WITHOUT PRIDE

AND PREJUDICE
THINKING RATIONALLY

ASHOK NAG

FRONTIER PUBLICATION

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WITHOUT PRIDE AND PREJUDICE: THINKING RATIONALLY

By Ashok Nag

Copyright @ Ashok Nag

First published : February 2023

Published by : Sharmistha Datta

On behalf of FRONTIER PUBLICATION
44 Balaram Dey Street, Kolkata 700 006, WB, INDIA

Printed by : Sadananda Sinha

On behalf of Graphic Print & Publicity
3A, Maniktala Industrial Estate, Kolkata-54, WB, India

Cover design : Nabinananda Sen & Dipankar Sarkar

Price : Five Hundred INR

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 Contents

The Centenary of the Bolshevik Revolution 8

Walking with Arundhati Roy 12
Liberation Mubarak : True Lies 14
Poor as Commodity 15
Corporatization of Nations 17
India’s Foreign University Bill 19
India’s Job Crisis : Myth or Reality 21
Jobs Mania 23
Social Roots of Corruption in India 24
India’s Biggest Operational Risk Event 26
Five-Trillion-Dollar Indian Economy 29
Out-of-Box Thinking 31
In Thrall of Market 35
Bheeshma or Dhritarashtra 42
Singularity in Economics 44
Trump Tariff : Keynes Would Have Approved 45
Adequacy of Reserve and Economic Capital Framework for RBI 48
Reserve Bank without its Reserve 51
Indo-Pacific Economic Framework 55
Tale of Two Manifestos 57
Technology and State 60
Artificial Intelligence : India vs China 63
A Tale of Two Companies : BYD and Tata Motors 69
Two IT Giants : TCS and Microsoft 71
Data Localization : Mercantilism in a Networked World 75
Google’s Exit and Free Internet 80
M-Pesa Revolution in Kenya 82
Who Runs the Virtual Currency Market 84
Trading and Investing in Bitcoin is Injurious to Your Health 86

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Bitcoin : Comment on Aswath Damodaran’s Post 88
A Tribute to Tagore in Times of COVID-19 90
Cry, Jamlo Makdam, Cry 91

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 Foreword

Ashok Nag is no faceless rationalist. He is one of the most moving thinkers of our
troubled era. This book is a collection of essays written during the most extra-ordinary times.
The articles are on a variety of topics touching upon myriad dimensions of people’s lives with
their multilayered connections and they are mostly related to the domain of economics with
thrust on political power that controls it. A powerful critique of the economic mismanagement
by the ruling dispensation in India. It is a stirring riposte to growing irrationality and
inequality in Indian society. Almost all the write-ups were published on the author’s blog
barring one--‘In Thrall of Market’. It was published in Frontier in January 2021.
While the piece on ‘The Centenary of the Bolshevik Revolution’ is thought- provoking,
dealing extensively with the Marxian concept of class, his ‘Walking with Arundhati Roy’
raises the critical question of how to solve the tribal problem. It is probably not a problem to
be solved but rather a truth to be accepted. For the persons in authority, ‘the best way to solve
a contentious issue is not to solve it at all’. The author is not afraid to excavate the wrong
doings of the rulers and expose the mechanism through which their dark deeds are
performed. This volume of delightfully penned pieces with graphs in some cases, provides an
accurate, if deeply distressing account of the fearful politico-economic transition that the
world’s ‘largest democracy’ has undergone over the past few years. A comparison between
India and China in ‘India’s Foreign University Bill’ is illustrative enough to show how China
is making tremendous progress in higher education and India is lagging behind despite initial
advantage. The ‘relevance of Tagore in the time of Covid-19’ is fascinating. Then there is a
bone-chilling story of Jamlo Makdam, a 12-year-old child labour who died on 20 th April, 2020
after walking for 150 km from her work place in Bhupalpally in Telengana to her native place
Bijapur district in Chattisgarh. Makdam symbolises plight of migrant labour during the
Corona-induced lock-down period and the Centre’s inhuman behaviour towards its own
citizens. A must read for those who closely follow Indian political economy.

Timir Basu
Kolkata
February 5, 2023

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 Preface

I joined the Indian Statistical Institute, Calcutta (now Kolkata) in 1971 as a B. Stat.
student. It was a momentous time. Bangladesh’s liberation war started in March 1971 and
came to an end with the surrender of the Pakistani army to the Indian army on December 16,
1971. In Calcutta, the echo of “Spring Thunder” that had supposedly crashed on a remote
village in the Darjeeling district of North Bengal was still reverberating on the streets of
Calcutta, particularly among the students of the venerable Presidency College. Despite being
born and brought up in the college street area of Calcutta, I had remained mostly untouched
by these developments. I was reading Jibanananda Das’s “Banalata Sen”.
I spent nine years in ISI, from B. Stat. to Ph.D. (with a fellowship for 4 years). ISI was a
unique institution that shaped my worldviews about what constitutes knowledge, rationality,
and the concept of proof. Although I was not a mathematician by any yardstick, I was
interested in the philosophy of mathematics. One of the fundamental concepts of mathematics
that intrigued me immensely is that no mathematical system may be complete.
Philosophically it means that there is no body of knowledge that can claim answers to all
problems that can be legitimately formulated. Unless you are skeptical, to a reasonable extent,
about what you know, you may be considered an ideologue who has the correct answers to
everything. I must admit that for some time I was sure that Marxism has found out the
ultimate destiny of the present human society. This smugness of infallibility ultimately bore
upon me and I gradually came to realize the fallacy of such a conclusion.
I started writing my blogs primarily for my own understanding of the phenomena
happening around me. I wrote about corruption because of its ubiquity across the world. I
wanted to find out the social mooring of such a phenomenon that cuts across societies of
different hues and vintages. I wrote about Arundhati Roy because I felt she was not a
dispassionate observer during her journey through tribal land. This is a perennial problem
with all liberals.
My interest in technology started when I started reading science fiction by Arthur C
Clarke, Isaac Asimov, and others. In fact, I along with my classmate Dr. Bhaskar Bagchi
started translating Childhood’s End by Arthur C Clarke in our first year of B. Stat. But such
enthusiasm in our ‘childhood’ ended in no time. The article “Technology and State” was
written in March 2018 and highlighted the ensuing conflict between nation-states and trans-
world technology giants.
While researching technology, I found very little investment in R&D by large Indian
corporations. This resulted in two articles on this subject. As a nation also we are far behind
China in promoting and nurturing cutting-edge research on AI. One article dealt with this
subject.
I spent a little more than two decades in the Statistics department of the Reserve Bank of
India. So, I gathered some knowledge about money in general and in its physical form- that is
currency notes. I, therefore, easily understood the true nature of cryptocurrencies like bitcoin.
My prediction about the danger of investing in Bitcoin was made in December 2017. I believe
my prediction has stood its ground.
Finally, COVID-19 brought out the ugly side of the Indian state. The lack of empathy for
the poorest of the poor, letting them migrate back to their native villages from their
workplaces for lack of jobs, food, and shelter, without being provided with any mode of

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transport, was simply inhuman. I wrote the poem Cry, Jamlo Makdam, Cry to let out my
anguish.
All the articles in this volume were written for my blog. I have lost track of some articles
which were published in my first blog. I felt putting some of these articles in a book form may
help me to preserve them more efficiently. I am thankful to my friend Nabinananda Sen for
his help in getting this published. I am deeply indebted to Dr. Arup Kumar Sen for organizing
these articles in a publication-worthy form. I am grateful to Mr. Timir Basu for agreeing to
publish this book under the auspices of Frontier publishing agency.

Ashok Nag

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The Centenary of the Bolshevik Revolution and the Fatal
Attraction of the Concept of Class

“The history of all hitherto existing society is the history of class struggles” (Communist
Manifesto). Communist parties everywhere consider this sentence written in 1848 by Marx
and Engels as a well-established truth. However, it may also be considered as one of the
greatest half-truths ever penned. This manifesto was the inspiration of those who created, in
October 1917, the first state to actuate Marx’s vision of a classless society. After 100 years, to
liken the idea of class struggle as the main driver of human history to a kind of religious
baloney may sound blasphemous to many. However, critical scrutiny of the Soviet Union’s
history – from 1917 to its final denouement in 1991- with an open critical mind, would
lead most to the same conclusion.
History does not follow a linear path along one single dimension of human progress, be
it moral, technological, or material. The number of interpersonal or inter-group relationships
that would be required to capture the dynamics of a given human society could be quite
many, even if we are able to abstract away many relationships that are inconsequential to the
core elements of these dynamics. To expect that one single factor, the conflicting claims on the
production of economic activities, would be sufficient to capture such complex dynamics for
all societies that we know of, is highly presumptuous. Without belittling Marx’s enormous
contribution to our understanding of the complex relationship between the organization of
production and technology of production in a market-driven economy, his linearized view of
the evolution of human society reminds us of the caricature of Maurier about the curate’s egg.
But before we deliberate on the sweeping abstraction that Marx imposed on the past, we
need to first deconstruct the concept of Class itself. Marx himself never defined this concept
in any rigorous sense. The title of the last chapter of Capital volume 3 is “Classes”. This
chapter was prepared and published by Engels in 1894 based on notes left by Marx. In this
unfinished last chapter Marx raised the question of definition in the following way.
The first question to be answered is this: What constitutes a class? — and the reply to this follows
naturally from the reply to another question, namely: What makes wage-labourers, capitalists and
landlords constitute the three great social classes? 1
The answer to this question is given in the next line:
At first glance — the identity of revenues and sources of revenue. There are three great social
groups whose members, the individuals forming them, live on wages, profit and ground-rent
respectively, on the realisation of their labour-power, their capital, and their landed property. (ibid)
The circularity of his effort to pin down his concept of class to a rigorous one is obvious.
For Marx, “landlords” represent a class because the source of revenue for every member of
this group is the same. Does anyone who owns any quantity of land become a member of this
class? What is the threshold? What are the other attributes that we need to make a workable
definition?
To Marx’s credit, he was well-aware of the inadequacy of this definition as in the next
line itself he raises the immediate problem that this concept gives rise to. Unfortunately, he
did not finish this chapter to give his solution to this problem :
However, from this standpoint, physicians and officials, e.g., would also constitute two classes,
for they belong to two distinct social groups, the members of each of these groups receiving their
revenue from one and the same source. The same would also be true of the infinite fragmentation of

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interest and rank into which the division of social labour splits labourers as well as capitalists and
landlords-the latter, e.g., into owners of vineyards, farm owners, owners of forests, mine owners and
owners of fisheries.
Obviously, this definition of class is not only inadequate but fraught with severe
inconsistencies. This becomes apparent when we read Marx’s own analysis of the class
contradictions afflicting French society during the period of the French coup of 1851 in which
Louis-Napoléon Bonaparte assumed dictatorial powers. In fact, in his own words, the essay
was written to "demonstrate how the class struggle in France created circumstances and relationships
that made it possible for a grotesque mediocrity to play a hero's part." 2 He then goes on to identify
the classes pitted against one single class – that is the proletariat.
“The bourgeois republic triumphed. On its side stood the aristocracy of finance, the industrial
bourgeoisie, the middle class, the petty bourgeoisie, the army, the lumpen proletariat
organized as the Mobile Guard, the intellectual lights, the clergy, and the rural population. On
the side of the Paris proletariat stood none but itself ” (emphasis and underlining are ours).3
What is the definition of “middle class”? Are they different from “the petty-bourgeois”?
It is apparent that new entities which cannot fit into the abstract definition of a class in the
Communist Manifesto emerge spontaneously in the analysis of actual social upheavals.
Subsequently, all his disciples used the concept of class as a basic constituent part of any
society in the same fashion a physicist describes the physical world in terms of atoms and
molecules. This is axiomatic for a Marxist to consider class as a real and observable entity.
E. P. Thompson wrote the book, “The Making of the English Working Class”. The title
itself betrays the fragility of the concept of “class” as a primary driver of social dynamics. If a
“class” is always in “making” then one’s class position cannot be unambiguous at any point in
time. He considers “Class” as “an historical phenomenon” and not as “a "structure", nor even as a
"category", but as something which in fact happens (and can be shown to have happened) in human
relationships. This relationship takes shape only when “some men, as a result of common
experiences (inherited or shared), feel and articulate the identity of their interests as between
themselves, and as against other men whose interests are different from (and usually opposed to)
theirs.” Presumably, this identity crystallizes only when it is opposed to another group of men
having a conflicting set of interests. History shows that there could be a myriad of conflicting
interests that could bind people into opposing interest groups. More importantly, interests
that separate a mass of people into two opposing groups need not be economic nor need to
have a direct link with any production system. We know that people have fought bitterly and
violently over ethnic, religious, or even linguistic identity. Furthermore, formation of
opposing groups with conflicting interests need not be static as the dominant interests change
over time.
Going back to Marx’s original view about “class struggles” as the principal driver of
history, it is quite clear that the concept lacks any operational content. This comes out clearly
when Marx himself attempts to identify the major factors that precipitated major historical
events.
As regards the operational contents of Marx’s concept of “class”, it would be apposite to
examine the view of Lenin, the architect of the first attempt to consciously and explicitly apply
Marx’s concept of “class”. Lenin’s definition of “class” is prima facie quite clear and without
much ambiguity that Marx’s definition entailed :
Classes are large groups of people which differ from each other by the place they occupy in a
historically determined system of social production, by their relation (in most cases fixed and
formulated in law) to the means of production, by their role in the social organization of labour, and,
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consequently, by the mode of acquisition and the dimensions of the share of social wealth of which they
dispose. Classes are groups of people one of which can appropriate the labour of another owing to the
different places they occupy in a definite system of social economy. (A Great Beginning)
Suppose we want to apply this definition to any group of people from a given society.
We would like to locate the class position of any member of this group. What would be the
attribute that would capture the fuzzy notion called “relation to means of production”? Is it
the occupation of the person? At what level of granularity the occupational status of the
person would be considered? Does a cardiac surgeon employed in a top-notch metropolitan
hospital share the same relation to the social production system as that of a doctor employed
in a rural health center, earning a small fraction of the former? Would a major shareholder of
a multinational corporation with 100 thousand employees stand in the same relation to the
production system as a capitalist employing 1000 employees, operating only in a regional
market of a country would do? Although a billionaire capitalist and a small factory owner
both earn profit and thereby stand in an exploitative relationship with their workers, can we
consider them as members of a “capitalist class in making”?
We also need to understand the existential dilemma that Lenin was confronted with
when Bolsheviks seized power in Russia. The “working class” or proletariat did not form the
majority of working and oppressed people of Russia in 1917. He had to justify the seizure of
power in terms of “class” and “class struggles”. He thus wrote: “In order to achieve victory, in
order to build and consolidate socialism, the proletariat must fulfill a two-fold or dual task:
first, it must, by its supreme heroism in the revolutionary struggle against capital, win over
the entire mass of the working and exploited people; it must win them over, organize them
and lead them in the struggle to overthrow the bourgeoisie and utterly suppress its resistance,
of whatever kind. Secondly, it must lead the whole mass of the working and exploited people,
as well as all the petty-bourgeois strata, onto the road of new economic construction, onto the
road to the creation of a new social bond, a new labour discipline, a new organization of
labour, which will combine the last word in science and capitalist technology with the mass
association of class-conscious workers creating large-scale socialist production.” These lines
can be mouthed by any leader of any country- just replace “socialism” by “our great nation”,
“proletariat” by our “patriots”, “bourgeoisie” by “domestic traitors” and “capital” by “our
enemies”. The plot remains the same; only the actors change.
But the attraction of the concept of the class does not fade away. When facts reveal the
fault lines of a theoretical construct, we can either look for a “scientific revolution” or try to
tweak the existing theory to accommodate its fault lines. That is why Max Weber, not a
Marxist of any hues, tried to inject life into Marx’s concept of class by coining a new term –
“class situation”. The following quote from Weber (Max Weber, ‘Class, Status, and Party’)
explains his definition of this new term
“In our terminology, "classes" are not communities; they merely represent possible, and
frequent, bases for social action. We may speak of a "class" when (1) a number of people have
in common a specific causal component of their life chances, insofar as (2) this component is
represented exclusively by economic interests in the possession of goods and opportunities
for income, and (3) is represented under the conditions of the commodity or labor markets.
[These points refer to "class situation..."]”
This definition is as fuzzy as it can be. It allows a social and political historian to identify
as many small or large groups of people as they would like to be called as one interest group
or “class”. To operationalize this definition, one researcher defined a class called “All service”

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comprising individuals with occupations declared as “Large Business”, “Professional” and
Lower service:”
In fact, history of Bolshevik rule as it unfolded in the post 1917 period is a testimony to
the operational emptiness of the concept of class. If anything, it proves that human history so
far has been the history of struggles between old oppressors and emerging new oppressors.
The role that a group of economic agents bound by common interest would play in that
struggle cannot be inferred from their class positions as defined by Marx or Lenin. Marxists
like Eric Ohlin Wright had to, therefore, invent the contradictory class locations of economic
agents to somehow accommodate this obvious contradiction that Marx’s concept of class leads
to. The root of this fuzziness and complete lack of operational content in Marxian and other
related concepts of “class” lies in the fact that human nature is more tuned to the biological
and thereby existential imperatives of the species than its economic imperatives. A worker in
a factory – a card-holding member of a communist party- may behave almost exactly in the
same way in relation to his homemaker wife as a capitalist owner of the same factory would
do. A taxi driver may charge 3 times of normal fare in a flooded city as a capitalist would do
when there is a scarcity of its products. The transition from one “class location” to another one
happens in the case of many individuals depending on the circumstances and the underlying
instability of such positions is not so negligible as to be of no consequence in social strife and
interpersonal conflicts. It is generally observed that the poor participate most vociferously and
violently in cases of ethnic and tribal conflicts. In such cases, how does the “class location” per
Lenin explain the behavior of the person? It is utopian to expect that once the workers of a
factory become owners of the factory, they would all work together harmoniously and with a
common interest in mind. If human nature largely depends on the class location, then
efficiency and productivity should increase significantly with a change of ownership. Under
“proletarian dictatorship” all workers would give their best and achieve the maximum
productivity, given the material condition of production. There is no sufficient historical
evidence to support any such assertion.
Based on the historical evidence of changes in political and social regimes since the time
we have trustworthy data, it may be safely asserted that human nature has not changed much
since the time of the Old Testament, Chaucer, Homer, or Ramayana. If one categorizes the
conflicts that informed all these classics and compares them with their modern counterparts, it
can be seen that some basic themes have remained the same. That is why it is so easy to
transport the themes of Sophocles, Euripides, Kalidasa, and Sudraka to contemporary times.
Despite its fuzzy definitional content, very well-intentioned serious scholars always fall
for the fatal attraction of the concept of “class”. Because of their empathy for fellow human
beings, they cannot but highlight social and economic inequality, deprivation and injustice
meted out to one or more groups that get formed in specific times and contexts. For want of
any better term, we may call it a “class” – not in the Marxian sense. The root of this empathy
lies in human nature. The instinct for survival is genetic in nature. For a thinking species like
homo sapiens, survival is hierarchical. It starts with self and progressively embraces family,
clan, tribe, and perhaps nation and race. That instinct creates the ground for group formation
and ensuing conflict between groups. At the same time, altruism is also etched in the human
being’s gene because that would ensure that humanity does not experience the fate of
becoming extinct from the face of the earth, like the fate that had befallen many other species
in the past. There lies the fatal attraction for the concept of class.

Published on 14 March 2018

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 Walking with Arundhati Roy

Arundhati Roy has written a very evocative and intensely emotional albeit colorful
account of her journey through forest lands of Dantewada of Chattisgarh., the place which
recently acquired notoriety due to the killing of 70 CRPF men by the Comrades, her host, and
companions of this journey. These comrades or members of the Communist Party of India
(Maoists) – so-called Naxals- have launched a liberation war to establish what they call a
People’s Democratic State.
This post is not about Roy’s first–hand account of the young tribal boys and girls who
have taken up arms to wage a struggle to reclaim their right to live a life as they have lived for
ages -in close harmony with nature. Roy is clear, forthright, and eloquent about her
unequivocal support for these tribal fighters as she recounts the injustices they are subjected
to by various forces including the Indian state to promote, protect and extend the commercial
interests of large corporations- Indian or multinationals. There could be a substantial amount
of truth in what she writes. But she misses the main point in her poetic description of the
beauty of innocence and simplicity. As much we may yearn for the idyllic way of living of
tribal society, none of us, perhaps including Roy, would give up a kingdom for a horse. That
is why Roy writes-while entering Dandakaranya with her guide Mangtu - How lovely not to be
stuck with yourself, to become someone else for a while. The operative word is “for a while”
because it would be impossible for Roy to extend this identification with forest life to multiple
years.
It is not my contention that injustices meted out to tribal people over the years by non-
tribal ones are morally justified. The issue of morality or justice is immaterial to the forces of
history - a volcano does not erupt to wipe out a city with any moral view about it. Great
works of literature have come out about the miseries of people who were displaced by
machines. Steinbeck wrote in Grapes of Wrath -Is a tractor bad? Is the power that turns the long
furrows wrong? If this tractor were ours, it would be good - not mine, but ours. We could love that
tractor then as we have loved this land when it was ours. But this tractor does two things - it turns the
land and turns us off the land. There is little difference between this tractor and a tank. The people were
driven, intimidated, hurt by both. We must think about this.
The tractors won, people were driven out and the great American dream marched on.
In the whole piece of Roy, the most truthful statement was made by a superintendent of
Police - See Ma’am, frankly speaking, this problem can’t be solved by us police or military. The
problem with these tribals is they don’t understand greed. Unless they become greedy, there’s no hope
for us. I have told my boss, remove the force and instead put a TV in every home. Everything will be
automatically sorted out.
This greed is the fuel that has been the driving force of civilization. No greed no history.
There is another point about the struggle of forest-loving tribal masses who are led by the
Maoists who self-professedly want to capture power – of course, in the name of the people.
But when they acquire power, will not they would also like to bring about modernization and
develop productive forces. As Roy herself said in her conversation with Howard Zinn at
Lensic Performing Arts Center, in Santa Fe, New Mexico
“My writing is not really about nations and histories; it's about power. About the paranoia and
ruthlessness of power. About the physics of power. I believe that the accumulation of vast unfettered

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power by a State or a country, a corporation or an institution - or even an individual, a spouse, a friend,
a sibling -regardless of ideology, results in excesses such as the ones I will recount here.”
What happens, if tomorrow, power is captured by Maoists? Will this physics of power
cease to exist? Karl Marx, whom the Maoists obviously treat as God, always treated the
bourgeoisie as a revolutionary force that mercilessly demolished the old land-based power
structure. And his eulogies to them are worth recalling. Thus, Marx wrote in The Communist
Manifesto:
“The bourgeoisie, by the rapid improvement of all instruments of production, by the
immensely facilitated means of communication, draws all, even the most barbarian, nations
into civilization. The cheap prices of commodities are the heavy artillery with which it forces
the barbarians' intensely obstinate hatred of foreigners to capitulate.
The bourgeoisie has subjected the country to the rule of the towns. It has created
enormous cities, has greatly increased the urban population as compared with the rural, and
has thus rescued a considerable part of the population from the idiocy of rural life. Just as it
has made the country dependent on the towns, so it has made barbarian and semi-barbarian
countries dependent on the civilized ones, nations of peasants on nations of bourgeois, the
East on the West.”
Just note the use of words- “barbarians”, “idiocy of rural life”, etc. How then a party
swearing by Marx could be expected to be the savior of tribal masses? Ms. Roy needs to
understand “the physics of power” better.

Published on 22nd April 2010

[13]
 Liberation Mubarak : True Lies

With the exit of Mubarak, a democratic euphoria is seemingly taking hold of Arab world.
The Facebook and Twittering crowd are ecstatic that they have discovered the power of the
Internet and social media and Egypt will turn a new leaf – a democratic modern society. I
remember the fall of Saigon in April 1975 or the Iranian revolution of 1979, when we
celebrated in the streets of Calcutta shouting slogans hailing the advent of revolutionary
changes. Then we witnessed the fall of the Berlin wall in 1989 and the breakup of erstwhile
Soviet Russia. Each time our expectations soared and we hoped that nirvana was round the
corner. I remember the time when Mitterrand became president of France. My teacher who
was an academic revolutionary predicted that it would be a game-changing event for France.
The time and subsequent events proved that the social core does not change in a
revolutionary way but rather in a slow and evolutionary way. Nothing fundamental will
change in Egypt -- unemployment will not go down significantly, economic growth will not
register a quantum leap, and the old military elite will continue to wield power. Rather, some
new groups may become part of the ruling social formation.
What is interesting is not the change that is happening or is likely to happen in Egypt but
the change that is slowly but surely happening in the global power structure. If we examine
carefully, all these changes are happening in those countries which were like vassal states of
the USA. Things are falling apart and the center – that is the USA- is unable to hold it
together. The current upheaval in the Arab world is the symptom of a much deeper crisis.
This is the crisis of political instability that is now haunting the entire world. So long as the US
had the requisite economic and military power and an ambition to use it to create a world in
its own image, the world political structure had an anchor, a master of a sort. Every
participating state in the world political arena knew who the umpire is and what the rule of
the game is.
This is now changing. The USA is likely to become more inward-looking as it is getting
mired in the economic mess in its own backyard. It is not known who the new emerging
master is. Thus, the dictators who were in power at the pleasure of the USA are falling like
dominoes. When the sun started setting in British Empire, the colonies became independent.
Maybe, a similar scene is unfolding now.

