Year 2017: The 12 Milestones that Shaped India

Post the shock of the Trump victory in the US & demonetization (DeMo) closer home, India woke up to the year 2017 pregnant with possibilities & the year did not disappoint. The BJP election juggernaut - led by General Modi & his Squire, Amit Shah – rolled into new territories & end 2017, rule 19 states in India – 1 more than Indira Gandhi at the peak of her career. However, the onset of memes on Modi – including the one by Shyam Rangila on Star Plus – corruption charges against Jay Amit Shah by “The Wire” & the INC’s performance in Gujarat have brought back the spring in the opposition steps; the winds of change seem to have started, gently for sure.

The 12 milestones of the year

ISRO creates world record: Indian Space Research Organization (ISRO) launched 104 satellites from a single rocket – PSLV – in Feb, beating the record set, earlier, by Russia with 37 satellites. While PSLV can carry a payload less than 2000 Kg, the next gen GSLV can carry heavier satellites up to 5000Kg; Space X, Russia & EU have satellites with a carrying capacity between 9000 – 23000Kg.  Despite having the lowest cost of launch, India is constrained by the PSLV’s carrying capacity. Of the overall space market of $323 billion India’s Antrix Corp earns $66 million. India should attempt to get at least a 1/3^rd share of this lucrative market in a 5 year timeframe.

Union Budget Preponed; Railway Budget is History: India followed the colonial practice of presenting the Indian budget at 5PM, on the last working day of Feb, to coincide with the Budget presentation in British parliament at 1130 am GMT; this practice was discontinued, in 2001, by Finance Minister, Yashwant Sinha & in 2017, Arun Jaitley advanced presentation to the first working day of Feb. 

Usually, in the first phase of the Budget session, a “Vote on account” is obtained from Parliament to draw funds from the Consolidated Fund of India from 1^st April; full & final budget is passed with amendments in the second phase sometime in May. Outlays are available end first quarter & the 2^nd quarter is spent in finalizing deals & tenders in consonance with processes that would not play foul with the auditors of the CAG & the  CVC thereby forcing back-loaded spending in the last 2 quarters of the financial year; advancement of dates is a welcome attempt at frontloading spends. 

Advancing budget presentation further to January could help avoid passing a “Vote on Account”. NITI Aayog, in a repeat of the averments of LK Jha committee, of 1984, has recommended financial year cycle change from the current Apr-Mar cycle to 1^st Jan - 31^st Dec cycle, in line with the prevalent practice in most countries in the world, A new committee had been constituted by the govt., under former Chief Economic Advisor, Shankar Acharya, to examine the feasibility & desirability of these recommendations.

Likewise, the Railway budget, in existence, since 1924, was subsumed into the Union budget this year. Railway Ministry was generally an allies' preserve, during the coalition years, leading to sub-optimal performance & this seems to be an attempt by the govt. to steer clear of the usual practice of making annual popular announcements without financial due diligence & the consequent deplorable financial performance there-off. Hope this revives the depleting monolith of the organization.

BJP victory in UP: It is an open secret that the road to Delhi passes via Lucknow; the BJP got 282 seats, in the Lok Sabha ,in 2014, courtesy the 71 bagged in UP – the most populous state, in India, with a population of over 200 million, equal to Brazil. The BJP cemented its position by winning 312 seats in the 404 member assembly in Mar 2017 & mading Yogi Adityanath – the Hindu Hriday Mascot - the CM, revealed their game plan for 2019. The BJP’s asserted that the UP victory was an endorsement of DeMo; by Sept, though, the RBI announced that 99% of the 500 & 100 rupee DeMo notes have been returned to the financial system nullifying any possibilities of liquidating the substantial difference to be passed on as a special dividend to the govt.

For details on DeMo read http://meetrk.blogspot.in/2017/11/demonetization-in-india-first.html

5 states went to the polls in Mar with BJP winning emphatically in UP & Uttarakhand & Congress doing the honours in Punjab; despite the Congress emerging as the largest party in Goa & Manipur, the BJP pipped them to the post which is as much a commentary on the laggard pace of Congress’s decision making as much as a reflection of the BJP penchant for forming the govt. at all costs; both these trends are suicidal for democracy. 

Later, the BJP got its own candidate, Ram Nath Kovind, as President in July & Venkaiah Naidu, as VP, in Aug, cementing its position further on constitutional positions. India, thus, is transitioning from an era of anti-Congressism to anti- BJPism.

Jio becomes Paid Service: Jio started charging for its services from April 2017 after accumulating over 100 million customers during the previous 6 months of free service, accelerating industry consolidation. Idea & Voda have announced their merger, Airtel acquired Telenor & Tata’s prepaid services while Rcom discontinued its prepaid services from 1^st Dec heralding a possible 4 player scenario (Airtel, Idea-Vodafone, Jio, BSNL-MTNL) in the short term. Eventually, we might see a 3 player scenario if the govt. entities BSNL-MTNL fail to survive competition or a 2 player scenario if Idea-Voda fail to launch a quad core service – mobile, landline, broadband & TV. Massive job losses are hence a consequence not only in telcos but also in affiliated sectors: telecom infra companies, call centres, IT & networking companies.

GST era Begins: P Chidambaram mooted an indirect tax reform – GST – in the budget speech of 2005-06 & after 6 torturous years, Pranab Mukherjee presented it to Parliament, in 2011, only to be met with resistance, especially from the state of Gujarat whose CM was Modi then.  GST was finally launched on 1^st July, this year, at a midnight session of Parliament only the 4^rd time in history – 15^th Aug 1947 being the first, & the 25^th & 50^th independence anniversaries in 1972 & 1997 respectively being the other two – inviting ridicule from the opposition who termed it as another instance of Modi’s “Event Management”. Unfortunately, the stands of our political class is contingent on where they sit - ruling party or opposition benches.

Despite the initial teething troubles, it is sane to conclude that GST would help in genuinely creating “One India” & aid in plugging tax leakages & help in GDP acceleration. 11 years from conceptualization to fruition alludes to the slow pace of decision making in a parliamentary democracy forcing people to earn for a dictatorship; according to a Pew study 55% of Indians want an autocracy & 27% support a “Strong Leader”; noticeably, people above 50 years of age reject the idea, perhaps, because they experienced the emergency.

Doklam Standoff: Indian forces were mired in a standoff with the Chinese forces, for opposing the Chinese road construction activity in the India - Bhutan – China tri junction in June 2017; the standoff lasting about 3 months post which diplomacy arranged for disengagement, in Aug. In the interim, skirmishes were reported between the forces at the Pangong lake in Ladakh & brawls in Chamoli, Uttarakhand, indicative of potential areas of conflict in the days to come. Despite the agreement on withdrawal of forces, robust Chinese presence at Doklam, a departure from their regular practice of withdrawal during winter is foreboding. Indian gains beyond the patriotic euphoria amongst the citizens for staring at the dragon are debatable; Japan, incidentally, was the only country to publicly approve of the Indian action. The mistrust between the Asian giants is likely to persist with important spill over effects into the coming years.

