. Since then, the platform has gained steady traction
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worldwide.
On its website, Sarahah noted that the goal of the app is to let
coworkers give users feedback on their areas of strength and areas
for improvement. On a personal front, the goal seems to be similar,
with the added feature of letting friends be honest with you.
The purpose of the app is apparently to help users at work
discover their areas of strength and those in need of improvement.
For users who have decided to take the plunge, their interest is a
combination of feedback and general curiosity.

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On Facebook and Twitter, you can spot a Sarahah user through

screenshots of the teal speech bubbles that hold their
anonymous messages. The hashtag for the service is a cascade of
comments in a variety of languages.
Where are the other problems?
The app has a major flaw. Nowhere in the
Sarahah app is there an option to delete
your account. If you go to Settings, it
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only gives you an option to Logout.
For removing your account, you will
have to go to its website (either on desktop or your WAP site) and
pi go to Settings. Once you click on this, you will find the option of
‘Remove account’ Personal Information and Password. Clicking on
this will finally enable you to delete the account for good.
Sarahah does ask you to be sure whether you want to delete your
ap
account, as it is an irreversible action. It doesn’t quite explain if all
the messages will be lost as well, but many are guessing since the
action is final, it should delete all those messages.
The app is having other issues too. Basically, the app is experiencing
an outage in several parts of the world. Moreover, many users have
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now reported that they are facing problems with the app and many
have reportedly complained that they are not able to login to their
accounts. Further people are also experiencing connection issues as
well as problems in sending or receiving messages.
With only three staff members the company cannot really take care
of all tech issues. It must be a mouth-watering proposition for the tech
biggies to acquire Sarahah. To be honest, it would make perfect
business sense. These days you got to either build or acquire whatever
acquires user-time. Ask Mark Zuckerberg, the big practitioner of ‘let

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them build it; I will acquire it if it works out’.

Who is merging the public and the
private spheres?
Despite the notoriety of anonymous
users in fostering harassment, internet
activists fight for keeping anonymity
alive as they feel in repressive
societies sometimes it's the only way to hold the state accountable
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or participate in censored topics. Hence it shouldn't surprise us
that Sarahah too emerged in Saudi Arabia, which doesn't celebrate
the idea of free speech.
pi The rage over Sarahah comes in the backdrop of the criticisms

faced by other social media platforms like Facebook and Twitter
who are accused of fostering hostile and abusive atmosphere,
making it difficult for its users to express themselves freely. The
ap
unpleasant environment has also led to people either keeping their
engagement/opinions minimal in these platforms, or some
altogether have logged out.
This is where the entry of Sarahah becomes interesting, as it seems
that people are OK with “honest” feedback as long as it is not
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publicly displayed but rather is delivered to them in private, a

role that Sarahah fulfills- while doing so is it is perhaps for the first
time it clearly converges the public-private nature of new media
platforms that always awkwardly co existed here.
Sarahah seems to take off from this idea - it wants you to interact
with public in a private space where the sender doesn't have to
fear the repercussions of his speech. Considering the app has been
on top in leading app stores it appears that people are genuinely
seeking honest opinions about themselves, some we want to hear in
public (a compliment over a pretty profile picture) and some in

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private (an enquiry about one's sexual orientation).

Perhaps the new modes of social media apps like Sarahah is an
answer for a polite turn that platforms like Facebook and Twitter
have taken who are struggling to identify which speech offends
who and in the process resorting to awkward censorship policies.
How divided is public opinion?
Most products are either
unanimously liked or hated. But then
ly
there are those where user feedback
borders on extremes because of the
lack of quality control and extent
pi of personalization possible.
Sarahah, the anonymous feedback app, seems to fall into the latter
category. A cursory glance at the app’s Google Play account shows
that the app has received over 10,000 five-star reviews and also
ap
over 10,000 one-star reviews. Users seem to either love or hate
Sarahah, with no real middle ground. These extreme emotions could be
attributed to the fact that while the app has been designed for
‘constructive, anonymous’ feedback, some people are relying on
Sarahah to give harsh feedback or even engage in cyber bullying.
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Sarahah isn’t the first anonymous messaging app in the market.