Published on my earlier blog on 16th February 2011

[14]
 Poor as Commodity

Counting tigers and the poor have become a national pastime of India’s leisure class.
While counting the population of tigers we want to protect, we would like the” number of
poor” to decline to zero. We are failing in both, some would say, miserably.
The practice of counting the number of poor in a country goes back to the second half of
the nineteenth century when Charles Booth carried out a remarkable survey of living
conditions in London. Booth wanted to contest the results of an 1885 report that claimed that
25% of Londoners were living in abject poverty. Booth and his team visited every street in
London and estimated that the incidence of poverty was at 31% initially and then at 35%. In
the first decade of the 21st century and after 62 years of independence we cannot claim to be in
a better position.
The reason for obsessive preoccupation with a precise headcount of poor on the part of
politicians and economists is not difficult to understand. The Indian government has a huge
budget for a variety of poverty alleviation programs. Every state vies for a share of the cake
and it depends on the number of poor. There is a turf war between the Ministry of Rural
Development (MORD) and the Planning Commission, in regard to this counting tussle. A
footnote in the Expert Committee Report of the MORD is quite candid about it. It says :
Which Ministry in GOI has the best control over the district collectors, CEO of Zilla-Parishad
and Panchayats? The obvious answer is the Ministry of Rural Development (MoRD), because it
transfers huge funds to DRDAs and to Panchayats, runs NREGA (National Rural Employment
Guarantee Act), BRGF (Backward Regions Guarantee Fund) and TSC (Total Sanitation Campaign).
Ever since their creation panchayats have always regarded MoRD as their mentor. Hence MoRD is the
only Ministry in GOI that can make the field officials and the panchayats take its guidelines seriously.
Therefore, the task of overseeing the preparation of the new BPL lists has been rightly given to the
MoRD.
The report also brings into focus the practice of fixing the number of BPL (below the
poverty line) families to the limit fixed by the Planning Commission’s estimated poverty ratio.
Thus, a BPL certificate becomes a badge of honor like a caste certificate. The only difference is
that a BPL certificate can become a tradable commodity. In fact, P. Sainath, a member of the
expert group has put it succinctly :
In many regions like the KBK, with millions extremely poor, you will find that most of the BPL
cards in a village are with the local moneylender. The poor owe him money and he takes their cards as
collateral. You can find one man with 400 cards.
He also notes that :
Dharavi, the biggest slum in all the world and with a population of over a million ended up home
to just 141 BPL cards. If that’s all the poor there are in that slum, then India is poverty-free.

The expert group estimates the number of poor in India as close to 50% as compared to
28.3% of the Planning Commission. With this order of variation coming from two arms of the
same government, what sanctity is there in these numbers?
Apart from the exegesis of official experts, we have a whole industry of Poverty Research
mostly funded by multilateral agencies and grant-giving foundations. The route to stardom is
well laid out – from JNU / Delhi school to Cambridge on both sides of the Atlantic, or some
other ivy league schools and then to the portal of the World Bank / UN organizations. India,

[15]
which is estimated to be home to the largest number of poor in the world has also produced
the maximum number of researchers on poverty.
And the debate on what is the best way, statistically speaking, to estimate the incidence
of poverty sometimes assumes surrealistic proportions. One just has to recount how, long
back, two highly qualified statisticians and professors engaged themselves in a fierce debate
about how to take into account inter-person variation in calories intakes and consequently
how to correctly measure the incidence of poverty using a minimum level of calorie intake
recommended by nutritionists.
What is the real purpose of the debate? The real motive is political – which set of policy
measures is good for poverty reduction. So, if your prior belief is that economic reform is bad
for the country then get a suitable measure of the poverty index to demonstrate that poverty
has increased in the post-reform period. If one’s prior belief is opposite, then get hold of
another measure. It is said in statistics that if you beat some data sufficiently you can always
reject a null hypothesis.
I cannot better the opening sentences of Charles Elliott’s book Patterns of Poverty in the
Third World in this regard :
The basic configuration of world poverty is well known. Although the detailed statistics are
unreliable, the services of a statistician are not required to establish that the majority of mankind is ill-
fed, ill-housed, under-educated, and prey to preventable disease.
Do we really need to count the number of poor so accurately as if it is a gravitational
constant on which depends the trajectory of a missile? Poverty is ugly and dehumanizing. It
is ugly more in a relative sense than in an absolute sense. A poor is not treated as a full citizen
in any country- developed, under-developed, capitalist, or socialist. The greatest suffering a
poor man has, is when he/she is made to feel like a lesser human being, a person deserving
only piety from others. The tears of universal humiliation are much more real and enduring
than the tears of hunger. It does not matter whether he/she is a singleton or numerous.

Written and published in my earlier Blog: 21st April 2010

[16]
 Corporatization of Nations

Reliance Jio Infocomm Ltd, the telecom arm of India’s largest company by market cap
(NSE:RELIANCE1), plans to create its own cryptocurrency called JioCoin2. Supply chain
management logistics and loyalty payment with JioCoin are amongst the envisaged uses of
JioCoin. Worldwide, many large corporates have already started launching their own private
cryptocurrency. KFC, Burger King, and Kodak are the few well-known names that have
hitched onto the bandwagon of this currency of the Internet.
Fast-food chain KFC has announced that it will accept virtual currency for paying bills in
its outlets in Canada with the launch of Bitcoin Bucket 3. A customer can buy this bucket with
0.0011564 BTC, the equivalent of CAD $20, according to a company statement. Eastman
Kodak has announced last week that it is going to launch its own cryptocurrency KodakCoin 4
in partnership with WENN Digital. Burger King has launched its own cryptocurrency in
Russia called ‘WhopperCoin5. IBM recently partnered with Stellar and KlickEx to develop a
blockchain-based cross-border payments solution. Stellar6 is a distributed hybrid Blockchain
that facilitates the cross-asset transfer of value including payments. Similar to Bitcoin, Lumen
is the asset of value issued by Stellar.
This rush by multinational companies to get on board the cryptocurrency mania
camouflages a much larger issue and a potential threat to the current international political
order. This threat can be analyzed from various perspectives including political, economic,
and technological.
Glenda Sluga, a Professor of International History, has written about the possible
unraveling of the current international order from a historical and political perspective: These
days, the pulse of the world’s political health is running fast. The generalprognosis is terminal, the end
of the international world order, as we know it.7 Political headwinds which led to such a prognosis
are easily discernible- the rise of “radical nationalism” in the USA, “along the axis of modern
international society” and, the rise of “heteropolarity” in the international power structure.
Beyond this haze of political chaos, a much bigger threat to the existing international
world order lies in the emergence of private cryptocurrency and its adoption by
multinationals. There is no gainsaying the fact that the ‘comity of nations’ defines the current
world order. A nation-state without its own currency is like the staging of Hamlet without the
Prince of Denmark. The power of a nation-state to tax its citizens would stand highly
diminished if large corporates can issue their own currency. Let us see how it would play out
in reality.
Alice buys 1000 JioCoins (JC) by paying, say, 20000 Indian rupees. Alice pays 60 JC to
Bob as rent for the apartment she has leased from Bob. Bob buys monthly grocery from the
supermarket run by Reliance. Bob uses 250 JC for this purpose. Bob tops up his Jio mobile
with 50 JC. Suppose, Bob works in Reliance Industries and receives 3000 JC every month. Bob
pays 750 JC to Reliance Petroleum for purchase of gas for his car. He has purchased his car by
taking loan from HSBC by paying EMI of 750 JC every month. This EMI payment is routed
through a cryptocurrency exchange run by a Russian bank. RIL pays IBM India monthly 100
million JC for maintaining its IT infrastructure. IBM may pay RIL in their own cryptocurrency
for using Jio mobile services in India. Gradually, a complete ecosystem of economic agents can
emerge, who will use JC as their preferred currency for all their payment requirements. It
may be seen that the JC to Rupee exchange takes place only when Alice purchased JC. At a

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certain stage of development JC will acquire its own life, cutting its umbilical record with the
fiat currency.
The above description of the evolution of JC to encompass a significant slice of economic
transactions in its country of incorporation, i.e., India, does not necessarily imply that JC
would pose a threat to the existence, or at least severely restrict usefulness, of the sovereign
currency INR as fiat money. Initially, INR can continue to be the unit of account within the
boundary of India. But if JC emerges as the people’s preferred medium of transactions and
store of value, only raw state power can prevent the rupee’s passage to oblivion. Be that as it
may, the moot question is whether JC would severely dent the Indian state’s capability to tax
the economic activities mediated through JC. Given the ability of a cryptocurrency to mask the
identity of transactors, the imposition of indirect taxes, like goods and service tax, might be a
serious challenge for tax administration. If an Indian resident taxpayer earns and spends only
in JC, fixation of its tax liability would not be an easy task.
If all multinationals including RIL, IBM, and others can agree on an exchange platform
for the conversion of their currencies then the nations of the world would find themselves
divested of their defining power to tax and earn seigniorage. The depth and reach of the large
multinationals can be gauged from the fact that in 2016 the Fortune 500 companies had
revenue of 27.7 trillion USD while the combined GDP of 198 countries was around 76 trillion
USD. Using the Output to GDP ratio for the US economy, the share of Fortune 500 companies
in the world’s GDP would work to around 21 percent. So, if these large corporates were to
sign off from the current international order with their own currencies, their total GDP would
be the second highest, next to the USA only. They can usher into a new Bretton Wood regime
for their private currencies and significantly reduce the cost of managing exchange rate risk.
Technologically, these large corporates could not but continue to be part of one country
or another, at least formally. The emergence of cryptocurrency can unshackle them from this
tether of fiat currency and its in-built inflationary bias. If the world economic order gets re-
arranged on this line, what would happen to the multitude of people who would continue to
remain outside the charmed circle of the digital economy, can only be a matter of speculation
and not an informed guess.

[18]
 India’s Foreign University Bill

The Indian cabinet has recently given approval to the new version of Foreign Educational
Institutions bill. The original bill of 2007 has been significantly liberalized, doing away with all
clauses that could be a deterrent to entry of foreign universities. The bill is expected to
encounter difficulties in parliament as entrenched interest groups in the field of education,
particularly the educational barons of Maharashtra and Karnataka, will face some real
competition if reputed foreign universities set up shop in India. On the face of it, entry of
foreign universities cannot be objected to, primarily for two reasons. Firstly, in this age of
internet this is a futile attempt to create physical hurdle for free flow of services which can be
as well be provided in a virtual mode. The e-learning business is now expanding
exponentially as the bandwidth is getting bigger and better across geographies including
India. More importantly, the consumers of education services, the students are already paying
through nose for the abysmally low quality of education from capitation fees charging private
institutions. In that event, if they can access better services from a different class of service
providers, even at a little higher price, why they should be denied that opportunity?
But it is a pipe dream to think that entry of foreign universities will change the landscape
of Indian higher education. Indian higher education suffers from the rigidity of a hierarchical
and exclusive Brahminical System that has equated rote learning with knowledge and
cognitive cogitation as the only source of wisdom. The Indian university system has
degenerated into a training ground for future politicians and not scientists. Most of the
scientific research in India has gradually moved to independent institutions like TIFR, CSIR
labs. The Nobel laureate Chandrasekhar once lamented about this serious deficiency of Indian
universities.
The Yash Pal Committee report (The Committee to Advise on Renovation and Rejuvenation of
Higher Education) has said this - This disjoint between teaching and research has led to a situation
in which, on the one hand, most of the universities have been reduced to the status of centers that teach
and examine masses and, on the other hand, more and more elite research bodies are being created where
researchers have absolutely no occasion to engage with young minds.
In the absence of cutting-edge research, the teaching standard in most of the universities
except at some central and some old venerable universities have got frozen in time. This has
led to enormous inbreeding in the sense that students graduating from the same university
can aspire to get absorbed as lecturers in their alma mater only. In the absence of cross-
breeding of ideas and thoughts, what we get is a rehash of old ideas. Most of the Ph.D. theses
of a large number of Indian universities are just glorified term papers.
A comparison of the Indian situation with the Chinese scenario is highly instructive.
According to one latest ranking of Asian universities, the IIT system got the highest rank of 30
while there were 7 Chinese universities above that rank. The first two positions were taken by
two Hong-Kong universities.
In terms of scientific publications, China is moving ahead of India very fast. India was
producing nearly four times as many scientific papers as China in 1983. In 2008, the situation
got just reversed when China started producing three times as many papers as India
produced. It is not only the quantity but the depth of scientific research in China is also
increasing. In India, the share of top research institutes in number of published papers has
remained almost constant over last 25 years while the share of top Chinese institutions in total
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research output has declined from 53% to 39%. This shows that many more Chinese
institutions are becoming important centers of excellence. It is important to note that material
sciences account for as much as 21 percent of total research articles published globally,
whereas the share of this discipline in India is less than 5 percent. This indicates that there is a
close collaboration between Chinese researchers and their manufacturing establishments, with
a strong emphasis on applied research and technology transfer. In contrast, the interaction
between researchers and manufacturers in India has been less significant, with a greater focus
on basic research and a weaker tradition of technology transfer.
With regard to the improvement of domestic capability in the sphere of knowledge and
technical skill, China has also not shied away from embracing foreign sources of such
knowledge and technology. But China has followed mostly, what is called twining and
franchising arrangement. Under this arrangement, learning programs are designed by the
foreign provider (franchiser) and delivered in the domestic institution (franchisee).. The
The student receives the qualification of the franchiser institution. Unfortunately, in India
this mode is not encouraged.
In China, around 1100 such programs were carried out till 2006 while in India the
number was only 131. Internationally, the branch campus is not the dominant mode of
exporting educational services by universities of exporting countries. So, it may be that only
second or third-grade educational service providers will be coming to India to open branch
campuses.
Finally, the views of left-leaning intellectuals on this issue need to be understood. Their
antediluvian views sometimes border on absurdity, although some of the most valid and
forceful criticisms of the status of Indian education have been made by them. For example,
when Prof. Prabhat Patnaik, a highly respected economist, compares the share of GDP spent
on educationby India with that of South Africa it is an eye-opener 1 [See page 12].
In fact, the proportion of GDP that the white-supremacist South African State spent on
the education of the black majority even during the apartheid period, notwithstanding the
massive drain on its exchequer that the maintenance of the highly oppressive police, military,
and intelligence apparatus entailed at the time, was higher than what the Indian State has ever
done on education as a whole throughout its entire post-Independence history
However, when Patnaik writes the following it exemplifies the tragedy of Indian
education where a Cambridge-educated don completely undermines the concept and spirit of
the term University itself.
[This] perspective rejects the view that the professionalization of subjects like “economics”, and
“political science” is a desirable process. The “profession” in these disciplines as well as in others, is
dominated by advanced countries; therefore, recognition in the “profession” would necessarily mean
sacrificing any independent thinking and parroting borrowed concepts. This would not matter if these
borrowed concepts were genuinely “scientific” and not imbued with the ideological objective of
defending the hegemony of the advanced countries. In the social sciences at least, such is not the case.2

Published on my Blog on 23rd March 2010

[20]
 India’s Job Crisis : Myth or Reality?

Prof Arvind Panagariya (AP) in his 2 nd May (2018) article in the Times of India edit page
has argued that the number of new job seekers on an annual basis cannot be more than 7.8
million between 2016 and 2021. His article is a rebuttal to the claim made by India’s main
opposition party that around 12 million new job seekers are entering the Indian labour force
every year. He has used Labour Force Participation Rate (LFPR) and the projected incremental
population per annum in the age group 15 and above to arrive at this number. Disregarding
the issue of applicability of LFPR for the purpose at hand, his computation suffers from an
obvious mistake- that is to compute flow from change in stocks between beginning and end
points of a time period. The measure of population is a stock measure as on a date. To work
out new entrants or inflow to this inventory we also need to measure the outflow of people
from this inventory- that is death. The overall death rate for Indian population is estimated to
be 7.3 per 1000 of the population. Although death in the age group above 15 could be higher
than this, let us apply the same to the initial stock of persons – that is 928.6 million. So, the
number of persons entering this age group (15 and above) would stand corrected to 21.6
million instead of 15 million worked out by AP. Applying LFPR of 503 per 1000 persons, the
estimated number of job seekers works out to around 11 million.
It must be also noted that LFPR is not a parameter that results from the behavioral
characteristics of the population. In the jargon that AP would be comfortable with, I would
call it an endogenous variable, decided by the job prospect, income level, and many other
characteristics. Its use as a predictor of the number of job seekers is questionable. In fact, he
himself has underscored the conundrum of very low and declining LFPR of rural females.
The 5th Annual Employment-Unemployment Survey, conducted by Labour Bureau in the year
2015, puts the female LFPR at a measly 23.7 % at the all-India level. For China, the
comparable figure is 63.9. But for males, the LFPR figures for these two countries are close to
each other. Cultural and social mores cannot explain such huge difference in female LFPR,
when women from poor households are always ready to work, provided they get regular
employment. Self-employment cannot be an acceptable option for young females in many
cases because of lack of safe environment for them. The gender gap in self-employed workers
under “Usual Principal Status” is little more than 8% at all India level.
Instead of using population data and LFPR, we can look into some of other hard data.
For example, let us consider the Gross Enrolment data by level of schooling, given in the
annual publication, Educational Statistics at a Glance, by the Ministry of Human Resources
Development. The latest publication gives the total enrolment for undergraduate studies in
the year 2014-15 as 27 million students. Let us assume that the average period for
undergraduate studies is 4 years. Thus, we may expect that every year around 6.8 million
young educated Indians enter the job market. Even if we assume 60% of this 6.8 million
enters the job market this would imply the number of UG -qualified job seekers would not be
less than 4 million every year. So, AP must provide more robust statistics to conclude that a
figure of 11 or 12 million jobseekers can be considered as an overestimation by a “solid 50%”.

Note: Labour Force Participation Rate – This is defined as the number of person /person
days in the labour force per 1000 person/person days. The labour force comprises both
employed persons and job seekers (unemployed). A person is included in the labour force if
[21]
he or she is either engaged in economic activity for a relatively longer part of the reference
period (usually one year) or making a “tangible effort” to seek “work” or is available for
“work”. Full-time students are not considered part of the labour force. There are different
categories of employment : self-employed, regular wage/ salaried employee, contract worker
orcasual labour. In our calculation, we have taken the LFR rate (50.3%) from the Fifth Annual
Employment Unemployment Survey of the Labour Bureau.

[22]
 Jobs Mania
I thought that idol worshiping is a disease that afflicts mostly Indians. Our pagan
heritage explains this fetish of ours. Once we put somebody – however gifted she might be-
on a pedestal we seek oracular sermons from her on every subject on earth. The death of Steve
Jobs and the fulsome eulogies that followed it disabuses us of this notion. Americans are as
much star struck as we poor Indians are. Even the computer geeks and gadget fashionistas
among them are no exceptions.
Against this gushing encomiums and hyperbole, there are some sane voices that put Jobs
in a proper perspective. Decrying such Diana-maina Andrew Orlowski has pointed out how
the products that Apple has brought to the market have also pandered to the consumerism of
an acquisitive society. There is nothing wrong to building products that consumers want. That
is what every businessman would like to do. Like Bill Gates, Jobs was in the last analysis a
consummate and extremely successful businessman. And this by itself is no mean
achievement. Creating a technology in the lab is one thing but the real challenge is to create a
billion-dollar product out of it. Very little of the technology that goes into Apple products
were invented by Apple itself. Douglas Engelbart invented Mouse at the Stanford Research
Institute and subsequently, the Graphical User Interface was first made by Xerox in its Pao
Alto Research Center. But it was Jobs who understood the real potential of these technologies
and superbly harnessed and bettered them in the Mackintosh line of computers. Without
Mackintosh and its cheaper and more affordable imitator, Microsoft Windows, the world
would not have seen the birth of a digital age.
Even the animation giant Pixar was not a creation of Jobs. He got into it first as an
investor because he understood its potential and took a considerable risk by putting his own
money into the venture when it was bleeding like hell. Job’s ingenuity lay in his ability to
identify technologies using which great products can be made and his unwavering conviction
in his ability to do so.
Finally, Jobs was neither a messiah nor an iconoclast – his dallying with Indian mysticism and his
lifelong adoration of Bob Dylan’s counterculture notwithstanding. He was a conventional businessman
with a pathological aversion to open-source movement. Jobs is quoted to have said- “I’ll spend my dying
breath destroying Android.” No wonder, the Open-Source guru Richard Stallman has not minced
words while condoling the death of Steve Jobs“.
However, Steve Jobs is not to be equated with a run-off-the-mill profit-only capitalist. He
is a visionary- no one can doubt that. Stallman and his disciples may not like the color of that
vision but as Deng Xiaoping would have said : “I don't care if it's a white cat or a black cat. It's
a good cat as long as it catches mice.”
Finally, I end with a fascinating quote from the authorized biography of Steve Jobs by
Isaacson- “My passion has been to build an enduring company where people were motivated to make
great products," Jobs told Isaacson. "[T]he products, not the profits, were the motivation. Sculley
flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up
meaning everything." Read more: http://www.businessinsider.com/steve-jobs-products-
versus-profits-2011-10#ixzz1bgsW2OGX,
http://www.theregister.co.uk/2011/10/07/steve_jobs_dianamania/
http://www.theregister.co.uk/2011/10/11/respect_jobs_by_beating_him/

Published on my earlier blog on 24th October 2011

[23]
 Social Roots of Corruption in India

Indira Gandhi once famously said that corruption is a global phenomenon. Enron,
WorldCom, Madoff and other high-profile cases of fraud, cheating and corporate malpractices
in Wall Street firms in USA lends support to such declamation. Be that as it may, the
pervasive grassroots level corruption that we see in India cannot be explained away by
appealing to some basic human failings – avarice and self-aggrandizement.
The literature on corruption is substantial. Efforts at quantification of level of corruption
and search for its proximate determinants are on the agenda of many multilateral
organizations like IMF and World Bank. The Transparency International Corruption
Perceptions Index is used by many researchers while analyzing cross-country experiences in
corruptions. The Transparency International India gives following facts about corruption in
India
India ranks 85 among 180 countries in the Corruption Perception Index. The organization
estimates that the poorest of the poor of India collectively paid 8.83 billion of rupees as bribes.
Out of this, an amount of 2.2 billion was paid by them only to receive the basis services like
hospital, education, and water.
But what is the reason for such pervasive prevalence of corruption at every level of
administration including the judiciary in many developing countries including India? It is
sometimes hypothesized that poverty and lack of development itself are causes for this. But
there is another strand of thought that corruption itself lowers the attainable level of growth,
creating a vicious cycle.
The concept of social capital comprising intangibles like “trust, norms, and networks”
has been put forward to explain its contribution to creating an environment of mutual-
cooperation and honesty in enforcing contracts and thereby creating wealth and prosperity.
But one question that is generally avoided is whether there are any inherent cultural and
social norms for the persistence and pervasive prevalence of corruption. Raymond Fisman
and Edward Miguel, carried out a very interesting empirical study to evaluate the effect of
social norms on the propensity to corruption.1 They studied the incidence of parking
violations and consequent imposition of fines to the diplomatic community living in New
York. The diplomatic immunity accorded to the consular personnel and their families allowed
them to avoid paying parking fines prior to November 2002. So, it is possible to “examine
differences in the behavior of government employees from different countries, all living and working in
the same city, all of whom can act with impunity in (illegally) parking their cars. The act of parking
illegally fits well with a standard definition of corruption, i.e., “the abuse of entrusted power for private
gain,” suggesting that the comparison of parking violations by diplomats from different societies serves
as a plausible measure of the extent of corruption social norms or a corruption “culture”.
The authors conclude from the empirical evidence gathered by them that the “per
diplomat violation” is positively correlated with the subjective perception of the level of
corruption given by the Transparency International (TI) index. Interestingly Indian diplomats
are found to be much less corrupt as compared to their ranks in the TI index. This could be
due to the fact only persons less disposed to corruption opt for Indian Foreign Services.
The role of culture in encouraging corruption has been emphasized in a study of
WorldCom scandal by Alexandre Boudreau. He has termed the group culture as
‘Groupthink’. Groupthink is a thought process that individuals tend to adopt when they are
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deeply involved in cohesive groups where unanimity is the prime objective. The
characteristics of Groupthink include feelings of invulnerability, moral superiority, group
pressure, and self-censorship. As a result, organizations that follow such thought processes
tend to inadequately examine alternate course of actions and avoid examining the involved
risks
According to many studies, the CEO and CFO of WorldCom had created “an
organizational ideology, or culture, in which leaders and managers were not to be doubted or
questioned”.
This ‘Groupthink’ may be thought of a manifestation of tribal or clan culture. In a tribal
society individual actions are judged not in terms of any absolute moral yardstick. Any action
that is carried out with the intention to benefit the group collectively is a socially acceptable
activity. At a more decentralized level, if one commits any unlawful act for the benefit of his
family then it is not an unpardonable sin. The story of Valmiki is of much relevance here.
Since Ratnakar committed robbery only to feed his family there was no bar to accord
sainthood to him. In India, there is a full social sanction for corruption so long as the corrupt
official is faithful to his wife, and takes complete care of his children and parents. Is there any
corrupt official who finds it difficult to marry his daughter off to the best available
bridegroom? In many parts of India, as soon as a young male gets selected as an IAS officer,
the prospective bride’s father queue up with a dowry of millions of rupees. Why the market
prices of these grooms are so high? Because it is known that the present value of future
earnings (i.e., bribes) of these groups are in multiples of millions. The Hindu religion provides
a convenient escape route for avoiding perdition. A suitable gift to the priest and undertaking
some act of penance is sufficient to bribe the god and continue committing the same sin. The
Brahminical ‘jajmani system’ actually institutionalized this practice. This client–patron
relationship is evident in most highly corrupt countries.
A study of corruption in two former communist countries – Hungary and Russia has
highlighted how this “clientelism” has helped to perpetuate corruption in such highly
hierarchical countries.
In Imperial Hungary, as well as Imperial Russia the core relationship was that between a
powerful benefactor and a humble petitioner (kérelmez in Hungarian and prositel in Russian).
The words protekció and patronázs in Hungarian, and protektsia and patronazh in Russian mean
more than protection and patronage—they signify a central dynamic of recruiting and
promoting people from one’s inner circle
The reported extensive prevalence of corruption in China can also be explained in terms
of patron-client relationships institutionalized by Confucian ideology. In other words, unless
civil society addresses the issue of social norms permitting corruption at the individual and
community level, a Lokpal or any other legislation cannot eradicate corruption in India.