For a long term plan to contain China read http://meetrk.blogspot.in/2017/07/how-can-india-contain-china.html

Epochal Judgements by Supreme Court: Privacy upheld & Triple Talaq held illegal. The honourable SC in a unanimous 9-0 judgement held on 24^th Aug 2017, that privacy is a fundamental right under Article 21 – Right to Life & Liberty; it is a landmark judgement that shall impact free speech, transparency, data protection, state surveillance, LGBT rights etc. The validity of Aadhar being made mandatory is left to another 5 judge bench to be decided later. Likewise, by a 3-2 judgement it held triple talaq or Talaq –e-biddat unconstitutional. Perhaps, Nikah Halala should be the next on the chopping block to provide respite to the Muslim women from exploitation.  Uniform civil code, though, should be introduced post wide consultations since inequity, inequality & gender injustice are prevalent in all religions.

Gauri Lankesh Murder: The dastardly assassination of journalist Gauri Lankesh in Bangalore, in Sept., raised issues of press freedom. With no conclusive action in prosecuting the killers of rationalists Dhabolkar, Pensare & Kalburgi, the capability of Indian investigative agencies & the political will is being severely questioned. The rise of cow vigilantism, violence & murder of innocents is likely to have long term deleterious social & political consequences imperilling Indian security.

Indian Eves Glitter: Indian women won the Asia Hockey cup after 13 years beating China 5-4 in a penalty shootout, at Japan, in Nov, ensuring automatic qualification for the World Cup next year. Mary Kom, the same month, at Vietnam, won her 5^th Asian boxing title in the 48Kg class. Shuttler PV Sindhu had a great year winning 3 of the 6 finals she reached this year. Earlier, Indian women lost the Cricket world cup final to England, in July, only by a paltry 9 runs; all in all it was a great year for Indian sportswomen.

Manushi Chillar was crowned as the new Miss World in Nov. the 6^th Indian to achieve the elusive honour.

India becomes a member of Wassenaar: India, in Dec, was admitted as the 42^nd member of the Wassenaar – a grouping that regulates the sale of dual use technologies; this is in addition to the entry into the 35 member, Missile Technology Control Regime, last July.  With a clean waiver provided by the Nuclear Suppliers group & in lieu of the opposition, by China, to India’s entry to the 48 member grouping, India should concentrate on gaining entry to the Australia Group – that regulates Chemical & Biological weapons – instead, in 2018.

2G verdict Disappoints: Vinod Rai’s CAG report, in 2010, on spectrum allocation & telecom policy whipped the UPA regime into a policy paralysis courtesy parliamentary disruption. While he indicated 3 models of potential revenue loss, the opposition latched on to the highest fig of 1.76 lakh crore loss only to corner the govt. The CBI filed a charge sheet for a fig of about 31000 crores only & failed to prove even that in the CBI Court leading to exoneration of DMK’s Kanimozhi and A Raja & other accused including Rcom executives free. This verdict could challenge the Modi govt. resolve in enforcing justice especially when the Panama papers, Paradise Papers, HSBC  & Liechtenstein lists too have seen no action.

Dynastic accession in the GOP: Rahul Gandhi took over as the President of the Congress Party on 16^th Dec elected unopposed; his mother Sonia held it for 19 years, earlier, inviting accusations of dynastic succession. However, with all regional parties except the JD(U) following the same path & the BJP having the progeny of Rajnath Singh, Shivraj Chauhan, Raman Singh, Vasundhara, Prem Dhumal, Munde & Pramod Mahajan as legislators no party now can escape the barb of dynastic succession. Just as the viewers have forced some of the children - lacking talent - of screen gods & goddesses into premature retirement, voters should, likewise, show the door to dynasts who lack capability.

Conclusion:

2017 was a fascinating year for India with its share of highs & lows. The green-shoots of opposition unity, as seen in Gujarat, are indicative of a potentially exciting electoral narrative in 2018 & beyond. India’s economic revival to over 7.5% growth, though, is at least 6 quarters away. That makes one look forward towards 2018 with trepidation. 

Congress & BJP: Stratagems for 2019

The Modi govt. has completed three & a half years in power, without an effective opposition but the impending Gujarat assembly elections is turning out to be a cliff-hanger; an inflection point seems to have now been reached with the opposition tasting blood. Time is hence ripe to predict the broad strategies likely to be adopted by the BJP & the Congress in the run up to the 2019 general elections.

BJP Strategy: “Hindi, Hindu, Hindustan”

The BJP believes in the slogan: “Hindi, Hindu, Hindustan “given by its progenitor, the Jan Sangh. MS Golwalkar – the 2^nd head of its ideological fountain-head, the RSS - insisted on 5 unities – one language, one faith & one race with one culture in one nation “Akhand Bharat”.  It insists on “Hindi” as all pervasive national language & “Hindutva” as an ideological glue holding entire “Hindustan” under a nationalistic & patriotic spirit.

Congress Strategy: “Linguism, Secularism, Federalism”

The dispirited Congress seems to have got a boost vide an alternative narrative that emanated not by the central think tank but from the Karnataka CM – Siddaramiah whose strategy roughly translates into the alternative slogan: Regional Language, Secularism, Federalism.  The DMK rode to power, in TN, for the first time, in 1967 riding on the anti -Hindi agitation. As part of a national party that instituted the 3 language education policy, Sidaramiah, cannot prescribe the 2 language policy followed in neighbouring TN but instances of blackening of Hindi names across metro stations has been seized to create a new discourse of Kannada nationalism; there is now a demand too to have a Karnataka flag.  The opposition, DMK, in TN, in Mar ’17, joined chorus when it opposed the English markings on national highway milestones being replaced with Hindi inscriptions. Telangana, in Sept’17,  too made Telugu a compulsory subject from  standard 1 to 12, surprisingly, attracting praise from VP, Venkaiah Naidu, indicating that many leaders from the BJP too, hailing from non- Hindi states - are uncomfortable with Hindi imposition.

With the BJP pushing for Hindu consolidation against the significant other ‘Muslim”, the opposition has traditionally favoured a “secular” discourse inviting the epitaph of “pseudo – secularism” from the former.  Siddaramiah has now creatively found a new opening by endorsing the demand of Lingayats – the core support base of the BJP & at a 20% of the population, a dominant electoral constituency of Karnataka – that they be declared a separate religion, since the founder Basavanna had shunned Vedic rituals & agama shastras; incidentally, BJP strongman, Yeddyurappa, a Lingayat, had demanded a separate religion status some years back & hence cornered.

Hindu consolidation is also countered vide caste assertion. In Gujarat, the Rajput, Alpesh Thakur, Dalit, Jignesh Mewani & the Patidar, Hardik Patel have extended support to the Congress, fracturing the Hindu forces in their Gujarat lab.

While the BJP has been articulating the spirit of “co-operative federalism” the dominance of Narendra Modi over both the party & govt. & the use of article 356 in Uttarakhand & Arunachal has strengthened opinion that the country is regressing towards the Indira Gandhi era of greater centralization – the re- emergence of the Delhi Sultanate. Hence the demand for true Federalism by the opposition is a rallying clarion call.