YikYak, the hyperlocal anonymous messaging app once valued
at $400 million, recently shut down after its failed pivot to
group messaging. In May 2015, Secret, another anonymous
messaging app, once valued at $100 million, shut down
following legal battles and claims that it encouraged bullying.
Ask.fm, which was later acquired by Ask.com, reached peak
popularity in 2012 but also faced issues related to cyber
bullying.

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So, based on the trends in the anonymous messaging space,

Sarahah will likely need to ensure stricter guidelines to reinforce its
goal of sharing ‘constructive feedback’. In the same interview with
Financial Times, Tawfiq had remarked that Sarahah has the
ability to block offensive users based on their IP address, even
if they are not registered on the site, and certain words are
filtered out automatically.
Sarahah is a free consumer-facing app, devoid of in-app
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advertising, and at this stage doesn’t seem to have a revenue
model in place. Tawfiq had also remarked that Microsoft had
offered Sarahah free cloud-hosting credits, which Sarahah is still
running on. He had said, “If I’d had to pay for this, I would have
pi had to borrow money or get investment.”

The Sarahah team will need to carefully pick their end-game
strategies to ensure that they have a long runway as their app gains
more popularity, and also notoriety, based on how the mass market
ap
adopts the platform.
There is an India-connection too.
This is the generous credit that Tawfiq gives to India: I am really
proud that Sarahah has reached India. The first company that I
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worked for, actually the only IT company that I ever worked for, was
Wipro. And I am very proud and happy to see Indians coming to
Sarahah. Indians have taught me programming in university,
Indians have taught me programming in the company. I had Indian
colleagues and I also have Indian friends.
—– | —–

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RELIGION & SOCIETY / What’s in a game?
14-Jul-2016
ly
pi Pokemon Go, Niantic-Nin`tendo’s latest augmented reality offering, is
unstoppable. It has achieved 65 million users in less than a week,
making Twitter and Facebook lose followers; the share price of
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Nintendo has shot up by 50%; crimes are being attributed to it, and it
has only been launched in limited countries so far. Is Pokemon Go the
latest fad or a genre-changing game?
What is taking the gaming world by

storm?
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Niantic-Nintendo’s new location-based

augmented-reality mobile game
Pokemon Go has had Pokemon lovers
vigorously swiping to collect their
virtual Pokemon treasures from all possible places – in the office,
on the way to work and even in their bathrooms.
Pokemon Go, available for a free download on Android and iOS
has raced ahead of Twitter in terms of number of daily active users
on Android in America.

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People in and outside the United States are traveling and exploring
like never before as this is a part of the treasure hunt.
However problems have cropped up with robbers luring victims by
using Pokemon baits, game-addicts suffering real injuries and a
Pokemon-chaser finding a dead body instead of a Pokemon.
What is causing Pokemania?
Pokémon Go uses the phone’s Global Positioning System (GPS)
and clock to decide which Pokémon appear in the game. If the
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user is at the park, more bug and grass types appear. If she is by a
lake, more water types appear. If it is night, more nocturnal ghost
and fairy types come on the screen.
pi So Pokémon won’t just come to you as you lie on your couch; you
have to traverse the real world to catch ’em all.
Why is Pokemon Go not your ordinary
game?
ap
As an augmented reality game it brings
virtual creatures into your everyday life.
Go requires and compels you to
abandon the conventional couch potato
posture and step out into an almost real world if you want to be a
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successful player.
Each milestone crossed when a Pokemon is captured fuels the
gamer for hotter pursuits as you “Gotta Catch ’Em All”.
You get to interact with, battle against, capture and train a variety
of Pokemon creatures – that change in shape and size depending on
your location and time in common places. Humdrum spots
suddenly appear all the more exciting.
It awakens the action-adventure hero; enabling you to don the
mantle of Indiana Jones or Luke Skywalker and set off on your

