The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) has come of age. We have just had the 5^th Summit hosted by Sri Lanka (30 March 2022) in a digital format due to the pandemic. It generated lot of media curiosity, especially in the region, as several new initiatives and increased financing were announced by the seven Heads of State.  All of them underscored the importance of this largest Bay in the world, that lies in the heart of Indo-Pacific, as mentioned by a well-known thinker C. Raja Mohan. Unfortunately, it is also the least connected region. Hence 3Rs connectivity with Rail, Road and River along with digital and fintech connectivity through multimodal mode would have to be created. Negatives and shortcomings that prevailed in other regions like SAARC could be avoided to let BIMSTEC achieve its fullest potential. As such BIMSTEC, due to prolonged inaction since inception in 1997, has waited exceptionally long in making its pronouncements heard and felt in the conventional mainstream media.^[1]

As for India – a key driver of the initiative, it has acquired a new salience in its international discourse as the areas of collaboration and intra-BIMSTEC synergies are becoming increasingly relevant. BIMSTEC has become a ‘Triveni’ or confluence of India’s ‘Neighborhood First Policy’ and ‘Act East Policy’ which inter-alia, dwells on primary physical, economic and digital connectivity and addressing mutual challenges and concerns like counter terrorism collaboration and climate change. It is also looking to build greater and resilient socio-economic edifice for mutual advantage of all partners in progress. In this quest it is imperative that efforts are made to sensitise all concerned about its aims, objectives, directions and priorities and quantifiable roadmap and achievements so very essential to the BIMSTEC geography in particular and global audience in general.

 

They would also need to be told of challenges—both intrinsic and external—since we live in a global village and truth must be told for sustainability and confidence. Most people don’t know what BIMSTEC is all about and the longish statements issued after various meetings and Summits are too copious to be deciphered by the ordinary people. Hence a smart communication methodology would need to be devised as media organs and style has undergone a tremendous shift in recent decades with 24×7 TV channels and social media in overdrive. An organic interactive dialogue mechanism encompassing the holistic spectrum may be of significant help but for that continuous upgrading of authentic communication of relevant content will have to be made available. Not an easy task but will have to be done and that’s where government and media will have to be on board and in sync in an honest manner if a positive ‘Brand BIMSTEC’ is to be generated.

Learning from others can be of some help. There have been other regional and sub-regional organisations like the European Union, NAFTA and the ASEAN (Association of South East Nations) which have remained in news and have caused sufficient interest among the constituents and beyond since there have been issues and initiatives that are often of interest to their audiences and readers. SAARC has been in news for wrong reasons because the India-Pakistan rivalry has often played at the regional level due to bilateral context. At the same time, issues like cross-border terrorism and support from the Pakistani deep state and Islamabad’s inability or lack of resolve to contain the terrorism from its territory against India have always generated headlines. Consequently, SAARC’s efficacy has been undermined.

Many of the friends in the media, often claim that ‘Good News is No News’ and ‘Friction is the fruitful’ and that is precisely the predicament most governments and the diplomatic missions face. One can argue that they have remained in the news because of a certain sense of friction being present, be it be a Trump junketing the multilateralism and institutions like UN, WTO, WHO or CPTPP and completely junking NAFTA, revising it altogether after two decades or for that matter BREXIT keeping the world guessing of its impact on the global landscape and on the EU itself. Likewise, RCEP (16 countries Regional Comprehensive Economic Partnership) remained in news because India, despite negotiations, stayed out of it. India and UAE signing the Comprehensive Economic Cooperation Agreement in record time of 88 days with ten times the pages it has been inscribed on, raised the bar of expectations because it has a novelty of sorts.

I recall the 1994 visit of the then Prime Minister PV Narasimha Rao to USA – a visit I was handling in the mission. The bilateral visit broadly went unnoticed despite all the critical elements of the program being there.  When I spoke to several of my media friends about their lack of interest, they said what is so great about a PM visit. USA can boast of several heads of governments and delegations visiting on a daily basis.  They also said that ‘The Good News is no News’ and the Press Releases issued by diplomatic missions are hardly of media interest which looks for ‘Masala’ rather than staid list of unverifiable achievements that are in any case not of much interest to their respective audiences. Another interesting comment was that the Embassy Press Releases were mostly for domestic consumption. During the same visit, for the visit of the PM to Boston, the extensive security briefings we carried out at the Four Seasons Hotel in Boston, scared the hotel security and authorities so much that they sent some of their staff on paid leave. While we were happy with the overall outcome of the visit, I got a call, on reaching my office in New York after returning from Boston, from my friend, who was the Foreign Editor of Boston Globe. He told me that the hotel employees had filed a case and claim at the US Discrimination Commission against the hotel and the Indian PM. While we tried to douse the fire, the news spread like wild fire for days together. This is how the media functions, operating primarily to attract audiences in a highly competitive informational battle for supremacy. That is true for major media organs, hence newsworthiness is an important vector.

Governments and the rich and the mighty do control and manipulate media, either by owning it or through advertising revenue stream. One often hears that the Chinese government has been investing in western media to the tune of over USD 6 billion to create stakes and constituencies and thereby to propagate the desired narratives. At the same time news bytes of interest do generate some traction with the traditional media and even more so with social media. Social media has become the biggest tool in the hands of ordinary citizen. Citizen journalism has become a reality that can become a tool and a challenge to contend with. If there is an interesting news, it can exponentially multiply the outreach. At the same time, more often than not, since we do not have tools for verification of newsworthiness and its veracity in real time, the fake news has become a major challenge and a great deal of damage is done before the truth emerges.

Sometimes, action is taken against even the high and mighty whose messages are taken down be it Myanmar military regime leader Ming Aung Hilaing or former President Trump of USA. On the other hand, in the ongoing Ukraine-Russia war, truth and independent reporting has become a casualty of information warfare. Democracy vs autocracy and the use of the powerful media tools often plays their own dynamic even if essentially there may not be a significant interest. Twitter and Facebook banned President Trump for his incendiary remarks in January 2021 when the citadel of democracy was attacked in Washington DC. Although social media is trying to develop certain ethics, these have got a good beating during the recent Russia -Ukraine crisis where they gave license to people to even indulge in hate messaging against the Russians. Psyops and disinformation campaigns are a reality, not only during wars and conflicts but also during peace time. It is a constant process in one theatre or the other. Constant vigil against such disruption is a sine qua non.

 

Beyond the classic frameworks that underpin brand development initiatives, the fundamental purpose of building a brand is to create resonance with the people and among them. Our society’s pain points, their aspirations, their core needs—these are among the key metrics a successful brand must endeavour to address. By speaking to them directly about what matters most to them, BIMSTEC can create awareness, recognition, positive association, and ultimately, the buy in of its audience. Embodying the culturally relevant and accessible tone of voice, language, emotion and values, BIMSTEC must position itself as an ally of the people, existing in its very essence to support the needs of economies that remain insulated from the first world stage at large, and so, need a voice that is louder, bolder, uncompromising and persistent. BIMSTEC’s ethos must be woven into a narrative that inspires, creates confidence and builds faith and trust among its vastly diverse target demographic.

In a hyper-connected world like ours today, the current economies we aim to support still remain largely inaccessible. Leveraging the local government and media houses creates a direct channel of communication and reach between BIMSTEC and the people it stands for. Not only do these mediums have the required access and influence to make or break a brand’s identity, impact and success, but collectively, they also possess the power to direct consumer narratives, perception and understanding.Activating their strength in a purposeful manner can facilitate the unleashing of true brand potential, ultimately creating a platform that allows a two-way win—brand awareness among the people, and a voice for the people.

In order to carry forward the aims and objectives of the Organisation it is important to have a strong, functional and well-funded Secretariat. Fortunately , the Declaration endorsed this view by stating “Agree to enhance the institutional capacity of the BIMSTEC Secretariat, including through financial and human resources, in order to enable it to coordinate, monitor and facilitate implementation of BIMSTEC activities and programmes; and initiate project proposals as agreed by the Member States as well as fulfil any other responsibility entrusted to it in an effective and efficient manner and agree to raise the numbers of Directors to seven, one from each Member State, in a staggered manner”. Additional funding has also been committed. Hopefully the Secretariat will now follow-on key issues and tasks assigned to them by the Fifth Summit.

BIMSTEC is a unique sub-regional collective that encompasses the complementarities of the maritime economy and security with mountain economy. India in the past has been a trading nation with dozens of good ports and reliable shipping lines and routes. The recent SAGAR (Security and Growth for all in the Region) initiative by Prime Minister Narendra Modi clearly is relevant for the members since it seeks to defend the national interests through deepening of economic and security cooperation by engaging in collective action for peace and security and deepening regional integration based on sustainable development. It is in the interest of all stakeholders, especially the leaders, to give their best (and not only “timely holding of Summits” but regular ones) to make BIMSTEC a real success story that will benefit them all in the long run lest it becomes another “Rubik’s Cube”.

 

While we must have a branding and communication strategy the source of information also needs impeccable credentials, especially as those countering the narratives for decimating the importance of the BIMSTEC initiatives through chatbots and social media campaigns or not even giving adequate attention or space to it, have an implicit and explicit agenda for their geo-political or geo economic ends. Hence, they will use a tool that highlights ‘the lack of press freedoms’ and denigrates the news coming out of these countries.  Although contested vehemently by countries like India, one may look at the following indices and ranking regarding journalistic liberties as per the 2021 World Freedom Index.^[2]The index is not an evaluation of the quality of journalism. The index is an assessment of pluralism, independence of the media, quality of legislative framework and safety of journalists in each country and region.^[3]

Sl No	BIMSTEC Countries	Ranking	Score
1	Bhutan	65	28.86
2	Nepal	106	34.62
3	Sri Lanka	127	42.20
4	Thailand	137	45.20
5	Myanmar	140	46.14
6	India	142	46.56
7	Bangladesh	152	49.71

 

• Above listing is out of a total of 180 countries

Therefore, while strategising, it will be imperative among other ingredients to factor this inherent bias which means not only trying to address the issues of concern to the Fourth Estate but also to contend with the biases. Any problems and issues in these countries are likely to create far more negative news than the positive slant. Recently, President Biden hosted a Democracy Summit in which Bangladesh and Sri Lanka, the two countries that moved out of the list of Least Developed Countries during the same period and have been doing better on several socio-economic indices were not invited, while Pakistan, an overtly fragile democracy, shadowed by its deep state security outfits shared the podium. It is not only the hypocrisy one is looking at but the power of western Project Democracy.

 

One should not be surprised if ongoing crisis of democracy in Myanmar or economic troubles of Sri Lanka, Maldives and Nepal and elsewhere could be flagged to denigrate the credibility or potential of BIMSTEC. Or for that matter in the wake of Russia-Ukraine crisis, stance of India and her vote at the UNSC etc. could harbinger a media tirade to degrade her democratic credentials. This biased narrative making is another challenge which needs to be factored. In essence, what is needed the most is packaging, which must be commensurate with reality to the maximum extent possible. This can be achieved through a well-conceived resource rich communication tools and strategy.

One of these could be creation of a Digital News Platform for the BIMSTEC which could generate curiosity and help productively satisfy the target audiences. In the 5^th Summit, 14+1 areas of cooperation have been reduced to more practical 7, allocated to each member state. Hence, media capsules on newsworthy positives across the spectrum will have to be created and disseminated through modern tools of communication as well as through conventional media organs including the state controlled or owned who in any case have a larger outreach. Chatterjee argues that the highest international standards of content generation along with the best practices followed in the international media industry need to be adopted in order to realise the intended outcome.^[4]

India will need to focus and prioritise its connectivity and infrastructural outreach in the Asian region. In the sub-regional context India by virtue of its size and strength will have to fork out majority of financial and capacity building requirements. To what extent can it pitch in without over-stretching is the moot question! Besides, China will continue to poach into our South Asian and BIMSTEC neighbours and play upon their fears of the “Big Brother Syndrome” alluded to India. Hence, they would continue to seek out both India and China in order to strategically balance their dependency. Therefore, while playing a critical role as an engine for BIMSTEC and other regional and sub-regional groupings, India has to strategically calibrate its power projection and proportionate financial commitments. It is a fact that until the Goa Retreat on the side-lines of BRICS Summit, India’s financial commitment was insignificant and it had not even appointed a Director to the fledging BIMSTEC Secretariat. Such lacunae could easily decimate the claims to a leadership position and the confidence of its smaller partners who might look to it. Hence India took a significant lead to address the key issues at Kathmandu.