Published on 5th January 2012

[25]
 India’s Biggest Operational Risk Event

The PNB –Nirav Modi case is a textbook case of an operational risk event. The fact of the
case is now well known. The case revolves around letters of undertaking (LOU) issued by
PNB (issuing bank) to overseas branches of many Indian banks. An LOU is, in essence, an
irrevocable bank guarantee issued by a bank (issuing bank) on behalf of its customer to
another bank (recipient bank). The recipient bank extends credit (buyers’ credit) to the issuing
bank‘s customer by way of financing import of goods as a part of the latter’s legitimate
business. In this case, the issuing bank is PNB and the customers are companies owned by
billionaire diamond merchants, Nirav Modi and Mehul Choksi. These two happen to be also
close relatives. The fraud began in 2011 with a small amount of 800 crore and gradually
ballooned to 11000 crore ($1.8 billion) when it was ultimately detected. This gradual increase
in the size of the loss is identical to many earlier operational risk cases. For example, in the
Baring bank case (1995), the fraudster Nick Lesson got deeper and deeper into the quagmire
when he tried to cover up initial loss with a bigger bet, hoping that luck would turn and he
would be able to get away with laurels and not a jail term of six and a half years. In a similar
way, the rogue trader Jérôme Kerviel of Société Générale (SG) wanted to cover up trading
losses which ultimately led SG to stare at a total loss of around $7 billion in 2008. Although
these cases are now part of the standard literature on operational risk, it appears from the
PNB event that there is a complete lack of awareness or even basic understanding about the
seriousness of operational risk events on the part of top management of banks as well as the
board of directors of Indian banks. It is a known fact that Indian banks are more concerned
about submitting risk compliance reports and meeting capital adequacy norms set by RBI
than establishing proper risk governance architecture within their respective organizations.
Most of them lack basic knowledge of risk management and do not care a hoot about it also.
The full details of the PNB case are yet to be made public. But the main features of this
operational risk event are now in the public domain. Nirav Modi and his firms managed to
procure LOU from PNB’s Brady House branch with the connivance of branch officials and
using these LOUs obtained short-term credit from foreign branches of many Indian banks to
finance the import of diamonds. The LOUs were communicated with the financing branches
thorough the SWIFT messaging platform. When the time of repayment arrived, Modi could
get more credit through the LOU route to both pay back the old loan as also obtain fresh loan.
Thus, size of PNB’s contingent liabilities continued to increase without raising any alarm in
the controlling offices of the LOU issuing branch. When the main fraudster within PNB
retired and a new official took charge of his desk, this smoothly managed scheme, started
unraveling. The new official asked for the required 100% margin as collateral from Modi’s
firms when they came for the roll-over of the outstanding LOU as before. This was a standard
operating procedure as these firms were neither customers of the branch nor enjoying any
credit facility from the bank. Then the digging of old records started and the enormity of the
fraud came to light.
Let us now analyze the case from the risk management perspective. It is now clear that
this is neither a case of credit loss nor a trading loss. It is a case of both internal and external
fraud. We need to seek answers to the following questions.
1. Could this fraud be avoided or at least the loss amount contained?

[26]
 2. Was the procedural failure only on the part of PNB or even lending overseas
branches banks were equally culpable? Was the connivance systematic at both at the
issuing bank side as well as on the side of lending banks?
3. What lessons Indian banking system should learn from this incident?

Avoiding or containing the fallout of such an incident would depend on the

establishment of an effective and robust operational risk framework within the bank. The first
requirement is to have a Key Risk Indicator (KRI) for all processes and tasks that a bank
undertakes. In the present case, the following KRIs would have surely prevented occurrence
of this incident or at least contained its loss amount. These are:
 The number of employees with tenure at a desk more than a given threshold.
Depending on the potential severity of loss that can happen for a specific desk,
threshold can be fixed.
 Leave record of employees- list of employees who have been manning a desk
for a long period without talking leave from desks handling customer engagements.
 Reconciliations of transactions- on balance sheet as well as off balance sheet
ones- as between various transactional systems, including those carried out on SWIFT
platform. SWIFT itself provides a daily validation report, giving a global summary of
the bank’s inbound and outbound counterparty payments /messages. If suspicious or
fraudulent activity occurs, such a report provides the information that could have
helped the bank cancel messages and recover funds. This reconciliation should be
treated as a mandatory control mechanism for avoidance of occurrence of incident
like this.
 Ideally, the bank should have integrated SWIFT messaging system with its
Core Banking System. In the absence of this, the bank could have procured
applications that generate reports of all activities carried out on the bank’s SWIFT
system. Many such systems are available in the market.[1]

Apart from KRI tracking and monitoring, a bank needs to establish a Risk Control and
Self-Assessment (RCSA) process across the bank’s all operational units. It is obvious that PNB
did not put in place such a system in the bank despite a warning bell rang by RBI itself about
the possibility of the occurrence of exactly such an event (See the speech of S. S. Mundra on
September 7, 2016). [2]
It is a really sad state of affairs in the Indian banking sector that neither the RBI nor the
top managements of the public sector banks are seriously concerned about the risk
governance architecture prevalent in these banks. For them, implementation of the Basel
Framework starts and ends with the computation of regulatory risk capital.
As regards the liability of PNB to the lending banks, we may refer to a similar case where
a fraud happened at the issuing bank end and, thereafter, the issuing bank refused to honor
the Stand by Letter of Credit (SLBC) when it devolved on it. The fact of matter is as follows3.
Banco Ambrosiano Veneto S.P.A (the defendant)., an Italian bank, was said to have
issued two SBLCs in favor of Industrial & Commercial Bank Ltd of Singapore (the plaintiff).
On devolvement, the Italian bank refused to pay the Singaporean bank on the plea that it
never intended to issue the two SBLCs in question which were issued by one of its employees,
[27]
fraudulently, pursuant to a fraudulent scheme involving this employee, a customer, a
Plaintiff’s employee and others. The case was heard by the Singapore High Court in 2001 and
was decided in favor of the plaintiff bank. While deciding the case the honorable judge said
the following:
It is my view therefore that SWIFT messages have the legal effect of binding the sender
bank according to the contents. The fact that a recipient bank may still wish to protect itself
by doing checks on credit standing or other aspects does not detract from this proposition.
SWIFT communication is still subject to the general law of contract. [3]
However, this does not mean that the recipient banks can completely absolve themselves
of establishing a proper risk management system within their banks. A continuing roll-over
with larger and larger amount of LOU to a group of companies from the same promoter
should have alerted the recipient banks. In fact, these banks should have found out whether a
single branch had the authority to issue LOUs of such magnitude. It shows lack of
rudimentary risk management practices within the recipient banks also.
The only lesson that Indian banks should learn from this episode is that risk management
is a serious business, not a practice for showcasing to the regulator. For most Indian banks,
risk management means hiring a consultant to prepare a guideline and procurement of an
application. That is the end of it. For example, PNB boasts of having an enterprise-wide Data
Warehouse (DW). One should ask the bank why all swift messages are not stored in the
bank’s central repository?

Published on 17-02-2018

[28]
 Five-Trillion-Dollar Indian Economy :
Terms and Conditions Apply
Reaching $ 5 trillion GDP benchmark is being projected as a landmark milestone for the
Indian economy by many in the Government. The latest estimate puts the size of Indian
economy, measured as GDP at current market prices, at $2.4 trillion.[1] Does reaching $5
trillion mark reflect a significant achievement or is it really an implicit admission of incipient
sluggishness in growth of Indian economy? Let the data speak.
Indian economy registered an average annual growth of 12.8% in GDP (at current market
prices) during 17 years – from 2000-01 to 2016-17. During the same period, only in 2 years, the
growth rate fell below 8%, the minimum being 7.6%. The 25 percentile growth rate was above
two digits at 10.4% and the median rate was 13%.
Given this nominal growth scenario of recent past, dollar value 5 trillion appears to be
too modest a goal to be set by the current government. Table 1 gives the projected value of
Indian economy till 2035 under various growth rate scenarios. Even if Indian economy grows
at the lowest rate achieved during last 17 years, the size of the economy would reach at least 4
trillion US dollar by 2025. If rupee depreciates in between, the growth in dollar terms would
be lower. At 70 rupees per dollar, the size would become only 3.9 trillion dollars by the end of
2025.
A nominal yearly growth rate of 7.6 percent would imply a real growth rate of only 3.6
percent, given 4% target growth rate of inflation as notified by the government of India (GOI),
A 10.4% growth rate would thus imply real growth rate of only 6.4%. Thus, if projections of
$5 trillion is in nominal terms, then no big achievement is being claimed.
Suppose, all the projections are being made under the assumption of constant prices of
2016-17, then the target average growth for the next eight years should be 9%. India has
achieved a double-digit real growth rate in the last 66 years only once. Even in the last 25
years India clocked a real GDP growth rate greater than 8% only 6 times. So, the probability of
clocking a real growth rate of more than 8% is as low as 25%. Achieving 9% uniform real
growth rate till 2025 with stable rupee-dollar rate might be a chimera. If rupee depreciates to
70 rupees by 2025, we would need an average year over year real growth rate of 11%. It could
be a dream worth pursuing but there is no evidence in terms of accelerated investment or
growth in productivity that could make the dream a reality.
In summary, reaching 5 trillion USD by 2025 in nominal terms is no big deal – a lower
than achievement would be considered a highly disappointing performance. Achieving the
same target in real terms could be an enormous challenge- heralding a real structural break in
the Indian economy with productivity led growth and not merely by adding more capital and
labour.

[29]
Table 1: Projected USD Size of Indian Economy under various growth rate scenarios and with
constant exchange rate of 63.5 ($Trillion)
Compound 2025 2030 2035
Growth
Rate
Minimum 7.6 4.2 6.1 8.9
1st quartile 10.4 5.2 8.6 14.1
Average 12.8 6.2 11.4 20.9
Median 13 6.3 11.7 21.5
Note: Only first decimal value without rounding up has been
reported. Projections are based on CSO’s preliminary estimate of
GDP at current market prices for year 2016-17.

Published on 27 January 2018

[30]
 Out-of-Box Thinking

While inaugurating the recently concluded Indian Science Congress meet, Dr.
Manmohan Singh has exhorted the Indian scientists to think out-of-box and make India a
significant player in the scientific research and knowledge building area. If words could move
mountains, India would have been by this time the scientific powerhouse of the world, for on
3rd January every year each predecessor of Dr. Singh might have made similar grandiloquent
statements. But the taste of pudding is in eating. What is the ground reality?
Indian society, culture and ethos are not conducive to innovation and long-term risk
taking. Most of the Indian entrepreneurs are more of redistributors of wealth, rather than
creator of wealth. Creation of wealth needs innovation and entrepreneurs who are ready to
bet their shirt on new ideas, new products and new talents and reap rewards for years to
come. Lack of such animal spirit is glaringly visible in the poster child of India’s march to
economic glory – the Information Technology sector. Despite IT sector’s phenomenal growth –
its share in India’s GDP having grown to 5.8 percent by 2007-08- the sector is nowhere to be
seen in the High Table of software producers. It is ironic that there is not a single Indian
company in the top 100 companies of the world in terms of revenue earned from software.
There are even two Chinese and two South Korean companies in this list but not a single
Indian company. Our IT biggies are boxed-in in their legacy mindset of body–shopping and
they have neither time nor inclination for any out-of-box thinking

Year of Country Rank Company Software Software Total Software

Incorpor of Revenues Revenue Revenues Revenue
ation incorporat in million Growth in million Share
ion USD USD
1975 USA 1 Microsoft 49,090 -1% 61,159 80%
1896 USA 2 IBM 21,396 -3% 95,758 22%
1977 USA 3 Oracle 18,582 6% 22,734 82%
1972 Germany 4 SAP 11,368 -2% 15,373 74%
1876 Sweden 5 Ericsson 7,595 5% 29,014 26%
1889 Japan 6 Nintendo 6,799 -6% 17,762 38%
1939 USA 7 HP 6,183 -15% 116,245 5%
1982 USA 8 Symantec 5,565 -2% 5,992 93%
2007 Finland 9 Nokia 4,529 -15% 18,114 25%
Siemens
Networks
1979 USA 10 Activision 4,279 -7% 4,279 100%
Blizzard
1976 USA 11 CA 4,012 2% 4,318 93%
1979 USA 12 EMC 3,960 -6% 14,026 28%
1982 USA 13 Electronic 3,728 -13% 3,728 100%
Arts

[31]
1982 USA 14 Adobe 2,796 -17% 2,987 94%
1984 USA 15 Cisco 2,137 8% 36,633 6%
1983 USA 16 SunGard 1,996 -1% 5,508 36%
1946 Japan 17 Sony 1,914 -27% 79,441 2%
1980 USA 18 BMC 1,758 11% 1,888 93%
2006 France 19 Alcatel- 1,635 12% 21,835 8%
/USA Lucent
1969 Japan 20 Konami 1,594 -24% 2,887 55%
1910 Japan 21 Hitachi 1,589 -7% 99,818 2%
1981 France 22 Dassault 1,584 -1% 1,803 88%
2002 USA 23 Infor 1,575 -5% 2,100 75%
1981 UK 24 Sage 1,557 4% 2,336 67%
1982 USA 25 Autodesk 1,557 -21% 1,764 88%
1983 USA 26 Intuit 1,294 -6% 2,888 45%
1986 France 27 Ubisoft 1,249 -16% 1,249 100%
1976 USA 28 Apple 1,218 8% 43,086 3%
1986 USA 29 Synopsys 1,202 0% 1,353 89%
1892 USA 30 General 1,200 9% 156,783 1%
Electric
1999 USA 31 Salesforce.co 1,191 24% 1,287 93%
m
1976 USA 32 SAS 1,155 2% 2,310 50%
Institute
1989 USA 33 Citrix 1,140 -3% 1,614 71%
1900 USA 34 NCR 1,117 -22% 4,612 24%
1987 Netherlan 35 Wolters 1,045 13% 4,934 21%
ds Kluwer
1988 USA 36 Trend Micro 1,029 5% 1,029 100%
/Japan
1998 USA 37 VMWare 1,029 -13% 2,024 51%
1895 CANADA 38 Nortel 1,022 -46% 4,088 25%
1987 USA 39 McAfee 964 21% 1,927 50%
1983 France 40 Thales 928 5% 18,556 5%
Computers
1975 Japan 41 Square Enix 916 62% 1,832 50%
1992 US 42 Take Two 916 -37% 916 100%
Interactive
1990 USA 43 THQ 909 -1% 909 100%
2006 Japan 44 Namco 860 1% 4,213 20%
Bandai
Games
1969 Germany 45 Software 836 12% 1,221 69%
AG
2004 Japan 46 Sega Sammy 836 -14% 4,248 20%
Holdings
[32]
1993 Israel 47 Check Point 834 21% 924 90%
1985 USA 48 Qualcomm 826 -7% 10,482 8%
1969 France 49 Cegedim 825 8% 1,259 66%
Dendrite
1963 USA 50 Siemens 800 0% 107,396 1%
PLM
1979 USA 51 Teradata 772 -9% 1,709 45%
1983 Japan 52 Capcom 767 32% 994 77%
1982 USA 53 Sun 760 8% 10,211 7%
Microsyste
ms
1999 Germany 54 Wincor 757 9% 3,305 23%
Nixdorf
1979 USA 55 Novell 751 -6% 853 88%
1979 USA 56 Cerner 747 3% 1,672 45%
1988 USA 57 Cadence 746 -18% 853 88%
1866 USA 58 Reynolds & 744 0% 967 77%
Reynolds
1999 China 59 Shanda 704 40% 768 92%
Interactive
1991 Canada 60 Open Text 692 21% 852 82%
1935 Japan 61 Fujitsu 671 -5% 50,662 1%
1973 USA 62 Compuware 656 -10% 935 70%
1992 USA 63 NetApp 655 14% 3,558 18%
1993 USA 64 Red Hat 622 18% 732 85%
1994 South 65 Nexon 608 70% 608 100%
Korea Corporation
1984 USA 66 Sybase 593 3% 1,170 51%
1969 USA 67 Intergraph 578 -5% 770 75%
1891 Netherlan 68 Philips 565 6% 33,406 2%
ds
1992 USA 69 Nuance 564 3% 976 58%
1983 USA 70 McKesson 553 -3% 108,717 1%
1997 South 71 NCSoft 549 100% 549 100%
Korea
1969 USA 72 SAIC 539 8% 10,781 5%
1966 USA 73 Solera 534 8% 593 90%
Holdings
1975 USA 74 Sterling 526 0% 634 83%
Commerce
1996 USA 75 F5 516 4% 689 75%
1987 USA 76 Avid 509 -29% 629 81%
1996 UK/USA 77 Autonomy 493 47% 740 67%
1968 USA 78 Intel 485 68% 35,172 1%
Corporation
[33]
 1997 RUSSIA 79 Kaspersky 480 33% 480 100%
Lab
1981 USA 80 Mentor 477 4% 802 60%
Graphics
1985 USA 81 PTC 477 -24% 960 50%
(Parametric)
1994 USA 82 Verint 468 7% 702 67%
1968 France 83 Sopra 461 26% 1,576 29%
Group
1975 USA 84 Lawson 457 -1% 731 63%
1979 USA 85 Epic 451 0% 601 75%
Systems
1974 USA 86 Aspect 450 0% 600 75%
Communica
tions
1981 USA 87 Progress 445 -4% 495 90%
2001 USA 88 Rockwell 432 -24% 4,317 10%
Automation
1983 Brazil 89 Totvs 429 51% 620 69%
1987 USA 90 Quest 418 -11% 695 60%
1859 USA 91 Diebold 413 -12% 2,718 15%
1991 USA 92 Pgi 401 -4% 601 67%
1995 USA 93 Real 401 -10% 562 71%
1979 UK 94 Misys 393 -12% 1,073 37%
1969 USA 95 ESRI 388 0% 776 50%
1970 USA 96 Ansys 383 3% 517 74%
1998 USA 97 Google Inc. 381 14% 23,651 2%
1968 China 98 Inspur 378 11% 3,784 10%
2007 UK 99 Acision 375 0% 500 75%
1956 USA 100 FICO 375 -7% 625 60%

Source: http://www.softwaretop100.org/global-software-top-100-edition-2010

Published in my earlier blog on 6th January 2011

[34]
 In Thrall of Market

“The 1980s and 1990s saw a wave of liberalization sweep across African agricultural markets as
part of broad structural adjustment plans. Inherent in the promise of these reforms was the
presumption that a competitive private sector would emerge to take advantage of newly created
arbitrage opportunities, with agricultural traders efficiently moving crops from surplus to deficit
regions, and from harvest to lean seasons. However, recent empirical estimates suggest that
agricultural markets remain poorly integrated, with prices varying widely across regions and seasons.
Estimates reveal that traders act consistently with joint profit maximization and earn median
markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up
of subsidized entry offers implies large fixed costs. We estimate that traders capture 82 percent of total
surplus.”1
The Indian Government has recently enacted three bills2, collectively known as Farm
Bills 2020, which have been hailed by reputed agricultural economists, commentators, and
journalists for setting free the Indian farmers from the clutch of local traders, middlemen, and
politicians who collude to exploit both ends of the supply chain – producing farmers and
consumers of agricultural items. The noted agricultural economist Ashok Gulati has
compared passing of these bills as a “1991 moment for agriculture”, a piece of legislation
which is expected to “help build more efficient value chains in agriculture by reducing
marketing costs, enabling better price discovery, improving price realisation for farmers and,
at the same time, reducing the price paid by consumers” [1,2,3]
At the same time, passing of these three bills have been condemned by an influential
section of farmers and opposition parties as corporatization of Indian agriculture by making
the farmers as “contract producers” without any significant role in the farming decision
making process [4,5,6]. The main worry of the agitating farmers is that these new bills are
precursor to gradual withdrawal of the state from the agricultural sector. It appears, as
opposed to “1991 moment”, passing of these legislations could be considered as independent
India’s ‘Indigo’ (nil bidroha) moment. [7] To recall, in 1859, the peasants of Bengal rose in revolt
against Indigo planters who had initially persuaded and subsequently coerced the peasants to
plant indigo instead of food crop. These planters provided loans to switch over to indigo, a
cash crop with a large export market and in due course made these farmers almost bonded
labourers.
It would be ante-diluvium to argue that Indian farmers do not need a free-market for
their outputs and inputs. But market, particularly a boundary-less pan India one, is not
created by legislation only. Market is a social institution. The critical role that robust
institutions play in fostering economic growth is now well established. According to Douglas
North, institutions are “the rules of the game in a society, more formally, are the human
devised constraints that shape human interaction”. 3 The state, community or society at large
may define the rules and lay down the constraints but without them institutions exist only as
ideas. Market is an economic institution. Even a weekly village hat has a rule – the frequency
of its operations, roles, implied or otherwise, assigned to various participants etc. As
Acemoglu has written: “economic institutions are collective choices of the society. And
because of their influence on the distribution of economic gains, not all individuals typically
prefer the same set of economic institutions. This leads to conflict of interest among various
groups and individuals over the choice of economic institutions and the political power of the
different groups will be the deciding factor”. 4
[35]
 Free-market, being an economic institution, must also be subjected to rules and
regulations. It is undeniable that stock exchanges, commodity and financial future markets are
free-markets. Dabba-trading, taking place out the regulatory boundaries is a punishable
offense. Brokers are licensed entities. Earlier stock exchanges were a mutual or co-operative
association of brokers and through a demutualization process these institutions were
converted to a public company.
So, brokers, investors, and listed companies have only bounded freedom of choice and
not an unfettered one. From this point of view, to designate APMC as non-free market betrays
lack of understanding of market as an economic institution. When stock exchanges were de-
mutualized, they were not demolished and new markets were created. Only rules and
constraints were restructured.
Restructuring of Indian Agriculture Produce Market: An Ongoing Process
Such restructuring has been an ongoing process in respect of markets created under
APMC Acts of various states also. In 2003, the Ministry of Agriculture, GOI came out with a
model act on agricultural marketing. It was expected that individual states would suitably
amend the extant APMC Act to deregulate agricultural marketing. In 2007 Draft Model Rules
were issued to all states for them to adopt it with suitable modifications. In 2017, another
model Act titled “Agricultural Produce and Livestock Marketing (Promotion and Facilitation)
Act, 2017 was issued by Ministry of Agriculture and Farmer Welfare. But, none of these
amendments proposed by the GOI evoked suck kind of revolt by farmers at large, or
remonstrations by many state governments. The key features of these proposed amendments
are aimed at creating a more competitive agricultural produce market, but within the broad
framework of APMC Act. In corroboration of this claim a comparison is given below :
THE FARMERS’
PRODUCE TRADE AND
Draft Model Rule
COMMERCE
Issues Model APMC Act of 2003 2007 for State APMC
(PROMOTION AND
Act
FACILITATION) ACT,
2020
Very broad definition of
“trade Area” as “ any area
or location, place of
Chapter IX with the
Legal persons, growers production, collection and
title: Establishment
and local authorities are aggregation “ but it
and Functioning of
Establishment permitted to apply for the excludes “physical
Private Market/ E-
of private establishment of new boundaries of principal
Market, Consumer
market markets for agricultural market yards, sub-market
/Farmers Market and
produce in any area. yards and market sub-yards
Direct Marketing
((Section-3)) managed and run by the
added
market committees formed
under each State APMC Act
in force in India “
There will be no It is stated in respect Any trader may engage in
Farmers are
compulsion on the of e-market: The the inter-State trade or
free to sale in
growers to sell their membership shall be intra-State trade of
any market
produce through existing freely available to all scheduled farmers’
[36]
 markets administered by including farmers or produce with a farmer or
(APMC)(Section-14) their groups/ another trader in a trade
cooperatives/ area. No mention of any
companies. registration with the
concerned state
governments.
The act allows any person
to act as trader subject to
the following provision:
Provided that no trader,
except the farmer producer
organisations or
Licensing of market
agricultural co-operative
Registration functionaries is dispensed
No clear rule in this society, shall trade in any
instead of with and a time bound
regard scheduled farmers’
licensing procedure for registration
produce unless such a trader
is laid down. (Section-44)
has a permanent account
number allotted under the
Income-tax Act, 1961 or such
other document as may be
notified by the Central
Government
A new Chapter on
‘Contract Farming’ added
to provide for compulsory
registration of all contract Chapter VI Contract
farming sponsors, Farming: It is stated:
recording of contract Contract Farming
farming agreements, Producer and the
Contract Farming
resolution of disputes, if
Sponsor shall be at
any, arising out of such
Contract liberty to mutually Allowed as in previous
agreement, exemption
Farming decide theterms and model acts.
from levy of market fee on
conditions of the
produce covered by
Contract Forming
contract farming Agreement, which shall
agreements and to provide not be contrary to the
for indemnity to provisions of the Act
producers’ title/ and the Rules.
possession over his land
from any claim arising out
of the agreement
It is also not a fact that state/ region level politicians who control and steer the
functioning of state governments have been creating hurdles towards reforming and
liberalizing APMC centered agricultural marketing regime. By the end of the FY 2016-17, as
many as 21 states have adopted the key liberalizing features of the Model APMC Act