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exploits. The excitement and suspense of what you may find next
keeps you hooked despite the excessive simplicity of the game.
The game is not just for solo players. Some locations have become
hubs of Pokémon activity. Many parks in New York are bustling
not just with the usual crowds of sightseers but with players
checking their phones for nearby Pokémon.
Why should Nintendo thank Google for Go?
The idea for the game came from an April Fools’ joke launched by
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Google in 2014. For one day, Pokémon appeared on Google Maps,
letting browsers search for them at real-world landmarks. Nintendo
noticed people’s interest in the combination of Maps and Pokémon.
pi However, no one expected it to be this popular so soon.

More than 3% Americans play Pokemon Go daily now. The game
is yet to launch in Europe and Asia.
Google is not complaining though, for it is making money from Go
ap
by offering the Android platform.
When was Pokemon launched?
Launching Pokemon Go as a new
generation in the Pokemon has its
advantages and disadvantages.
Kn
The first-generation of handheld games

– Pokemon Red and Blue were launched
in 1998. Challenging the gamer to catch all the 151 virtual
creatures at loose, the game immediately hit it off and the fever of
Pokemania skyrocketed.Pokemon Yellow arrived in 1999 and was
tailed by Gold and Silver in 2000.The game has its roots in Japan
where bug catching is a popular hobby.
Pokemon was so obsessive that its fans began to fantasize the idea
of meeting Pokemon creatures outside the console.Pokemon Go is

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an attempt to make this fantasy an experience. It turns gamers

into trainers who have a mission of seizing and taming Pokemon
monsters that look like rats, snakes, dragons, dinosaurs, birds, eggs,
trees, and sometimes swords among others.
The pre-teens and kids of the 90s who fell in love with Pokemon
then can recapture the nostalgia as adults yet again.
Pokemon fans, however, have been disappointed by the simplistic
manner they have to adopt to catch their targets. The tactics, if at
ly
all you consider tapping the screen and swiping as tactics, are
completely devoid of strategy that made the older games want to
be played. Next-generation Go had Pokemon enthusiasts ardently
hoping for more challenges to boost their adrenaline; these hopes
pi have been quelled.

The original 151 creatures had expanded to more than 720 in later
games but have been trimmed back to the initial number in
Pokemon Go.
ap
The Pokemon series from Red and Blue to the upcoming Sun and
Moon place a common goal before the player – catch them all.
Where have limits been crossed in
playing Go?
Kn
As addictive as Go is, you often don’t

think about where you’re going and what
you’re doing. And that can have you at
the receiving end of real life’s harsh
blows.
You go to a Pokestop hoping to catch up with like-minded
Pokemon fans, to end up getting mugged. The so-called beacon
was a trap set by robbers! Police officers in O’Fallon, Missouri,
nailed four suspects who had used this approach to facilitate their

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armed robberies in St Louis and St Charles counties.

You jump over a fence to zone in on a water-based Pokemon, only
to find yourself near a real dead body! Shayla Wiggins, 19 had this
chilling experience.
Trying to catch Pokemon does not keep the dangers of losing focus
on your surroundings at bay. Incidents like hand injury from
tumbling off a skateboard, tripping and slipping over real obstacles
have already begun to crop up.
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With a number of Pokemon churches becoming Pokestops and
Gyms, the Pride Community and Prejudiced church have in one
instance used Pokemon beings to take their clash to a new level. It
is certainly not a twist that Pokemon’s creator anticipated.
pi “We would like to access your basic profile” ask most apps in a
polite manner. Accepting the same means that you permit the app
to view your contacts, send email and delete Google drive
accounts. The Pokemon Go iOS app however forgets to ask! So
ap
without your permission your data could be manipulated. Niantic
confirmed this and said they were working to fix the issue which
doesn’t occur on Android phones.
Who has developed Go?
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Niantic developers, who earlier gave the

world Ingress, another augmented-reality
mobile game are the brains behind Go.
Crowdsourcing played a big role in
determining Pokestops and churches.15
million Ingress players submitted possible locations for the
game. The massive dataset that was created became a starting point
for gyms and Pokestops. The developers were clear that accurate
mapping needed to be intrinsic to Pokemon Go.
Different Pokemon species were designated to appear at