Modi -Shah Counter

The Modi - Shah juggernaut though is not sitting idle. The death of a strong supremo like Jayalalitha without an anointed successor or a strong democratic party hierarchy – but with a 1.5 crore cadre - is a once in a lifetime opportunity which they are keen to exploit; IT raids on the Mannargudi clan is to finish the money bags of the party & force a merger at an opportune time, perhaps post 2019. However, TN politics is characterized by an oscillating polity with one of the Dravidian parties winning in alternate elections. It is thus feasible that the DMK led group would get about 35 of the 39 seats in 2019; the Modi-Karunanidhi meeting recently in Chennai should be seen in this regard. The BJP is thus running with the hare & hunting with the hounds.

The Challenges to the BJP

The BJP’s electoral compulsions are palpable. A marginalized Shiv Sena is blowing hot & cold & could join the NCP-Congress combine in fighting the BJP in the 2019 elections. The Akali-Dal is unhappy just like the Telugu Desam but would hitch their bandwagons to the BJP since the Congress is their prime opposition in their home states. The JD (U) too is smarting post their non-inclusion in the union council of ministers; having dumped the BJP in 2014 & re-entering into their embrace in 2017, the JD(U) is constrained of further leg room.  All of them would demand their pound of flesh at an opportune time.

Other problems abound. The BJP won 282 seats in 2019, 10 more than a simple majority aided majorly by winning 71 of the 80 seats in UP.  They maintained their dominance in the assembly elections too held in 2017 benefitting from a fractured polity. Stung & wise a SP-BSP-Congress combine is a distinct reality in 2019, an alliance that could win at least 60 seats, dipping the BJP tally by about 50 seats.  The road to Delhi passes via Lucknow & a dip in seats here could be fatal.  The impressive performance, in 2014, in Gujarat (26/26), Rajasthan (25/25), Haryana (7/10), Madhya Pradesh (27/29), Chhattisgarh (10/11), Maharashtra (23/48) are unlikely to be repeated in 2019. Thus the BJP’s no.  would drop by at least 100  in 2019; it could still emerge as the single largest party though.  Inducting TMCs Mukul Roy in Bengal, & hobnobbing with BJDs Jay Panda in Odisha & Narayan Rane in Maharashtra are hence efforts at either adding a saleable strategic face or muscle in a bid to increase the national catchment. 

The BJP is losing current allies – MDMK of TN in 2014, SSS of Maharashtra in 2017 - & having opened up new war fronts - BJD in Odisha - might not attract new ones; it would however better its performance in Odisha in 2019. To cross the magic fig. of 272 on their own & deny negotiating space to their miffed allies, the BJP could reignite the strategies that paid handsome dividends in the past. The storming of Parliament in 1966 by the RSS & its affiliates on the issue of banning “cow slaughter” helped the Jan Sangh- win 35 seats in 1967 elections from 14 in 1962; it was their largest haul since independence. Likewise, the Ram Mandir agitation – by the Kamandal forces – helped it get to 120 seats in 1991. Thus cow protection, Ram Temple, invocation of nationalism over Vande Mataram, National Anthem & Bharat Mata, & Love jihad could be the various vectors employed. A skirmish at the border could fuel hyper nationalism. While “Vikas” would be the overarching theme spoken by national leaders, the cadre would sharpen the other vectors at the ground level.

Conclusion

The run up towards 2019, unfortunately, looks bloody. Gauri Lankesh’s assassins are still untraced. A fractious polity divided on the basis of caste by so called “secularists” or into religions by so called “communalists” are fatal for the growth of the nation. Hope better sense prevails across both the camps. Jai Hind!!

Pollution: How To Reduce Stubble Burning

The pollution haze in North India & the corresponding brouhaha in NCR has become a yearly malady, during the winter months, impacting citizen health & India’s international image.  Construction dust, vehicular pollution, industrial fumes, stubble burning in neighbouring states & tandoor & DG set exhausts are some of the prime culprits. Shift to CNG buses in 2001, vide a Supreme Court ruling, issued in 1998 & launch of Metro rail in 2002 were transformational initiatives but there is now a need for more policy measures. Stubble burning – a regular phenomenon during Oct- Nov - gained headlines since the Delhi CM Kejriwal has written to his counterparts requesting their support to quell the practice.

Punjab passed a law (Punjab Preservation of Subsoil Water Act), in 2009, making sowing of crops before May 10^th & transplantation before June 10 punishable by law with an intention to prevent excessive use of groundwater during summer months; sowing in June & the onset of monsoon soon after helped in improving the ground water situation; Haryana too followed suit in replicating the law the same year. Water usage dropped from 4500 litres per Kg of paddy production, planted in April- May to 1500-2000 litres of ground water usage when planted later. Farmers too shifted to planting sunflower or grams during April – May followed by rice thereafter. However the gap between rice, the Kharif crop (Apr- Oct) & wheat, the Rabi crop (Nov- Mar) leaves only a 15 – 20 day interlude forcing stubble burning as a cheaper & quicker option.

Greater prosperity leads to a shift of people away from agriculture & migration induces labour shortages forcing wage increases & later mechanization.  The use of “combine harvesters” leaves a longer stubble. Moreover, wheat stubble is preferred over rice stubble as animal feed in states like Punjab. Since it generally costs about Rs 2000/- per acre to remove the stubble farmers would prefer using a match stick - costing less than a rupee- to set the same on fire rather than expend labour to remove the same despite crop residue burning being banned by the National Green Tribunal on Dec 10, 2015 & the ruling is further supported by the Air (Prevention and Control of Pollution) Act, 1981. However, taking action against the farmers is difficult since they form an important vote bank & today have the support of militant unions. Unless they are compensated substantially more than their costs, stubble burning would persist.

Biomass burning – stubble, forest etc. - which was largely concentrated in the North western states of Punjab & Haryana is now spreading to UP, MP, Chhattisgarh, Odisha, Jharkhand, Rajasthan & small pockets of South India as per the NASA satellite images; increased irrigation leads to greater crop intensification – 3 crops yearly - & greater mechanization trends point towards an increased geographic spread of the malaise of residue burning & hence a national policy would be in order.

Policy Alternatives

Stubble can be used for producing power in boilers at 99% efficiency that leaves less ash than coal plants; it is also cheaper than coal. However, this might necessitate capital costs in building a 10-20 MW plant in each taluka to use the stubble generated in the catchment area.  Cost, hence, will be the key since the latest renewable energy price bids have dropped to as low as Rs 2.5/-per unit. Many states today have annulled the long term power purchase agreements – concluded at a rate between Rs 4-5.5 /- per unit - from thermal power plants & buying from exchanges instead, will be loath to purchase power produced vide stubble power plants at a higher cost.

Today, stubble is bought at Rs 100/- per quintal at factory site; the farmer who spends about Rs 2000/- per acre, on labour costs to remove stubble incurs additional cost to transport the same to the site. Since he barely recovers his costs, there is disinterest. Unless he is compensated to the extent of Rs 4- 5000 per acre, residue burning, would persist.