Connectivity and Communication are the key ingredients and objectives of the BIMSTEC. Hence, the role and the vision of BIMSTEC can be summarised to improve connectivity between India, Bangladesh, Myanmar, Thailand and other members through a network of multi-modal transport and digital corridors. These networks would facilitate trade, exchange of energy through oil and gas pipelines, promotion of counter terrorism and tourism and increase of communication links leading to what can be termed as a zone of co-prosperity.^[5]Role of media is also implicit in it.

 

Following recommendations might be of some relevance:

• Not many people know about BIMSTEC including from among the academics especially its full form. Some say it is too cumbersome. Should the name be modified to relate to the countries i.e. B (Bangladesh& Bhutan), I (India), M (Myanmar), S (Sri Lanka) T (Thailand) and add N (To denote Nepal) Economic Cooperation Enterprise? So, for branding, the name is to be brought to life. But what is the end game!
• Identify the key drivers and ingredients including objectives, achievements and assessments through a SWOT analysis to create the branding architecture of BIMSTEC. There are plenty of initiatives whose matrix with reference to implementation will have to be created on a regular basis.
• BIMSTEC secretariat needs to be beefed up in its professional media management skills and outreach so that the stories that matter can be advanced to the target audiences. They could work closely with point persons in each member country to develop the requisite narratives.
• Negative publicity would need constant vigil and credible rejoinders that can be formulated not only by the government authorities but by the intelligentsia hailing from the think tanks, media experts, opinion makers and informed change seekers.
• Dedicated digital platform with chatbots could be created to transmit capsules of relevant and verifiable information about BIMSTEC at regular intervals.
• A BIMSTEC app could be considered in English and vernacular languages which would enable easy access to information and its use. Initiatives have to be directly relevant to the developmental aspirations of the people in order for them to be invested in brand building. After all, it is the users who sustain any brand.
• Citizen journalists have become the protagonists of information dissemination in this age of Social Media preponderance as a medium of real time communication. Hence, popular perception will multiply the outreach many fold.
• Perhaps an Institute of International Relations and Journalism could be established, which could eventually provide the right kind of human resources as well as enable crafting of ever evolving strategies to meet the challenges of the times. To start with, this could work in a hybrid format.
• Creation and building upon the Buddhist and other religious travel circuits could be a good interactive initiative where P2P interactions may enhance human connectivity.
• It is also important to facilitate ease of travel for BIMSTEC businessmen, tourists and academics. If possible, visa free travel may be considered simply by strengthening the immigration architecture and real time exchange of data as is done in the EU to counter the threats from undesirable elements as well as transnational criminals.
• If visa free travel is not possible, even a one-yearall-purpose BIMSTEC visa may be considered. As far as possible, to begin with, all member countries could promote their tourist and business potential and work together as a team via the digital platform. E-visa system as existing in India could be extended to all member countries. Studies indicate that Indians who are the biggest per capita spenders on tourism prefer to visit places which have trouble-free connectivity and entry requirements. No wonder over a million and half Indians travel to Thailand every year.
• National interest harmonisation may help in all the key areas for effective communication. Disputes draw more attention.
• Perhaps an Eminent Persons Standing Group may be created to research and design communication strategies as well as to advise the Secretariat on possible way forward in given and evolving situations.
• Financial viability of the organisation and Secretariat is essential for undertaking meaningful initiatives.
• Finally, symbols play a significant role in connecting with people and we may have to look at the possibilities and broad based and acceptable commonalities across the BIMSTEC region.

Author Brief Bio: Ambassador Anil Trigunayat is a former Indian Ambassador and a regular contributor on foreign policy issues. He is associated with several Think Tanks including as Distinguished Fellow with Vivekananda International Foundation

References:

^[1] Arjun Chatterjee in Chapter 11 of the ‘Bimstec -The Journey and the Way Ahead’ edited by Sreedha Datta , Pentagon Press (2021)

^[2]2020 World Press Freedom Index | RSF

^[3]Countries ranked by freedom of press – The Facts Institute

^[4]  Arjun Chatterjee in Chapter 11 of  the ‘ Bimstec -The Journey and the Way Ahead’ edited by Sreedha Datta , Pentagon Press (2021)

^[5]BIMSTEC and BICM: Two Competing Sub-Regional Frameworks? | Vivekananda International Foundation (vifindia.org)

Introduction

What makes a country worth living is not just economic hegemony and achievements of the state, it is the wealth of the culture of the people, accumulated over centuries of wisdom about how to conduct life. The ancient Indian civilisation is the source of all the extensions of what we call as the Indian subcontinent. The geographic spread covered under this banner stretches far towards the Gulf on one side and towards the expanse of Indo-Pacific on the other.

In the chapters of human history, the only ocean named after a country is the Indian Ocean. The subcontinent holds one of the biggest consumer markets of this planet since ages. When Europeans set out in search of India, the sailor Vasco da Gama was the one who was escorted by a Gujarati sailor, the latter having ships several times larger in size than the ship being used by Vasco da Gama. The subcontinent contributed an average of about 27% of the World GDP for 17 centuries. So, it is not a surprise that Europeans devised a strategy through which they conquered the important islands and ports and the waters of this ocean and slowly subdued India. They got the raw materials from here, produced finished goods in Europe and sold them across the world. After centuries, the chess board is still the Indian Ocean, whereby countries like India and China are jostling for influence over the very same ports and island nations. China manages the Hambantota port of economically-marred Sri Lanka, Gwadar port of debt-laden Pakistan, while India holds Chabahar port project in Iran and is eyeing several ports and island projects in the Indian Ocean. The pivot of a major chunk of economics in the extended neighbourhood is the Indian Ocean because many resources like oil, gas, raw materials and goods pass through it.

ASEAN and BIMSTEC

Over a period of time, for political, economic and security reasons, various blocks and groupings were formed for cooperation on several fronts. The two main groupings we have in the Indo-Pacific region are ASEAN and BIMSTEC.

The Association of Southeast Asian Nations (ASEAN)currently has Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam as full members. The grouping is keen on working to build an ASEAN led political, security, economic, social and cultural community.

The success of this intergovernmental organisation recently is mainly on the grounds of economic integration and the free trade agreements with several countries of the region. The RCEP which is touted as one of the largest free trade agreements in the world is a very recent achievement. One of the common security interests which binds ASEAN is the influence of the Chinese military might in the South China Sea region. From food, defence to fuel and water security, the challenges faced by the ASEAN are very similar to what the entire region commonly faces.

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), comprises Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand. These countries, grouped around the Bay of Bengal, have identified a total of 16 sectors for cooperation among the members.

The connect between the ASEAN, BIMSTEC and the Indo-Pacific is not just imminent but extremely important, especially as we see observe the changing landscapes of geo politics in the Indian sub-continent region. It is a natural connect from several standpoints besides the cultural and trade ties since ancient times. Let us examine the issues pertaining to water and economic security,

Water Security

Water is not just a primary source for sustenance of life, it is much more than that. The entire chunk of economic engine arrives in any particular region upon the premise of water supply security. Industries across the business sectors need a promising and consistent water supply to thrive. They also need skilled and valued human resources, which would arrive to work with water supply as a basic ingredient of life. The control of water sources gives an invisible power to the wielder of such power over the lower riparian states. The dams on these rivers help controls water flows in these nations. It can also cause artificial famines or floods if put to an offensive use. The electricity generation and supply with hydro power projects on rivers also need consistent water-flow security.

China and the Indian subcontinent together produced more than 50% of the world GDP on an average for about 17 centuries out of the last 20 centuries of recorded history. What human beings were doing on this planet for a big chunk of these centuries as economic activity was agriculture, which in turn is dependent on water. The Tibetan plateau, also called the roof-top of the world, is one of the largest sources of fresh water anywhere on this planet, from which emerge some of the major rivers of this region. These rivers deposit a lot of silt on both the sides of its banks and with that, massive amount of agriculture output as GDP was possible for all these centuries. In the modern age, the industries and economy need consistent water flow and supply in the similar way.

 

Several nations like India, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, Thailand, Vietnam, Cambodia and Laos depend on the water flows from China and the disputed Tibet region. China has entered into contracts of management or operating the electricity grids or supplies. Some of these countries also protest the dam construction by China over rivers flowing into their countries. Experts predict water wars in the future and certainly these small nations are not equipped to represent themselves effectively as lower riparian states in front of the belligerent Chinese CommunistParty (CCP) led China.

A joint alliance with representation from ASEAN & BIMSTEC nations are correctly placed for this century to work out a dependable water-sharing agreement negotiations with China.

Economic Security

The Regional Comprehensive Economic Partnership (RCEP) is the latest addition connecting countries in the Indo-Pacific with a trade pact. A lot of assembly, component, labelling and raw material processing value addition happen among the ASEAN countries. Some of the nations of BIMSTEC face challenges of heavy debts and depleting foreign reserves in the recent times. Countries like Pakistan, Maldives, Sri Lanka and Nepal are facing difficulties repaying foreign debts. Thailand and Myanmar are two nations common to both the groupings ASEAN and BIMSTEC. In a way it is these two nations which geographically as well as in many other ways connect India with the entire region.

Connectivity is a major part of ensuring economic wellbeing. The land, rail, air, water, and road routes are the infrastructure factors nations need to work upon to integrate the entire region with one another. There are also recent movements in acceptance of each other’s’ currencies for trade and digital interfaces for honouring transactions and cross-border trade. The potential for bilateral and multilateral economic exchange in the region is immense in terms of free flow of all the factors of production like men, machine, market, money and material. The trade routes through the Indo-Pacific, the South China Sea and the Pacific need to be integrated for better exchanges. This will need a comprehensive arrangement among the two groupings on maritime security and commitment towards rules-based order and for securing the international law regime.

The free movements and joint war exercises programmes between the two groupings is also doable.The National Security Advisors (NSA) of all the nations of ASEAN & BIMSTEC can annually meet over a joint plan of action. India, as a lead in the region, must take the training and equipping partnership extending up to joint production of arms. Some of these nations need to be equipped with access-denial, no-access techniques of physical security from encroachment at the borders as well. The landlocked member countries are heavily dependent on their neighbours to conduct trade and commerce with the rest of the world. For the BIMSTEC, the Bay of Bengal is at the mouth of the strategic Malacca Strait which is very important for countries of the region.

Integration steps for BIMSTEC-ASEAN-Indo Pacific

Through the Seas:

The Sagarmala project needs to be expanded throughout the Indian Ocean and beyond till the Indo-Pacific region. While we cannot afford a blue water navy to act as the net security provider, stretching from the Gulf to the Pacific, we can certainly have a green paper control all over the region. The economic and security apparatus would need to work hand in hand. The role of India in the region is destined to substantially rise in the coming decades. The naval powers of the South China Sea and the Indian Ocean need to work in tandem, be it joint exercises, maintenance of freedom of navigation or ensuring seamless transit routes for trade through ports and the seas. There is also a strategic importance where the member countries operating in the ocean can have observatories to exploration cooperation possibilities within ASEAN & BIMSTEC.

There should be Annual Summits of the chiefs of forces of ASEAN & BIMSTEC nations and that of the NSA. These summits can be hosted in India. Srinagar in Jammu & Kashmir perfectly suits as the new summit capital where leaders of ASEAN & BIMSTEC can work out cooperation mechanisms. The armed forces of member nations can be trained and also maintain a strategic force group against maritime and to tackle other allied terrorism incidents for swift joint action with minimal approval ladders, wherever needed. The port projects of all the ASEAN-BIMSTEC nations can be explored for development under a structured common benefits program, for security as well as trade purposes. The inland water routes of the member nations can be connected to their own as well as to other countries’ ports via easy transit mechanisms. The need for a committed water-sharing agreement with China will be a common minimum need as an area of interest among many members of the two groupings. The fresh water river flows are a consistent necessity for this century in the region. The imminent threats on Taiwan and Hong Kong from the Chinese CommunistParty is a cause of serious concern for South-east Asia. This is where there can be a lot of synergy in defence cooperation.