[37]
(establishment of private market, direct sale to traders, contract farming etc.) that have been
cited above.
So the new The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act,
2020 makes one radical change to the previous model APMC Acts drafted by the GOI – that is
complete emasculation of state governments from the regulation of agricultural produce
markets. In fact, the proponents of complete de-regulation of agricultural produce marketing
regime always wanted to achieve this. For example, the competition assessment of Model
APMC Act, 2003 commissioned by the Competition Commission of India lamented that “the
Model Act allows interference of state governments in the regulatory mechanism” (italics in
original)
Interestingly, the new Act has not provided for compulsory registration of traders
although it has a kept an enabling clause : “The Central Government may, if it is of the
opinion that it is necessary and expedient in the public interest so to do, prescribe a system for
electronic registration for a trader, modalities of trade transaction and mode of payment of the
scheduled farmers’ produce in a trade area”.
This key feature of by-passing of the state governments stands in stark contrast to all
budget speeches by erstwhile finance minister Mr. Arun Jaitley. In the following budget
speeches of successive years, he talked about the reform initiative of the Centre in
collaboration with the states.
“To accelerate setting up of a National Market, the Central Government will work closely
with the State Governments to re-orient their respective APMC Acts., to provide for
establishment of private market yards/ private markets. The state governments will also be
encouraged to develop Farmers’ Markets in town areas to enable the farmers to sell their
produce directly (Budget Speech of 2014-15).”
“While the farmer is no longer in the clutches of the local trader, his produce still does
not command the best national price. To increase the incomes of farmers, it is imperative that
we create a National agricultural market, which will have the incidental benefit of moderating
price rises. I intend this year to work with the States, in NITI, for the creation of a Unified
National Agriculture Market” (Speech of 2015-16)
“Access to markets is critical for the income of farmers. The Government is implementing
the Unified Agriculture Marketing Scheme which envisages a common e-market platform that
will be deployed in selected 585 regulated wholesale markets. Amendments to the APMC
Acts of the States are a pre-requisite to join this e-platform. I am happy to inform that 12 States
have already amended their APMC Acts and are ready to come on board. More States are
expected to join this platform in the coming year. The Unified Agricultural Marketing E
Platform will be dedicated to the Nation on the birthday of Dr. Baba Saheb Ambedkar on 14th
April this year” (Speech of 2016-17)
For the post-harvest phase, we will take steps to enable farmers to get better prices for
their produce in the markets. The coverage of National Agricultural Market (e-NAM) will be
expanded from the current 250 markets to 585 APMCs. Assistance up to a ceiling of Rs.75
lakhs will be provided to every e-NAM market for establishment of cleaning, grading and
packaging facilities. This will lead to value addition of farmers’ produce.
Market reforms will be undertaken and the States would be urged to denotify perishables
from APMC. This will give opportunity to farmers to sell their produce and get better
prices. We also propose to integrate farmers who grow fruits and vegetables with agro
processing units for better price realisation and reduction of post-harvest losses. A model law

[38]
on contract farming would therefore be prepared and circulated among the States for
adoption (Speech of 2017-18)
It is obvious that there has been a sea change in the thinking of the central government
about the roles that various stakeholders will be allowed to play in the agricultural reform
path that it wants the country to tread in near future.
It is also apparent that the grand idea of “One Nation-One Market” is a primary driver of
these Farm Bills 2020. Keeping aside the concept of “nation” in this hyphenated slogan that
motivates millions, we need to debate whether new laws are situated in a
robust understanding of the concept of “market” or not. Buying and selling by themselves do
not define a market. Furthermore, the capitalist path of development is not synonymous with
free-market development. (See Singapore’s Story5).
What is the Optimal Market Design for Indian Agricultural Produce?
Alvin Roth argued that all “well-functioning markets depend on detailed rules”[8].
According to Roth, for a market to function properly three things must be done correctly:
1. Appropriate level of market ‘thickness’, i.e., a properly functioning market should
bring together “a large enough proportion of potential buyers and sellers to produce
satisfactory outcomes for both sides of a transaction.”
2. Right incentive to reveal confidential information or to bring asymmetry of
information between buyer and sellers to an acceptable level
3. Transactional time to be as low as possible. It means access to information about
quality and volume of supply and demand and processing thereof should not be so much
consuming that it would be worthless by the time a transaction may actually be concluded.
Without disputing the relevance and indispensable requirements all the three attributes
as above, there is one thing missing in the above list and which is a must in respect of the
Agricultural Produce Markets is the needed trust between producers and buyers. Given the
immense variety and quality even of a single commodity like rice, information is highly
localized and may not be amenable for standardization by a centralized authority. In fact, the
information about Chinese agriculture started pouring in with dismantling of centralized
planning system that the country initially adopted. To enable this local information to be
integrated with other markets spanning the entire country is a complex activity and needs
resources and government intervention. As Roth has said, “Market design turns out to be
about details, such as the nature of the transactions in question, the opportunities to conduct
transactions outside the market, and the distribution of information”.
These new Bills are eloquent about their objectives, which are per se laudable but awfully
laconic about these operational details. The protagonists of the new Farm Bills are walking on
the same path that policy makers of APMC market design followed- describing the
destinations correctly without stating how to reach the destination and mechanism of steering
the journey to the destination.

State Intervention in Agriculture: A Universal Phenomenon

Finally, it has to be emphasized that state intervention in agricultural sector is a common
phenomenon irrespective of the nature of the state. John W Mellor, a former Director-General
of International Food Policy Research Institute has been a champion of the view that
agriculture, despite having a small share in total GDP of all developed economies, play a
central role in the process of creating sustainable economic development locally and globally.
He has identified the following two big ideas based on his long international experience in
designing and advising polices for this sector6:
[39]
 1. The rapid growth of small commercial farmer dominated agriculture accelerates the
economic transformation and is essential to the rapid decline in rural poverty.
2. Government has a prominent role if small ccommercial
ommercial farmer dominated agriculture is
to grow rapidly.
In fact, income support to producing farmer
farmers is a global
al reality. OECD has estimated
Producer Support Estimate (PSE)[9], measured as a percentage of gross farm receipts. The
following graph shows that Indian farmers are still having a negative production support and
the same is borne out by the terms of trade between farmers and non
non-farmers.

[40]
End Notes:

1. Bergquist , Lauren Falcao & Michael Dinerstein : Competition and Entry in Agricultural
Markets: Experimental Evidence from Kenya in American Economic Review 2020,
110(12): 3705–3747
2. The bills are — The Farmers Produce Trade and Commerce (Promotion and
Facilitation) Bill, 2020 (FPTC); The Farmers (Empowerment and Protection)
Agreement on Price Assurance and Farm Services Bill, 2020 (FAPAFS); and The
Essential Commodities (Amendment) Bill, 2020 (ECA)
3. North, D. C, 1990, Institutions, Institutional Change and Economic Performance,
Cambridge University Press.
4. Acemoglu, D and J,Robinson “The Role of Institutions in Growth and Development”
in Review of Economics and Institutions; vol.1- No 2, Fall 2010.
5. Lim, Y.C.LindaSigapore’s Success : The Myth of the Free Market Economy. Asian
Survey Vol 23 No 6. June 1983
6. Mellor, John Williams: Agricultural Development and Economic Transformation:
Palgrave Studies in Agricultural Economics and Food Policy

[41]
 Bheeshma or Dhritarashtra

Sanjay of Mahabharata was blessed with the magical vision by Veda Vyasa to observe the
goings on of the Kurukshetra War [1] without being physically present there. Sanjay of
Mahabharata was not a mere narrator describing each day’s battle events; he was also taking
the blind king through the virtual battlefield of morality and righteousness.
Sanjay Baru of today unfortunately lacks such an inner eye to cut through the fog of such
moral dilemma. In fact, although being present in the thick of political theater of UPA I, his
narrative is only a clever attempt to create a so-called balanced scorecard of Dr. Manmohan
Singh’s regime- the wasted decade of India. His latest book on the so called “Accidental
Prime Minister” neither gives any new facts that are not already known to Delhi cocktail
circuit, nor does it give a nuanced analysis of the real social forces that shaped this regime of
dual power center – one real and another a façade.
Dr. Baru is a trained economist turned journalist and to be successful in both of his
chosen vocations, one has to be an ideologue and not a dispassionate observer of reality. He
has stated that his erstwhile boss should be likened to Bheeshma and not Dhritarshtra. So, his
boss was neither blind or nor weak kneed due to any filial love for his flock. Bheeshma
participated in the Kurukshetra War because of a covenant that he was obliged to honor- at
least that is what he thought was morally right thing to do. But, Dhritarashtra does not have
that excuse. He simply abrogated his responsibility as the king to uphold the justice and right
path by failing to advise his son suitably. In fact, his blindness can also be seen as a poetic
metaphor to explain the king’s inability to see the truth.
In Dharamvir Bharati's AndhaYug translated by Alok Bhalla, the king tries to justify his
failure to stop the decimation of the Kuru clan before Vidura by saying thus:
"Vidura
try to understand
I was born blind,
How could I have discerned the real world
or recognised the social codes"
In Dr. Singh’s case the lines would be
Vidura
try to understand
I was only a technocrat
How could I have discerned the intrigues of the political world
or recognized the rules of the games
In Andha Yug, Vidura counters the King by saying.
"You could have,
just as you
accepted the world
in spite of your blindness"
For Dr. Singh the Vidura would have retorted:
You could have
Just as you accepted the position of power
in spite of being a mere technocrat

[42]
 May be Dr. Singh would have cried out like the King did in Andha Yug, paraphrasing it
suitably:

My senses were limited by my bureaucratic obsequiousness.

They defined
the boundary of my material world.
I had spun an illusory world
of office notes and agenda papers and circulars
out of the depths of that bureaucratic hollowness,
My career, my positions, my friend circles, my post retirement sinecure
had evolved out of my peculiar world
My ethics had no other form of reference
My bosses were my guides and mentors
they were the final arbiters of truth for me
my love for them was my law
my code of honour"

The stanzas of Andha Yug are taken from a blog [See2].

[43]
 Singularity in Economics

The micro-foundation of equilibrium economics is based on the celebrated Arrow-

Debreu model. This pioneering theorem states that under certain conditions a competitive
market will always be able to discover a set of prices that will clear the market. In other
words, every economic agent will be able to sell her given basket of tradable commodities at
that set of prices and every demand backed by a budget will be met. The mathematical
derivation of the theorem assumes that every seller is a price taker or insignificant to the
totality of the market.
This result has given a stamp of approval to the dominant paradigm of current
mainstream economics. There are two aspects to this theorem that economic science has
ignored to their peril. The current financial crisis is a pointer to that. First of all, it assumes
that market is complete. Now whether a given market is complete or not can never be proved.
As per Godel’s theorem, even no mathematical system can be complete in the sense that we
can decide the truth value of every meaningful statement made within the rules of that
system. If mathematics, the most beautiful thing apart from music and poetry that human
intelligence has created, cannot aspire to be complete, it is surely not given to economics to
attain that nirvana. Since economics has not produced any methodology to test whether a
market is complete, it is safe and practical to assume that no market is complete. In fact, many
results of financial engineering and consequently market’s ability to price all kinds of
derivative products are based on the validity of existence of a complete market. No wonder
these results are as fragile and wishful thinking as the notion of complete market.
The second aspect of the Arrow –Debreu theorem is the notion of insignificant mass of an
individual economic agent as compared to the totality of agents. This is another feature that
stands in direct contrast to the basic understanding of another branch of science- that is
physics. In physics, gravitational attraction between bodies depends on their masses. More
importantly, at a certain critical level of mass, a body can exert a level of gravitational force
that would not allow even light to escape from it. In other words, a black hole emerges. The
laws of physics state that a massive object distorts the space and time in such a way that usual
rules of geometry cannot be applied to them. A similar problem is most likely to arise when
an economic agent itself defines the perimeter of a market. Its mass is so big that the result of
Arrow-Debreu theorem no longer applies.
The present regulatory conundrum about “to big to fail” or rather “too big to liquidate”
arises because of the failure of economic science to accommodate consistently within their
theoretical framework ( See Too Big to Liquidate is too Big to Live by John Kemp, Reuters,
Friday, September 03, 2010 [1]

Published in my earlier blog on 7th September 2010

[44]
 Trump Tariff : Keynes would have approved

The US government’s recent tariff imposition of 25% on steel and 10% on aluminum
imports from all countries except Canada and Mexico is a textbook example of economic
policy making to serve narrow political interests. This article is not to examine the economic
rationale of such a policy that its proponents have been offering. We are not interested to
know what an optimal tariff policy should be for a country that has been the dominant
trading partner for most of the nations during the last 50 years. My main objective in writing
this piece is to demonstrate how a nation state, like a chameleon, changes its policy to serve its
own interest, perceived or real.
USA has a history of imposing high tariff when it suited interests of various pressure
groups within the country. The two most important tariff acts enacted in the history of USA
are the Fordney-McCumber Tariff Act of 1922 and the Smoot-Hawley Tariff Act of 1930. The
first one was a response to the drastic fall in farm income between 1919 and 1921- the period
following the end of the First World War. The Tariff Act of 1922 increased the average tariff
on dutiable import from 16.4 to 36.17%. The Democratic President Woodrow Wilson did not
support imposition of such a steep hike in tariff and vetoed the legislation passed by the
Congress on his last day in office. His successor, the Republican President, Warren Harding
signed it into law within 3 months of assuming office. The Smoot-Haley Act came into force
on June 17, 1930. Initially the Republican President Herbert Hoover opposed increase of
already high tariff regime. More than thousand economists signed a petition to the president
opposing the new tariff proposal. Big corporations as well as large Wall Street firms opposed
the bill. The following quote from Wikipedia is revealing
1. P. Morgan's chief executive Thomas W. Lamont said he "almost went down on [his] knees to
beg Herbert Hoover to veto the asinine Hawley-Smoot tariff.
The main supporters of the bill were those industries and farmers who expected to
benefit directly from enhanced tariff on goods that they were producing.
There are two alternative explanations for preferences for higher or lower tariff regimes.
One identifies “pressure group” politics as the main driver of increased tariff regime. The
other one emphasizes the “party politics” as the main driver of enactment of these two tariff
acts. A study on Effective Rate of Protection attributable to any tariff measure examined the
impact of the above two tariff measures on various industries of USA. The study found
enough evidence for the “pressure group” theory. It is interesting to note that one of the major
looser was the auto industry and no wonder that Henry Ford vehemently opposed the Smoot-
Hawley Tariff Act, calling it “an economic stupidity”.
With the Democratic President F.D. Roosevelt in White House in 1933, USA started
changing its trade and tariff policy. Reciprocal Tariff Act of 1934 authorized the President to
enter into bilateral negotiation with foreign nations to reduce tariff on a reciprocal basis. This
Act is considered as the beginning of a liberal trade regime policy by USA. In the post second
world War period, USA turned out to be one of the main driving forces behind multilateral
trade agreements like General Agreement on Trade and Tariff (GATT) and formation of the
World Trade Organization (WTO). The pursuit of liberal trade policy continued under both
Republican and Democratic Presidents. President Kennedy brought in the 1962 Trade
Expansion Act and helped start the Kennedy Round of world trade talks. Republican
President Reagan launched the Uruguay Round in 1996 and Democratic President Clinton

[45]
helped establishment of WTO. We may note that this is the period during which US economy
clocked highest average growth in GDP. From 1950 to 2010, the decadal growth rates of US
real GDP were: 3.6(1950s), 4.3(1960s), 3.2(1970s), 3.3(1980s), 3.3(1990s), 3.4(2001 to 2010) and
2.1(2011 to 2017). We may also note that the US share in world export during the same periods
were: 15.4(1950s), 14.2(1960s), 11.7(1970s), 11.2(1980s), 12.0(1990s), 9.0(2001 to 2010) and
8.5(2011 to 2016). Thus, a nation’s economic policy making is guided by national self-interest
alone.
Fault lines in the bipartisan support for a liberal trade policy started appearing with
dwindling manufacturing jobs in core industries like metal and coal. With the advent of
Internet, even white-collar jobs in programming, back-office maintenance, digital marketing
etc. began to move offshore. The standard economic theory says that a country should
specialize in those industries in which it is relatively more efficient. If jobs are migrating from
USA to foreign countries, USA should insist on liberalization of trade and services in which it
has distinct comparative advantage. In fact, the US supremacy on technology front is beyond
doubt and the top 4 valuable companies in the world are technology companies of US.
Instead of capitalizing on the country’s strength in scientific and technological innovation and
making outstanding products out of them, the present Republican President is bent on leading
the country to a black hole.
But should we blame the present President as an ignoramus of the complexities of
international trade theory and barking up the wrong tree by assuming that high tariff per se
would be a remedy for loss of competitiveness of some of the US industries? I believe not. He
is, in fact, in good company of some of the doyens of economic theorists of 20 th century. Let us
take the example of John Maynard Keynes, who after Adam Smith and David Ricardo can be
considered as the most influential British economic thinker of the last century.
Keynes was an ardent advocate of free trade so long as his own country was the
dominant economic power of the world. But as the British economy started to falter with
rising domestic unemployment Keynes reversed his stand. While analyzing Keynes’ views on
protectionism, Barry Eichengreen has this to say : “Keynes repeatedly reversed his public
position on the advisability of protection, and it has been difficult to portray the sequence of
seemingly contradictory recommendations as a logical progression of thoughts”. Of course,
Eichengreen tried to salvage the reputation of Keynes as an economic theorist and policy
adviser by saying that Keynes views about protection was “surprisingly consistent” if we
consider them in the light of his view on what the paramount goal of economic policy should
be. And that goal is maintenance of full employment of his nation. Why an economist should
only seek full employment in his or her country when the same policy might generate severe
unemployment in other countries? Schumpeter has rightly argued that policy advices given
by Keynes could be seen as “always English advice, born of English problems even when
addressed to other nations”
In 1933 Keynes gave the inaugural Finlay Lecture titled “National Self-Sufficiency” at
Dublin. The lecture was delivered in the backdrop of rising protectionism of the Irish Free
State- then a British Dominion. To a large extent the rise of Irish protectionism was due to
imposition of penal import duties on Irish agricultural imports in 1932. Thus, the choice of the
lecture topic by Keynes was a deliberate one. He knew that he had to tread a fine line between
the interests of his own country and that of another neighboring country- the country hosting
his lecture. While not rejecting outright the rationales that he had espoused in defense of free
trade, he came to justify some of the protectionism measures of the Irish Free State with the
following words:
[46]
 It is my central contention that there is no prospect for the next generation of a uniformity of
economic system throughout the world, such as existed, broadly speaking, during the nineteenth
century; that we all need to be as free as possible of interference from economic changes elsewhere, in
order to make our own favourite experiments towards the ideal social Republic of the future; and that a
deliberate movement towards a greater national self-sufficiency and economic isolation will make our
task easier, in so far as it can be accomplished without excessive economic cost.
Thus, Keynes was apparently justified to change his earlier position on Free Trade
because, in his opinion, the uniformity of economic system prevailing in 19th century had
changed. But, in reality, what had changed was the loss of uniformity brought about by the
suzerainty exercised by the British Empire on the world at large. Today, USA is in the similar
position. We are yet to know whether this repetition of history will end in tragedy or farce.

References:

 Archibald Robert B et al (2000): Effective rates of protection and the Fordney-

McCumber and Smoot-Hawley Tariff Acts: comments and revised estimates: in
Applied Economics No 9
 Eichengreen, Barry (1984): Keynes and protection in the Journal of Economic History,
No2
 Keynes John Maynard (1933): National Self-sufficiency in Studies: An Irish Quarterly
Review, No 86
 Schumpeter, J. A. (1946): John Maynard Keynes in American Economic Review, Issue
No 4

[47]
 Adequacy of Reserve and Economic Capital
Framework for RBI

How much forex reserve should RBI have? How much capital should RBI have? One
simple answer to both these questions is : “it depends’. The obvious follow-up question is – it
depends on what? And there is the rub. Is it given for a central bank to “die, to sleep – to
sleep, perchance to dream” of a tranquil crisis free state of economy when reserves are a
luxury, a framework for economic capital for all contingent situations can be worked out.
Politicians always seek simple solutions to complex problems. In today’s world, most of the
national economies are highly interconnected and are subject to “butterfly effect”. When flap
of wing of a butterfly in Mexico engenders a hurricane in China, we call it a “butterfly effect”.
The mathematical discipline, called Chaos Theory, that deals with such complex inter-
connected non-linear systems, is based on the assumption that such systems are inherently
unpredictable. There is thus neither any theoretical nor any empirical basis to expect that a
central bank like RBI can predict with a certain measure of uncertainty the capital required to
tide over any severe shock in next one or two year.
It is even debatable whether the concept of economic capital is applicable to a central
bank. The economic capital of a firm is the amount of capital that would be required by the
firm to remain solvent. The capital adequacy norm for a bank is a regulatory requirement
towards that effect. The central banks, however, are not banks in ordinary sense. Although a
central bank does function like a bank for government and banks, it is also an integral part of
sovereign so far as it has unlimited power to issue risk free liabilities in its own currency. This
prerogative of a central bank enables it to become the lender of last resort. Since, theoretically,
a central bank can work with even negative capital, it is difficult to work out a threshold level
of minimum capital that a central bank would require to remain solvent. Some recent
evidences prove this point.
In January 2015, the Swiss National Bank abandoned its pegged currency regime and
allowed Swiss franc to float. Resulting appreciation in EUR/CHF rate led to a massive loss in
SNB’s foreign currency portfolio. The bank’s estimated loss of CHF41 billion in the following
3 months’ period till March 2015 came to be about 6.5% of Swiss GDP.
Another example of a technically insolvent central bank is the Czech National Bank
(CNB). CNB was operating, at the end of 2007, with an accumulated loss of CZK200 billion,
which formed 57% of the central bank currency in circulation and 6.7% of the country’s
nominal GDP. The bank’s own negative capital stood at CZK 176 billion.
The following graph shows that even for emerging countries, some central banks
continued to function even after registering negative capital for extended periods.

[48]
 Even the Federal Reserve of USA registered a steep dip in its capital
capital-to asset ratio – 0.77%
at the end of 2013 from 3.54% at the end of 2006, the year preceding the onset of global
financial crisis. It is nobody’s argument that the capital requirement of Fed can be a
benchmark for any other central bank, as US dollar is the primar
primary y reserve currency of the
world. However, the fact remains that even for Fed, resolution of a crisis is much more
important than maintaining any debatable target capital adequacy ratio of a central bank.