Stubble can be used to make cardboards, paper or ethanol; the sugarcane lobby, though, has a stranglehold on ethanol production - used to blend with petroleum fuels - & there is a need for greater democratization. This might be a better alternative to power production & a medium term plan since it involves capital cost & time to put up the plants.

Appeal to the Farmer & his Family Health

Even while the economic incentives model is launched, education campaigns need to be run simultaneously to convince the farmers that their own health is suffering, because of crop residue burning, increasing their healthcare expenditure in the bargain for particulate matter hits their lungs before affecting the people of NCR. Prompting them to use the stubble for organic farming practices would be a sound long term solution. 

Use of rotavators to remove stubble is a solution as are ‘Happy Seeder” machines that allow planting the wheat crop without removing the stubble with the added advantage of the stubble serving as mulch for dew. However demand for these machines has been low, despite subsidies, since India has a predominance of marginal farmers - about 85% of the total nos. - having less than 2 hectares (5 acres) holding; co-operative societies too haven’t shown enough urge. If the health appeal is bought by the farmers, the use of these machines would automatically increase.

The other alternatives are use of low gestation rice crops like PR121 or 126; if the gap between 2 crops thus increases, burning could reduce. It is also important to note that Punjab – a wheat producer & consumer - moved from the traditional crops like maize, pearl millet, pulses and oilseeds to the rice- wheat cycle in the 1970's, lured by the MSP support offered by the govt. With rice cultivation increasing in the rest of the country it may be time to revert to the traditional crops & govt. intervention on MSP & buying assurance for those crops is the policy intervention desired.

Conclusion

Unfortunately, legislative & executive inaction is forcing judicial intervention on policy. While the Delhi govt. has requested the neighbouring states for help, the Punjab CM has blamed the centre for not providing the requested subsidy to undertake the stubble buying option; farmers organization, BKU, had launched a protest in Haryana threatening to take 50 tractor-trollies of paddy stubble to the city & if the govt. makes no arrangements, for purchase, they would burn the same under protest.  The Delhi govt. which had provided for buying 2000 buses in the 2015-16 budget finds their request to the DDA – which falls under the central urban development ministry – to release land for building bus depots unacknowledged; the tussle with the LG puts decisions in a limbo.  AAP launched the odd-even scheme but has not taken much action on the construction dust issue while the solid waste disposal plans of the Municipal corporations of Delhi, that falls under the BJP,  have left much to be desired.  It is time we transition from political filibustering & work on concrete solutions with time lines. Else, the “gas chamber” will devour us. Isn’t it time to make “Right to breathe clean air” a fundamental right?

Demonetization in India: The First Anniversary

On 8^th Nov'16, at 8PM,  PM Modi announced the withdrawal of 500 & 1000 rupee notes from the system, starting midnight, as a measure to tackle “black-money” & offered exchange of demonetized notes till end Dec'16. The international media attention was focussed on India & the serpentine queues that followed demonetization (DeMo) & despite about 100 people losing their lives & attempts to provoke, peace held, giving credence to the view that the laity wanted to give the PM a chance. Modi’s predecessor, Manmohan Singh, however, dubbed this exercise as ‘Organized loot & Legalized plunder” & predicted a 2% drop in GDP while Arun Shourie called it the “Largest money laundering scheme ever”. One year hence, the govt. announced that the first anniversary would be celebrated as “Anti-Black Money Day” while the opposition dubbed it a “Black day”.

In a “post truth” world, where both the ruling & the opposition camps pick up convenient data points & spout half-truths, a fact check is in order. Evaluating all the government’s promises while rolling DeMo & checking achievements during the last one year would serve as the right template

(1)Move to end corruption

With some note series never returning to the banking system post issue by the RBI, it was assumed that the cash had lapsed into a parallel economy; the then Attorney general, Mukul Rohatgi, in Dec 2016, submitted to the honourable Supreme Court that only about 10 to 11 lakhs crores would be returned, implying that about 4.44 to 5.44 Lakh would remain unreturned. Perhaps, the RBI would have extinguished & passed on the reduced liability as a windfall dividend to the govt. ; perhaps, the govt. also reasoned that about 2.5 to 3 lakh crores of black money returned would invite a tax liability – at 60% - for exceeding the known sources of income, leading to a further windfall, though post the hiatus of a litigation. One year later, the RBI concedes that of the 15.44 Lakh crores withdrawn, 15.28 Lakh crore has returned to the system; cash in co-operative banks & that circulating in countries like Nepal & Bhutan - where the Indian rupee is freely exchanged  - if returned, would perhaps mean a 100% return to the system. Substantial fines have not been recovered yet since litigation is a long drawn out process; the govt. though claims that 3.68 lakh crores & 23 lakh accounts are under surveillance. The current strength of the tax dept. though would render the scrutiny of all those accounts well-nigh impossible.

With no perceptible prosecutions in the HSBC & Liechtenstein names nor the Panama & Paradise papers many could dub the govt. as indulging in “headline management” alone; entry of leaders like Narayan Rane, Sukh Ram & Mukul Ray into the BJP might strengthen the impression that the party is not serious on either corruption or unearthing black money.

(2)End Stone-pelting in Kashmir & Naxal violence

As per the J&K police report sourced by Scroll & reproduced in an article on 24^th Aug, the stone pelting figs in Kashmir rose during July – Sept ’16 post Burhan Wani’s killing on July 8^th & subsided thereof. Incidentally, in Nov 16 the stone throwing incidents were only 102 & have been virtually flat; the minor upside in Apr-May 17 was due to the Srinagar by poll. The govt. argument that stone throwing incidents dropped 75% due to DeMo is hence factually incorrect.

The govt. claims that Naxal activities dropped by 20%. Naxal movement in the Red corridor extending from Telangana to Nepal is funded vide extortion & perhaps, fund flows from powers - inimical to India – abroad.  Incidentally, the worst Naxal attack leading to the loss of the lives of 25 CRPF jawans at Sukma in April 17 – happened after demonetization. Cutting off funds to the Naxals by providing security to the contractors to end extortion by the local police & pinpointed intelligence by the IB & ED to attack fund flow from abroad would have been a more prudent strategy & not DeMo.

(3)Remove Fake currency

As per an ISI Kolkata study submitted to the govt. fake currency in India is about 400 crores (0.02% of the entire cash economy of about 18 lakh crores); about 70 crores is pumped in yearly, largely by Pak, vide the porous Bangladesh border. Only 1/3^rd of the same is detected with an 80% contribution by 3 private banks Axis, ICICI & HDFC indicating the need for better surveillance at public sector banks; sealing the Bangladesh border should be the next step.  Using a sledgehammer approach was hence illogical.