Through the Roads:

India’s north-east can become a common gateway for the entire ASEAN & BIMSTEC community for trade and people to people exchange as well. The region can take the shape of a model evolved better than the European Union grouping. There is a good chance of US dollar losing prominence as a reserved currency in the world by the end of this decade. A seamless transactional connectivity of some kind of a common currency or reference index for exchange rate for cross border trade and beyond the region is a future possibility to effectively work on. The construction of strategic roadways connecting the entire South-east Asia with India is beneficial. The progress and development opportunities like tourism, manufacturing, handicrafts, food and lifestyle exchanges is immense. The connectivity mechanisms would also need to cover the security considerations in and around the borders of ASEAN & BIMSTEC nations to make the potential of benefits consistent and wholesome for the entire region. The road connectivity is the easiest method of allowing people to people exchanges, be it social, cultural, economic or religious. The potential border issues of all countries neighbouring China should be a big part of joint mechanism agenda as well. The borders with China cannot be finalised until the water flows are agreed and settled with China^[i]. Hence, this connect of ASEAN+BIMSTEC with the Indo-Pacific is going to be the most consequential alliance of this century.

Annual festivals like food festivals, trans-national touring, film carnivals and sports events and cultural extravaganzas can be planned throughout the region. The long-pending security sensitivities can be accommodated like for example the chicken neck problem of India can be solved with Bangladesh by free-entry and exit corridor in its northern zone. The rebel and Maoist or insurgency troubles can be jointly handled through a joint security mechanism. Similarly, there can be Indo-Pacific joint action group which can initiate use of force for actions immediately against agreed upon challenges of anti-national and anti-social groups.

Through Dharma:

The ancient geographical expanse of knowledge influence is re-emerging for the Indian subcontinent which is destined to sit back on the economic throne again by 2047. With one of the youngest population sizes in the world, it is obvious that the ageing nations will pour their money in our economy. India has arrived on the global stage and will fill in not just the economic leadership but as a leader in guiding the world in living a life based on values. The values which the world is yearning for after facing profits and consumption-oriented format on one side to freebies, exploitation and control-oriented format on the other. It is time India works in its neighbourhood first policy on putting up the option of Dharma in the world full of religions and groupism cults. The bottom-up control of Dharma based life can solve the sustainability to climate change issues, social, and family structure issues to global terrorism as well.

The extended neighbourhood of ASEAN, BIMSTEC and the Indo-Pacific is the first area of influence that India needs to explore. The four native Dharmas of India – Hinduism, Jainism, Sikhism and Buddhism needs to be explained to the countries of the World, especially in terms of how they are in complete contrast with the other religions. It is the knowledge of ancient wisdom which makes a country a global leader and a regional mentor to smaller countries and the extended neighbourhood.

The Jammu belt of India in the Indus and Ganga basins gave two Dharmas each, whereas the Jerusalem belt of Israel gave two religions to the world. The Gulf will be the melting pot where the four Indian dharmas will meet the two Abrahamic religions in the future. On this side where ASEAN – BIMSTEC meets the Indo-Pacific, the cultural roots already have the basic connect with the Indian subcontinent. What needs to be explored further here is an acknowledgement about how Dharmas differ from religions and the sharing of the wisdom of yoga, ayurveda and mandirs concept. The awakening in the region back to its primary source of knowledge is important to the revival and bouncing back from the colonial effects faced by this region.

The option of Dharmas to connect the entire region to its source^[ii]

The Indian Dharmas are all about individual seeking of liberation. The seeking is for the individual to decide based on his own interpretations, exploration and spiritual capacities. On the contrary, religion is a set of organised system based on beliefs in a God or Gods which clearly rejects existence of any other Gods or Dharmas and aims at conversion of people and takeover of geographies, often with a blanket separation of treatment between believers and non-believers. It comes from the “Aadesh” philosophy of strict commandments to define whether someone is a believer or not.

The Dharmas come from the “Updesh” philosophy of recommendations. The four Indian Dharmas are all encompassing, living, non-living and the entire universe. You can tell the Dharma of water and that of fire. You can’t spell out their religions. Temple is a place of worship. There is no concept of God-follower worship in the Indian Dharmas. We do not have the concept of God-fearing life. The Dharmas talk about karma-fearing life. Mandir is different from temples. Man+dir is a place where you elevate your inner-self. Mandirs have been university campuses, centres for feeding prasad-food to the people, centres of art, research, medicine and so on. The viharas between ancient mandirs were student-faculty exchange and research programs. Each mandir has several different kinds of objectives based on the supreme values represented by which Bhagwaan’s pran-pratishtha is done.

Prayer and worship are not pooja, anushthaan, yagya or aarti. The word prayer has its root origin from asking material things and asking forgiveness of the sins and in many cases, crimes. Prayer can be done anywhere in a temple, in front of a teacher or in a court of law and so on. Pooja, Anushthaan, Yagya and Aarti are completely different from prayer or worship. The Indian Dharmas are about seeking spirituality and individual liberation. One cannot ask for material things or waiving off of criminal acts as an allowable behaviour directly from the religion. There cannot be another parallel governance format led by religions along with the modern nation-state elected polity.

 

Indian Dharmas point out that the element of supreme is within each of us and everywhere. Indian Dharmas do not come from the “God-follower” concept of worship. Idol is not Murti. What we Indians do in the Mandirs is not idol worship. Murti is completely different. Murti is an embodied physical representation of the Bhagwaans for seeking and invoking the divine principle they represent.

Hence, the connect between ASEAN, BIMSTEC and the Indo-Pacific has several avenues of opportunities as all of these are closely connected with the Indian civilisation for centuries. And the river which forgets its source, disappears.

Author Brief Bio: Ankit Shah is aConsultant and Indian Subcontinent foreign policy & security analyst.

References:

1. Shah Ankit, India-China border settlement is a 10 nations project, https://www.pgurus.com/india-china-border-settlement-is-a-10-nations-project/ (2020)
2. Shah Ankit, Is Constitution for religion and not for dharma? https://www.sundayguardianlive.com/opinion/constitution-religion-not-dharma (2022)

Introduction

The Fifth BIMSTEC Summit, held virtually on 30 March 2022 under the Chairmanship of the Sri Lankan President, Gotabaya Rajapaksa, reaffirmed the commitment of this seven-nation grouping towards adopting a cooperative approach for addressing issues of common interest in the Bay of Bengal region.

The theme of the Conference, “Towards a Resilient Region, Prosperous Economies, Healthy People” did not specifically include security but it was highlighted by Prime Minister Modi in his address where he spoke of enhanced BIMSTEC regional connectivity, cooperation and security^[1]. Each of these is intrinsically linked to the maritime domain in the context of the Bay of Bengal’s centricity in this construct. The transnational nature of the maritime domain and its importance had been referred to earlier at a BIMSTEC Coastal Security Workshop held in New Delhi in November 2019 by the then Secretary (East) in India’s Ministry of External Affairs in her keynote address where she highlighted the need to develop a cooperative approach towards ensuring regional security^[2]. Maritime security is also specifically discussed by the National Security Advisers at their meetings.

Besides a number of agreements and protocols that were finalised during this Summit, it was also significant for the following three reasons which impact the emerging geopolitical contours of the region:

• 24 years after its inception, a formal BIMSTEC Charter was adopted by the members which now includes a symbol and a flag. This formally institutionalises this construct and further consolidates the commitment of its member nations.
• Myanmar’s participation, represented by its Foreign Minister, despite pressure from the west to exclude it that reportedly included a diplomatic demarche to India from the United States of America. India’s response that participation in the Summit was at the discretion of the Chairman conveyed a very significant message.
• Successful conduct of the Summit with tangible outcomes despite this period of global and regional uncertainty with the ongoing Russia-Ukraine conflict and nearer home, the internal turmoil in Sri Lanka, the political volatility in Myanmar and the social and economic fall-out of the Covid-19 pandemic. In fact, this Summit was a timely reminder of the need for an inclusive and cooperative approach towards addressing common challenges.

BIMSTEC has come a long way since its inception on 06 June 1997 at Bangkok as a quadrilateral grouping comprising Bangladesh, India, Sri Lanka and Thailand called BIST-EC (Economic Cooperation). It was renamed as BIMSTEC with the addition of Myanmar on 22 December 1997 with each letter representing a country. The addition of Nepal and Bhutan in February 2004 led to its present name being adopted^[3] though the acronym remained the same. In its early years, BIMSTEC did not get its due attention as India, its largest member was focussing its attention on the development of SAARC (The South Asian Association for Regional Cooperation). However, SAARC’s downward spiral because of the continuing trust deficit between its members widening by the day that even Prime Minister Modi’s effort of inviting all the SAARC Heads of Government to his swearing-in ceremony as Prime Minister in May 2014 could not salvage, has led to its marginalisation. This also coincided with the transformation of India’s Look East Policy into its ‘Act East’ policy and combined with its ‘Neighbourhood First’ Policy, it was BIMSTEC that began to get more attention. India signalled its commitment to taking BIMSTEC by inviting the Heads of Government of the member countries to Prime Minister Modi’s swearing in ceremony in May 2019. The process of revitalising BIMSTEC that began in 2014 was now getting the momentum it required.

The shift in the global geopolitical and geo-economic centre of gravity to the Indo-Pacific and its emergence as a single strategic entity also brought this region into focus and enhanced the strategic importance of BIMSTEC as an important mechanism to improve connectivity between the littorals of these two contiguous ocean spaces. Economically too, this region could not be ignored with 21.7 percent of global population calling it home and generating a GDP in excess of USD 4 trillion with a combined growth rate of 6.1 percent ^[4].

At the recent Summit, BIMSTEC established seven main sectors of cooperation;^[5] these have been reduced from the earlier 14 to improve cohesiveness and efficiency. Each of these seven is led by one of the members. India is the lead country for Security which includes Counter-Terrorism and Transnational Crime (CTTC), Disaster Management and Energy^[6].

Maritime Security per se does not find specific mention mainly because the wide-ranging definition of the term is intrinsic to most activities and sectors of cooperation in this predominantly maritime centric construct.  Its recognition as a ‘common security space’ was highlighted by India at the 4^th Summit in Nepal and requires ‘collective strategies for common responses’^[7].  Maritime security is a regular topic of discussion amongst the National Security Advisers of BIMSTEC at their formal interaction and a Comprehensive Plan of Action to enhance maritime security cooperation amongst the member states is under preparation^[8].

The importance of the maritime sector for the socio-economic development and future sustenance of the region was highlighted by Prime Minister Modi, when addressing the 4^th BIMSTEC Summit held at Kathmandu in 2018 where he said ,“ the geographical location of our region is linked to the global maritime trade routes, and Blue Economy also has a special significance in all our economies”^[9].

The scale and scope of maritime security in contemporary times, driven by globalisation, connectivity and trade dependencies across geographies has extended much beyond the traditional concept of state-on-state conflict at sea and as solely a function of navies and coast guards. It now includes a much wider spectrum of traditional, non-traditional, transnational and economic challenges across the strategic, operational, tactical and sub-conventional domains. The hazards posed by climate change, natural disasters and humanitarian crises has further widened the scope of this term. Addressing these in the oceanic spaces which transcend conventional borders and sovereign maritime jurisdictions therefore requires a cohesive regional approach. As humankind turns increasingly to the sea for its sustenance and development, cooperation and contestation will characterise this domain.

The United Nations Convention on the Law of the Sea (UNCLOS) is the guiding document for ocean governance and most nations develop their own approach under its overall framework but divergences on interpretation remain. A recent example was India’s objection to the USS John Paul Jones carrying out a Freedom of Navigation Operation (FONOP) within India’s EEZ in the Arabian Sea. While India stated that it was in contravention of India’s Maritime Zones of India Act, the USA insisted that it was compliant with international law. While disputes amongst nations over economic and territorial claims will continue to occur as will maritime crime on the high seas and coastal waters, a common understanding of its long-term implications underscored by legal provisions will mitigate the threat to a considerable extent.

The Bay of Bengal, which washes the shores of five BIMSTEC members and is the economic lifeline for the two landlocked ones has its own share of bilateral and multilateral maritime security challenges which include disputes over sovereign jurisdictions and a wide spectrum of non-traditional threats including piracy and armed robbery, human trafficking, arms and narcotics smuggling, Illegal, Unreported and Unregulated Fishing(IUU), amongst others. The spectre of maritime terrorism is omnipresent and natural disasters strike this region with amazing regularity. The existential threat due to the warming of the oceans and the consequent rise in sea levels is a real and present danger as many coastal communities in the region are facing inundation and the loss of livelihoods.  Maritime security, which underpins all the seven sectors of cooperation either directly or indirectly, extends beyond regular security structures and therefore, requires a comprehensive all-of-government approach which includes diplomacy, socio-economic factors, Blue Economy initiatives, cooperative capability and capacity building, Maritime Domain Awareness (MDA) and a robust regulatory and legal framework, amongst others.