Since the main component of RBI’s capital is its res

reserve,
erve, search for an optimal capital
adequacy ratio for RBI would boil down to a search for adequacy of its reserve. To a large
extent the asset counterpart of RBI’s reserve (on the liability side) is its Foreign Exchange
Reserve. In my earlier blog post I have provided the relevant numbers for RBI (See below).. In
this article, I want to dwell on the IMF framework for assessment of FOREX reserve of a
central bank.

While building the framework, IMF’s main emphasis has been on the “key distinguishing
characteristic of reserves- their availability and liquidity for potential balance of payment needs”
(emphasis original). The global financial crisis has woken up all central banks, including those
of advanced countries, to the critical role that availability of re reserve
serve plays in maintaining
financial stability of a country. The IMF study has noted that most eemerging
merging market countries
have “accumulated
accumulated more reserves in recent years than suggested by standard rules of thumb, with the
median coverage ratio among EMs being around six months of imports, 200 percent of short
short-term
term debt,
and 30 percent of broad money in 2009”. ”. Analyzing the costs and benefits of reserves under
macro-economic
economic scenarios, IMF has worked out a new metric to assess adequacy of reserve.
The metricic for emerging market economies comprises four components
components- export income, broad
money, short-term
term debt and other liabilities. Computed reserve adequacy, based on this
metric, for selected countries including India shows that India is not an outlier in te terms
rms of
forex reserve it is currently holding.
[49]
 Finally, we hope that search for an optimal capital adequacy framework for the RBI
would not turn out to be an exercise in futility. Let it not be: a tale / Told by an idiot, full of
sound and fury, /Signifying nothing.

Table: Actual Forex Reserve maintained as percentage of required

Year RUSSIA BRAZIL INDIA INDONESIA KOREA CHINA

2010 179% 129% 175% 94% 118% 197%

2011 174% 156% 159% 144% 117% 175%

2012 163% 159% 143% 90% 112% 160%

2013 151% 159% 144% 123% 114% 155%

2014 225% 155% 151% 126% 118% 137%

2015 264% 192% 156% 122% 124% 120%

2016 248% 165% 155% 128% 121% 106%

2017 265% 162% 159% 128% 106% 97%

Source: http://www.imf.org/external/datamapper/ARA/index.html

Table: Balance Sheet of Federal Reserve of USA

Source: Carpenter, Seth et. Al; The Federal Bank’s Balance Sheet and Earnings: A Primer and
Projections,, International Journal of Central Banking March 2015

IMF: Assessing Reserve Adequacy February 2011

[50]
 Reserve Bank without its Reserve

This is not the best of times for an economist to don the mantle of the governorship of the
Reserve Bank of India. Whether it is the worst of the times- that only future can tell. Be that as
it may, the public spat between the political executive and RBI management needs an
objective assessment of their respective positions. Whether RBI needs relative autonomy is an
issue that can be debated “ad nauseam” but the facts need to be marshalled and evaluated
before the central bank gets pilloried on the altar of political expediency.
The issues in dispute are quite clear. Firstly, as per the estimation of the central
government, RBI’s reserves are way above the prudential level that is required to be
maintained in accordance with the international best practices. The sovereign, being the
owner, has legitimate claim on the excess reserve which must be transferred to the
government on demand. It is rightly argued that a central bank has two primary sources of
income, namely seigniorage and a tax on the banking system. The authority to collect
seigniorage and tax revenue always rests with the sovereign. RBI earns these incomes only as
an agent of the sovereign. Other incomes of a central bank, at least most of them, are returns
on investments made out of these two incomes.
The second issue clearly falls within the statutory remit of RBI. In 2002, RBI introduced a
supervisory framework called Prompt Corrective Action (PCA). Under PCA, RBI has
identified three parameters, namely capital to risk weighted assets ratio (CRAR), net non-
performing assets (NPA) and return on assets (ROA) and has specified certain thresholds for
each of them. RBI can initiate, at its discretion, punitive action against any commercial bank,
found in breach of these thresholds. A bank under PCA faces severe restriction on sanctioning
of new credit to borrowers below certain rating grades. Today 11 public sector banks are
under PCA. RBI has also tightened the extant rule for classification of NPA. In 2001, RBI had
allowed certain relaxation in classification norm for loans under corporate debt restructuring
mechanism. This forbearance was withdrawn with effect from April, 2015. Through another
circular issued in February 2018, RBI has made it mandatory to initiate a resolution plan for
stressed asset as soon as a loan gets classified as NPA. There has been huge outcry from
corporate borrowers as well the government demanding relaxation of the stringent norms
specified in this circular. It has been argued that RBI’s rigid approach is starving the real
sector of much needed credit.
Let us first take up the issue of transfer of fund from RBI reserves to government. Any
transfer would entail a corresponding sale of asset. As on June 30, 2018, 73% of RBI’s assets
were held in foreign currencies. Sale of domestic assets would immediately suck liquidity out
of the market, putting upward pressure on yield- obviously not an outcome desired by the
government. So, the only option available to RBI is to sell foreign assets. RBI’s foreign assets
are recorded in two separate books of account, namely that of issue department and banking
department. The foreign assets recorded in the book of issue department are maintained as
backing of RBI’s monetary liability. A dilution of this backing would severely undermine
people’s trust in Indian currency. So, it can be safely presumed that the government would
expect reserve fund transfer by sale of foreign assets of the banking department. As on June
30, 2018, the foreign assets of the banking department stood at around 8 trillion INR or 117

[51]
billion USD. How large is this reserve? The following table gives various indicators of a
reserve’s adequacy.

Table 1: Adequacy of Foreign Exchange Reserve of RBI

Sr. No Particulars 2016-17 2017-18
Forex asset of Banking department of
1 9320 7984
RBI (in billion INR)
2 The amount at 1 in billion USD* 144 117
Banking Departments Forex asset as% of
3 163.7% 114.2%
Short term external debt
Banking Departments Forex asset as% of
4 0.04% 0.03%
Yearly Import
5 RBI Balance sheet size (in billion INR) 33040.94 36175.94
6 RBI BS in billion USD 511.31 528.89
7 External liabilities (billion USD) 905 1037.3
8 6 as % of 7 56% 51%
9 RBI BS to Indian GDP 22.5% 20.3%

 RBI balances are as on June 30.

 Using June 30 exchange rate.

It is apparent from the above data that the discretionary component of RBI’s foreign
exchange assets has registered a significant decline during the accounting year 2017-18. The
coverage of India’s short –term external debt by RBI’s discretionary foreign assets has also
declined significantly during 2016-17. At the end of December 2017, the banking
department’s forex asset formed only 53.9% of India’s external liability on account of portfolio
investment. The portfolio investment is very sensitive to the interest rate changes in USA, as
it affects risk adjusted dollar rate of return on investment. High redemption of portfolio
investment would put pressure on USD-INR rate and RBI has to ensure a smooth and
calibrated movement in the exchange rate. Given the declared policy stance of US FED, RBI
can ill afford to be complacent about the adequacy of its foreign exchange reserve held by the
banking department. Thus, any liquidation of RBI’s foreign exchange assets to finance
transfer of fund to the government would be a criminal dereliction of fiduciary duty that RBI
is entrusted with.
As regards adequacy of capital of central banks, it would be wrong to compare a central
bank with commercial banks. For a commercial bank, the capital is the last buffer between
solvency and insolvency, absorbing losses as they occur. For a central bank, this is ruled out
by its definition. As long as the domestic public is ready to hold central bank currency, there is
no outside limit to a central bank’s power to create domestic liquidity. The recent
“quantitative easing” policy of US FED and some other OECD countries is a testimony to this
power of central banks. However, a central bank has no inherent power to create foreign
currency liquidity. A central bank of an emerging market economy like India needs to build
up foreign exchange reserve to assure foreign lenders/investors about the capability of the
[52]
bank to defend the value of central bank currency. Although “central banks need not have
capital nor even positive net worth to function in a technical sense”, loss of trust in central
banks may lead to hyperinflation and downgrading of country rating. Central banks of many
advanced countries maintain very little capital, despite having a very strong balance sheet.
Since these countries are financially strong enough to borrow in their own currencies
internationally, there are no economic compulsions for the central banks of these countries to
maintain a high capital to asset ratio. But for emerging market economies external currency
risk can be a binding constraint on a central bank’s ability to maintain stability of the financial
sector.
The following tables provide a cross-country perspective about how central banks of
other emerging countries are managing their balance sheet in regards to its size and currency
composition.
Net Foreign Assets of Central Bank as % of Central Bank Asset Size as
Total Assets of Central Bank % of GDP at market price
Country 2016 2017 2018 June 2016 2017
Indonesia 75.0% 76.0% 73.5% 16.4% 16.7%
Korea 72.2% 65.6% 66.6% 29.3% 27.2%
Malaysia 90.4% 91.4% 36.6% 33.6%
Mexico 92.5% 89.6% 94.1% 19.5% 17.4%
Brazil 41.3% 39.9% 42.9% 45.7% 46.8%
China 99.3% 99.2% 99.5% 0.3% 0.3%
Thailand 89.5% 86.4% 84.8% 46.3% 47.6%
Russian
72.7% 73.2% 75.1% 35.7% 36.2%
Federation
South Africa 77.7% 78.3% 78.8% 18.0% 16.1%

Based on above data, it would be difficult to argue that RBI is pursuing an overtly
conservative policy in regard to managing its balance sheet size and composition. For a
country like India, where the commercial banking sector is largely owned and controlled by
the government, capital adequacy of a central bank alone is of little consequence. If both the
central bank and public sector banks are owned by the government, then capital adequacy
needs to be assessed at the consolidated level rather than at stand-alone level. In the absence
of such a consolidated balance sheet we can look at a surrogate measure namely, capital
adequacy at the consolidated banking sector level. The BIS data, given below, in this regard is
quite revealing.

[53]
 Total Equity (Asset-Liability) of the
Country
banking sector data as on June 2018
India 0.52%
UK 6.97%
USA 12.00%
France 6.35%
Germany 6.59%
Italy 8.15%
Ireland 8.46%
Canada 6.27%
Turkey 11.32%
Spain 7.96%
Australia 7.20%

It is obvious that Indian banking sector is lagging way behind the banking sector of
developed countries in respect of capital adequacy. In fact, the government must be made to
understand that undercapitalization and not over capitalization is the bane of the Indian
banking sector. Any debate on optimal economic capital for RBI would be an exercise in
futility unless the broader problem of undercapitalization of the government owned
commercial banks is addressed.
As regards the second issue of adoption of PCA framework and a revised stress asset
resolution framework by RBI and its stringent implementation by RBI, it can be argued that
regulatory forbearance cannot be discretionary otherwise it would lead to a chaotic and
arbitrary regulatory regime. If dues on a loan are not paid in time, there is a 90-day window
available to the lender as well as the borrower to prevent the loan being classified as NPA. To
ask RBI to be flexible about the period, this 90-day period would be a travesty of regulatory
rule making. A rule becomes rule only when it is enforced. Any deviation must also be
specified and allowed under the rule itself. A regulator would turn out to be a toothless tiger
if it makes rules and then allows it to be broken by regulated entities as they please.
Although it is too early to say whether a future Dickens will describe the current time as
the “age of wisdom” or “age of foolishness”, central banking in India today stands at a
historical cross-road. Either it will carry the can to the darkness of ignominy or it will uphold
the high standard of professional integrity that is expected from an Institution created for this
purpose.

[54]
 Indo-Pacific Economic Framework : A Surrogate NATO
for South and East Asian Countries?

To understand the driver of the Indo-Pacific Economic Framework (IPEF) that has been
launched on 24 May by 13 countries of South-East Asia including 4 members of the QUAD
group and most of the ASEAN countries, we need to understand the interplay of regional and
global aspirations of and challenges faced by these countries.
The first quarter of the present century has seen a quantum leap in humanity’s progress
in science and technology creating the possibility of bringing an end to the childhood of
humanity. Possibility but not certainty. On the contrary, a more than even chance is emerging
about a nuclear armageddon bringing an end to human civilization as we know now. The
9/11 terror attack, financial crisis of 2007-08, America’s war on terror and its exit from
Afghanistan, disproportionate impact of COVID-19 pandemic on developed countries and
now Ukraine war- all these are pointers to an irreconcilable conflict of interests among nation
states of today which can be resolved only in a theater of war and destruction. Globally, there
are two conflicting intertwined players- a declining but still globally dominant power, both
economically and technologically, and a rising power with the ability to challenge the
dominant one on both these fronts.
The genesis of IPEF can be traced back to a 2018 document – declassified in January 2021-
on Indo-Pacific Strategic Framework prepared by the United States National Security Council
(USNSC). The foremost security challenge faced by the USA, as identified by the USNSS, is :
“How to maintain US strategic primacy in the Indo-Pacific region and promote a liberal
economic order while preventing China from establishing new, illiberal spheres of influence,
and cultivating areas of cooperation to promote regional peace and prosperity?”.
The document emphasizes the threat posed by China’s rise as a technology superpower.
“China seeks to dominate cutting-edge technologies, including Artificial Intelligence and Bio-
genetics, and harness them in the service of authoritarianism. Chinese dominance in these
technologies would pose profound challenges to free societies.”
This 2018 strategy document also underpins India’s pivotal role in containing as well as
counterbalancing China’s aggressive posture in Indo-Pacific region. The document is quite
candid about USA’s objective in regard to India-
“Accelerate India’s rise and capacity to serve as a net provider of security and Major Defense
Partner; solidify an enduring strategic partnership with India, underpinned by a strong Indian military
able to effectively collaborate with the United States”
The Indo-Pacific Strategy document issued on February 2022 by US government
espouses the same line of thought articulated by 2018 document. The word “economic” is
added to provide a veneer of creating a trading block, as it was envisaged in the Trans-Pacific
Partnership Agreement (TPP). TPP did not take off as US Senate failed to ratify it. Being a
trade agreement, ratification by congress was a necessity. By making IPEF a framework
document, a kind of declaration of intent, it should be possible to avoid the requirement of
any legislative approval by all signatories. The word Economic is also slightly problematic
since there are already two agreements for facilitating trades among countries of this region.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a
free trade agreement (FTA) among 11countries including Canada, Chile, Mexico and Peru.

[55]
The CPTPP was concluded on 23 January 2018 in Tokyo, Japan and signed on 8 March 2018 in
Santiago, Chile. Regional Comprehensive Economic Partnership Agreement (RCEP) is another
free trade agreement between ASEAN countries and Australia, China, Japan, Korea and New
Zealand. India was a member of drafting committee of RCEP but eventually did not join it
because it would put India in a disadvantageous situation vis-à-vis China in a free trade
regime. It is interesting to note that 3 ASEAN countries having close relationships with China,
namely Cambodia, Laos and Myanmar were kept away from IPEF.
Four areas of cooperation have been identified in the joint statement issued by the 11
signatory countries to IPEF. In each of them it is difficult to see convergence of interest of all
signatory countries. For example, let us consider Clean Energy, Decarbonization, and
Infrastructure component of IPEF. Although India is a signatory to the Paris agreement that
requires all countries to achieve net-zero carbon emission by 2050, Indian prime minister
promised to cut its emissions to net zero by 2070 only. China has committed to reach net zero
status by 2060 while US and EU have committed to reach the target by 2050. India’s
overriding national interest of poverty eradication by maintaining its growth momentum over
a longer time will not allow it to toe its de-carbonization policies to that of developed
countries who are already enjoying a lifestyle and contributing to a much higher per capita
carbon emission than is the case with India.
As regards the Trade component of the framework, the declarative statements are as
general as possible. Out of 13 participating countries in IPEF framework, only USA and India
are not part of another regional free trade agreement, Regional Comprehensive Economic
Partnership or RCEP. China is a member of RCEP trade block. India was a member of RCEP
drafting committee since the committee began its work in 2011 and just before signing date of
the agreement, in November 2019, it opted out. As a result, India would be out of two existing
trade blocks that cover almost all the important counties of the region- RCEP and CPPTP. So,
it is difficult to envisage what new terms and conditions IPEF will bring in to assuage India’s
concerns.
As regards the Supply Chain component of IPEF, the statement says:” ensure access to key
raw and processed materials, semiconductors, critical minerals, and clean energy technology”.
Among the manufactured products only “semiconductors” is mentioned. The most important
omission is Artificial Intelligence related products which represent the cutting edge
technologies of today.
To conclude, on the high table of the 13 signatory countries of IPEF, USA is bringing
nothing substantial to offer. It is more of taker than a giver. IPEF may turn out to be more of a
hubris of a declining power.

https://www.un.org/en/climatechange/paris-agreement

Published on June 22, 2022

[56]
 Tale of Two Manifestos

Election manifestos of political parties are always taken with a fistful of salts. These are
supposed to be pledges, a draft social contract between electorates and the prospective elected
representatives. These pledges are generally observed but in breaches. So hardly anybody
reads them carefully, let alone carry out a symptomatic reading as prescribed by the Marxist
scholar Claude Levi-Strauss.
However, it may be of some value to subject these manifestos to a pejorative exercise, if
not for anything but fun. In that vein I carried out a word count analysis of the 2014 election
manifestos of the two main contending parties- Congress and BJP. And the result speaks for
itself. The words selected are clearly subjective and so are their categorizations. The numbers
in the tables below and in the charts are the number of occurrences of the chosen words in the
respective manifestos.
Category of words No of words Congress BJP
Social Justice 3 122 70
Economic justice 7 38 42
Social harmony 2 11 2
economic efficiency 10 82 132
Economic growth 8 121 135
Governance 3 41 61
Sectarian appeal 6 7 39
Education 2 60 60
Total 41 482 541

Words where BJP

Scores
heritage
culture
economy
BJP
industry
Congress
technology
governance

0 20 40 60

[57]
 Words where
Congress Scores
inclusive

farmer

reform
BJP
growth
Congress
women

right

0 50 100

Full Table
Category Word Congress BJP Difference
Economic justice inclusive 15 3 12
Economic justice poor 8 9 -1
Economic justice poverty 7 13 -6
Economic justice price 4 9 -5
Economic justice inflation 2 7 -5
Economic justice wage 2 1 1
Economic justice inequality 0 0 0
Economic efficiency reform 33 22 11
Economic efficiency tax 15 13 2
Economic efficiency technology 9 57 -48
Economic efficiency competitive 7 10 -3
Economic efficiency economy 7 18 -11
Economic efficiency productivity 3 7 -4
Economic efficiency current account 2 3 -1
Economic efficiency competition 2 0 2
Economic efficiency fiscal deficit 2 2 0
Economic efficiency economic reform 2 0 2
Economic growth growth 49 33 16
Economic growth farmer 20 9 11
Economic growth employment 17 13 4
Economic growth agriculture 13 20 -7

[58]
Economic growth business 10 17 -7
Economic growth industry 8 30 -22
Economic growth trade 4 13 -9
Economic growth unemployment 0 0 0
Education education 55 58 -3
Education higher education 5 2 3
Governance corruption 15 13 2
Governance delivery 14 14 0
Governance governance 12 34 -22
Sectarian appeal minority 4 3 1
Sectarian appeal culture 2 20 -18
Sectarian appeal heritage 1 13 -12
Sectarian appeal temple 0 1 -1
Sectarian appeal Hindu 0 1 -1
Sectarian appeal Muslim 0 1 -1
Social harmony communal 6 2 4
Social harmony secular 5 0 5
Social Justice right 58 22 36
Social Justice women 57 37 20
Social Justice empowerment 7 11 -4

[59]
 Technology and State

Two unrelated events hogged the headlines in the last month. On 22 nd February Amazon
became the third most valuable company in the world, overtaking Microsoft. On 25 th February
the official news agency Xinhua announced that the ruling communist party is proposing to
remove the constitutional provision of “no more than two consecutive terms" for the country’s
President and Vice-president. This would pave the way for the incumbent president to
continue in the helm of power indefinitely.
The first event is a precursor of the future shape of the world economy while the second
one is a forewarning of demise of liberal democracy as we understand today. These two
events are also interrelated in the sense that their future trajectories will determine the
denouement of the wrestling match that goes on between market power and state power.
Let us first have a closer look of the import of the first event. The Fortune magazine
publishes a list of top 500 companies in the world, ranked by their revenues. Financial Times
publishes a list of 500 top world companies ranked by their market capitalization. The latest
Fortune data pertains to the year 2016 while market capitalization data is up to date as of 31 st
December 2017. For understanding the trend, the time gap between two datasets has no
bearing.

Top 10 Companies by Revenue and by Market capitalization:

Top Ten by Industry Top Ten by revenues Industry
market
capitalization
(M-Cap)
Apple Technology Walmart Retail
Alphabet Technology State Grid Electric utility
Microsoft Technology Sinopeck Group Petro Chemical
Amazon.com Technology Retailer China National Oil & Gas
Petroleum
Facebook Technology Toyota Motor Car
Tencent Technology Volkswagen Car
Berkshire Conglomerate Royal Dutch Shell Energy &
Hathaway Petro-Chemical
Alibaba Group Technology Retailer Berkshire Hathaway Conglomerate
Johnson & Pharma Manufacturing Apple Technology
Johnson
J P Morgan Banking and Financial Exxon Mobil Oil & Gas
Chase services

The most interesting feature of the above two rankings is that while still infrastructure
and manufacturing industries dominate the top rung of the current corporate behemoths, the
future potential behemoths are growing up in the technology sector. M-Cap is an indicator of
market’s prediction of future growth potential of a company. Amazon’s price-to-earnings
[60]
ratio, a measure of how expensive a stock is in comparison to its current period earning, is 323
as compared to average ratio of only 22 for S&P 500 companies.
Ignoring Berkshire, which is essentially a conglomerate, the only non-technology firm
appearing in the top ten companies by M-Cap is JPMorgan, a financial service company. So,
the market is predicting that the future of market economy lies with companies which are
technology driven, technology enabled and most importantly innovation focused. On the
contrary, the top companies ranked by currents revenues are enjoying benefits of their access
to natural resources protected by concession arrangements with the state. So, these companies
have to work in close cooperation with the states giving concessions. Managing the states is
critical to their existence and profitability. This is in sharp contrast of the business model
followed by the emerging giants. These technology companies are creating an ecosystem of
production of goods and services that are beyond the control of the geographically bounded
nation states. In fact, these companies have much better understanding and access to actions
and thoughts of the citizen of a state, particularly its younger ones than the any nation state
has. Facebook was more aware of any Russian meddling of US election, if any, than FBI could
possibly have. Today, Google has much more information about its Indian users than the
Indian Federal Government can ever have, Aadhaar notwithstanding. In 2017, 46.8% of the
global population accessed the internet and by 2020 this figure is projected to grow to 53.7%.
It is obvious that this growth will benefit much more technology companies than utility, retail
and infrastructure companies. We cannot expect exponential growth of companies which are
organically linked with exploitation of natural resources.
These technology companies are gradually increasing their footprints beyond their
original areas of operations. One study forecasts that the combined market share of Apple,
Samsung, and Google (via Android Pay) is expected to reach a user base exceeding 500
million for mobile contactless payments by 2021. Amazon has started its lending business by
offering to fund its suppliers. China’s e-commerce giants including Alibaba, Tencent and
others are now running a lending portfolio over $12 billion. Apple owned US Treasury bonds
($52.6 billion) by the end of July 2017 and ranked 23rd in the list of US Treasury bond holders
ahead of Netherlands and Turkey. These technology companies may gradually cut out
intermediaries like banks and insurance companies by using Artificial Intelligence and
Blockchain technology. Since data is the fuel of 21st century, the owners of data will have more
power than any nation state.
How this development is related to the China’s decision to consolidate power of state in a
monarchial coterie formed around the current incumbent?
The Chinese communist party has been able to put the country on a sustained high
growth trajectory in the last three decades. The country is expected to become the world’s
largest economy by 2030. China has used foreign capital and technology liberally in creating
its manufacturing base. A World Bank report of 2010 mentioned that “China received about
20 percent of all FDI to developing countries over the last 10 years and over $100 billion in
2008. In terms of share of GDP and investment, FDI accounted for some 2.5 percent of GDP
on average over the last five years”. While welcoming FDI, Chinese ruling dispensation did
not allow domestic private capital to capture the “commanding height” of the economy. 9 out
of top 10 Chinese companies appearing in The Forbes 2000 list of 2017 are all state owned. If
China has to establish its position as the first among equals in the international distribution of
power, it cannot afford to destabilize its own internal economic system built under the watch
of party and the state. Till now, USA has been benign bystander, if not an active facilitator, of
China’s rise as a global economic power. It was expected that economic growth and
[61]
prosperity along with greater integration with world economy would slowly but steadily chip
away the ideological foundation of the present Chinese political system. But this expectation
of US policy makers has been belied. After disintegration of Soviet Russia, the world is
witnessing, not the rise of liberal democracy, but rise of two dictatorial regimes under two
most focused men who want their nations to occupy the high table of international power
structure.
So, we have, on the one hand, two authoritarian states (China and Russia) that carry the
legacy of failed communism and, on the other hand, we have technology giants who are not
fettered to any nation state nor bound by any geography. David Ignatius, associate editor of
Washington Post wrote in an op-ed piece that “China is racing to capture the commanding
heights of technology and trade.” The forces that will confront China are not the usual
suspects- USA, UK or European Union states. This time the war will be fought in cyber space
for capturing data about and of the people and the technology companies will have to fight
for withering away of states as we know it now. We may recall that Marx desired withering
away of states as the final goal of communism. In that sense these privately owned technology
companies, rather ironically, would stand for one of the goals of communism as against the
ex-communist regimes will stoutly defend the right of nation states. To put it in the words of
one author : “the last battle will be between communists and ex-communists.”