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appropriate habitats based on data drawn from geographic

classification of an area based on soil, climate, vegetation and rock
type.
The team has a set of features in the pipeline to sustain Pokemon
fever. These include building on current lure modules to attract
Pokemon, trading between players, and in the longer term, a more
lifelike interaction aided by augmented-reality goggles.
Who is going to make money from Pokemon Go?
ly
As per Business Insider, Go may already be making 1-2 million
USD per day.
As per Wall Street Journal, that money likely goes to a number of
pi companies, including Apple and Google, which both take a share

of sales (30%) through their stores; developer Niantic (which
Google parent company Alphabet invested in when Niantic was
spun out of Google); The Pokémon Company (of which
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Nintendo owns 32 percent); and finally, Nintendo itself, which
invested in Niantic’s creation of the game.
How is the Pokemon Go economy
harmful?
First, let’s see how the Pokeconomy looks
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like.
Pokémon Go is about taking a beloved
video game property to two decades’
worth of smartphone-wielding fans, and giving them a free
augmented reality (AR) mobile application that forces them to hunt
around their neighborhoods.
The app has its own internal freemium monetization with its Shop;
so if you want to play more and better, you can buy from the shop.
However, it is not just about those who are playing but also about

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those who are not. Pokémon Go is transforming the power of

Internet-driven e-commerce. The millions of US-based brick-and-
mortar retail and service small businesses, amidst a sea of
Pokéstops and Pokégyms, are wondering how to encash the sudden
stampede of foot traffic toward them.
Go has been around for only a week but there are already bars,
restaurants and retail stores trying to figure out how to monetize on
it with deals, promotions, special events, and an endless supply of
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Lure Modules.
We may be witnessing a disruption in the way business is done.
The Pokéconomy might change the real economy forever.
pi A post on Vox, that analyzes this issue, inspires thought.

The Internet economy, for all its advantages, concentrates cash in
the coffers of a select few at the cost of bleeding local
businesses.What Nintendo and Niantic do to local
ap
entrepreneurs, Amazon does to retail outlets, and Google and
Facebook do to local newspapers and stations – tilt the balance
heavily on one side.
The link between capital accumulation and economic growth is
now more fractured as local business opportunities from mega-
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gains dwindle. Hollywood films needed theatres to run in and

Detroit cars needed adequate number of distributed car dealers and
repair shops.The same parallel cannot be drawn for Pokemon
Go as it is only about the player and cheap smartphones.
The Pokeconomy will create a different kind of inequality – there
will be those who benefit from the game and those who don’t. The
cities will have Pokemon players but the infrastructure may not get
the investment it deserves (the business will come through
Pokemon).
While it is incredible what a game can achieve in a week, it is too early

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to predict if Pokemon is here to stay. And it is difficult to believe that

Pokemon will add value to our time and our world.
Don’t catch them all…
—– | —–
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pi
ap
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RELIGION & SOCIETY / Sport Biopics:

Bollywood’s latest fad?
18-Apr-2016
ly
pi Biopics - especially those based on sports - have become the flavour of
the season. The success of sports biopics like Bhaag Milkha Bhaag and
ap
Mary Kom has resulted in a race to produce the next big sports based
box office winner. Sports personalities are suddenly inspiring
Bollywood’s filmmakers. Azhar, Dhoni, Sachin and two wrestlers are
coming soon. Is sports the latest Bollywood fad?
What are the upcoming sports based