The Extra-Regional Challenge.

The growing strategic importance of the Bay of Bengal, its centrality in the BIMSTEC construct and the emerging great power rivalry in the Indo-Pacific is drawing the attention of extra-regional powers and is posing a growing challenge to maritime security in the region. The Bay of Bengal offers trade connectivity over land and sea from the Indian Ocean to South-East Asia and the western Pacific. Countries located east of the Malacca Straits are dependent on the safe passage of their trade and energy through this region with more than 70,000 ships transiting this waterway annually. In 2019, China, the world’s largest importer of crude oil sourced more than 55% of its crude oil from OPEC countries (with 16% from Saudi Arabia and 11% from Iraq alone) and substantial quantities from Brazil, Oman, UK etc ^[10], all of which passes through these waters as does a major portion of its trade. Ensuring its safe passage through the narrow waterways linking the Indian Ocean to the South China Sea which are straddled by the Bay of Bengal is critical to fuel its superpower ambitions. It is acutely aware of the fact that it is presently disadvantaged as India has the strategic upper hand west of the Malacca Straits. This is often referred to as China’s Malacca Dilemma. It is seeking to mitigate this vulnerability by creating direct access from its mainland to the Indian Ocean.  In the Arabian Sea it is establishing the China-Pakistan Economic Corridor connecting Xinjiang to Gwadar and in the Bay of Bengal it is developing the deep-sea port and Special Economic Zone (SEZ) at Kyaukphyu in Myanmar to connect its mainland to the Bay of Bengal^[11].

On 11 April 2022, the Chinese Foreign Ministry spokesperson Wang Yebin announced China’s new international Land-Sea Trade Corridor as the first direct trade link from mainland China to the Indian Ocean. Freight on this land-sea corridor along the Yangste river from Chongqing to Yangon will take 10-14 days to transit^[12]. There is a view that this land connectivity is economically unviable as estimates suggest that it would take about 25,000 tankers to transport just one shipload of crude oil across thousands of miles by road or rail over inhospitable terrain to reach the Chinese mainland. While this may be true, but if China has seen merit in making these strategic multi-billion-dollar investment, it cannot be ignored and has to be factored into the regional security matrix in the Bay of Bengal.

The vulnerability of Chinese trade transit to the mainland either through the narrow straits or the Bay of Bengal Road/rail connectivity projects will continue till India has the strategic advantage of being the largest resident naval presence in the region. Ensuring its security will provide China the justification to position a sizeable PLA Navy presence in the Bay of Bengal.  China is aware of its present naval limitations and it is no coincidence that despite the continuing standoff along the LAC and the dangerous brinkmanship over the last two years, it has steered clear of provoking India in the maritime domain. To address this limitation, it is not only expanding its navy at a breathtaking pace and adding large blue water capable platforms but is simultaneously developing a support infrastructure to enable long term deployment of its ships and submarines in the Indian Ocean and expand its naval footprint in the region, including the Bay of Bengal.

The Belt and Road Initiative, unprecedented in scope and ambition is as much about China’s strategic intent as it is about economic gains. The connectivity projects from mainland China to Europe over land and sea have already ensnared some of India’s neighbours in an inextricable debt trap with the consequent impact on regional political and economic stability. The present political crises in Sri Lanka and Pakistan are two recent examples and more might follow.

China has supplied countries in the Bay of Bengal with substantial military hardware. Other than India and Bhutan, the other five BIMSTEC members are operating Chinese weaponry. In the maritime domain, it has supplied the Bangladesh Navy with two frigates and two Ming class submarines in the last five years^[13]. Most of the anti-ship and surface to air missile inventory in the Bangladesh Navy is of Chinese origin including the C-802A anti-ship missile which has a range of about 180 km. The Myanmar Navy has a sizeable Chinese inventory including a Ming class submarine even though Myanmar has been trying to diversify its procurement sources. In a setback to India’s efforts to wean Myanmar away from China with the lease of one of its frontline Kilo class submarines to that country in December 2020, Myanmar also accepted a Ming class submarine from China in December 2021. Thailand has an on-off submarine programme with China. It already has a Type 039 submarine procured from China and while it continues to hesitate on taking two more, China has offered two Ming class submarines to Thailand ‘free of cost’ for training its submarine crews. Sri Lanka, which has been blowing hot and cold between China and India over the last few years also has both Indian and Chinese origin ships in its Navy.

Ming class submarines are of 1960s vintage and have limited war fighting capability. By palming off these submarines which were of little use to the PLA Navy, it has gained valuable political and military leverage in these countries. China is also assisting Bangladesh in setting up a submarine base, BNS Sheikh Hasina, off Cox’s bazaar, which will be equipped with Chinese repair facilities and manned by Chinese technical experts. This extensive submarine cooperation with the Bay of Bengal littorals has provided China the logistic and service support capability to deploy and operate its own diesel attack submarines in the Bay of Bengal and the Eastern approaches to the Indian Ocean thus impacting India’s naval pre-dominance in the region. One of the major limitations with the PLA Navy was its inability to optimally deploy its conventional submarine fleet in the Indian Ocean because of the long transit distance from China, their limited endurance and the likely compromise to their position when transiting through the narrow straits leading to the Indian Ocean. Having a facility to base these in the Bay of Bengal will address all these.

China is severely disadvantaged by an unfavourable maritime geography which restricts its ability to pursue its stated aim of establishing its maritime dominance en-route to its global superpower ambitions. Its emerging great power rivalry with the US and the necessity to contain India requires it to have ample sea room to pursue its objectives. By the end of this decade its navy will have about 450 ships of which over one-third will be blue water capable; of these, a sizeable number will be deployed across the Indian Ocean. Its port support and naval base facilities at strategic locations will enable a sizeable permanent PLAN presence in the Indian Ocean from west to east and is of concern to India.

While the physical Chinese presence in the Bay of Bengal is an emerging challenge, its active support to Nepal and its attempts to create trouble at the China-India-Bhutan tri-junction at Doklam, overlooking the strategic Siliguri Corridor, a 25 km wide ‘Chicken’s Neck’ leading to the North-East, while actively wooing Bhutan is a major cause for concern. Both Nepal and Bhutan, though landlocked, are dependent on the Bay of Bengal for their trade which has to pass through India. As an important confidence building measure and also as a capacity building initiative, BIMSTEC’s maritime members must make the necessary concessions to provide maritime connectivity to both the land-locked members as also assuage bilateral tensions concerning them in the region.

China has also been a major benefactor of Myanmar over the years with its sizable economic and military support. It has actively stoked trouble with its support to militant groups operating in India’s North-East and across the Myanmar-India border. Despite the current political situation and global criticism of the junta, India has continued to engage with Myanmar, but the future of the relationship now has an element of uncertainty.

The Non-Traditional, Transnational Security Challenge

The long term extra regional security concern notwithstanding, it is the multitude of non-traditional and transnational security challenges in the maritime domain that are a constant threat to the delicate calm prevailing in the region. The root cause of these is political instability, economic deprivation, internecine warfare, a disaffected population and inimical external actors seeking to exploit these vulnerabilities. Amongst the many challenges, the most disruptive in the maritime domain are piracy and armed robbery, illegal, unreported and unregulated (IUU) fishing, human trafficking, human migration, narcotics and arms smuggling and maritime terrorism.

Piracy and Armed Robbery

Piracy and armed robbery at sea has been around for as long as seafarers themselves. Incidents on board ships at anchorage are frequently reported off Bangladesh and in the Straits of Malacca, though piracy on the high seas is less prevalent in these waters. However, this is not a local issue and has implications for the entire region. Coordinated patrols frequently undertaken amongst two or more navies in the region are a deterrent but it is a phenomenon that can be contained but not totally eliminated.

Illegal,Unreported and Unregulated (IUU) Fishing

Perhaps the single greatest non-traditional security challenge in the maritime domain is the rising incidence of Illegal Unreported and Unregulated (IUU) fishing. The rapid depletion of fish stocks all over the world, partly because of marine pollution and the damage to the marine habitat, but mainly because of over-fishing with little regard to international law or sovereign considerations is a global concern.  The Bay of Bengal is no exception and it is estimated that IUU fishing by foreign fishing vessels in the region is worth USD 3.7-5.2 bn per year which is almost 8% to 16% of the total catch^[14]. The BIMSTEC maritime nations including India have large coastal communities dependent, directly or indirectly, on the fisheries sector for their livelihood. Most of these communities still use traditional methods of fishing with limited output and are disadvantaged vis-a-vis modern foreign trawlers using more sophisticated methods. China is perhaps the world’s biggest culprit in IUU fishing. Its large fishing fleets think nothing of encroaching the EEZ of other countries and circumvent AIS identification by going dark (switching off their AIS transponders) during those periods. Besides the considerable economic cost, IUU fishing also impacts the development of the ocean economy, affects ocean governance and encourages organised criminal activity. There is some effort being made individually and collectively to curb this activity and enact better regulation but the lack of coordination is hampering the effort.

The UN’s Food and Agriculture Organisation (FAO), through various governance mechanisms like the FAO Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing [PSMA] and United Nations Fish Stocks Agreement [UNFSA]) is attempting to integrate regional concerns in a global regulatory framework. Initiatives like the Regional Plan of Action (RPOA) for IUU Fishing (RPOA-IUU) for the four members of the Kolkatta headquartered Bay of Bengal Programme Inter-Governmental Organisation (BOBPIGO)^[15] and a National Plan of Action (NPOA) for Combating IUU Fishing (NPOA-IUU), developed for Bangladesh are some of the initiatives being taken in this regard^[16]. Local fishermen also indulge in IUU fishing during off-fishing seasons or in regulated fishing areas. This unregulated fishing activity is very harmful to fish stocks in the oceans and also has economic implications. Individual countries have developed their own means to check IUU fishing in their waters.  However, this has larger regional implications and therefore requires a cooperative regional response capability, which is both constabulary and regulatory. Capacity building, developing a target-specific and time-bound Plan of Action besides sharing best practices being followed by individual countries are some of the measures to mitigate this threat.

Human Trafficking

Human trafficking across borders, predominantly of women and children by crime syndicates is an issue of concern. In the BIMSTEC region, human trafficking takes place over land and sea because of the nature of the terrain and the porosity of the borders and the coastline. The exact numbers are not easily available because of varying figures being documented by countries but the gravity of the issue and the magnitude of the problem is well understood.

Human Migration

This region has been a victim of upheavals amongst populations due to political instability and insurgencies which has led to large scale migration of disaffected people. It is estimated that more than one million Rohingya people from the Rakhine region of Myanmar have sought refuge in Bangladesh. Many have also taken to escape via the sea.  Instances of people being herded into boats in the most appalling conditions with tremendous risk to life by unscrupulous agents and criminal gangs occur frequently and have also been flagged as a Human Rights issue.

Narcotics Smuggling

The Bay of Bengal is central to the infamous ‘Golden Triangle’ (Laos, Myanmar and Thailand) with both the maritime states being members of BIMSTEC.  This is a major cause for concern for the other countries bordering the Bay as transit routes for these drugs to other parts of the world ^[17]. Bangladesh has flagged this issue as its maritime area is contiguous to these waters and susceptible to being used by global drug syndicates as has India. At a bilateral meeting with Myanmar in December 2020, the head of India’s Narcotics Control Bureau had flagged drug trafficking through the maritime route in the Bay of Bengal as a ‘new challenge’. This is also borne out by the frequency of drug seizures at sea by the Coast Guard, the Navy and other marine law enforcement agencies either at sea or in ports.

An increase in drug abuse in India’s north-east along the border with Myanmar is also being monitored. India is in the unenviable position of lying between the ‘Golden Crescent’ on its west with Pakistan being one of its biggest protagonists and the Golden Triangle on its east where it shares a border with Myanmar and Bangladesh^[18]. There is insufficient data in the open domain on the smuggling of narcotics via the maritime domain but the open expanse of the sea and the relative ease by which the vast coastline can be accessed makes the sea route an attractive option for drug syndicates. The usage of drug money for funding terrorism and exploiting vulnerable coastal populations is a major threat.