(http://money.cnn.com/2018/02/22/news/companies/amazon-stock/index.html)
22nd February
https://edition.cnn.com/2018/02/26/asia/china-xi-jinping-president-intl/index.html
February 25 China announced
https://www.smartinsights.com/search-engine-marketing/search-engine-statistics/

http://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-investment-
china-story
https://www.forbes.com/global2000/list/#country:China
https://bankinnovation.net/2017/04/apple-pay-users-to-double-in-2017/
https://next.autonomous.com/thoughts/amazon-and-bank-of-america

http://www.debate.org/opinions/will-china-become-the-next-superpower
https://www.washingtonpost.com/opinions/china-has-a-plan-to-rule-the-
world/2017/11/28/214299aa-d472-11e7-a986-
d0a9770d9a3e_story.html?utm_term=.8f1a6a784f42

[62]
 Artificial Intelligence : India versus China

“Communism is Soviet power plus the electrification of the whole country”, Lenin1
“Artificial Intelligence is the New Electricity”, Andrew Ng, former Baidu chief scientist2
“The Artificial intelligence is the future, not only for Russia, but for all humankind. It comes with
colossal opportunities, but also threats that are difficult to predict. Whoever becomes the leader in this
sphere will become the ruler of the world,” Russian President Vladimir Putin in a conversation
with school students on 1st September 2017 3
---------------------------------------------------------------------

A search for the words “Artificial Intelligence” on Google gave a result of 790 million
(27th July 2021). At the same time the words “Human Intelligence” produced a result count of
695 million. It is no wonder that nations and their leaders are embracing “Artificial
Intelligence” as this century’s most promising technology that would not only redefine
“algorithms of power” (Savage 2020) but also the future trajectory of human civilization. It is
almost certain that in this century the AI will drive not only driver-less cars but also every
aspect of human life including its procreations.
Given the potential of AI to act as a force multiplier in any military operations, many
nation states are formulating strategies and roadmap to build AI capabilities. According to
The Artificial Intelligence Index Report 2021 of Stanford University, after publication of the first
such national strategy in 2017 by Canada, 30 countries have brought out such national
strategy documents. The race for AI took off when China announced its most ambitious and
comprehensive plan in its July 2017 document - A Next Generation Artificial Intelligence
Development Plan(AIDP). India, China’s neighbor, and a potential competitor in global power
play brought out its own plan in its June 2018 document National Strategy for Artificial
Intelligence #AI for ALL. This article looks into the published strategies of these two countries,
its implementation and progress so far.

Artificial Intelligence and its Promise

Intelligence, by definition, is the ability to process information and take decision
accordingly. The brains of human beings are supposed to be the biologically developed most
complex mechanism in this respect. With the invention of calculating devices and its
maturation to modern computer, it is now in the realm of possibility of creating a machine
that can match the information processing capability of human brain. Alan Turing, the
celebrated British mathematician and computer scientist popularized the term ‘Thinking
Machine’. In his 1950 paper, ‘Computing Machinery and Intelligence’4 , Turing used the word
‘Thinking’ in a very restricted sense-- the ability of a computer to enter into a conversation
with a human being as any other human would do. This suggests that Turing’s interest was in
creation of Artificial General Intelligence (AGI). The machine HAL of Arthur C Clarke’s
classic science fiction is an example of AGI.
None of the national AI strategies published so far deals with AGI. Automation of many
human activities, which are critically data dependent is the main goal of these strategies. Data
that needs to be processed could be anything- numerical, textual, image etc. This goal of
automation must be differentiated from the goal of AGI, which is to impart autonomy to
machines. However, as the technology driving AI matures, it is any body’s guess whether any
nation state would venture into building machines with AGI capability.
[63]
China’s AI Strategy:
China’s AI strategy stands out not only its comprehensiveness but also in its laying down
of milestones to be achieved in a specified timeframe. Amongst a long list of strategic
objectives outlined in the document, two stands out for its clarity. Firstly, the country would
like to “seize the strategic initiative in the new stage of international competition in AI
development”. Secondly, AI’s role would be to – “grasp group cognition and psychological
changes in a timely manner; and take the initiative in decision-making and reactions—which
will significantly elevate the capability and level of social governance, playing an irreplaceable
role in effectively maintaining social stability”. Shorn of rhetoric, AI is being looked upon as a
futuristic tool of mass surveillance and mass compliance with an authority.
The AIDP document lays down the following three milestones:
 By 2020, China will achieve significant progress in areas of “big data
intelligence, cross-medium intelligence, swarm intelligence, hybrid enhanced
intelligence, and autonomous intelligence systems”
 By 2025, AI with” autonomous learning ability” will be created and the
Chinese AI industry will enter “the global value chain.” AI will be used to build
“intelligent manufacturing, intelligent medicine, intelligent city, intelligent
agriculture, national defence construction.” The turnover of AI’s core industry will be
more than 400 billion RMB (approx. 62 billion USD) and that of related industries will
exceed 5 trillion RMB (approx. 773 billion USD)
 By 2030, China will become the world’s primary AI innovation centre in the
areas of “brain-inspired intelligence, autonomous intelligence, hybrid intelligence,
swarm intelligence” and related areas. The core AI Industry will have a turnover of
155 billion USD and that of all related industries will exceed 1.5 trillion USD.
One interesting aspect of the Chinese AI strategy is its espousal of “market dominant “as
one of its basic principles. This principle is amplified in the statement - “Follow the rules of
the market”. This makes it obvious that the China’s strategy is aimed to attain a dominant
position in the world AI market. Thus, “commercialization of AI technology” and creation of
“competitive advantage” are stated goals of China’s AI strategy.

India’s AI strategy
The suffix #AIforAll to the national AI strategy document presumably defines India’s
“own brand of AI leadership”. The purported aim of the strategy is to “leverage AI for economic
growth, social development and inclusive growth, and finally as a “Garage” for emerging and
developing economies” (italics and underling are mine).

India’s AI strategy is premised on a framework adapted to the needs of the country. The
framework comprised of three inter-related components. These are:
a) Opportunity: the economic impact of AI for India
b) AI for Greater Good: social development and inclusive growth
c) AI Garage for 40% of the world: solution provider of choice for the emerging and
developing economies (e.g., China) across the globe (highlighted by me)

The strategy document identifies five areas for AI intervention. These are: Healthcare,
Agriculture, Education, Smart Cities and Infrastructure, Smart Mobility and Transportation.
Interestingly, ‘manufacturing' does not find a mention here. The strategy document identifies
[64]
six challenges that the country faces in adoption of AI in all sectors of the economy including
the five focus areas. The top three challenges are: lack of organized and exploitable big data
for AI to work upon; low intensity of research, particularly in core areas of theory and
fundamental technologies; and lack of sufficient AI expertise and skilling opportunities.

To meet these challenges, the strategy document has identified four areas that require
government intervention. These are : Research and Application; Re-skilling and Training,
Accelerating adoption of AI and Responsible AI development.
Some of the key recommendations are :
 Setting up Centre of Research Excellence for AI (COREs)
 Setting up of International Centres for Transformational AI (ICTAIs)
 Setting up AI Research, Analytics and knowledge Assimilation platform
(AIRAWAT)
 Building an attractive IP regime for AI innovation
 Opening up of government datasets
 Instituting a data privacy legal framework

One of the key features of the Indian national strategy document is the absence of any
milestones with timelines for achieving them. There is no paragraph with the heading of
“Objectives” or “Goals”. The term #AIforAll sounds nice but lacks substance. AI is a
foundational technology and a country as big as India must address the issue of taking
leadership in this foundational technology. Using AI to develop applications that meet the
needs of people at large and those at the bottom of the social pyramid in particular is a
laudable goal and its overarching importance cannot be minimized. But to achieve that what
specific actions are to be taken in what timeline is underplayed in the whole document. India
has always been talent supplier to the global technology leaders and this strategy document’s
aim to become the world’s “garage” would only reinforce that trend.

Implementation of Strategy
Oxford Insights, a London-based advisory company, helps governments on how artificial
intelligence can transform public sector administration. It has been bringing out a
Government AI Readiness Index since 2018. The Index ranks governments around the world
according to their readiness to implement AI in the delivery of public services to their citizens.
The latest 2020 Index is based on 33 indicators, grouped into 10 broad categories. The United
States of America came out at the top of 172 countries ranked in 2020. China and India were
ranked at 19 and 43 positions respectively. China scored much lower in Data and
Infrastructure category (52) because of normalization of indicator values by population size.
But in the Technology category its global rank jumps to 11. Similarly, the rank of India in the
Technology category improves to 29.
Stanford University’s Institute for Human-Centered Artificial Intelligence (HAI) has also
been publishing an AI Index report for the last four years. The report looks at AI related
performance of various countries in seven areas - Research & Development, Technical
Performance, Economy, AI Education, Ethical challenges of AI application, Diversity in AI
and AI Policy and National Strategies. One of the important findings of the 2021 report is that
China now leads in journal citations of AI papers. The table 1 below taken from the data
provided by HAI on peer reviewed AI research outputs is revealing. It clearly shows that

[65]
China is gradually emerging as the main challenger to USA in AI research and development
area.
An analysis of number of AI-related articles published in the 82 high-quality natural-
science journals carried out in the science journal Nature found that China moved up from
fourth position to the second position between 2015 and 2019. Data culled out from Web of
Science database also corroborates China’s growing high quality research outputs. It is true, as
Jeffrey Ding points out, “mere number of papers unless translated into high quality products
will have no real impact on the economy and society in general” (Savage 2020).
Going beyond research outputs, the absorption and assimilation of AI in production
sector would be the real test of a country’s AI maturity and strength. In the manufacturing
sector, artificial intelligence and robotics, in collaboration with new technology like 3D
printing is creating a unique system of “mass production” but customized to meet individual
customer’s preferences. AI is allowing to build collaborative robots. These robots can work
with humans directly. This is different from earlier industrial robots which were isolated from
human contact.
Countries which have installed sufficient number of industrial robots can leverage AI to
revolutionize manufacturing process. Thus, one good indicator of a country’s AI maturity
would be robot density which is defined by the International Federation of Robotics (IFR) as
“the number of operational industrial robots” per 10K employees in the manufacturing sector.
According to the latest IFR’s World Robotics statistics China ranks 15 th worldwide while USA
is placed at 8th position. The estimated robot density for the countries are 187 and 228
respectively. In terms of absolute number of installations, India reported a total 26 thousand
as against 0.78 million of China5.
Another relevant comparison between India and China in regard to development of AI
powered products would be in the area of natural language processing and speech
recognition. As large number of research outputs coming out of the developed countries are in
English language, it would be in the interest of both the countries to leverage AI for
conversion of text and voice from a foreign language to a local language. Even locally, for
India, this would be extremely beneficial. New York Times (Dec 3 ,2017), reported how iFlyTek,
a Chinese artificial intelligence company flawlessly translated the speech that Donald Trump
was delivering in English in real times to Mandarin, largely maintaining the features of
speaker’s voices, such as tone and intonation. The report also stated that even back in 2017,
the company’s technology could monitor a car full of people or a crowded room, identify a
targeted individual’s voice and record everything that person says,” 6 No such comparable
product has been developed by any Indian company so far.
Finally, the success of a country’s AI strategy would depend on its allocation of resources
for research and development. In this respect China is gradually closing its gap with the
world leader USA while India remains far behind (See Table 3 below). The result of such
massive investment is gradually bearing fruit. The number of AI startups in China is
currently estimated at 1,5137. In the backdrop of the US ban on Huawei, the company has
started developing its own OS, Harmony so that its mobile devices can switch to it from
Android. Cambricon, a state-backed semiconductor and AI chip specialist is working to make
China self-sufficient in core electronic components of smart devices 8. It is obvious that China’s
long-term goal is to become self-sufficient in AI driven devises. When that inflection point
arrives, Jac Ma’s warning will become a reality : This is the third technology revolution — we’re
coming.9

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Table 1: Scaled data on comparative performance in terms of research outputs of 3 countries
Year Country Journal Citation of AI Patent AI Patents
Paper Journal Paper Paper Citation
2015 India 21.35 11.48 1.87 1.35
2016 India 33.56 13.53 2.36 1.53
2017 India 31.02 9.30 2.02 1.33
2018 India 28.51 13.25 2.48 1.89
2019 India 22.38 13.80 2.49 2.30
2020 India 23.16 18.68 2.59 3.61

2015 China 100.00 51.65 9.58 6.81

2016 China 94.92 71.03 12.17 10.93
2017 China 100.00 50.76 23.39 18.25
2018 China 100.00 80.41 22.84 16.01
2019 China 100.00 89.54 17.73 13.09
2020 China 100.00 100.00 13.98 23.97
Note: All numbers are scaled so as to between 1 and 100. The actual numbers are first
normalized by transforming them as per capita. 100 implies it is the maximum among the 26
countries covered in this computation.

Table 2: No of highest cited articles

No of Articles in top 5% in terms no of citations
Year USA China India
2016 30 51 3
2017 55 75 1
2018 77 81 0
2019 73 136 2
2020 38 153 12
Source: Web of Science citation database

Table 3: Expenditure on R &D as % of GDP (Billion US$ PPP)

Country R%D R&D Exp as % Per Capita Year of
Expenditure of GDP R*D Exp Data
(PPP USD
Billion, )
USA 612.74 3.1 1,866 2019
China 514.798 2.2 368 3019
India 58.691 0.65 43 2018
Source:
https://en.wikipedia.org/wiki/List_of_countries_by_research_and_development_spending

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End Note:
1. see http://soviethistory.msu.edu/1921-2/electrification-campaign/communism-is-soviet-
power-electrification-of-the-whole-country/
2. https://www.gsb.stanford.edu/insights/andrew-ng-why-ai-new-electricity
3. Whoever leads in artificial intelligence in 2030 will rule the world until 2100
(brookings.edu)
4. https://academic.oup.com/mind/article/LIX/236/433/986238
5. https://ifr.org/ifr-press-releases/news/record-2.7-million-robots-work-in-factories-
around-the-globe
6. https://www.nytimes.com/2017/12/03/business/china-artificial-intelligence.html
7. https://tracxn.com/explore/Artificial-Intelligence-Startups-in-China
8. https://www.monigroup.com/article/meet-chinas-5-biggest-ai-companies
9. https://www.cnbc.com/2019/01/23/alibaba-jack-ma-suggests-technology-could-result-in-
a-new-world-war.html

References
1. Savage, Neil (2020) Learning the algorithms of power Nature | Vol 588 | 10 December
2. Government AI Readiness Index 2020: https://www.oxfordinsights.com/government-ai-
readiness-index-2020
3. Artificial Intelligence Index Report 2021: https://aiindex.stanford.edu/wp-
content/uploads/2021/03/2021-AI-Index-Report_Master.pdf
4. Full Translation: China's 'New Generation Artificial Intelligence Development Plan' (2017):
https://www.newamerica.org/cybersecurity-initiative/digichina/blog/full-translation-
chinas-new-generation-artificial-intelligence-development-plan-2017/
5. NitiAyog( 2018): National Strategy for Artificial Intelligence: #AI forALL

6. https://www.weforum.org/agenda/2018/09/the-top-5-chinese-ai-companies/

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 A Tale of Two Companies : BYD and Tata Motors

China is generally seen as mass producers of cheap but low-quality products. While
spectacular Chinese economic growth in last three decades is unrivalled in history, many
believe, at least in India, that India with its large pool of entrepreneurs and its democratic
political set up would beat China in the superpower race. We forget that Japan also started as
manufacturer of low-quality goods but it could gradually transform itself into a first world
economic power by constant upgradation of its technological base through process and
product innovation. With a singular determination to capture the developed, particularly US
market in sectors like automobile, and electronic consumer goods, Japan could progress from
producer of shoddy and cheap goods to high quality and high technology products.
Indian corporate sector may not realize that China is gradually treading the same path
while we remain intoxicated with the compliments that we receive from advanced
democracies about our democratic credentials. A group of young and extremely ambitious
entrepreneurs are gradually emerging in China and they are ready to give Indian
entrepreneurs a run for their money. What is most important is to note that they are mastering
greenfield technology and are preparing to carve out new markets for their products. A new
power emerges always as a disruptive force, doing things in ways that was not thought of
earlier. The difference between the winner and loser in this power game will lie more in the
attitudes of entrepreneurs of these two Asian emerging powers. This tale of two motor
companies gives an inkling of the shape of things to come.

Build Your Dreams (BYD) : As the name suggests, the man behind BYD is a dreamer.
BYD was started by Wang Chuan Fu in 1995. He was 29 and began with USD300, 000 and 20
employees. He was producing batteries for all kinds of electronic gadgets. As the Chinese
electronics market boomed so did BYD. By 2003, BYD had more than 100 thousand
employees. And then Wang showed his most adventurous side of his entrepreneurial self. He
decided to manufacture Electric Car. He bought out a struggling Chinese car manufacturer
and started building Electric Cars with the battery technology that BYD has mastered. For an
Electric Car it is the battery that makes or unmakes it. Wang could not be surer, about the
technical quality of his battery, than about anything else. BYD built F3DM, an electric variant
of China’s best-selling Sedan, at a street price of only USD 22K. It has a range of 330Km and its
battery can be fully charged within 1hour flat. Wang got ultimate endorsement of his
business model when Warren Buffet took 10% stake in BYD for USD232 million.
BYD is now planning to enter the US market, the most demanding automobile market in
the world. In April 2010, the company opened a R&D centre and a sales office in Los Angeles.
A company spokesperson has clearly laid out its ambitious game plan : “We hope to be a top-
three manufacturer in China by the end of the year and the world's largest manufacturer by
2025.” The audacity of this vision reflects the truly animal spirit that is driving Wang and his
team.
The most interesting drive of this strategy has been lucidly explained by Wang himself.
According to him – “It's almost hopeless for a latecomer like us to compete with GM and
other established automakers with a century of experience in gasoline engines… With electric
vehicles, we're all at the same starting line”

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 Now let us examine the vision that is driving a 65 years old Indian automobile company
– Tata Motors- that is already a US$20 billion company. It is India’s largest automobile
company and leader in the commercial vehicle segment. Let us see its vision and strategy.
To increase its global presence, the company has embarked on an acquiring spree.
Through acquisition, Tata has operations in the UK, South Korea, Thailand and Spain. It has
acquired brands like Jaguar Land Rover, a struggling subsidiary of Ford, Daweoo Commercial
Vehicle Company, another failed company, in South Korea, a Spanish bus making company
etc. In terms of its global footprints Tata Motors is now truly an Indian multinational.
However, when it comes to technology, Tata Motors does not have much to show about.
The company claims that it believes in technology of tomorrow.
The company reportedly spends 2% of its turnover on R&D. But the list of achievements
on technology front given on the company’s website is silent about any breakthrough that the
company might have made. In fact, the areas that the company has proclaimed to be actively
engaged in, are very traditional and nowhere near technology of 21st century.

Thus, these two companies are following two completely different strategies to become a
dominant player in the global automobile market. While the Chinese company is fixated to
capture the most advanced part of the global market on the strength of new and disruptive
technology, the Indian company is trying to grow by acquiring existing companies based in
middle tier countries. Most of these acquired companies cannot be said to be active on the
frontier of technology and might not be ideal vehicle to capture the US market. The BYD is a
dreamer and may succeed in realizing its apparently impossible dream. But, Tata will always
remain a follower, with no dream to chase, no mountain to scale.

[70]
 Two IT Giants : TCS and Microsoft

TCS, the granddaddy of the Indian software company is an immensely successful

software company, clocking almost 6 billion USD in operating revenue in the financial year
ending 31st March 2009. With 142 offices spread over 42 countries and a workforce of over
143,000, TCS has truly emerged as an Indian multinational.
Starting as the computer division (Tata Computer Centre) of the Tata Group in the year
1968, TCS was initially established to provide computing services to other Tata Group
companies. F. C. Kohli, known as the father of the Indian software industry, was appointed
the first general manager of TCS. Under his dynamic leadership, TCS grew from a 10 –person
service division of the group to a software giant with 100K employees by 1999, when he
retired. TCS became a listed public limited company in August 2004, thereby unlocking a
huge value for its parent, The Tata Sons.
The global journey of TCS started with the first contract it received from Burroughs to
write software codes for the Burroughs machines for several US-based clients. Thereafter, TCS
bagged an order from a US company to maintain and upgrade its computer systems in a data
center for US banks. This service orientation of TCS has continued to define its business
model. The company’s website also proclaims that it is an IT service, business solutions, and
outsourcing organization.
From routine code writing and maintenance jobs, TCS has outgrown to build complex
systems for many international customers. In 1989, TCS delivered a very large complex
depository and trading system for a Switzerland-based organization. It was then considered
one of the most complex systems delivered by an Indian company. The system X that TCS
built for the Canadian Depository for Securities (CDS) is deemed to be one of "the most
complex systems infrastructure projects in the history of Canadian capital markets", according
to the CEO of CDS.
TCS has also been a pioneer among Indian software companies in establishing dedicated
research centers. In 1981, TCS set up India's first software research and development center,
the Tata Research Development and Design Center (TRDDC). TRDDC undertakes research in
Software Engineering, Process Engineering, and Systems Research.
The outcomes of the research effort of TRDDC are quite modest. The Center developed
an innovative code generator product called MasterCraft. This artificial intelligence software
can automatically create code from a simple computer language and rewrite the code based
on the user's needs. A quick perusal of the list of solutions developed by TRDDC does not
suggest that the Center has been able to build a good portfolio of innovative products that
have gained some market recognition. It may be interesting to recall that ICP (International
Computer Programs, Inc.) established its Million Dollar Awards Program way back in 1971 to
recognize successful software products with more than a million dollars in sales revenue. In
the year itself, ICP counted 29 such products. I wonder how many such products TCS has
built in its four decades of existence.
Despite its obvious mastery of software engineering and capability to build a large and
complex system, TCS generates most of its revenue from services and not from product
licenses. Its revenue from licenses is less than 4% of its total revenue. The fact is that TCS is
capable of creating very good software products. The company built a product called Case