(4)Make India a digital society

The govt. claims that DeMo spurred digital payments & showcased the increase in POS machines from 15 lakhs to 28 lakhs & launch of the BHIM app as achievements.  Touting the POS machine upside is surprising since NiTI Aayog CEO opined that ATMs, POS, Credit & debit cards would become redundant in India by 2020 since India would transition towards payments “using the thumb in 30 seconds”.  Unfortunately, ATM withdrawals which were at Rs2.22 Lakh crore in Sept ’16 reached a similar fig of  2.26 lakh crore by Mar’16 indicating that India is reverting back to the cash economy.

(5)Reduce the Cash to GDP ratio

The govt. claims that the cash to GDP ratio has dropped from 12.2% to 8.8% post DeMo putting India in the same league as advanced & Emerging economies like France, Germany, Italy, Thailand & Malaysia; however what is conveniently omitted is that the 8.8% fig is end  Mar '17 when cash in circulation (CIC) was 13.1lakh crores. The re-monetization process has since progressed with CIC in Oct ’17 crossing 16 lakh crores. Assuming the $2.3 trillion Indian economy to grow at a nominal rate of 10% (6.5% real rate +3.5% inflation rate) the cash to GDP ratio has now inched closer to 10% & if CIC growth persists at the same rate it is reasonable to predict it reaching a fig of 11.5-12% by Mar 2018. Thus we revert back to where we started.

Nordic countries have a cash to GDP ratio under 4% while Japan is at 19% & both categories of nations are known to run honest economies indicating that lower cash, though desirable does not necessarily eliminate black money. Brazil & South Africa, on the contrary, with the fig under 4% have a reputation for being corrupt economies.

At 18 lakh crore CIC pre DeMo over a 134 cr. population amounts to a per capita cash holding of about Rs 13500/- (~ $200)which is very low as compared to cash in hand of Nordic countries where the fig is higher than $900 despite CIC – GDP at 4%.

(6)Drop in Prostitution

Ravi Shankar Prasad – has made a bold claim that flesh trade dropped due to DeMo since human trafficking from Bangladesh & Nepal fell due to lack of cash. Obviously, it is a qualitative assessment since no figs were circulated to support his moral claim. It would be interesting for the govt. to answer the query: With cash back in circulation would it lead to an upside in prostitution again & if so how does the govt. plan to tackle the same?

(7)Increase in PF & ESI

The govt. claims that lack of cash propelled firms to open bank accounts for workers – paid in cash till then – forcing them to make statutory declarations. There is an increase in 1.01 crore PF accounts & & 1.03 crore ESI accounts thereby creating a safety net. EPFO members increased from 8.55 cr. in Mar 2012 to 17.14 cr. by Mar’16 i.e  2.14 cr. increase annually; if so the 1.01 cr fig touted by the govt. (unsure if it is for the Nov’16- Mar’17 period ) period is in consonance with regular trends.

The opposition has attacked the govt. on the snafu broadly on the following issues

(1)Loss of Jobs

As per CMIE, 1.5 million jobs were lost during the period Jan-Apr ’17 based on a household survey; Industry association FICCI’s report supports the dire employment scenario.  Most of the companies in the BSE 500 have shown a dip in employee nos. except those in the pharma & auto sectors.

Post DeMo qualitative reports emerged from textile clusters like Tirupur, industrial clusters like Mayapuri in Delhi etc of about lack of cash availability leading to delayed / stoppage of salaries leading to employee absenteeism or worse still reverse migration back to villages. Supply chains were severely damaged because of payments to suppliers being delayed. GST transition ensured furtherance of the pain since the MSME’s were ill equipped to handle the filing requirements. India is constrained by the lack of data on the informal sector & it is therefore prudent to argue that the informal sector was more likely to be adversely affected due to DeMo than the formal sector.

(2)Increase in Imports

Mammohan Singh had attributed the increase in imports from China of 2.41 lakh crores in the first 6 months of the current year over the 1.96 lakh crores for the corresponding period of last year to the effect of the supply chain shock.

Conclusion

Indian economy growth rate dropped from 7.9% in Q1 2016-17 & continued its downward trajectory thereafter.  It is therefore reasonable to argue that the drop of over 2% by Q1 FY 18 was not due to DeMo alone;  With exports growing from Sept 16 & public investment front loaded, the drop in private investment & consumption could be the likely culprits along with DeMo.  Instead of pump priming the economy,  DeMo led to a further drop in growth rates to a low of 5.7% in Q1FY18 for which the govt. should be held liable.

India spent about 4500 crores (3420 cr last year vs 7965 crores  this year)  over the previous year in printing of additional currency notes & could have spent about Rs 13000 crores in transporting the new notes & carrying the old currency back to the treasury. The RBI paid an additional interest of 17406 cr on the additional deposits this year while it earned 506 cr last year on liquidity mopping up operations. Hence the RBI was constrained to reduce its dividend to the govt. by Rs 35000 crores this year (65,880cr last year vs 30,662cr this year). Even a very conservative estimate of 0.5% of GDP drop due to DeMo alone (75000 crore) which combined with the reduced dividend from the RBI amounts to about 1.1 lakh crores even while the opposition claims a range between 1.5-3 lakh crores. While the opposition have painted DeMo & GST as “twin blows” it would be reasonable to conclude that while GST is good for the economy despite teething troubles, DeMo was an ill thought out move.

Economic Downturn: Policy Prescriptions For Reviving Growth

The dip in the economic growth rate to 5.7% in Q1 2017-18 has sent alarm bells ringing despite being explained away as the effect of demonetization - by the opposition -  & an inventory destocking exercise in preparation for the onset of GST on 1st July - by the ruling party. Ideally, restocking of counters should happen in Q2 in anticipation of the Diwali season falling in Oct this year, but the teething effect of GST implementation - as has been the case worldwide of leading to a hockey stick curve growth pattern, a dip initially followed by rapid growth - is likely to be replicated in India too. Agricultural growth in Q2 is likely to be low considering the high base effect of 4.1% for the same quarter of last year. Exporters are seeking a Rs 65000 crore refund which if delayed would deteriorate their working capital requirements  leading to a cascading effect of a drop in exports.

Against the above background are listed the possible solutions for revival. 

Short term :

(a)Drop taxes on fuel to ensure more disposable surplus in the hands of the common man to drive immediate consumption; the consequent drop in govt. revenues could be made up by increasing the custom duty on crude currently at zero. Thankfully petroleum is not under GST & hence this change shall not impede the GST roll out process.

(b)Drive stalled projects completion since it is a low hanging fruit.

(c)While repo rate is at 6%, the lending rates are at 11-18%. Instead of pushing the RBI to drop the repo rate further, prompting PSU banks to drop their lending premiums & drive greater access to the MSME sector shall be in order.  The repo rate drops announced by the RBI have not seen "transmission" by the banking system reeling under high NPA's since they need to get returns from a lower quantum of assets which is akin to "Lazy banking".

Large corporates - with a debt overhang & capacity utilization trending at 74% - are unlikely to go for fresh investments. Ambitious industrialists in sectors which have high capacity utilization are likely to look at buying distressed assets - available in plenty now - rather than go for a brownfield expansion. 