Arms Smuggling

The movement of illegal weapons via the sea is a major threat in the region. Besides the coastline, arms are also smuggled through ports with inadequate monitoring mechanisms. On 01 July 2004, the International Maritime Organisation (IMO) promulgated the International Ship and Fort Facility (ISPS) Code^[19] which has laid down the mandatory protocols and procedures for enhancing port security and monitoring of cargo to address the threat from the maritime domain. While most countries are signatories to this code, the extent of implementation varies. Most large major ports in the region adhere to its guidelines but the many non-major ports which abound in this region have neither the means nor the intent to make the necessary investment to enforce it and lack even the most basic requirements of adequate perimeter security to safeguard their cargo. Inadequate monitoring of containerised cargo facilitates the movement of increasingly lethal and sophisticated illegal weapons which are often funded by drug money and are being used to foment instability in the region. The densely forested coastlines and the large number of uninhabited islands, eg in the Andaman and Nicobar region, provide convenient transit and landing points for illegal arms and offer refuge to insurgents; these are also vulnerable to being used as launch pads for acts of terrorism from the sea.

Maritime Terrorism

The tragic events of 26 November 2008 in Mumbai was a defining moment for maritime terrorism as an omnipresent threat in the region. The ease with which Mumbai could be breached from the sea exposed major deficiencies in the coastal security framework and led to a complete overhaul of the existing system. This was not the first act of maritime terrorism on Indian soil; in 1993, Mumbai had been rocked by a series of explosions, caused by explosives that had been landed on the Gujarat coast. Terrorism and low intensity conflict is becoming an effective tool for state and state-supported actors to create political and social instability, cause mayhem and gain international publicity for their cause.  It is also being used as an instrument of state policy as it offers an option of plausible deniability while achieving its limited ends.

The first recognised maritime wing of a separatist organisation was the LTTE’s Sea Tigers which became a thorn in the flesh of the Sri Lankan Navy with frequent attacks at sea and used its own ships and watercraft to smuggle arms into the country; The jurisdictional challenge of interdiction at sea was highlighted with the LTTE claiming that the ship was on innocent passage on the high seas beyond Sri Lankan jurisdiction and the Sri Lankan Navy justifying its actions^[20].  This highlighted how the vast expanse of the sea and the concept of the global commons can be exploited for nefarious ends with inadequate jurisdictional authority to take effective action. Political instability, insurgent movements, disaffected populations, economic deprivation and ideological messaging which incites, are the perfect breeding grounds for terrorists and there are elements within coastal populations who are vulnerable to the temptation of making a quick buck.

Addressing the Challenge

The BIMSTEC sector on Security Cooperation, led by India is addressing this challenge through six Joint Working Groups (JWG). These are:

• Sub-Group on Narcotic Drugs, Psychotropic Substances and Precursor Chemicals (SGNDPSPC)
• Sub-Group on Intelligence Sharing (SGIS)
• Sub-Group on Legal and Law Enforcement Issues (SGLLEI)
• Sub-Group on Anti-Money Laundering and Combating the Financing of Terrorism (SGAML-CFT)
• Sub-Group on Human Trafficking and Illegal Migration
• Sub-Group on the Cooperation on Countering Radicalisation and Terrorism^[21].

Climate Change

Global warming is a reality that cannot be wished away. The rapid melting of the polar icecaps and the increase in sea levels is likely to inundate large extents of low-lying coastal areas and therefore poses an existential threat to the lives and livelihoods of the communities living there. Despite the ambitious Sustainable Development Goals (SDG 14 refers to the marine sector), a collective effort is lacking. Even limiting the rise of temperature to 1.5 degrees Celsius will have a major adversarial effect on the maritime domain in the Bay of Bengal. It will destroy the dense mangroves which could lead to unchecked flooding; it will cause acidification of the sea, destruction of coral growth and the migration of fish to cooler waters.  Added to this is the pollution of the seas which directly affects marine life. While on the one hand the importance of the seas for the future of mankind as a medium of clean, safe and economical transportation and a source of revenue through marine tourism and resource exploitation is important, ensuring that this is done responsibly to ensure sustainable development is a challenge that has not been adequately addressed. A mixture of ignorance and indifference among the populace is leading to a rapid depletion of this precious resource. Climate change therefore, has major implications for regional maritime security. Collectively addressing this is an imperative that requires immediate and effective action.

A direct consequence of climate change is the rising incidence of natural disasters in the region. The memories of the devastation caused by the tsunami on Boxing Day 2004 are still fresh in people’s minds; there have been numerous other cyclones and typhoons over the years of varying intensity with calamitous loss of life and property that has devastated communities and caused economic and personal grief. Providing humanitarian assistance and disaster relief to reduce the suffering is a major non-traditional task for navies and coast guards. India has been at the forefront in providing HADR in the region and is creating regional capacity to both predict a possible disaster and also be able to offer the necessary support.

Mitigating the Maritime Security Challenge

BIMSTEC has often been blamed for underperforming which is not entirely unjustified. It was only at the recent Summit, 24 years after it came into existence that its Charter was adopted. The reason for this is a lack of convergence on many political and economic issues amongst its members which has stymied progress on many fronts. It must be said however, that there has been significant progress since 2016; the strategic centrality of the Bay of Bengal as a connectivity hub in the emerging Indo-Pacific power-play, and the economic benefits of collectively addressing issues related to the seven sectors identified at the recent Summit are becoming increasingly obvious. Ensuring a secure maritime environment is central to this. India, as the largest (by far) and most influential member of this group, has to take the lead in creating a shared understanding of the challenges and developing a cohesive approach towards addressing the same.

The key to developing an effective maritime security capability across BIMSTEC lies in inclusive and cooperative capacity building and creating a cohesive network where the whole is greater than the sum of its parts. Prime Minister Modi’s SAGAR Doctrine (Security And Growth for all in the Region) is driving this effort across the political, social, economic and security domains. India’s SAGARMALA port-led maritime infrastructure development programme to revitalise maritime India is another initiative that can be dovetailed seamlessly into strengthening BIMSTEC and making it self-sufficient in various maritime sectors. The restructuring of the coastal security architecture after the tragic events of 26 November 2008 has led to the coastal radar coverage along India’s 7516 km long coastline getting extended to include Bangladesh, Myanmar, Sri Lanka and even further afield to the Maldives towards developing a robust surveillance capability in the entire region.

The coastal security network in India’s entire maritime neighbourhood is just one of the SAGAR initiatives taken to enhance MDA, which is critical for effective regional maritime security. Sharing best practices and further refining them through joint exercises also contributes substantially to capacity building. In December 2021, a three-day multilateral exercise called PANEX 21 was conducted in Pune which focussed on Humanitarian Assistance and Disaster Relief and was attended by all BIMSTEC members^[22]. The recently held biennial MILAN exercise with participation from all countries in the region and beyond which had humble beginnings more than 25 years ago has matured into a major capacity building effort.

Maritime Domain Awareness (MDA)

Effective and continuous surveillance is essential to secure the vast ocean spaces and nip a developing situation in the bud. This is especially relevant in the case of non-traditional and transnational threats. As the pre-eminent Indian Ocean power, India is also a provider of net security in the Indian Ocean Region (IOR) for which effective MDA is an imperative. The strategic and economic importance of the Bay of Bengal and its littoral is gaining global attention with many extra regional players keen to engage. It is imperative, therefore, that the region be seen as safe and secure for the passage of trade and for economic investment. Modern technology has enabled surveillance by long range maritime patrol aircraft, satellites, warships, submarines, merchant shipping and even fishing craft. Securing this region will require a coordinated national and multilateral effort by all the littorals. This will include a well-coordinated internal organisation and its ability to coordinate, collate, analyse and disseminate information in a regional framework. Information sharing is an important element of MDA. The setting up of the Indian Ocean Region Information Fusion Centre in Gurugram, a suburb of the national capital in December 2018 has greatly enhanced regional MDA. India has signed White Shipping Agreements with more than 23 countries which enables the sharing of unclassified information on the movement of shipping and is the means to detect any abnormal activity at sea which may warrant attention. Information sharing with similar centres in Singapore and Madagascar (covering the western Indian Ocean) provide a comprehensive maritime picture of the region and its surrounding waters.

Blue Economy Initiatives

Sustainable and responsible exploitation of the oceans is critical for the Bay of Bengal littorals. India is at the forefront of various climate change initiatives. It has pledged its support to the Sustainable Development Goals and has taken the lead in important initiatives like the International Solar Alliance and the Indo-Pacific Oceans Initiative. It is also assuming the Presidency of the G-20 this year. During its two-year non-permanent membership of the UN Security Council, it convened a discussion on maritime security. BIMSTEC should leverage India’s prominence on the global stage to focus attention on the hazards of climate change in the Bay of Bengal littoral. Additionally, the Bay of Bengal littorals have to commit themselves to this cause besides educating their populations and emphasising the importance of sustainable exploitation of the maritime domain.

Multilateral Initiatives

Most of the BIMSTEC nations are also a part of other regional multilateral mechanisms like the Indian Ocean Rim Association, ASEAN, ADMM+ and professional mechanisms like the Indian Ocean Naval Symposium (IONS) and the Western Pacific Naval Symposium(WPNS) etc. India is also a member of the Quadrilateral Security Dialogue (QUAD). Member countries should leverage these organisations towards enhancing regional maritime security measures and adopting their best practices. India must support these efforts as part of its SAGAR Doctrine and as the security lead in BIMSTEC.

Conclusion

The predominantly maritime construct of BIMSTEC underlines the importance of a robust maritime security framework to address the growing challenge from state and non-state actors to dominate, disrupt and destabilise this region. As BIMSTEC’s strategic importance grows, so will the magnitude of the security challenge. This will require a cooperative capacity and capability building effort to ensure the individual and collective security and economic interests of its members. A coordinated and comprehensive approach to regional development, a potent military and constabulary capability and a robust legal and regulatory framework in conformance with internationally accepted conventions and regulations is the need of the hour. Frequent governmental and non-governmental interaction amongst its members on issues of shared interest must be encouraged at various levels must be encouraged. The adoption of the BIMSTEC Charter is an important step forward in giving purpose and direction to this regionally important construct.

Author Brief Bio:Commodore Anil Jai Singh served in the Navy for over three decades. He is presently the Vice President of the Indian Maritime Foundation and takes keen interest in matters maritime.

References:

^[1]  Press Release Prime Minister’s office 5^th BIMSTEC Summit 30 March 2022. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1811269&msclkid=b6a00916bb9d11ecbac41f0ad09d8b08

^[2]https://www.mea.gov.in/Speeches-Statements.htm?dtl/32068/Keynote…

^[3] https://bimstec.org/?page_id=4863

^[4]India remains strongly committed to expand regional cooperation under BIMSTEC: Foreign Secretary – The Economic Times (indiatimes.com)

^[5] https://bimstec.org/?page_id=3919

^[6]https://bimstec.org/?page_id=6113

^[7] https://economictimes.indiatimes.com/news/politics-and-nation/india-seeks-to-pose-bay-of-bengal-as-common-security-space/articleshow/65537612.cms

^[8] https://bimstec.org/?page_id=6113

^[9] https://www.mea.gov.in/Speeches-Statements.htm?dtl/30332/Translation_of_Prime_Ministers_Statement_at_BIMSTEC_Plenary_Session_August_30_2018

^[10]https://www.eia.gov/todayinenergy/detail.php?id=43216#:~:text=%20Russia%20remained%20the%20largest%20non-OPEC%20source%20of,to%20average%200.8%20million%20b%2Fd%20for%20the%20year.

^[11] https://www.irrawaddy.com/news/burma/agreement-moves-myanmars-kyaukphyu-port-project-a-step-forward.html

^[12] http://www.china.org.cn/business/2022-04/08/content_78153926.htm

^[13] https://www.janes.com/defence-news-detail/china-hands-over-two -ex-plan-frigates-to-bangladesh-navy

^[14] https://www.fao.org/3/cb1808en/CB1808EN.pdf?msclkid=d2880aa0bd5011ec8bdabb2485941af2

^[15]https://bobpigo.org/webroot/img/pdf/  Report-IUU-October2019-FINAL.pdf?msclkid=d8217d47bd6211ecb7c68530c7802

^[16] Ibid.,

^[17] https://ipag.org/maritime-security-in-bay-of-bengal-potential-challenges-and-opportunities/?msclkid=e7e9572fbdf811eca92c58d5c1a12faa

^[18] https://www.newindianexpress.com/nation/2020/dec/11/narco-trafficking-through-bay-of-bengal-maritime-route-a-new-challenge-ncb-chief-rakesh-asthana-2234952.html?msclkid=e7e9b1f4bdf811ec9f0fd0ae4b2fe0b4

^[19] https://www.imo.org/en/OurWork/Security/Pages/SOLAS-XI-2%20ISPS%20Code.aspx

^[20] https://frontline.thehindu.com/world-affairs/article30216361.ece#!