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movies in Bollywood?
Azhar: Mohammed Azharuddin, who
scaled the peaks of popularity before
falling into the depths of infamy when the
match fixing scandal rocked the cricketing
world, will see his own story on celluloid on 13th May 2016.
Emraan Hashmi, who is playing Azhar, has worked on his walk,
stance and even the upturned shirt collar to look the part.
MS Dhoni: The Untold Story: Rarely does someone’s story get to

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be told when that person is still at the top of his game. It is a film
based on the life of Indian cricketer Mahendra Singh Dhoni
starring Sushant Singh Rajput in the title role. It will hit screens on
2nd September 2016.
Dangal: Based on the life of Mahavir Singh Phogat, a wrestler
from Haryana, who defied all odds and prejudices to train his two
daughters, Geeta and Babita, who won medals in the
Commonwealth Games and the World Wrestling Championship.
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This Aamir Khan film promises to be cracker of a story and will be
releasing 23rd December 2016.
Sultan: Salman Khan will play 40-year-old wrestler from Haryana,
Sultan Ali Khan, who has won the state championships three times.
pi Set for a 2016 Eid release, this film has Aditya Chopra teaming
with the actor who can possibly do no wrong.
Sachin, A Billion Dreams: A biopic of iconic batsman Sachin
Tendulkar to be directed by James Erskine, a teaser was unveiled
ap
this week.
Why is Bollywood suddenly making
sports based movies?
Making a sports biopic has some inbuilt
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advantages. For the audiences, they offer the

charm of watching movie stars assume the
roles of known sports personalities, pushing
themselves out of traditional comfort zones and seeking critical
appreciation.
And there are specific marketing opportunities these films lend
themselves to. “The biggest advantage of a sports biopic is that it’s
a story of human triumph, and can connect and resonate with
people if done correctly,” said Rudrarup Datta of Viacom18
Motion Pictures, which backed Bhaag Milkha Bhaag and Mary

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Kom.
“So, the thought process is to stay away from any gimmicks and
create awareness about their achievements, though there is always
a temptation to make things more commercially mainstream,”
suggests Datta.
Such films also allow for several corporate partnerships.
For Bhaag Milkha Bhaag, for instance, Viacom partnered with
brands such as financial services company Birla Sun Life, dairy
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cooperative Amul, media company Getit Infomedia, electronics
brand Omron, online retail platform Jabong.com, sports brand
Adidas and automobile company Royal Enfield.
pi For Mary Kom, household consumer durables brand Usha

International, ice cream brand Havmor, milk brand Mother Dairy,
clothing brand Monte Carlo and Artemis Hospitals came on board.
When in the recent past were Bio-pics
ap
on sports persons made?
Paan Singh Tomar: Based on the
story of athlete turned rebel Paan
Singh Tomar who won a gold at the
Indian National Games. This film is
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directed by Tigmanshu Dhulia and the lead role is played by Irfaan

Khan. The film gained critical acclaim and emerged as a superhit at
the box office. It also won the Best Feature Film and the Best Actor
in the 60th National Film Awards 2012. It paved the way for other
sport biopics.
Bhaag Milkha Bhaag: This film sketches the life of “Flying Sikh”
Milkha Singh, an Indian athlete who was a National champion
runner and an Olympian. It was directed by Rakeysh Omprakash
Mehra and the lead role was played by Farhan Akhtar.