It must be noted that while there was an  record FDI of $60 billion into India last year, $18 billion was repatriated - a sign of low confidence - & the repatriations have increased since 2013-14 when it was $5.2 billion. If growth is not accelerating but actually dipping sequentially since the last 6 quarters is it because FDI is being employed to buy existing capacities rather than creating new ones?

Medium Term: 

(a) With stock market above the 30,000 mark, accelerate divestments. Contain political opposition to the act who could potentially launch a propaganda that the govt. is selling family silver with the argument that all the disinvestment proceeds shall flow into an SPV to be used for capital reinvestment & hence it is a case of one asset being sold to create another with the bonus of additional employment. This has deliberately been put under a medium term plan since there is a time lag between planning for divestment, actual disinvestment & making the project "shovel ready".

(b)Use the Chinese model of investment acceleration by the PSUs, during an economic trough, as a counter-cyclical measure; Indian PSU chiefs though are unlikely to listen to their political masters in their last year in office if they foresee that the current dispensation is unlikely to return to power.

(c)Focus on exports: Exports dropped from $314 billion in 2013-14 to $276 billion in 2016-17. Of the $38 billion drop, $31.5 billion is petroleum products which is understandable but the $2 billion drop each in rice (when our granaries are overflowing), yarn/fabrics/handlooms  & electronics is not. Likewise, the $1.3 billion drop in leather & meat exports indicates the pernicious effect of cow vigilantism which needs to be addressed. Sectoral & geographic targeting, therefore, both in the economic & social sphere shall be helpful. 

Long term: 

(a)Indian savings rate has been dropping continuously from a high of 36.9% of GDP in 2007-08 to about 31% in 2016-17. With an incremental capital to output ratio of 4 - which in simple words means we need Rs 4/- of additional capital to produce Rs 1/- of output - India shall theoretically trend at a maximum GDP growth rate of about 7.5% unless we increase the savings rate or increase productivity or both.  

(b)M&A of PSU banks, capital infusion & NPA rationalization. Some analysts have recommended bank recapitalization beyond Project :Indradhanush" - that envisaged Rs 0.70 Lakh crores infusion by the govt. into state run banks even as they raise fresh equity of 1.1 lakh crores from the market during a 4 year period starting 2015 -  betting on the "multiplier effect" of increased bank lending. However, considering the current anemic single digit credit growth & low utilization levels, recapitalization beyond subscribing to the Basel III norms might not be helpful; public investment rather than recapitalization might be a more prudent strategy.

Conclusion: 

These strategies shall drive 3 of the 4 levers of growth: Public investment (divestment & pushing proceeds into infrastructure); Private consumption (vide fuel price drop) & Exports(Geographic & sectoral focus) even while private investment - the last lever - takes time to get back on track; after all, demand generation by the other 3 levers would increase capacity utilization prompting private investment; an increase in investment by local industrialists would subsequently prompt more of the foreigners to follow suit.

Is “Privacy” a Fundamental Right?

The current debate on “Privacy” has pitted legal luminaries against each other; advocates representing states like Maharashtra, MP, Gujarat etc. have joined the centre in arguing against “privacy” being declared a fundamental right against legal eagles representing petitioners including states like Karnataka, Bengal, Punjab etc. on the other side.

Historical judgements on “Privacy”

“Privacy” is not a fundamental right ruled a 8 Judge Constitutional bench in the MP Sharma case (1954) & a 6 judge constitutional bench in the Kharak Singh case(1962); however, a seven-judge bench in Maneka Gandhi case (1978) approved of the dissenting judgment in the previous cases.

The 3 judge bench in the Gobind case (1975) ruled that certain intrusive police regulations were unconstitutional as privacy is a pre-condition for enjoyment of other fundamental rights & similar judgements followed; petitioners, therefore, urge the apex court not to reverse the progressive recognition given to the “Right to Privacy” for over 4 decades. Incidentally, over the years, the scope of fundamental rights has been expanded to include the right to a clean environment, sexual harassment (Visakha Guidelines) at al.  In the landmark Selvi case (2010), the judges specifically looked at Kharak Singh and MP Sharma cases & passed an order that a combined reading of rights meant that procedures like narco-analysis were wrong because they violated the right to privacy.

If privacy is not a fundamental right then the protection offered under article 8(1) (j) of the RTI act – the most cited act by the govt. to deny information - would be called into question. As per the act a public authority can deny personal information if by doing so it would cause an unwarranted invasion of privacy or if the disclosure does not serve public interest.

To break the constitutional logjam a larger 9 Judge bench of the SC bench was constituted under Chief Justice Khehar which is hearing the case since July 18^th.

Arguments Against “Privacy” as a Fundamental Right

Attorney General, KK Venugopal has argued for the govt. that Privacy is not a fundamental right - since it is not explicitly mentioned in the constitution to be countered by Soli Sorabjee who averred that despite the freedom of press not mentioned as a right in the Constitution, it has been deduced by the courts to exist under freedom of speech.

Privacy is a “common law right” offered Venugopal to be enforced by filing a civil law suit unlike a fundamental right which the court would enforce vide a writ which meant that privacy could be sacrificed at the altar of some vaguely defined public interest vide an amendment. After all the far reaching 11 Judge Bench judgement of the Bank Nationalization case (RC Cooper, 1970) was reversed vide the 25^th amendment to the Indian Constitution, in 1971, that curtailed the Right to property; the Kesavananda Bharti case (1973) thereafter instituted safeguards to protect the “Basic structure of the constitution”

The AG argued that “Informational privacy” cannot be a fundamental right only to be reminded that a State could seek information from a woman on how many children she has but cannot ask her how many abortions she has undergone. He also argued that Fundamental right is not absolute & reasonable restrictions apply; after all article 19(2) - the first constitutional amendment – was inserted to put curbs on the Right to freedom of speech & expression.

CA Sunderam representing the Maharashtra Govt. has argued that the term “privacy” is undefined & reminded that the Constitutional assembly deliberated on making the “Right to Privacy” as a standalone fundamental right & discarded it post debates.  He read the Gobind case judgement to highlight the words” if privacy is assumed as a fundamental right” to argue that “privacy” was   assumed. He averred that privacy might mean isolationism which itself is an antithesis to society only to be reminded that it is a citizens’ right to decide whether to live in solitude or co-habit with society.

Arguments for “Privacy” as a fundamental Right

Gopal Subramanyam cited the Maneka Gandhi case (1978, SC) - which held that the right to life and personal liberty had to be interpreted broadly through a combined reading with other fundamental rights under Articles 14 (equality), 19 (freedom) and 21 (life and liberty).  If a person is under surveillance, he will fail to speak up & that impacts the freedom of speech & expression under article 19(1) (a) of the constitution. Infringement of privacy is an affront to the dignity of the individual guaranteed under the Right to Life & Liberty (Article 21. Likewise, he contends that Article 25 of the Constitution guarantees Freedom of conscience and freedom to practice religion & availability of a necessary zone of privacy to arrive at positions is a pre-requisite.

Divan cites the unbroken line of decisions by the Supreme Court since 1975 as a reason for supporting privacy & argues that as a minimum privacy should be defined to include the right to be left alone, body integrity & information self- determination; compelling an individual to give up their information violates the right to privacy.