^[21] https://bimstec.org/?page_id=6113

^[22] https://indianexpress.com/article/cities/pune/pune-three-day-bimstec-military-exercise-concludes-7685931/

Gaurie Dwivedi

You have been Ambassador to Myanmar, Afghanistan and Syria, and Myanmar is one of the member nations for BIMSTEC. After the BIMSTEC Summit, which recently concluded in Colombo, there are more issues, challenges and opportunities to discuss. Do you think it’s a reset as far as BIMSTEC is concerned because the regional grouping has not really performed as much as what many assumed it to and it languished in terms of the role it could play in the region? Do you think the summit could act as a reset, as an inflexion point going forward?

Gautam Mukhopadhaya

Let me begin by saying that yes, we all have to acknowledge the founders, as well as the later members, that BIMSTEC is a very prominent grouping of countries. It lies at the fulcrum of South Asia, South-East Asia, in the middle of our Neighbourhood-First, Act-East and Indo-Pacific strategies, and overall sort of a very important location in the Bay of Bengal. But it has been slow to start, and you know, we saw that it went into summit mode sometime around 2004. We had another summit in 2008 and 2014 and since then in fact, actually, it has been India that has injected a little life into it, when the Prime Minister invited the BIMSTEC leaders to the BRICS summit in Goa in 2016. Subsequently, we had the Kathmandu summit in 2018, and in between, of course, we’ve had the covid pandemic. So, I do believe that there have been steady incremental moves since about 2014. Before that, it was a little more deeply in slumber. Since 2014, a Secretariat has come up in Bangladesh and this time, a very major step was taken in adopting the Charter of the BIMSTEC. I think along with that they also adopted a couple of important MOUs and agreements, particularly some that have been in the works for some time such as the master plan on transport and connectivity. So, there is a kind of push by India and there is a movement within the BIMSTEC. But we are a far cry from where we want to be or where we should be, given the fact that the heart of this lies in the Bay of Bengal, and we have not really seen any major lift in Bay of Bengal trade and the Bay of Bengal economy. We talk about the Blue Economy,but in fact there has not been much movement in terms of overall Bay of Bengal trade. And, I think it would be useful actually to go back to the colonial period, you know when the British were effectively the drivers of the economy of the subcontinent. And radiating out from Calcutta, you had a whole series of port connectivity, down to Malaysia and Singapore. But that was part of a colonial economy. Now we are in a different situation. There has been partition and subsequently Bangladesh, so there has been a fracturing of the political geography of this area. But at the same time, we have this synergy coming from India’s Look East and now Act East policy. And there is a desire to look towards South-East Asia as a kind of growth engine for the region. So, I think the conditions are there, the actual chemistry still needs to take place.

Gaurie Dwivedi

There is a lot in terms of maritime cooperation that needs to be done. I remember, first I heard about BIMSTEC was almost 20 years back and even then, there was talk about how there is a huge trade opportunity that exists. It’s unfortunate that two decades later we are still talking about an opportunity. It’s frankly an opportunity lost. But you know, I was just looking at the ASEAN trade and comparing it to BIMSTEC just to get a sense of how much regional groupings can really contribute to each other’s economy. ASEAN trade is up by USD 600 billion and BIMSTEC trade is sub USD 70 billion. So, A, of course there is no comparison, and B, it also does suggest that the region must now grab the trading opportunities with both hands. Do you think that can now happen? Again, I am talking in the backdrop of the Summit because there is now more sense of optimism in terms of the future that holds for the grouping.

Gautam Mukhopadhaya

So let us talk of a couple of things. One is, let’s not forget that for a greater part of the last 20 years, political conditions have not been very ripe. Myanmar was more or less stuck in its insular period. Relations with Bangladesh were not that great, and the Bangladeshi economy is only now beginning to really move. For a long time, it languished in the category of Least Developed Countries. Now it has very high human development indices and the growth is also good. Myanmar looked up in between, during the 10 years between military governments and the first NLD government, but right now is in a state of severe political crisis. And by and large, a lot of the economies other than India and say Thailand on the other side, are not very highly developed economies, or economies that can make a big impression regionally such as Nepal, Bhutan, Sri Lanka, and Sri Lanka too is in an economic crisis. On the other side, ASEAN is still moving ahead, and you have international crisis like the pandemic of covid and as well as now the Ukraine crisis which in some ways is pushing us towards much greater regional supply chains, much greater regional cooperation, may be even a degree of integration. You were right in pointing out the trade statistics. You know, if you look at it, actually our intra-BIMSTEC trade is 5% and I think even ASEAN is much more—about 30% within the ASEAN itself. So there is a huge deficit to overcome. But I think the problem really lies in the fact that much of these economies are still very highly under-developed. They haven’t tapped their biggest potentials. And when I say big potential, I say one is, of course, the Blue-Economy. Bay of Bengal has not really been exploited in a sustainable way, because today we can’t do plain rampant extraction and extraction alone. We have to think in terms of how you build natural capital as well, but also the agricultural economy. We tend to focus a lot on the industries without realising that 70% of the economies of these countries are largely rural and agri-based. And we haven’t yet invested sufficiently in the agri-base of these economies. If we were to do this, then there would be a natural kind of momentum to the economies.

Gaurie Dwivedi

We are talking at a time when there is so much expectation of maritime cooperation, more so given that this region is achieving a lot of prominence, with the Indo-Pacific, the South China Sea, and the whole region is now in discussions for various reasons. Do you see that having an overhang in nations coming together for greater maritime cooperation, whether it is Sri Lanka, Thailand, Myanmar? All of them do have requirements of greater maritime cooperation more so given what’s happening in the Indo-Pacific region. Do you think that the marine economy could act as a catalyst?

Gautam Mukhopadhaya

Very often, a lot of what we are talking about is maritime cooperation for let’s say shipping, or essentially security based. But yes, I think there is the marine economy that as I mentioned, the Bay of Bengal marine economy is very important. The other thing you were alluding to was that, suddenly, the region has become much more strategically important. Not only is there a greater consciousness of the importance of Indian Ocean trade, but also of trade through these areas. The overarching presence of China, now the activities of the Quad, the Americans, the Brits, and the Australians with AUKUS, Japan becoming a much more active partner of India, the Chinese active on the Belt-and-Road initiative, after all they have something called the China-Myanmar Economic Corridor, deep-sea port in Myanmar, and on the western side which we can leave out. Butso, there is suddenly a lot more activity on the Indian Ocean and the Indo-Pacific, and I think that this is enhancing the profile of this region, and having the effect of taking a greater interest in the economy as well. But you know, we still don’t have the kind of business-to-business relations that will actually kick start the Blue Economy. Even much of the soft infrastructure that is required, for example, a lot of the shipping in this area would be coastal shipping. I know that the BIMSTEC have been working on a postal shipping agreement, largely pushed by Thailand, but we haven’t yet reached that. Even the coastal shipping agreements between the countries of the region are not yet very mature enough. So, a lot of the trade, just as we talk about building an economy from the bottom, a lot of the trade that will take place will be coastal trade, between one part of the Bay of Bengal to another part. And if we go back a little bit into history, we shouldn’t’t forget that the Bay of Bengal was a very thriving trade area. Traditionally, we had the Arabs, the Tamils, who were traversing this area you know, connecting to Indonesia, Malaysia, present-day Malaysia, even in Myanmar there were Tamil communities that traded with these areas. So in any kind of trade revival involving literal communities, coastal communities are still waiting to be.

Gaurie Dwivedi

So, what do you think should be the next few steps, and you know a lot of this has to be driven by India? It is like the real elder brother taking all the nations together, and India has to play that role? What do you think would be those 3-4 important milestones that India needs to reach for lifting BIMSTEC?

Gautam Mukhopadhaya

The first one that I mentioned, is a coastal shipping agreement. The second I would say is another thing that I think we have been working on but not reached anywhere which is a free trade agreement, and a free trade meaning free trade in goods, services and investment. So again, what tends to happen is we tend to go for FTAs with the more advanced and developed economies because we’re looking for technology, capital know-how and things like that. But actually, we tend to ignore the lower hanging fruit, which is you know FTAs with countries that are actually in a less well-developed state than us. So, for example, though it does not directly connect to the CLMV countries, Myanmar is a least developed country in that area, so I was actually coming to the role of investment and cross-investment. For example, you know we tend to talk a lot in trade but we tend to think in terms of trade by manufacture year and then exporting or importing between countries. But you know, what many of these free trade agreements particularly in investments offer, or these comprehensive economic partnerships that we offer, is the opportunity of investment led trade. In other words, country like India which is a stronger economy, can invest in the less developed economies of the BIMSTEC region and create a market for those products in this entire BIMSTEC region. And you know, you’re talking about a market of over USD 3 trillion economy, and a population of about 1.6/1.7 billion. So, it is a huge market for investment-led trade and within that investment, it wouldn’t surprise you that I would emphasise actually invest in the Agri-economies, in the rural economies because that is where 70% of the people are earning their livelihood. And that’s on one side. On the other side, you have, of course, the marine economy that you mentioned. The marine economy means many things. It means the coastal shipping agreement, it means ports, it means actually shipping services, it means the goods that you can have to exchange with each other and again that can be helped by investments, cross-investments. So, I think we need to work much more overall I would say on much greater volumes of investment by the countries of BIMSTEC and within the region.

Gaurie Dwivedi

And then, how much are we talking in terms of sizeable investments to really make a dent for this to sort of be worth everybody’s?

Gautam Mukhopadhaya

I think you’re touching my sort of pet themes now. One is sizeable investments. So you know there are two kinds again, one can have large investments, a few large investments, or one can help small investments on a large scale. Now when you’re thinking of an agri-rural economy, mostly what you would be thinking of is processing, the producer of that economy and actually you don’t need very large capitals, you don’t need very large projects, you don’t need all the sort of destructive consequences that come out of that. You can do a lot by doing small things on a large scale, which means that there is a tremendous opportunity for things like small and medium enterprises or creative entrepreneurship, creative businesses and innovation. I forgot to mention one area – services. You know, India is strong on services. We are particularly strong on IT based services. We have evolved, we have developed IT based apps for governance, for commerce and for a number of other things. I don’t think we have really fully made some steps with things like extending Rupay to Myanmar, and to Bhutan and so on. But I think there’s a lot more scope in broadly what I would call the IT economy which includes everything, going up to e-commerce, payment systems, financial systems.  So, there’s another huge opportunity. You know we have health-based apps. We can have many more…

Gaurie Dwivedi

In fact, health is a huge area where you know, post-covid, there has to be a lot of focus and India can really play the lead there. This is a region where there are deep cultural links, deep civilisational links, and ideally there should be very deep people-to-people connect, paving the way for trade to happen. But that isn’t the case. Trade is not flourishing despite deep civilisation links because those people-to-people connect, I believe, is still not where it can be. Do you think that also needs to be worked at and again India needs to sort of really play the role of setting the stage for that to happen?

Gautam Mukhopadhaya

Absolutely! You know we already have one platform, which is the fact that a lot of these countries are Buddhist, for many of them Bodhgaya or the Buddhist pilgrimage is a very important part of their aspirations. So, you already have a basic platform that is provided by these, what you call cultural, religious and civilisational links. Obviously, these need to be supplemented and augmented by much more tourist traffic. You know, a country like Myanmar has close to 2 million people of Indian origin. Right? Just imagine the sheer traffic coming out of just that, a lot of them are originally Tamil. And we still don’t have an air connection between let’s say Yangon and Chennai or something like that. So, there are huge gaps in the air services that we can provide. I think Vietnam has taken a leaf out of the book and has recently resumed some services which had suffered on account of covid. But you know, clearly, what happens is air services and connectivity very often flow from people to people or business ties and then contribute to it in return. So that kind of dialectic you know, that kind of dynamic somehow escaped so far, and partly because there’s already very well-developedcentres like Singapore and Thailand which tend to act as hubs and tend to attract all the traffic. Initially, Rangoon used to be the Bangkok of South East Asia. All the airlines used to actually fly through Rangoon. But over the period of military dictatorship, you know, it has surrendered that advantage and now it’s not so easy to get it back.