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Mary Kom: This Film depicts Mary Kom’s journey of becoming a

boxer to her victory at the 2008 World Boxing Championships in
Ningbo. It is directed by Omung Kumar and produced by Sanjay
Leela Bhansali. It has Priyanka Chopra in the lead role. It won the
Best Popular Film providing wholesome Entertainment honour at
the 62nd National Film Awards and was nominated at the 60th
Filmfare Awards in the Best Film and the Best Actress categories.
Where is the issue with Biopics?
ly
Some biopics purposely stretch the
truth. ‘Confessions of a Dangerous
Mind’ was based on game show host
pi Chuck Barris’ widely debunked yet

popular memoir of the same name, in
which he claimed to be a CIA agent. Similarly, ‘Kafka’
incorporated both the life of author Franz Kafka and the surreal
ap
aspects of his fiction.
The Errol Flynn film ‘They Died with Their Boots On’ tells the
story of Custer but is highly romanticised. The Oliver Stone film
about the band ‘The Doors’, mainly about Jim Morrison, was
highly praised, but fans and band members did not like the way
Kn
Oliver Stone portrayed Jim Morrison, and a few of the scenes were
even completely made up. Also in the case of ‘Social Network’
there were half-truths and half falsehoods about Mark Zuckerburg.
The romantic angle of Milkha Singh in Bhaag Milkha Bhaag was
made up.
Casting can be controversial for biographical films. Often,
casting is a balance between similarity in looks, and ability to
portray the characteristics of the person. The casting of John
Wayne as Genghis Khan in The Conqueror was objected to
because of the American Wayne being cast as the Mongol warlord.

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There was criticism for Mary Kom too – ideally, the title role
should have been played by someone from the North East.
Who are certain Indian sport persons
worthy of a biopic?
Major Dhyanchand – Hockey: Known as
‘The Wizard’ for his superb ball control,
he is the best player ever to play the game
of Hockey. India won 3 Olympic Gold
ly
medal in Hockey in his presence. The following incidents prove that he
was magical:
During a match, the Dutch broke his hockey stick doubting there’s
pi a magnet in it.
Adolf Hitler - the German dictator - was so impressed by him that
he offered him the German Citizenship and a high post in the
German Army, but Major denied it gracefully.
ap
The Japanese also suspected that there is glue on his Hockey stick
and Famous Cricket Legend Don Bradman said, “He score goals
like runs in cricket”.
Though Karan Johar has got the rights to direct his biopic, a biopic on
this man must do justice to this true legend.
Kn
Vishwanathan Anand – Chess: He put India as a world-power in

chess, challenging the Russian giants. Sports is not always physical
(though Vishy feels Chess to needs physical fitness). From a child
inspired by his mother to becoming a five time world title holder, his
journey is worthy of a movie.
Jimmy George – Volley Ball: He was one of the greatest volleyball
players of all time. He was the only Indian player to play for a foreign
professional volleyball club and won the Arjuna award at the age of
21. What made him special was his unmatchable gaming skills i.e.

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He could jump a meter above the ground to smash the ball red hard
to opposition.
His jump ‘serve’ has become famous worldwide today, but it was
he who started this tradition.
He quit his medical study to join Kerala police and played for the
National team in 3 National games. There is an indoor stadium and a
street in remembrance of Jimmy in Italy. Jimmy deserves a movie.
How did the previous sports biopics
ly
fare at the box office?
Mary Kom: The film premiered at the
2014 Toronto International Film
pi Festival, becoming the first Hindi film

to be screened on the opening night of
the festival. The film was released on 5 September 2014 to
generally positive reviews from critics, with Chopra receiving
ap
critical acclaim. Made on a budget of Rs 15 crore (US$2.2 million),
the film grossed Rs 104 crore (US$15 million) at the box-office,
emerging as a commercial success. Mary Kom received several
accolades at award ceremonies across India.
Bhaag Milkha Bhaag: Made on a budget of Rs 30 crore (US$4.5
Kn
million), the film released on 12 July 2013 and gathered a positive

response from critics and audiences alike. It performed very well at
the box office, eventually being declared a “super hit” domestically
and hit overseas. Bhaag Milkha Bhaag is the sixth highest grossing
2013 Bollywood film worldwide and became the 21st film to gross
Rs 100 crore.
—– | —–

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