International Experiences

Europe generally is governed by the Data Protection Directive that requires member states to "implement technical and organisational measures to protect personal data against accidental or unlawful destruction or accidental loss, alteration, unauthorised disclosure or access” and to establish judicial remedies for breaches. It also mandates the establishment of a public authority to monitor adherence to the directive.

The US is governed by the Privacy Act, 1974, to protect individuals from unauthorised use of their records by a federal agencies which are accountable for protecting & maintaining accuracy of records, &  also reveal the purpose for which are collecting information. The Snowden revelations indicate that Acts per se cannot protect privacy unless there are effective institutional checks & balances, supported by an active civil society & ethical corporates. While the revelations led to a Presidential commission & a private member’s bill to reduce the powers of the NSA & the Prism program, Magistrates have turned down more cases brought by law enforcement agencies under the Patriot Act. Google has sent millions of mails to users urging them to exert pressure on Congress for surveillance reform & Apple has refused to help the FBI hack the iPhone used by the San Bernardino terrorists.  When threatened with lawsuits, AT&T finally started releasing transparency reports.

 Conclusion

The government is promoting digitalisation, enacting policies permitting surveillance in cyberspace, telephones, email, personal messages etc. & implementing national programmes like Unique Identification Number under the grab of national security demands the enactment of stringent privacy laws.

If the bench decides that privacy is not a fundamental right, it will be impossible to escape the consequences for decades. Even if they pronounce it “fundamental” the validity of Aadhar shall be left to be decided by a smaller 5 Judge bench which can either declare the procedure established by law under Aadhar Act 2016 "not unreasonable" or delay pronouncement which would render its findings infructuous.

Either way, India is about to make history.

The Pangs of Protecting Privacy

Is “Privacy” a fundamental right? The Supreme Court is currently seized of the matter with petitioners ranged against the govt. that contents that it is not. The judgement expected end Aug 2017 shall have an epochal impact on posterity.

While the honourable Supreme Court, in Oct 2015, ruled that a citizen cannot be compelled to have Aadhar as a necessary condition to avail centrally sponsored welfare schemes, it has found no fault, in Mar 2017, with the government’s choice – vide Aadhar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill, 2016 - to make Aadhar mandatory for “non-welfare” activities like opening a bank account or filing Income Tax returns. The Supreme Court order of August 11, 2015 restricting Aadhar use to only PDS, Kerosene & LPG was later amended to include MNREGS,  National Social Assistance Programme pensions (old age, widow and disability pensions), employee provident fund (EPF) and the Prime Minister Jan Dhan Yojana (PMJDY)

 Advantages of Aadhar Linkage

There is no denying that DBT (Direct Benefit Transfers) has brought in greater efficiency in public spending & reduced corruption by weeding out bogus beneficiaries; the govt. has attributed Rs Rs 49560 crore in savings during the period 2014-16 vide this initiative & to buttress its argument quotes a World Bank 2016 report that claims that Aadhar if extended to all social welfare programs has the potential to create a saving of $11 billion. 

Linking PAN to Aadhar could help identify tax evaders too. In a country where less than 4% of the population pay Income tax – including TDS – a shift to digital transfers vide UPI (Unique Payment Interface) would add a digital footprint to the metadata providing an opportunity to shift to an arguable alternative consumption tax model.

A national criminal database based on Aadhar could help prevent crimes of the Uber kind where an Uber driver - a noted offender in UP - came to Delhi, got a driver’s license & molested a passenger. Going forward there is a case for linking Aadhar to the voter ID cards to eliminate bogus voters to bring about a much needed clean-up of the much maligned electoral process. 

However, other concerns remain.

The Emergence of a “Big Brother” State & “Data Oligarchs”

When Aadhar project was initiated in 2009, under Nandan Nilakeni, as a deliberate policy, to address privacy concerns, only 5 data points were collected from all individuals: Name; Address; Date of birth & Biometrics – iris scan & finger prints. The govt. later extended it to the JAM trilogy – Jan Dhan bank account, Aadhar & Mobile – & now to PAN cards thereby adding financial details to the data master. The National Academic Depository (NAD) containing educational records connected to Aadhar adds another data point.  If credit & medical records too are linked to Aadhar the enormity of information at the govt. hands is staggering, liable to be misused for political purposes in the absence of adequate checks & balances. An Orwellian “Big Brother” surveillance state - hiding under the veneer of security threats - is a distinct possibility.

The creation of “Data oligarchs” is also a cause for concern. Telcos, ordered by GOI to authenticate customers using aadhar can profile their customers based on an individual’s music, movies, videos, news consumption & chat topics of interest; running their own payment gateways or by using the UPI (Unique Payment Interface) they would track digital payments too.  Telcos thus do not run a dumb pipe any longer. Likewise, Google collects metadata based on an individual’s search interests & mail contents while Facebook collects demographics, geographics & psychographics of its users; GPS activation makes physical tracking easy. Since citizens are not aware of the nitty gritties & sign off privacy in their dealing with social networks, Telcos et al, due to ignorance, it is the government’s bounden duty to legislate norms for the same.

Breaches Galore

Such a rich database if it falls into wrong hands could lead to extortion calls leading to a security nightmare. 

Recent events do not inspire confidence on data security. A probe by NPCI (national Payments corporation of India) found a malware-induced security breach in the systems of Hitachi Payment Services -  which provides ATMs, point of sale and other services in India.- during the period May-Aug 2016,  effecting 3.2 million debit cards that forced banks to either issue new cards or request customers to change their PINs. Jio customer database of 10 crore customers along with Aadhar nos. was posted on the website magicapk.com, As per a Mint report, on 25 April, many government departments, including the ministry of drinking water and sanitation, the Jharkhand Directorate of Social Security, and the Kerala government’s pension department, had published Aadhar numbers of beneficiaries of the schemes. On 1 May, Bengaluru-based think tank Centre for Internet and Society (CIS) reported that 135 million Aadhar nos were made public by a Central government ministry and a state government. This calls for stronger measures on data security & penalty on violators.

Conclusion

Since India is a signatory to the Universal Declaration of Human Rights in 1948 and the International Covenant on Civil and Political Rights in 1979, a “privacy law” is in order. The UN General Assembly has appointed a Special Rapporteur for privacy since they recognised privacy as a global concern, especially in the digital age. The EU had gone far by allowing freedom to an individual to decide on deleting their digital footprint; it allows the freedom to be " left alone" - to remain anonymous.

A distinction though has to be made between “Privacy” vis a vis “Data Protection”; while data protection has to be absolute, privacy can be subjected to reasonable restrictions the contours of which should be strictly defined by law; going forward surveillance should be allowed subject only to court approved orders & new issues on privacy raised due to the advances of technology or a perverted minds judged on a case to case basis 

Indian Telecom Industry: At the crossroads

The Indian Telecom industry has de-grown by 7.35% in GR (Gross revenue) & 15.6% in AGR (Adjusted Gross Revenue) in the FY 2016-17 over the previous year courtesy the Jio launch that has hastened consolidation & accelerated layoffs. The Voda-Idea merger announcement pushed the consolidated entity into the numero-uno position in RMS (Revenue Market Share) while the Airtel-Tata propinquity is a strategic attempt to narrow the gap by the dethroned leader; Aircel-MTS -Reliance Communications merger completes the picture with BSNL-MTNL being the PSU challenger. It shall henceforth be a 5 player game.