Gaurie Dwivedi

No, it isn’t. And more so you know since we’re talking about Myanmar, I want to also touch upon the security aspect of it. I was speaking to several diplomats and several experts and they did point out that when you talk about this region, one cannot undermine the security challenges that you’re talking about. There is the Rohingyas, then there are the security challenges that come out of political upheaval. We’re seeing that in Nepal, we’re seeing that in Sri Lanka over and above what is happening in Myanmar. So that also needs to be considered, when you’re talking about a future of BIMSTEC. Now, I want to ask you, how can India overcome those challenges, because it’s primarily New Delhi that has to shoulder this burden?

Gautam Mukhopadhaya

I think it was because of the consciousness of this, that somewhere, I think with the Kathmandu summit, security and counter-terrorism, which had not been ready elements of what was essentially a Technical and Economic Cooperation body, were brought into it. But I would be cautious ofboth over-securitising the issue or of underpaying the security aspects.Security is important and no doubt there are political problems that do need to be addressed, but there’s a lot of scope for business. I would say trade and investment is the backbone. I’m not saying trade and investment can cure and solve all the political and security problems, but they do mitigate them to some extent. Clearly, political and security problems do need to be addressed, but that must not come in the way of greater regional cooperation.

There are Indian insurgent groups that are active in Myanmar, they have been Indian insurgent groups that have been active in Bangladesh and Bhutan as well. At the same time, we have been able to develop our relationships with these counties.

Gaurie Dwivedi

A BIMSTEC charter has been adopted and architecture has been institutionalised. Now there’s going to be a summit every two years and there will be periodic ministerial meetings. Where do you see BIMSTEC, 2 years from now, after the architecture has beeninstitutionalised, with a fresh commitment from all the member countries?

Gautam Mukhopadhaya

I would really like to see movement on the free trade agreement, you know we’ve had a problem with the RCEP, right? I mentioned to you a bias that we have towards FTAs with the more advanced economies. I think we need to really look at FTAs with the smaller economies, because they don’t have as many hang-ups about issues like protectionism and so on because they don’t have the industries to protect. To them, it does not matter whether they import from China or from India if they don’t produce that good, because they would actually like to have both markets to the extent possible. So, I would say that you know all those things that I mentioned, that coastal agreement, investment in the agri-rural sector, investment in general in the smaller economies. I think these are the ways that are generally a much stronger road to investment. That means, from India’s point of view, it has to be much more external investment from India outwards into the region, and we should not count it as a net loss because, you know, these are opportunity costs, these are competitive advantages that we would be taking advantage of, and we would be linking those geographies as part of this regional value chain, and that is really what is real integration. We talk about globalisation, we talk about global value chains but we need to really begin from the region. So, I would like to see the BIMSTEC evolve in that area where we think of this area as a common investment area. If we actually start off with these economies, we’ll be much better prepared to integrate with RCEP and other sort of trade linkages in the region.

Brief Bio:

Amb Gautam Mukhopadhaya is a career diplomat and has served Indian embassies and missions. He is a former ambassador to Myanmar, Syria, and Afghanistan

MsGaurie Dwivedi is an Author and Senior Journalist covering economy, policy and politics.

Introduction

There has been a great deal of speculation in sections of the media as well as in the social media of a change taking place in the Army’s recruitment pattern. Termed as the Tour of Duty (ToD), it envisages recruiting soldiers for a short duration of three to five years’ service in the Army. It is believed that the proposal is under active consideration by the Ministry of Defence, but in the absence of any official statement from the government on the subject, the purpose of introducing such a concept, the broad contours it may follow, as also a discussion on the pros and cons of such a proposal can at best be based on certain reasonable assumptions. This paper aims to put across the likely thought process behind the proposal, the pattern it can take and the likely impact this proposal will have, if introduced.

Broad Contours of the ToD Proposal

The basic thought process behind the proposal is to reduce the expenditure on military pensions. On a fixed defence budget, reduction in revenue expenditure would make greater funds available for capital outlay, which in turn would facilitate new acquisition and military modernisation. India’s budget for FY 2022-23 allocated Rs 5.25 lakh crore for defence, which includes the defence pension component of about Rs 1.2 lakh crore. Obviously, a reduced pension component will lead to a larger capital outlay. With this in view, the proposal is believed to envisage recruiting personnel into the Army for short tenures, akin to conscription but on a volunteer basis.

One of the proposals is to induct personnel for both a three-year period as well as for a period of five years to eventually, say within 15-20 years, have an army strength that would comprise 25 percent personnel who would be below 3 years’ service and another 25 percent who would be between 3 to 5 years’ service. The rest of the component would be as presently existing. There could be different computations of the above, but the end objective is the same. On completion of ToD, some of these personnel would be absorbed in the Central Armed Police Forces (CAPF) or in the corporate sector while the rest would be free to seek employment elsewhere. Those who do not find employment will be encouraged and assisted to set up small scale individual businesses. The savings accrued during the ToD as well as the lump sum amount, they would receive on completion, would provide them the necessary capital for the same.

The individuals serving for periods below five years would not be eligible for pension, so the scheme is slated to reduce the pension bill of the Army. Some of the other benefits envisaged are as under:

• It would reduce the age profile of the Army.
• It would create a large work force of disciplined individuals, who would then be an asset when employed in either the CAPFs or by the corporate sector.
• Those individuals who cannot get employment will be encouraged to set up small scale private enterprises, which could give them an alternate livelihood. This would also give a boost to the economy.
• It would lead to increased employment opportunities for the youth.

Earlier Proposals

One of the earlier proposals of the Army was lateral induction of short service commissioned officers into other services. For the jawans who retire after 15 to 17 years of service, it was recommended that they be employed thereafter in the CAPF (Border Security Force, Central Industrial Security Force, Central Reserve Police Force, Indo-Tibetan Border Police, Sashastra Seema Bal, National Security Guards) or in the para military forces (Assam Rifles). This proposal found little favour with the Home Ministry and was shelved.

In 2019, an army veteran, Lt Gen P. Menon, along with Pranay Kotasthane, both from the Takshashila Institute, wrote a discussion paper recommending an ‘inverse induction model’ to reduce the Army’s pension bill.^[1] This was a modification of the earlier Army proposal and envisaged induction of army personnel into the CAPF. The recruitment would be done by the CAPF, but the recruits would be trained by the Army and would revert back to their respective CAPF after completion of 7 years’ service.

Analysis of the Inverse Induction Model

For the purpose of analysing the financial implications of the stated model, the assumptions made are as under:

• For the period, annual pension liability of GoI is assumed to be constant for a fixed number of Other Ranks (OR).
• The total Army authorisation of OR is ‘A’ and their total annual contribution towards future pension liability is ‘P’.
• The No of CAPF recruits each year is x.
• The annual pension contribution of x Army OR is X, ie X Rs saved each year in pension contribution (notional) by recruiting x number of OR into the CAPF.
• All OR are assumed to retire after 19 years, with uniform rate of recruitment each year. Hence, the total annual training expenses for A/19 number of recruits is T =(A/19) *t, where t is the individual recruit training cost for one year. (See table below)

Service (Year)	CAPF Recruits (Total)	Pension Contribution (Total Army)	Training Expenses (Annual Total)
1	x	P-X	T=(A/19)*t
2	2x	P-2X	Higher
.	.	.	.
.	.	.	.
7	7x	P-7X	Higher
8	8x	P-7X (as x No of OR have left for CAPF)

 

The following inferences can be made from the above table:

• There is saving in pension contribution from the defence budget for first 7 years and it peaks at 7X. From 8th year onwards, the saving remains 7X.
• The pension budget of CAPF, however, goes up by an equivalent amount as 7 years of Army Service will be counted for CAPF pension also.
• Net pension savings to the GoI is zero.
• Training costs go up. When no CAPF, annual recruit training cost is At/19. With CAPF recruits, annual cost is (A-x) *t/19 + xt = At/19 + 18xt/19 – i.e. an increase of 18xt/19 in annual training budget.

The Conclusion from the above analysis is as under:

• The saving in defence pension budget peaks after 7 years (can be        construed from 1-7 years or alternately from 20 to 27 years, when          actual pension disbursal commences).
• There is a corresponding increase in CAPF pension budget.
• Net saving to GoI is zero.
• There is increase in annual training expenses in Army.
• Net no savings to GoI while there is increase in Army training budget.

The above analysis indicates that the Inverse Induction model does not result in financial savings to the GoI.

The Tour of Duty (ToD)

The ToD concept envisages recruitment of soldiers for a short duration, much like the conscription model existing in some countries. Romantically called ‘Agnipath’, the soldiers recruited in this proposal will be known as ‘Agniveers’, following the classic business model of giving a high-sounding name for standard military jobs.^[2] The fundamental flaw in this proposal is that it gives primacy to finances over operational effectiveness. It is true that no nation can wish away the larger macro-economic financial constraints, but at the same time, it would be unwise to barter national security and defence preparedness for purely financial reasons. While it is essential to look at optimisation of available resources, it simply cannot be done without holistically looking at all aspects of defence preparedness. This would include the nature of threats we are currently faced with and the force levels required to deal with them, to include the entire gamut of force structuring, weapons and equipment holding, logistic support infrastructure as also the state of morale, training, and a host of other battle winning factors.

Be that as it may, it is debatable whether the ToD concept will lead to financial savings which are of such great account that it will give a tremendous fillip to capital acquisitions and force modernisations.

Analysis of Financial Implications of ToD

The analysis of the concept of ToD is being restricted to OR; the OR pension budget being the major component owing to large number of OR in the Army. In any case, the officer cadre already has a Short Service Commission entry where officers can exit at 5/10/14 years’ service without any pension obligation to GoI.

For the purpose of analysis, it is assumed that the men on ToD of 3/5 years, have the same entry level qualification, same selection criteria, same training duration, same posting profile and salary as the regular Army recruit. It is also assumed that the strength of regular Army will be offset in same numbers as the number of men on ToD. However, what is not clear is the number of men who will be absorbed in the CAPF after the termination of ToD.

With respect to the men who may be absorbed in the CAPF or PSUs, the earlier financial analysis of Inverse Induction Model will apply, albeit for a 3/5-year duration instead of 7 years. Thus, there will be no overall financial savings to the GoI while training budget of Army will go up. The other collateral effects, ie impact on operational effectiveness and unit cohesion will have to be studied separately with appropriate models once details of the employment, manning and posting profile which is envisaged for the men on ToD is known.

In case, these men are to be let off after 3/5 years with a severance package, then this amount, handed over on an annual basis, has to be compared with the annual pension contribution for those numbers of regular Army OR, to determine the savings, if any to the GoI. However, the future career prospects of these ex-ToD personnel, with most of them likely to be only matriculates (10^th) will remain. The jobs which can be made available to such personnel in the private sector will perforce be restricted to those at the lowest rung of the ladder, and the pay and emoluments they will receive will be far lower than what they were authorised while in ToD service.

There is also a possibility of these men being let off without any absorption and severance package, which will restrict their ability to start small scale enterprises on their own. The popularity of such a scheme will hence be eroded and may become unsustainable after a few years.

Concept of ToD: Is it borne out of the Myths of Defence Budget

From the analysis above, it is evident that the concept of ToD is unlikely to result in considerable revenue savings to the GoI, unless the ToD personnel are left to fend for themselves after termination of their 3/5 years tenure or are given lower emoluments as compared to regular army recruits. Even in the latter case, there is going to be a tradeoff between limited savings (computation has to await full clarity on the concept) and the operational effectiveness, motivational levels and cohesion within a unit. In any case, even if savings are likely to accrue, that will only come about after 15 years, when the total number of pensioners will start to decline each year, and will eventually reach a constant after about 18 years.

There are several myths associated with the defence budget. In a developing nation, there will always be concerns that the defence budget is eating into the resources of the nation, which could be better spent on other sectors. However, for a nation facing all round security challenges, not taking adequate protective measures will be a sure long-term recipe for disaster and economic ruin.

A more suitable metric is to view defence allocation as a percentage of GDP or as a percentage of total central government expenditure. For India, the defence allocation (excluding pensions) stands at approx 1.45% of GDP and has shown a gradual decline over the decades. This does not mean that in real terms, there has been a reduction in defence expenditure. An analysis of the defence budget over the last few decades indicates that the defence budget has been continuously rising in real terms, even if the rise is not very substantial. This is simply indicative of a higher rate of growth which enables high allocation to defence in real terms. Instead of fixing defence expenditure to a percentage of GDP, it is for consideration whether keeping defence expenditure constant as a total of overall government expenditure would be a better and more viable option.