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Packet, a case engineering tool that commanded a price of 200K USD in the 1980s. But the
company could not create a marketing strategy and ultimately Computer Associates
purchased it.
If one peruses the TCS website one finds hardly any mention of any software product
that has significant market recognition apart from its core banking product which was
acquired from an Australian company. In fact, it is not known how many new clients the
company has added in the international arena after the acquisition. We should also note that
TCS built its own banking software way back in the 1980s. In fact, during the 1970s TCS had
bagged the country's first software project, the Inter-Branch Reconciliation System (IBRS) for
the Central Bank of India. Despite this exposure to the banking domain, the company could
not leverage it and build its own Core banking solution.
We need to ask why a four-decade-old company with an excellent track record in
delivering quality services to large international clients could not develop a single product of
international standing. Before we seek the answer to the question let us look at another
company that started a little later than TCS in another country with a different DNA in its
origin.
Microsoft was founded on April 4, 1975, by Paul Allen and Bill Gates; two friends, who
had co-written a programming language for the Altair hobby-kit personal computer, and
license it to the makers of the Altair. This programming language called BASIC is the first
Microsoft product. It should be noted that BASIC itself was invented in 1964.
In 1979, IBM was looking for operating system software for its forthcoming PC, so it
approached Microsoft. Microsoft bought QDOS (Quick and Dirty Operating System) from its
developer for $50,000 and repackaged it as MS-DOS for IBM PC.
In 1983, Microsoft introduced its word processing software. In 1985, they gave the world
Windows operating system. In 1986, Microsoft went public and Microsoft Office was
launched in 1989. Thereafter, came Windows 1995 and Internet Explorer. And the journey
continued through Windows XP, Windows Vista, and now Windows 7.
Notwithstanding this impressive record of creating software products, critics,
particularly those belonging to an open-source group do not consider Microsoft as the
originator or innovator of the products that it so successfully builds and markets. As a former
VP of the company recently said in a New York Times opinion page, Microsoft is no longer
considered the cool or cutting-edge place to work.
But this may be true for many successful IT companies including Google. There is no
doubt that the search engine developed by Google is one of the most game-changing
applications developed in the annals of the computer industry, as it has made Internet integral
to the very survival of at least the most creative segment of mankind. But beyond the search
engine, many other products that Google is bringing to the market are largely based on
original innovations carried out by start-up companies. So often made criticism of Microsoft –
see the following quote- can be held against many other companies including IBM, which is
surely one company that has carried out cutting-edge research in many areas of information
technology.
I selected what I perceive to be Microsoft’s key products, and I found that none of them are
fundamentally innovative either; they’re simply re-implementations of existing products
Identifying commercial prospects of an innovative idea and creating a successful
commercial product out of such innovative ideas also require huge research efforts. Microsoft,
for example, spends almost 20% of its profit on R&D. In 2009, its R&D spending was around 9
billion USD, not a small change.
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 The point I am making is that there is no dearth of innovative ideas and many small
start-ups are struggling to bring these ideas to the marketplace. Apple did not invent music
downloads, either MP3 players or mobile phones. But iPod, iTunes, and iPhone have been a
runaway success. But the assimilation of brilliant ideas, and packaging it innovatively is not as
easy as it appears. Otherwise, we would have many Apples jostling around.
It is not my contention that every software company must be present in the product
space. In fact, IDC estimates that out of 1.5 trillion dollars of worldwide IT spending,
packaged software accounted for only 21% while IT services accounted for 41%. So, if TCS
consciously remained away from the product space to concentrate on IT services, criticism
could not be held against them. But in that space also TCS is not that big. For example, EDS
which was taken over by HP in 2008, is purely a service company like TCS. It provides a range
of information technology and business process outsourcing services worldwide. In 2006 it
reported revenue of 21 billion USD and a gross profit of 2.7 billion USD. So globally TCS is
still a much smaller entity in its chosen area of operation.
To understand the reason for all Indian software service companies, remaining relatively
second-rung players, we need to understand the software services value chains. In any
customized development or system integration project, the first activity is to create a business
requirement document, followed by a system specification document. Once the specifications
are in place the coders or developers get going on the basis of these specifications. According
to Ashish Arora, Indian firms do not “participate in the early stages of conceptualization and
high-level design. In addition to software code writing, Indian firms also carry out testing,
except for acceptance testing, which the client or the final customer carries out. There are very
few instances where an Indian software firm has been entrusted with requirement
specification” (See his NBER working paper, no 7260. [1]). Since the cream lies in the first two
stages, Indian firms get slotted in the lower end of the value chain.
American companies like EDS or CSC are able to participate in the higher end of the
value chain because of their deep understanding of the business processes of the end users
and their proximity to the end users.
We should also note one crucial difference between US-based companies and their
Indian counterparts. Most of the US product companies developed their products while
developing customized software for US government agencies like the Census Bureau, which
were early adopters of large computer systems to analyze huge amounts of data they were
collecting and analyzing. US defense establishments had also huge requirements for a
sophisticated computing environment. Obviously, US companies bagged these opportunities
and developed their skill in building large and highly complex computer-mediated systems.
The Indian government agencies did not provide the same opportunities to Indian software
companies.
The business environment in India was not particularly conducive because of the
dirigiste policy regime of India till the early 1990s. So, in defense of TCS, we must say that the
local environment did not allow them to develop the needed domain expertise to go up the
value chain. Let us take for example the case of the BFSI sector which accounts for a very large
share of TCS revenue. The Indian banking sector is dominated by Public Sector banks. Most of
these banks do not have a well-articulated IT strategy and vision. The IT departments are
poorly manned and engaged only in floating a standardized RFP and selecting the lowest-
priced vendor through a competitive bidding process. Because of a lack of proper expertise,
they cannot take up large and complex projects in collaboration with some Indian firms. Thus,
Indian firms do not have the incentive to acquire the deep domain knowledge required for
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moving up the value chain of software development lifecycles. As a result, firms like TCS
remain confined to the lower end of the value chain despite having the best software
engineers in the world. Many multinational software product vendors including Microsoft,
Oracle, SAP, and Google have established their development centers in India and are
developing cutting-edge products using Indian talents. But our own software companies
remain satisfied with establishing large practices based on products created by these
multinationals. Our competitive advantage of low wage costs may not remain for the long
term. If the softness of the Indian software industry continues in its present form, firms like
TCS will never get a seat at the high table of the world software industry. One Microsoft may
be overtaken by a Google but not by an Indian TCS.

Published on my earlier Blog on 19th April 2010

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 Data Localization : Mercantilism in a Networked World

The mercantilist school of thought that dominated the political economy of western
countries between sixteenth to late eighteenth century is having a revival with the world’s
largest economy adopting protectionist policies. Although Adam Smith and David Ricardo
had convincingly argued two and half centuries ago that international free trade is a positive
and not a zero-sum game as mercantilists argued, protectionist trade policies are getting better
acceptance with the general public and policy makers. It was expected that in the age of
internet, mercantilist ideas would be considered anachronistic and would lose their relevance,
at least in respect of digital assets. As internet virtually integrates the entire world, creation of
national boundaries around free-flow of information in the name of national interest would
sound like application of idea of mercantilism in a digital world. This article argues that
India’s data localization policy should be considered as an example of such “digital
mercantilism”.
Data is considered to be the most valuable asset of the 21 st century. Today the companies
with the highest market capitalization in the world are those which are primarily engaged in
data crunching. The business of Google, Uber and Amazon would come to a standstill if they
could not access, process, and analyze data across time and geographies. Once nation-states
realize that the most valuable assets of their citizens and territories are available for
commercial exploitation freely, clamor for protection of these assets naturally arises. As
individual citizens are rightful owners of their “personal data”, its exploitation without the
consent of the concerned persons is a serious infringement of privacy of the person. The
European Union (EU) has been in the forefront of creating a stringent legislative framework to
protect the “personal data” of its “data subjects”. The EU’s General Data Protection
Regulation (GDPR) is the most comprehensive regulation enacted so far by any competent
authority anywhere. But the overarching requirement of privacy protection does not
necessarily imply that all data originating within a nation’s jurisdiction are to be considered as
national assets. If “data subjects” are given national tags, it follows that nations-states would
consider it within their right to create barriers to cross-border data flow. The recent “data
localization” policy of various Indian regulators needs to be analyzed from this perspective.
The term “data localization” is meaningful and relevant mainly in regard to data flow
over the Internet, which is a network of computing devices without any single point of failure
and consequent enabling of universal communication capability between all nodes. The
internet service providers are not expected to control and be aware of what data flows
through internet. Data localization, in essence, is a negation of this architectural construct of
Internet. There are two forms of data localization. The first one localizes storage of data. It
means that internet service providers must store data originating in a nation-state within the
territorial boundary of that nation-state. The second form of data localization policy stipulates
that routing of data packets must be confined within the country specific network. This form
of localization is also called localized data routing. This is the most restrictive localization
policy. Countries adopting data localization policy mostly adopt the first form of data
localization. Chander and Le have identified following variants of this form of localization
policy:
 preventing information from being sent outside the country

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  rules requiring prior consent of the data subject before information is transmitted
across national borders
 rules requiring copies of information to be stored domestically
 a tax on the export of data
Many countries are adopting data localization policies because of their genuine concern
about the disproportionate capability of USA to access the respective country’s sensitive data
on national security. Such data are available on data stores of Internet Service Providers (ISP),
many of which are located outside the national boundaries of the respective countries. The
Snowden episode confirmed the existence of a nexus, probably forced, between US security
establishment and US technology firms including Google and Yahoo, allowing access to data
held by these ISPs. Following Snowden revelations, the German Interior Minister declared
that, “whoever fears their communication is being intercepted in any way should use services
that don't go through American servers.” The concerned ministers of France and Brazil
unequivocally lent their support to data localization policy. It is beyond doubt that one of the
important factors of data localization policy of non-US countries is their desire to minimize
“their comparative disadvantage in Internet data hosting” vis-à-vis US and “their comparative
disadvantage in Internet signals intelligence”. Thus, data localization policy is being adopted
by countries cutting across political regimes as a comprehensive review by Chander and Le
shows. 14 countries studied by them are: - Australia, Brazil, Canada, EU, France, China,
Germany, Indonesia, Malaysia, Nigeria, Russia, South Korea and Vietnam, besides India.
Accepting that above concerns of national governments are legitimate and requires to be
addressed by the proponents of open and neutral Internet, a more informed and rigorous
analysis is required to evaluate costs and benefits of data localization policy. It must be stated
to the credit of the US technology giants that they are more eager to uphold the sanctity of
Internet than succumbing to the narrow national interest of US governments. For example,
Microsoft, Google, Apple, Facebook and other technology firms successfully fought U.S.
government in court “to gain legal authority to provide the public greater detail on the
information the U.S. government collects from them”. Many companies are taking steps to
diversify their data center locations to escape stranglehold of US intelligence agencies.
Tying data to territorial boundary, also termed as “Data Sovereignty”, is a natural
extension of the concept of sovereignty to the virtual world. Sovereignty connotes supreme
authority ‘within a territory’. The term authority refers to, in the words of philosopher R.P.
Wolff, “the right to command and correlatively the right to be obeyed”. In a modern
democracy this authority is derived from a set of principles, objectives, practices and code of
conducts called Constitution. “Data Sovereignty” means that this supreme authority can be
enforced on data originating within the territory and /or pertaining to the people subjected to
this authority. But despite their best efforts, the modern nation states have not been able to
quarantine their national data in their entirety. This diminishing effect to a sovereign’s
authority over data of their citizen is the driving factor of data localization policies of different
countries. Even a country specific domain name like www.abc.co.in does not indicate the
physical location of the server which hosts the website and provides information or services.
Thus, Internet is indifferent to physical location of computing devices comprising the
cyberspace. So, defining “Data Sovereignty” in terms of territorial authority is a non sequitur.
Recognizing the futility of transcribing laws enacted for and bounded by physical space
to cyberspace, Johnson and Post has called for “distinct laws” for this virtual space. For
example, how do we apply anti-trust laws to companies which operate only on cyberspace?
The landline-based telecom companies fought to restrict Internet based voice call (VOIP) but
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failed miserably. Digital currencies are being resisted by all central banks but there is no doubt
that in the long run the central banks have to fall in line and adopt some form of central bank
digital currency. Applicability or otherwise of country specific copyright laws to the
cyberspace is another example of distinctive nature of cyberspace. A subscription-based
access to copyrighted contents on Internet has materially changed the consumers of these
contents and its producers, resulting significant benefit to consumers in terms of reduced cost.
Internet works on routing of messages. This works on Domain Names identification and
resolution of address within a domain. Today there are about 330 million domains. Even if a
sovereign authority blocks access of its citizens to some domains, new domains can be created
within no time to bypass such blocking. China is reported to have created the most restrictive
firewall for access to Internet by its citizens. This might have helped in creating some of the
world’s largest Internet enterprises like Baidu, Tencent and Alibaba. But it might also prove to
be the greatest hurdle to realization of China’s dream of becoming the world’s dominant
superpower. It is doubtful whether world population at large would like to share the fate of
Chinese citizen – described as “world's biggest prison for netizens."
The hypothesis that data localization would prevent a foreign government’s ability to
snoop on sensitive personal data of citizen of a nation-state is not borne out by some recent
cyber-attacks, allegedly orchestrated by foreign governments. The alleged Russian
interference in USA presidential election shows that in a networked world the security of data
is not enhanced by creating physical access barriers to such data. The recent example of
malware driven data hacking of Core Banking System of Cosmos bank of India is an example
of the false assurance that location provides guarantee that data would be secure. It has been
reported that NSA of USA has “even scaled the Great Firewall of China”. Thus, data
localization does not serve its primary purpose.
From a technological point of view, data localization is not a very efficient solution for
running any cloud-based application. A massively large database must be partitioned and
stored in distributed databases. Today one type of partitioning known as “sharding” is
followed by most large databases. Sharding breaks down very large databases into smaller
databases to manage data retrieval very fast. Even a single record can be sharded into smaller
parts. Database sharding allows maintaining very large data in less expensive commodity
servers. A cloud-based application cannot scale up if it maintains large databases in one place.
The cost of maintaining data can increase exponentially because such large database would
require high-end computers.

RBI’s data localization policy

RBI in a circular dated 6th April 2018, instructed all payment system providers “to ensure
that the entire data relating to payment systems operated by them are stored in a system only
in India. This data should include the full end-to-end transaction details / information
collected / carried / processed as part of the message / payment instruction. For the foreign
leg of the transaction, if any, the data can also be stored in the foreign country, if required”.
RBI’s data localization policy is driven by its intention to get unfettered access to
payments data originating in India for surveillance purpose. RBI argues that such access is an
absolute necessity for effective detection and prevention of any money laundering activity.
The purported reason for requiring data storage ‘only in India’ is that, in the event of any
conflict with the country hosting Indian payment data of a service provider, Indian regulator
may be prevented from accessing such data.

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 Although such an eventuality cannot be ruled out, in today’s interconnected world no
country can unilaterally deny access to payment data pertaining to citizens of another
country. Many countries including India now share financial and taxation data with other
countries through bilateral or multilateral agreements. For example, India has signed bilateral
agreement with US Tax authority to identify, document, and report U.S. accounts to comply
with the U.S. Foreign Account Tax Compliance Act known as FATCA. OECD countries are
signing similar financial data sharing agreements amongst themselves and with other non-
OECD countries under the Automatic Exchange of Information (AEoI) initiative of G20
countries. Obviously, such sharing cannot be a one way traffic. India being a member of G20
can direct the payment service providers to store data with such countries with which it has
such data sharing agreement. If such an agreement is made on reciprocal basis, outright denial
of access to India’s own payment data can be of remote possibility. India can mandate
payment service provider to share all cross-border transactions with RBI through a FATCA
type agreement with the host country storing Indian payment data.
As regards money-laundering and terrorist financing, India is a member of the Financial
Action Task Force (FATF) and has implemented its recommendations. Data localization is not
a recommendation of this international body. Additionally, a government can enter into
Mutual Legal Assistance Treaties (“MLATs”) with other countries to access data stored in
another jurisdiction but needed for its own lawful investigative purposes.

Data sans Frontier

The ubiquitous effort towards data localization by nation-states is a reflection of deep
insecurity that is afflicting them in a networked world. Realization is yet to dawn on them that
the rules of games have changed forever with the introduction of a radically different
communication and workflow management architecture – that is Internet- that encompasses
the entire world. The allurement of Mercantilism to the general public lied in its apparent
pragmatism and simplicity. It ignored the feedback effect of such a policy and long-term
consequences. The same is true of digital mercantilism that is driving the data localization
policy.
Internet was lapped up by nation-states when it appeared to be a mere new form of
message transfer. It was not understood how the new technology is going to undermine the
basis of nation-states- that is the sanctity of the national frontier. “America First” is a vacuous
and anachronistic concept when the most valuable US incorporated firms produce goods and
services in multiple territories cutting across various national boundaries.
Let me conclude by referring to the reactions of policy makers when Galileo introduced
his telescope to the policy makers. A senator in the Bretolt Brecht’s drama “Galileo”
exclaimed- “the contraption lets you see too much. I'll have to tell my women they can't take
baths on the roof any longer". Galileo then attacked their myopic attitude saying: "These
people think they're getting a lucrative plaything, but it's a lot more than that". I am afraid
that our policy makers are no better than these senators of Galileo’s time.

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References:
 Castro Daniel(2013) The False Promise of Data Nationalism paper published by The
Information Technology & Innovation Foundation (ITIF)
 Drake William J (2016) Data Localization and Barriers to Transborder Data Flows:
Background Paper for World Economic Forum conference
(http://www3.weforum.org/
docs/Background_Paper_Forum_workshop%2009.2016.pdf)
 Hill Jonah Force (2014): The Growth of Data Localization post Snowden: Analysis and
Recommendations for US Policymakers and Industry Leaders in Lawfare Research
Paper series, July 2014
 Selby John (2017): Data localization laws: trade barriers or legitimate responses to
cyber security risks, or both? in International Journal of Law and Information
Technology, 2017
 (https://eugdpr.org/)
 (https://en.wikipedia.org/wiki/Edward_Snowden)
 https://plato.stanford.edu/entries/sovereignty/

[79]
 Google’s Exit and Free Internet

Google’s much expected exit from China has brought to the fore the extremely important
issue of free flow of information and knowledge cutting across national boundaries. The real
reason for Google’s exit is beside the point.
Some Chinese online papers have accused Google of ulterior political motives in effecting
this exit at this particular moment. There could be a grain of truth in this. We should
remember that Google entered China with a written commitment to abide by the Chinese
laws about internet filtering. It is not that Google does not practice self-censorship when local
situation so demands. The Peoples’ Daily Online (http://english.people.com.cn/90001/
90776/ 90883/ 6928336.html ) has thus pointed out
Meanwhile, Google is also continuing to censor search results in other countries. In 2002,
the company admitted deleting more than 100 controversial sites from its listings on its French
and German services. A study by Harvard University discovered the websites were deemed
anti-Semitic, pro-Nazi or related to white supremacy, while a fundamentalist Christian site
that adamantly opposed abortion was also removed.
"To avoid legal liability, we remove sites from Google.de search results pages that may
conflict with German law," said a Google spokesman in response to the Harvard report. He
indicated each site that was delisted came after a specific complaint from a foreign
government.
It has been reported that Googles exit coincided with a major speech on Internet freedom
given by US secretary of state, Hilary Clinton at Washington DC’s Newseum. She called
national censorship of internet akin to creating an “Information Curtain”, not unlike Iron
Curtain of cold war era. She declared that - the US government will take a worldwide stand
for a "single Internet" and will oppose the efforts of China, Tunisia, Uzbekistan, Vietnam,
Egypt, Iran, Saudi Arabia to impose censorship, detain bloggers, block Twitter, and cut off
social networking sites.
This spat between Google and China must also be viewed against the backdrop of
growing rift over between China and Obama administration over China’s exchange rate
policy. Incidentally, Google was a big backer of Obama during his election campaign.
Ms. Clinton also had referred to Roosevelt’s Four Freedoms : freedom of speech, freedom
to practice religion of one’s choice, freedom from hunger and, lastly, freedom from fear. We
may not be very off the mark if we say every country including USA has tried whenever it
suits them to circumscribe the sphere of freedom whenever it suited them. Throughout the
world, dictatorships have been promoted, propped up or even imposed by many votaries of
such freedoms.
But two wrongs do not make a right. China’s official reactions to Google’s exit itself show
that China is somewhat defensive about the whole episode. The kind of vehemence that one
would expect is not there. If a c country blocks pornographic or similar sites one cannot take
any objection to that. Although what constitutes obscenity or pornographic is a huge matter of
debate. But when a country blocks all sites criticizing its internal policies it betrays the
insecurity of the rulers. Whatever may be the immediate provocation or trigger for Google’s
decision, it does exemplify the ability of a company to defy a nation state when its services are
available on virtual and not geographical space. This is an important and humbling lesson for

[80]
all sovereign states which in pre-internet era could create a Chinese wall around its citizens.
The sovereign states could decide what its citizens would read, write and communicate with
each other within and without the geographical space of the nation state. The cyber space
provides an escape route that cannot be so easily closed by sovereign states. This is the
dilemma that China is now facing.
The main threat to Chinese regime is not from Google or similar search engines. The
main threat is from social networking sites like Facebook, etc. These sites allow people across
countries to form community in the cyberspace. The sovereign state can neither prevent such
formation nor can discipline them. It is not true that communities currently operating on such
social networking sites are transcending national boundaries. The national, social and
communal prejudices may be providing common ground for formation of communities at this
stage. But technology is only creating the opportunity to transcend these prejudices. And this
is definitely going to happen. As we have seen during the recent Iranian post-election turmoil,
twitter became an important outlet for Iranian protestors to communicate with international
community.
Google’s exit is a pointer to the coming battle for ideas and occupation of people’s
mindshare that will be fought in the Cyberspace. The outcome of this battle will determine
whether mankind will evolve to a higher species or will be condemned to live in an
evolutionary cul-de-sac. We are at the cross-roads of Childhood’s End (Arthur C Clarke)

Written on my earlier Blog on 26th March, 2010

[81]
 M-Pesa Revolution in Kenya

Mobile technology is gradually emerging as the most disruptive technology since

invention of personal computers in 1980s. Its potential use goes much beyond its person-to-
person communication capability. Kenya is showing how mobile technology can revolutionize
retail payment system.
Safaricom, owned jointly by Kenyan Government and Vodafone, is the dominant mobile
operator of Kenya with 79% market share. Like in India, the mobile penetration (34%) is much
higher than banked population (17%) - as of 2006. Given the high level of urbanization in
Kenya (41%), extent of urban to rural remittances are very high. Sensing a business
opportunity, Safaricom introduced a mobile based money transfer system called M-pesa in
2007. In two years it had 6.5mn registered customers and 10000 agents spread across the
country. The menu of services offered on this platform has widened substantially and M-pesa
has become the dominant payment mechanism for small retail payments.
The system works like this. An M-pesa customer first registers with an M-pesa retail
agent who is a franchisee of a superagent or aggregators. Aggregators are generally big
airtime retailers of Safaricom. Registration requires identification, not difficult in Kenya as
there is a system of national identification card for most of the citizen. A registered customer
is given an individual electronic money account that is linked to her phone number and
accessible through a SIM-card resident application on her mobile phone. Customers can
withdraw cash and deposit cash to their accounts at the retail M-pesa outlets. All transactions
are authorized and recorded in real time through secure sms and capped at $500.
To deposit money, a customer goes to an agent outlet with her phone and original id and
pays cash to the agent. The agent uses his phone to send e-money to the customer’s phone and
the transaction is confirmed through a sms from M-Pesa to both the agent’s and customer’s
phone. One cannot deposit money directly to another person’s M-pesa account. To send
money to another person, not necessarily an M-pesa customer, one has to enter the recipient’s
phone number, the amount and the PIN on the M-pesa application available on the
customer’s phone. The customer receives a confirmation of transaction through a sms. The
recipient can receive the money from an M-pesa agent outlet by showing transaction number
received through sms and original id. A registered customer can withdraw money from ATM
outlets of partners of Safaricom. The customer need not have any bank account to withdraw
money from ATM.
Today M-pesa customers pay utility bills, buy goods from partner merchant outlets using
their M-pesa e-money. Bill payment is through mobile and instantaneous. Safaricom has now
introduced, in collaboration with a bank, M-Kesho which is a bank account interoperable with
the customers’ M-pesa account. Customers can transfer money from their bank account to M-
pesa account and vice-versa using their M-pesa enabled phone only. There is a limit on
amount that can be withdrawn through this facility. Other features of this account are the
availability of micro-credit and micro-insurance facilities. A person must be a registered M-
pesa customer to open this account.
Another innovative feature of M-pesa is bulk payment facility available to corporate
customers. This service enables organizations to send money to many people on their mobile.
The recipients need not be registered M-pesa customers. This is very useful for travelling

[82]
salesmen, truck operators and similarly placed people. M-pesa now allows inward transfer of
money from UK to Kenya. Any person registered with M-pesa can receive e-money through
international transfer almost instantly. For a non-M-pesa customer, the money is received in a
Western Union outlet and can be withdrawn through proper identification.
Today, Safaricom has 9 million registered M-pesa customers who account for 23% of
entire population and 40% of Kenyan adults. The company has around 17thousand retail
outlets where people can deposit or withdraw money and more than half of these are in rural
areas. The volume of retail cash transfers amounts to 10% of GDP of the country. Most of the
transactions are of small values, less than US$10 per transaction. In other words, M-pesa is
used by the people at the bottom of the pyramid, not touched by the formal banking sector.
This is real financial inclusion.
M-pesa is an example of financial service business model based on transaction and not
float dependent revenue model. Traditional banking provides payment services free to the
account holders because it generates revenue by using the float money. Since float money
from poor retail customers who want to avail of the payment services is not expected to be
large, the banks are disincentivized to bring them under banking ambit. This is the real reason
for failure of financial inclusion in India. M-pesa has shown how direct transaction fees-based
revenue model can be used to provide financial services to the poorest of the poor. Customers
of M-pesa are ready to pay for the fee which is a fixed amount. For an amount of USD20, the
fee works out to 3.6%. For larger amount it comes out significantly. For the recipient there is
no charge for the sms received.
A survey of M-pesa customers clearly points out that most of customers using M-pesa are very
happy with the service provided in terms of its speed, ease of use and convenience. It is also true that
early adopters are tech savvy young literate persons who also have bank accounts but the sheer
convenience of M-pesa make them use it extensively.
Another important factor for success of M-pesa is the regulatory backing that Safaricom received
from the beginning. The Central Bank of Kenya was involved in structuring this innovative product
from the beginning and let the innovation take root without burdening it with too much of regulatory
hurdles. In fact, once the success of M-pesa became evident, bankers in Kenya started complaining that
lack of regulation has helped M-pesa and asked for a level playing field. They opined that : “you do not
allow innovation to outsmart regulation”. Recently, MTN launched a similar service in Ghana and the
service did not take off to an expected extent because of too much of regulatory hurdles put on its way.
What is the implication of M-Pesa from monetary policy perspective? The way M-pesa is organized
now, there is very little possibility of credit creation by M-pesa agent or Safaricom itself. For this
happens only through exchange of cash or fiat money for e-money. To the extent M-pesa agents transact
among themselves to transfer e-money balances from one agent to another it operates like interbank
money market, albeit only a spatial re-allocation of availability e-money. By this process, it is a mean to
optimum allocation of cash which happen in a normal banking set-up in a very cumbersome way. To the
extent, M-Pesa increases velocity of money, it has positive impact on output and reduces the demand for
cash for precautionary motive. In fact, if the mobile operator is directly connected to the central bank
through a line of credit, if all transactions by the operator for providing e-money to its agents are strictly
monitored and made to pass through an account maintained with the central bank, the need for physical
cash to provide transactional services to economic agents can be greatly reduced. The cost of producing
and distributing physical cash is not insignificant and there is always the problem of exchange of soiled
note with new notes. A proper estimate of the total cost that any monetary system incurs for
management of physical cash would provide a clear justification for introduction of mobile money apart
from its ability to provide basic financial services to the poorest of poor.
[83]
 Who Runs the Virtual Currency Market
Distrust in fiat currency, controlled by a state, was one of the principal motivations in
designing of the Bitcoin protocol. It was designed to be a decentralized system of creation of
the new money by a transparent computational algorithm. Any person participating in the
currency’s ecosystem can run this algorithm on a computer and generate new money. It is
supposed to be a currency created by the people for the people and therefore a currency of the
people. It is a currency of the future when true democracy will prevail. [1,2,3,4]
But what is the reality? Who owns the bulk of these virtual currencies? To get an answer
to this question, I browsed through data about the distribution of these currencies amongst
the participants in this technology game. The result of this exercise is truly revealing.
Data: We have collected data from the website [5] which gives “Rich List” of some
selected 9 currencies. We collected data as on 11th April 2018. The market cap of these 9
currencies was 58.8 percent of the total market capitalization in terms of the US dollar on that
date. On the data date, the total market capitalization of virtual currencies (excluding tokens)
was 261 billion US dollars. So, one can say collected data is adequately representative of the
virtual currency ecosystem. The website has grouped data by the value of coins held against
each address. An address having, say 0.001 bitcoin (BTC), would be grouped in the bucket “0
to 1 BTC” bucket. For some cryptocurrencies, the number of coins held in an address may be
very large as their market value is much smaller as compared to that of Bitcoin. So, the
number of class intervals for coins held would be higher than a highly valued cryptocurrency
like Bitcoin. To keep the results compact we have collapsed crypto-wise class intervals into a
common 3 classes. The following table gives a summary of the distribution of value in US
dollars and number of addresses across these class intervals.