Jio’s launched officially in Sept ’16 & by end May ‘17 had quickly accumulated over 11.72 crore customers of the total mobile broadband usage base of 27.28 crores (43%). India with a total mobile base of 118 crores & wireless tele-density of 91.74% leaves very little space for customers acquisitions, new to the category.  Wireless internet user base, end Mar ‘17, was 40.06 crores – of which 14.5 crore is a narrow-band base, albeit shrinking - indicating that 78 crore users are pure voice customers. The industry’s VLR fig of 86.34% also indicates a steady increase in customer quality & retention although it varies across operators with Idea highest at 101% & MTNL lowest at 47%.

Jio Strategy

Jio’s brand promise of perpetually charging only for data & not for voice is a clever attempt at doing what they know that competition cannot replicate. Their plans: Unlimited voice at Rs 149/- & unlimited voice + data of 1GB per day at 309 for 28 days simplifies tariffs in an over-communicated world; however, their net revenues are likely to be low, perhaps negative, since the IUC(Interconnect charges) at 14 paise per min (PPM) for Mobile calls has to be paid to the recipient operator. Had Jio launched a starter pack at Rs 49/- with all voice calls at 14 PPM, it would have been a better proposition despite denying them the opportunity to showcase “voice free”. Hence their attempts to push the regulator to remove IUC charges would continue despite protestations from the other operators.

Post securing a large 4G base in wave 1, Jio attempted to target the Hi Value 2G/3G customers in wave 2, vide JioFi launch that provided 150Mbps upload & 50Mbps download speeds for upto 32 devices - smartphones, laptops, tablets & smart TVs - with a heavy duty 2300mAh battery that promised a 5-6 hour surf backup – thereby providing mobility while relieving the need for an electrical connection. At a cost of Rs 1999/- - much lower than the cost of a new 4G handset - you could make Video and HD Voice calls, send SMS and set up even (5+1) Audio & (3+1) Video conference calls with the Jio4GVoice app. They now seem poised to target the 78 crores pure voice customers, under wave 3, with the launch of a 4G handset at Rs 499 - 999/- which would involve a heavy subsidy of over Rs 1000/- per handset; since it is likely to be a pure 4G handset – not supporting 2G/3G - a customer is unlikely to "unlock" the device & shift to competition till the time their 4G networks too are not ubiquitous which is at least a year away. Lower the subsidy, higher the chances of targeting the replacement market alone reducing the size of the pie.

Looking back, the “Monsoon hungama” offer, of 2003 - when Rcom offered handsets at Rs 501/- -  it can logically be presumed that the proposed offer too would attract subscribers at the "bottom of the pyramid"; the corollary to such an induction is that it would put off Hi Value customers. By launching JioFi before the proposed roll out of the low cost handset, Jio appears to have factored this in; however, it would be difficult to make a Hi-Value iPhone customer sustain the Jio connection comfortable in the knowledge that a daily wager too uses the same brand; jio, therefore, could face a brand related challenge.  Likewise, Jio’s Lyf handsets lack robust service centres & that could impede "customer experience" & consequently "word of mouth".

Wave 4, would concentrate on broadband; reliance is already testing its broadband services of 100 Mbps & 100GB in key cities; armed with an MSO (Multiple System Operator) licence it would use the same infrastructure to attack the cable business as well. Expect therefore a consolidation in the cable industry as well.

Jio would be better advised consolidating penetration in "family" as a unit by offering a quad core product – broadband with a cable connection plus 2 mobile connections at Rs 1499/-; their attempts at rate revision by offering unlimited voice with 1GB data per day for 2 months at 399/- would help in ARPU accretion & earn analysts praise in the expectant hope that full charging would commence by Q3 FY 2017-18.

The Strategy of the Incumbents

Airtel-Tata & Voda-Idea could follow a different strategy of segmented offers taking advantage of their entrenched UnR (Usage & retention) machinery. They currently appear to be operating on the following 3 broad customer segments

(a)Customers not showing a dip in usage: Manage customer loyalty through better service with a disproportionate focus to "ring-fence" Hi value prepaid, postpaid mobile & broadband customers. The postpaid product of Jio lacks teeth & that helps the incumbents.

(b)For customers showing a dip in usage:

(1) Offer them full talk time offers & rate cutters to induce higher usage

(2If the above fails & customers show a persistent dip in usage over consecutive months, a Rs 349 plan that serves unlimited voice + 1GB data per day - a marginal premium over the Rs 309 plan of Jio.

(C)Customers who have migrated to Jio: Match Jio on voice & data while protecting the SMS revenue – despite the SMS segment shrinking.

The incumbents also appear to be veering towards the following broad strategies

(a)Retain the advantage of top ups as low as Rs10/- which Jio lacks; students with low pocket money or daily wagers have been traditionally seen to prefer low sachet packs.

(b)Don’t burden their distributors with handset sales in a bid to preserve the channel’s working capital; this is a wise attempt at avoiding the risks of technological obsolescence, non-receipt of price drop differentials to the channel & the consequent channel angst. Instead, allow handset operators to push 4G handset sales vide “bundled offers”. This is inherently a cheaper option as compared to handset subsidy.

(c)Get aggressive in the post-paid & enterprise segment where Jio lacks an effective product & service back up. Airtel – Tata merger would be attractive on this count alone despite Tata Tele being burdened with a Rs 30,000 crore debt; of course bundling Tata Sky & Tata Communications - which are otherwise profitable entities - with Tata Tele in the merger talks makes it a win-win. The combined entity can strengthen their hold on the 2.41 crore customer wire line segment, where Bharti has a 16% share to Tata’s 7.6% against the dominant PSU (BSNL+MTNL) share of 69.6%; other private players have no significant play in this segment yet.

Conclusion

Mergers however induce its challenges of manpower rationalization, channel resizing & reopening of vendor negotiations & that could change the RMS stack rankings. While Airtel- Tata, Idea-Voda & Jio have the financial muscle to sustain a long bloody game, the same cannot be said of BSNL-MTNL or the Reliance – MTN – Aircel combine. A 3 player scenario eventually seems to be a distinct reality; if idea-voda delay investments on fibre it could well be a 2 player game. While players shall regain pricing power, with further consolidation, it is unlikely to happen soon. Therefore, expect the industry to seek & secure concessions from the govt. on reduction of SUC (Spectrum Usage charge) & rationalization of licence fees instalments; a rethink on net neutrality in a bid to gain a revenue share from the OTT (Over the top) players like Facebook could be their other demand.

It would be safe to assume that the next 6 quarters would see a lot of action & bloodshed in this sector eliminating a lot of professional careers & corporate brands in the bargain.