Table 1: The distribution of addresses in terms of the value of coin held and the number
of addresses for various class intervals of value of coins for each address.
Market Share of each group of Averag
Share of each group of
Cap addresses given below in e
addresses given below in total
total value of coin in USD
$Billion number of addresses Balance
against each address
Coin Name 1 -100 less 1-100
<=1 full coins More than or coins (USD)
> 100
Coin per per than 100 equal per per
coins
address addres coin to1Coi addres address
s n s
Bitcoin 130.3 4.06% 34.29% 61.70% 96.80% 3.10% 0.10% 5991
Bitoin cash 12.1 2.50% 27.60% 69.90% 97.1 2.8 0.1 737
Litecoin 6.8 0.40% 13.80% 96.70% 71.50% 27.10% 1.40% 2721
Dash 2.7 0.70% 9.40% 89.90% 82.00% 16.90% 1.20% 4094
Bitcoin
0.8 2.90% 30.10% 67.00% 97.20% 2.70% 0.10% 38
Gold
41.30
Dodgecoin 0.4 0.00% 0.00% 100.00% 16.50% 42.20% 183
%

[84]
 66.30
ReddCoin 0.1 0.00% 0.00% 100.00% 14.80% 18.90% 1317
%
14.80
Verticoin 0.1 0.00% 3.30% 96.70% 38.10% 47.10% 715
%
11.60
Peercoin 0 0.00% 1.30% 98.70% 56.40% 32.00% 934
%

It is obvious from the above table that only few addresses, each having more than 100
coins per address account for the bulk of total market capitalization of each currency. Bitcoin
which the highest market capitalization of all circulating coins is also concentrated in a small
number of addresses. The table 2 below clearly indicates how a few big market players have
completely taken over each currency market.
The US tax authorities as well as Commodity Future Trading Commission have
designated as “commodity” and not currency. From that perspective, this commodity market
is highly monopolistic and susceptible to market manipulation by few large traders. It is high
time that anti-trust authorities in the developed economies wake up to this reality and take
appropriate actions in the interest of average participant in these markets.

Table 2: The number of addresses and value held by top bracket by number of coins held
per address
Coin Name Number of Market value of coins Share of these
addresses in the held by addresses in the addresses in
highest bracket top bracket (million outstanding market
USD) value of the respective
Coin
Bitcoin 3 3292 2.50%
Bitcoin
7 954 7.86%
Cash
Litecoin 66 2776 40.67%

Dash 34 241 8.77%

Bitcoin
12 93 12.38%
Gold
Dodgecoin 16 129 31.91%
Reddcoin 3 32 21.71%

Vertcoin 3 17 17.01%
Peercoin 2 8 18.10%

(See coinmarketcap.com)

[85]
 Trading or Investing in Bitcoin is Injurious to Your
Financial Health

One of the fundamental lessons of all financial scams is that there always exists enough
number of gullible people to be conned by merchants of dream. For example, the people of
17th century Amsterdam started believing that prices of a bunch of tulip bulbs could rise to a
level higher than the value of a furnished luxury house. It also happened during the dotcom
bubble of late 1990s. Presently such a bubble is unfolding before our own eyes and the sad
part of it is that some financial sector regulators are actively encouraging formation of this
bubble in the name of financial innovation. It would be apposite here to recall the scathing
criticism that the Financial Crisis Inquiry Commission of US Congress made of the regulatory
failure leading to the sub-prime financial crisis: We conclude widespread failures in financial
regulation and supervision proved devastating to the stability of the nation’s financial markets.
U.S. financial firms CME Group and CBOE are going to launch Bitcoin futures on
December 18, followed by launch of binary options on Bitcoin by Cantor Fitzgerald. The US
regulator for futures market, Commodity Futures Trading Commission (CFTC), has allowed
introduction of these new products by these exchange platforms on the basis of self-
certification submitted by them. The Commodity Exchange Act of USA allows such exchanges
called Designated Contract Markets (DCM) to introduce new contracts by submitting a
written self-certification to the CFTC that the contract complies with the Commodity
Exchange Act (CEA) and CFTC regulations. It is the responsibility of DCMs to determine that
the offering complies with the CEA and Commission regulations.
The CFTC in its press release of 1st December has referred to the IRS characterization of
Bitcoin as a virtual “currency”. More than that, IRS has referred it as “convertible virtual
currency”. I have already explained in my earlier blog why Bitcoin cannot be called a
currency. In 2015, CFTC declared Bitcoin as a “commodity” by referring to the CEA act that
includes “all services, rights, and interests in which contracts for future delivery are presently
or in the future dealt in.” in the definitional boundary of commodity. The press release
clarifies that “Bitcoin and other virtual currencies are encompassed in the definition and
properly defined as commodities”. Under CEA commodities are classified into three
categories-

(1) Agricultural commodities

(2) Excluded commodities which include, inter alia, an interest rate, exchange rate,
currency, security, security index, credit risk or measure, debt or equity instrument, index or
measure of inflation, or other macroeconomic index or measures
(3) Exempt Commodity which means a commodity that is not an excluded commodity or
an agricultural commodity.

Prof. Shadab of New York Law School has argued in his written statement submitted to
the CFTC that Bitcoin should be classified as “exempt commodities and not as excluded
(currency) commodities “.
Each Bitcoin future contract on CME would be composed of 5 Bitcoins. The tick size (the
minimum fluctuation) has been fixed at $5 per bitcoin, amounting to $25 per contract. Per

[86]
person open position limit has been set at 1000 contracts. The daily price fluctuation of a
Bitcoin future is limited to a 20% band above or below the prior settlement price. The
settlement price will be Bitcoin Reference Rate (BRR). BRR is calculated by UK based crypto
currency trading platform -Crypto Facilities Ltd, in partnership with CME. BRR is calculated
by taking traded price and volume data from a few selected exchanges involved in spot
Bitcoin trading. Price and volume data are obtained for 12 periods of 5 minutes each in the
last hour of trading. For each time interval, a volume weighted median price is calculated. The
overall price is average of these 12 prices.
So, purely from methodological perspective, construction of reference price cannot be
faulted. Since BRR is based on observed prices of Bitcoins traded on mostly unregulated
exchanges, these prices are always subject to manipulation. The extent of volatility that can
happen on these exchanges can be understood from the movement of bitcoin price on
December 7. On this day, the price of 1 Bitcoin fluctuated from a high of USD 19,000 to a low
of USD 4,000. If the price volatility is considered in conjunction with volume volatility (see
the graphs below), Bitcoin may turn out to be Twenty First century’s first virtual Tulip.

Published on 11 December, 2017

[87]
 Bitcoin : Comment on Aswath Damodaran’s Post

Prof Aswath Damodaran (AD, henceforth) is a well-known name in the field of corporate
finance and valuation of financial products. It is unfortunate that despite his formidable
reputation in valuation of financial products, his latest “Musing on market” is a complete let
down (You can read complete post here). He starts the blog by classifying investment assets
into four categories. These are: Cash generating assets, Commodity, Currency and
Collectibles. The first three categories do not need any clarification. But, what about
Collectibles? Picasso’s paintings fall into this category because they do not generate cash and,
therefore, cannot be valued but it has a price. So, according to AD, something may have price
but no value. For him “value” is synonymous with discounted future cash flow that an asset
generates. So, if an asset does not generate future cash flow, then it has no computable
“present value” or “value”. This definition of value is a highly myopic interpretation of notion
of “value” that has been debated from the time of Adam smith to Gerard Debreu. This
apparent distinction between price and value leads him to differentiate between trading and
investing. The only difference between a trader and an investor is that they make different
intertemporal choices. An investor in collectibles has a choice to sell it immediately or
sometimes in future. It follows logically that he finds that it is worthwhile to wait to get a
higher price in future. Or he may get more pleasure holding it for a long time to come. The
DCF valuation that financial instruments are subjected to, can be looked upon an estimate of
the future market price. That is why; there is a market of financial instruments. If DCF is a
correct estimate of “value” of any financial instrument then there is no reason why every
dealer of a treasury would not have the same opinion about the intrinsic value of that
instrument. If every trader has the same opinion would the market exist? According to him,
traders do not bother about value but they only concerned about price. This begs the question
– how price is determined in financial market?
Although we are really not concerned about the distinction between value and price, the
issue becomes relevant in the context of Bitcoin- the subject matter of AD’s blog. Per force, AD
has to categorize Bitcoin per his own classification scheme. Bitcoin does not generate cash; it is
not a commodity too. So, we are left with only two categories for Bitcoin to be slotted. AD
now considers the definitional attributes of a currency. These are well accepted and standard-
unit of account, medium of exchange and store of value. Surprisingly AD finds that Bitcoin
satisfies all the criteria to be designated as currency. According to AD, anything which is
fungible, divisible and countable can qualify to be a candidate “unit of account”. If this is
true, then theoretically any currency in any jurisdiction can function as currency. In fact, in
some African countries, many small shops quote their merchandise in USD terms. But their
balance sheets have to be prepared in terms of domestic currencies as per the law of the
country. The acid test of anything to qualify as currency is that whether one can pay tax with
that thing or not. AD gives three reasons for Bitcoin’s failure to take off as the preferred
currency for majority of people. These are: inertia, price volatility and competing crypto
currency. He fails to note the most important reason- no sovereign backing. We have heard of
dollarization of many domestic currencies because of people’s lack of trust on the domestic
sovereign’s ability to preserve the purchasing power of that currency. But we must note that
in no case people of such country start using the neighboring country’s currency, which could

[88]
be as inflation prone as the former. In other words, backing of a powerful and trustworthy
sovereign engenders the trust that is required for something to function of currency. The
properties “medium of exchange “and the “store of value” neither jointly nor severally can
make anything – real or virtual- a unit of account.
The problem with the ongoing effort to declare Bitcoin as currency is rooted in this
historically untenable proposition that money originated from the act of barter. There is
enough anthropological and numismatic evidence to the contrary. The renowned numismatist
P. Grierson gave the simplest definition of money – ‘all money that is not coin or, like modern
paper money, a derivative of coin’. Historically, coins were always associated with an issuing
authority. Thus, sovereign backing is a prerequisite for something to become money in a
specific jurisdiction.
So, Bitcoin is not a currency or money proper. Of course, we can argue that the
community of Bitcoin coin users can be considered as forming a “jurisdiction”. The “Bitcoin”
is a currency of that virtual jurisdiction. But then Bitcoin can be considered as a currency of
only that country. Then, the population size of that country would be smaller than Democratic
Republic of São Tomé and Príncipe (200K) of West Africa. The currency of that country,
Dobra, suffered so much depreciation that the government had to issue a new Dobra in
exchange of 1000 earlier Dobra. No foreign exchange trader has ever considered Dobra as a
tradeable instrument. Bitcoin is experiencing appreciation of similar magnitude and,
therefore, people are considering it as a lucrative financial asset. But to consider Bitcoin as a
tradeable instrument would be blasphemous in the rarefied group of forex traders. AD, of
course, suggests exactly the same in regard to Bitcoin.
It might be fashionable to hold an extreme libertarian view in the current dispensation of
USA. In that environment, as the then Citigroup Chief Chuck Prince told in an interview, just
when sub-prime crisis was knocking at the door of wall Street – “when the music stops, in
terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got
to get up and dance. We’re still dancing”. This was on July 10, 2007. On October 5, Merrill
Lynch announced a US$5.5 billion loss, revised it to $8.4 billion on October 24. We hope that
gullible investors awash with liquidity do understand that music is bound to stop sometime
and who knows who would be standing without a chair then.

[89]
 A Tribute to Tagore in Times of COVID-19

In times of COVID-19 let us recall that poem of Tagore which was a clarion call for
fearlessness, adherence to reason, universal humanism and empathy for “Others” who are not
us.
In this tribute to Tagore I have elaborated Tagore’s original lines (in italics) to emphasize
that nothing much has changed in the world. George Floyd' death in USA and Jamlo
Makdam's death in India brings out the bitter truth that Tagore's lament is still valid.

Let us have a world

Where the mind is without fear and the head is held high;
Where any nation state does not lord over others
Where aggression is not justified by patriotism
Where visas are not used to deny a human being to meet a loved one
Where knowledge is free;
Where science is not locked down in private enclosures
Where books are not burned by priests of “Other Gods”
Where beliefs do not banish logics
Where the world has not been broken up into fragments by narrow domestic walls;
Where race, caste, tribes, color, language and gods do not create strangers to us
Where words come out from the depth of truth;
Where truth evolves and not handed down
Where tireless striving stretches its arms towards perfection;
Where innovation rules, ideas confront ideas, paradigm changes;
Where the clear stream of reason has not lost its way into the dreary desert sand of dead habit;
Where a child is not to afraid call out an Emperor naked
Where the mind is led forward by thee into ever-widening thought and action
Into that heaven of freedom, my Father, let my country awake
Where humans can reach for space and brings an end to its childhood on Earth
-------------------------------------------------------
The last line is a tribute to Arthur C. Clarke’s Childhood’s End

[90]
 Cry, Jamlo Makdam, Cry

In a heartbreaking tragedy, 12-year-old child labour – Jamlo Makdam died on 20th April
2020 after walking for 150 km from her workplace in Bhupalpally in Telengana to her native
place, Bijapur district in Chattisgarh. She was going back to her village as she lost her job due
to covid-19. She was working in Chilly fields in Kannaiguda village.
I have written a poem in her memory :

Cry not -my beloved country- Cry not

Save your tears
for Jamlo, the chilly-picker,
She needs them plenty
to keep her walking.
Only a mile afar
mother waiting to hug her
quench her thirst -before she moves to a land unknown.
Running away from coronavirus, with a week’s hunger in belly,
100 rupees tucked in her skirt, bedecked with chilly flakes,
a mere 150 kilometers to walk,
no marathoners to accompany
she is walking, walking, and walking.
On a lonely road
Sun blistering above
With no helpful winds to blow away the heat
She is walking, walking, and walking.
Thirsty blood, tearless eyes
Saliva-less tongue
Still her dream dies hard
home, sweet home and mother awaiting – her final resting place.
Hunger, her best friend, she is not afraid of,
because she must walk, walk, and walk.
Stars are shining
in their AC cooled rooms,
cutting hubby’s hair short, sweeping floors – a first time in life
singing paeans to Lockdown, Lockdown and Lockdown
A 100K like in Instagram -no wonder.
Leaders are busy in their virtual world
With Mask on
Conferring on matters of life and death
gravitas overflowing
may be talking about Michelangelo
and heart beating about Jamlos at large.
But our Jamlo is not even a footnote.
Which country owned Toba Tek Singh?
Gods only know.
Which state owns Jamlo for her to receive some succor?
The answer is blowing in the wind
To her mother’s arm is the only place on earth, she belongs to.

[91]
Additional References :

The various website links referred to in the text are listed below, chapter-wise.

Chapter Titles
The centenary of the Bolshevik Revolution and the fatal attraction of the concept of Class
1. https://www.marxists.org/archive/marx/works/1894-c3/ch52.htm
2. https://www.marxists.org/archive/marx/works/1852/18th-brumaire/preface.htm
3. https://www.marxists.org/archive/marx/works/1852/18th-brumaire/ch01.htm

Corporatization of Nations
1. https://www.nseindia.com/companytracker/cmtracker.jsp?symbol=RELIANCE
2. http://www.livemint.com/Companies/AzdrYmQhYnq0TPiDUbZcSO/Reliance-Jio-
planning-its-own-cryptocurrency-called-JioCoin.htm
3. http://www.marketing-interactive.com/kfc-canada-thinks-outside-the-bucket-
introduces-bitcoin-bucket/
4. http://www.marketing-interactive.com/kodak-joins-the-cryptocraze-says-its-key-to-
solving-an-unsolvable-problem/
5. https://www.cnbc.com/2017/08/28/burger-king-russia-cryptocurrency-
whoppercoin.html
6. https://www.stellar.org/blog/IBM-KlickEx-Partnership
7. http://www.e-ir.info/2017/05/22/the-beginnings-and-ends-of-the-international-
order/

India’s Foreign University Bill

1. http://niepa.ac.in/download/Foundation%20day/First%20Foundation%20day%20S
peech.pdf
2. http://niepa.ac.in/download/Foundation%20day/First%20Foundation%20day%20S
peech.pdf

Social Roots of Corruption in India

1. http://www.nber.org/papers/w12312

India’s Biggest Operational Risk Event

1. https://www.bomgar.com/assets/documents/SWIFT_Compliance-and-Bomgar.pdf
2. https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1022
3. http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/high-
court- judgments/21783-industrial-commercial-bank-ltd-v-banco-ambrosiano-veneto-s-p-a

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5 trillion-dollar Indian Economy: Terms and Conditions Apply
1.http://mospi.nic.in/data

In Thrall of Market
The following links
1. https:/indianexpress.com/article/opinion/columns/farm-bills-farmer-protests-
parliament-rajya-lok-sabha-6618353/
2. https://economictimes.indiatimes.com/markets/expert-view/we-should-not-expect-
overnight-miracles-in-farm-sector-swaminathan-aiyar/articleshow/78229518.cms
3. https://timesofindia.indiatimes.com/blogs/men-and-ideas/dont-kill-2nd-green-
revolution-rolling-back-farm-reforms-would-privilege-a-small-but-vociferous-group-
over-the-silent-majority
4. https://theprint.in/opinion/what-economists-like-ashok-gulati-still-dont-
understand-about-agriculture-in-india/513848/
5. https://www.theindiaforum.in/article/three-farm-bills
6. https://theprint.in/opinion/modi-govt-agriculture-reform-farm-bills-ordinances-
bypass-states-apmc/506004/
7. https://en.wikipedia.org/wiki/Indigo_revolt
8. https://hbr.org/2007/10/the-art-of-designing-markets
9. https://data.oecd.org/agrpolicy/agricultural-support.htm

Bheeshma or Dhritarsahtra
1. http://en.wikipedia.org/wiki/Kurukshetra_War
2. http://vasanthisankaranarayanan.blogspot.in/2012/09/dhritarashtras-
blindness.html

Singularity in Economics
1. https://www.reuters.com/article/idINIndia-51267720100903

Adequacy of Reserve and Economic Capital Framework for RBI

1. http://www.imf.org/external/datamapper/ARA/index.html

Technology and State

1. http://money.cnn.com/2018/02/22/news/companies/amazon-stock/index.html
2. https://edition.cnn.com/2018/02/26/asia/china-xi-jinping-president-intl/index.html
3. https://www.smartinsights.com/search-engine-marketing/search-engine-statistics/
4.http://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-investment-
china-story
5. https://www.forbes.com/global2000/list/#country:China
6. https://bankinnovation.net/2017/04/apple-pay-users-to-double-in-2017/
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 7. https://next.autonomous.com/thoughts/amazon-and-bank-of-america
8. http://www.debate.org/opinions/will-china-become-the-next-superpower
9.https://www.washingtonpost.com/opinions/china-has-a-plan-to-rule-the-
world/2017/11/28/214299aa-d472-11e7-a986-
d0a9770d9a3e_story.html?utm_term=.8f1a6a784f42

End Note:
1. See http://soviethistory.msu.edu/1921-2/electrification-campaign/communism-is-soviet-
power-electrification-of-the-whole-country/
2. https://www.gsb.stanford.edu/insights/andrew-ng-why-ai-new-electricity
3. Whoever leads in artificial intelligence in 2030 will rule the world until 2100
(brookings.edu)
4. https://academic.oup.com/mind/article/LIX/236/433/986238
5. https://ifr.org/ifr-press-releases/news/record-2.7-million-robots-work-in-factories-
around-the-globe
6. https://www.nytimes.com/2017/12/03/business/china-artificial-intelligence.html
7. https://tracxn.com/explore/Artificial-Intelligence-Startups-in-China
8. https://www.monigroup.com/article/meet-chinas-5-biggest-ai-companies
9. https://www.cnbc.com/2019/01/23/alibaba-jack-ma-suggests-technology-could-result-in-
a-new-world-war.html
References
1. Savage, Neil (2020) Learning the algorithms of power Nature | Vol 588 | 10 December
2. Government AI Readiness Index 2020: https://www.oxfordinsights.com/government-ai-
readiness-index-2020
3. Artificial Intelligence Index Report 2021: https://aiindex.stanford.edu/wp-
content/uploads/2021/03/2021-AI-Index-Report_Master.pdf
4. Full Translation: China's 'New Generation Artificial Intelligence Development Plan' (2017):
https://www.newamerica.org/cybersecurity-initiative/digichina/blog/full-translation-
chinas-new-generation-artificial-intelligence-development-plan-2017/
5. NitiAyog( 2018): National Strategy for Artificial Intelligence: #AI forALL
6. https://www.weforum.org/agenda/2018/09/the-top-5-chinese-ai-companies/

A Tale of Two Companies –BYD and Tata Motors

1. http://knowledge.wharton.upenn.edu/article.cfm?articleid=2690
2. http://www.businessweek.com/innovate/content/jun2010/id20100625_309201.htm
3. http://www.tatamotors.com/)

Two IT Giants – TCS and Microsoft

1. http://www.nber.org/papers/w7260

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Data Localization- Mercantilism in a Networked World
References:
 Castro Daniel(2013) The False Promise of Data Nationalism paper published by The
Information Technology & Innovation Foundation (ITIF)
 Drake William J (2016) Data Localization and Barriers to Transborder Data Flows:
Background Paper for World Economic Forum conference
(http://www3.weforum.org/docs/Background_Paper_Forum_workshop%2009.2016
.pdf)
 Hill Jonah Force (2014): The Growth of Data Localization post Snowden: Analysis and
Recommendations for US Policymakers and Industry Leaders in Lawfare Research
Paper series July 2014
 Selby John (2017): Data localization laws: trade barriers or legitimate responses to
cybersecurity risks, or both? in International Journal of Law and Information
Technology, 2017
 https://eugdpr.org/
 https://en.wikipedia.org/wiki/Edward_Snowden
 https://plato.stanford.edu/entries/sovereignty/

Bitcoin : Comment on AswathDamodaran’s Post

1. https://aswathdamodaran.blogspot.com/2017/10/the-bitcoin-boom-asset-
currency.html

Who runs the virtual currency market?

1. https://www.nytimes.com/2013/12/15/sunday-review/the-bitcoin-ideology.html
2. https://medium.com/all-things-ledger/origins-and-philosophical-ideology-behind-
bitcoin-680f09a6a063
3. https://www.amazon.com/Bitcoin-Manifesto-Satoshi-Nakamoto/dp/8898924941
4. https://blog.evercoin.com/decentralized-money-manifesto-fe2e177360
5. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2684256
6. https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html
7. https://coinmarketcap.com/

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