With respect to the salary and pension bill of defence personnel, It is also to be understood that defence pensions rise in the same manner as other central government employees, the salary and DA structure being largely common. Thus, when experts talk of not enough funds left for modernisation of defence forces due to ever increasing revenue expenditure, they miss the essential point that the real reason is continuous compression of defence budget as a percentage of GDP or as a percentage of total defence expenditure. One may recall, that during the UPA regime, the then Prime Minister, Shri Man Mohan Singh made a statement that endeavour of his government will be to raise the defence allocation to 3% of GDP. But despite such a declaration, there was no real push for force modernisation and the military suffered great neglect during the ten years that Dr Singh was at the helm of affairs as Prime Minister—that is the period 2004-2014.

As far as pension budget is concerned, it is worthwhile to mention that average per capita pension of defence personnel is much lower than a central government civilian employee. The defence pension budget, however, is big in absolute numbers due to large number of retired personnel, which itself is a function of soldiers being compulsorily retired early from 36 years age onwards owing to the need to meet the requirement of maintaining a young and physically fit Armed Forces.

If we look at the overall revenue expenditure on salary and pension bill of defence personnel, a study has shown that life time earnings (pay and pension till average life expectancy of 70 years) of a civilian central government employee is about 60% higher than a corresponding pay grade defence employee. This simply indicates that the pay and pension bill of the Armed Forces cannot be construed to be exorbitant and a factor in constraining the modernisation effort. Clearly the cause lies elsewhere.

Another myth which abounds is that defence personnel get pension from the government, while civilians (post 2004) are on National Pension Scheme (NPS) and do not contribute to pension liability of the government. The fact is that the government contributes to pension of defence personnel as well as civilian employees (10% of basic pay every month). The difference is only conceptual; while the defence pension system is on “Cash Accounting System,” the NPS is based on the “Accrual System”. Defence pensions have to continue in its existing form as NPS is not suitable for employees who start retiring from the age of 36 years onwards. However, another study on NPS vs defence pension system has shown that if defence personnel also serve for 54 years age or more, NPS may be a preferable system to even the OROP which they are presently entitled to.

With all the data-based studies pointing to the inferences outlined above, the question arises that is there a requirement of conceptualising schemes like ToD or are there better alternatives available within the existing paradigm? But before a holistic view of the issues involved is taken, it is essential to correct the misperceptions on defence budget and revenue expenditure including salary and pensions. Evidently, there is a parallax error in the popular perception about the Defence Budget and its constituents.

Optimising Defence Expenditure

Perhaps a better course of action would be to have a holistic overview of the entire defence expenditure, with a view to determining how this expenditure can be optimised, instead of keeping the focus on just reducing the pension component of the budget. Some of the factors which lead to rising costs are poor decision making, wasteful production techniques, reliance on imports, enabling the private sector, strengthening the defence industrial base, emphasis on quality control, opening up the entire defence sector for exports and privatising at least some of the defence public sector undertakings.

The Ordnance Factory Board (OFB) has been done away with and in its place, the 41 Ordnance Factories (OF) which it controlled have been converted into 7 Defence Public Sector Undertakings. This step was long overdue but was resisted by the unions. The various governments at the Centre, over the years, bowed to the wishes of these employees. This civilian component, by itself constitutes a sizeable chunk of manpower and resources which could be privatised. The OF were a loss-making enterprise, producing shoddy goods at inflated cost and employing manpower, far in excess of requirement. The government now needs to go beyond the bold decision it has taken as far as corporatisation of the erstwhile OFB is concerned. Some of these unproductive units need to be closed down or privatised, some could be retained and some could be handed over to the Ministry of industry, where these units could compete with the private sector on a level playing field. Reforms here, by themselves will do much to reduce costs, making more money available for the modernisation effort.

Labour productivity in all the DPSU’s need to be analysed. As an example, production costs of manufacturing indigenous fighter aircraft is abnormally high. The same goes for ship building, manufacture of heavy weapon systems, etc. Improved labour productivity will lead to dramatic reduction in costs, making more funds available for making up critical deficiencies.

A revamping of the total civil manpower on the rolls of the defence ministry would also be in order. It is not that well known that the defence civilian work force numbers around 4 lakh personnel.^[3] Of the 1.2 lakh crore defence pension bill, a substantial part is paid out to these defence civilians. Reducing the civilian work force will ipso facto have an impact on reducing the revenue budget, making more funds available for force modernisation. This by itself will result in far greater savings than any other single measure. The civilian defence component of the Armed Forces is what can be called the tail in the teeth to tail ratio. However, the tail is wrongly construed to be the logistic component of the military. This must be corrected. As a start, it would be beneficial if the Ministry of Defence published yearly figures of the total number of defence civilians on its payrolls, the break-up of such a work force and the pension outlays to such personnel.

Savings can also be accrued with intangible factors such as improved decision making. Poor decision making has in the past led to production delays, delayed acquisitions and a phenomenal increase in costs. Within the military, improved logistic procedures will also do a world of good in bringing down holding costs of equipment, stores, spare parts etc.

Finally, there is a downslide in the ToD system, which needs to be factored in. This pertains to the state of morale of ToD troops, which could be a vital factor in war. In Afghanistan, the Afghan National Defence and Security Forces (ANDSF) fell like a house of cards to the Taliban, primarily because they were composed of conscripts, who had to serve a short time in the Army. When the chips were down, they exhibited no will to fight. We need to be careful of what we attempt to do with the troops of the Indian Army. This is the final bastion of the nation. If the Army fails, the nation does not survive and that is a possibility which we can never ever allow to happen. A sufficiently large percentage ToD soldiers, after their term is over are unlikely to find a job which they find suitable. What happens if some of them become soldiers of fortune, trying their luck with anti-national forces and organisations! We cannot wish such possibilities away. There will also be a separate set of challenges for the Commanding Officers, which need to be factored in.

Conclusion

The ToD concept can at best have a limited impact on defence pension outlays, which will start manifesting only after 15 years. The downside of such a proposal is the impact it will have on operational efficiency and the challenges which may accrue in dealing with a large number of trained military personnel, who have no suitable employment after their ToD has been completed. It would hence be better to look at the entire matter in a holistic manner, especially in terms of what Prime Minister Modi has consistently been emphasising and that is to strengthen the defence industrial base, making India truly atmanirbhar in defence production. Combine this with weapon exports and we have a total game changer at hand. Here, we also need to look into the German Mittelstand, which became a model of economic success. For something like that to succeed in India we need a very proactive bureaucracy which acts as an enabler, supporting such enterprises. Unfortunately, as of now, the private sector is hampered by India’s bureaucratic maze, which makes many entrepreneurs simply shut shop and move off to other countries where their talents are better appreciated.^[4]

If the ToD concept has to be tried out, let us make a start with the Territorial Army.  That would be a better test bed than carrying out such experiments with the field force. We would do well to remember that while future warfare will have a large component of non-contact warfare, the physical blood and gore of war fighting will still remain a constant. For the non-contact part of warfare, getting individuals on short term contracts from the private sector at various levels may also be an option which could be examined, especially in the new emerging field of cyber warfare, artificial intelligence (AI) robotics, et al.

A holistic long-term view will give the Indian Armed Forces the capability and wherewithal to defend the nation against external threats. Fiddling with the system keeping only the financial aspects in mind could lead to unmitigated disaster in the long run. We have suffered foreign invaders ruling over our land over the last millennium. We cannot traverse that path again. Let us also remember that there is a cost to maintaining a young army. The nation has to be prepared to pay that cost.

Author Brief Bio:

Lt Gen Kapil Kumar Aggarwal, AVSM, SM, VSM retired as the Director General, Electronics and Mechanical Engineering. Earlier, he was the Chairman, Army Pay Commission Cell. He is a Post Graduate Engineer from IIT Kharagpur and also an alumnus of Defence Services Staff College, Wellington.

Maj Gen Dhruv C Katoch, is Director, India Foundation and Editor, India Foundation Journal.

References:

^[1] https://takshashila.org.in/takshashilas-inverse-induction-model-being-considered-for-future-recruitments-in-the-army/

^[2] https://www.sundayguardianlive.com/opinion/reducing-armys-pension-bill-proceed-caution

^[3] 2016 data, available at https://doe.gov.in/sites/default/files/PayAllowance2016-17%28English%29.pdf

^[4] Note 2.

Rajat Sethi: Union Budget 2022 presented by Finance Minister Nirmala Sitharaman has been projected as India’s self-reliance budget. Why do you think it was tagged as the Atmanirbhar budget?

Jayant Sinha: Union Budget 2022 is a budget focused on building a strong and prosperous India – Atmanirbhar India. When we talk about Atmanirbharta what we mean is that we want to build an India that is confident, self-assured, looking to the future with absolute conviction that we can build a strong and prosperous India. An India that is in control of its destiny, that’s what we mean when we say Atmanirbharta. This year’s Union Budget demonstrates that thinking very clearly. The budget is focused on sustainable growth going forward and when we say sustainable growth, we mean that in the medium term over the next 3-5 years, India will be able to grow consistently at 6-8% and for that we have to build the productive capacity of the economy. Therefore, this year’s budget very much has emphasised the role of capital expenditure, removing various frictions that are in the ease of doing business and continuing to strengthen both the corporate sector as well as the MSME sector. So, growth is an important pillar of Atmanirbharta and because we really emphasise capital expenditure in business and investment, we are poised now for strong sustainable growth in the medium term. So that is the first and perhaps the most important point when it comes to controlling our destiny and becoming Atmanirbhar.

The second very important point that is reflected in this budget is the fact that we are focusing on strengthening our capacity and very important manufacturing sector. These include for instance smartphones and solar panels. And for solar panel manufacturing, an amount of Rs. 19,500 crore has been given as the production linked incentives (PLI) scheme. It includes advanced chemicals for batteries. Many of these manufacturing sectors that are vitally important for us as an economy going forward have got a lot of encouragement through this budget. In total, 14 sectors are being benefited through this production linked incentive scheme. And over two lakh crores as incentives are going to go into these PLI schemes across these 14 sectors. We are expected to create about 60 lakh jobs through these PLI schemes and in particular there is one key area that I think should deserve all of our attention and that is in semiconductors. There is Rs 76,000 crore worth of incentives that have been lined up specially for semiconductors and the reason for that is that we have to be absolutely able to manufacture semiconductors which is the heart of electronics, which is the heart of the digital economy, that we need to be able to manufacture in India. If we cannot do that, we cannot be confident that we will be in control of our destiny going forward.

The third area to focus on with respect to Atmanirbharta is defence and in particular defence production. So again, in this budget there is an emphasis now that most of our defence requirements should be met through defence production and that’s going up from 58% to 68% in this budget so that we manufacture the defence equipment and the defence goods that we need in our own country. In addition, 25% of the defence R&D that is done through DRDO should go to our start-ups so that we can build a vibrant start-up ecosystem that can serve our defence sector as well. So, whether it’s defence production or defence innovation, in both areas we are emphasising Atmanirbharta. Atmanirbharta is a journey, and it will continue. But for India, particularly given the very unsettled global situation we are in right now, it’s very important for us to be able to control our destiny when it comes to growth, when it comes to these important manufacturing sectors.

Rajat Sethi: India had come out of two years of really bad Covid situation and now the third Omicron wave as well. Entering into this phase of budget making exercise what do you think were the top policy priorities before the Prime Minister as well as the Finance Minister?

Jayant Sinha: The top policy priorities going into this budget are reflected well in some of the matters that I have highlighted. Atmanirbharta absolutely is the overriding priority. I think it was necessary to provide support to vulnerable populations which we provided. 80 crore people got free food grains for 19 months. It cost us 2.6 lakh crore, but we did that. We made sure that 170 crore plus doses of vaccine were administered, so now more than 70% of our people have got two doses. The people who need booster shots are getting booster shots, and so are vulnerable populations. Whether it is the MSME sector, the farmers or the poor, all of them have got support and that has been a very high priority and that required a lot of assistance last year and that assistance is going to be continued this year. The other very important priority was to continue to strengthen the healthcare sector which has been done and third of course is our manufacturing sector that needed the support of the PLI schemes and that has also been provided.

Rajat Sethi: The budget speech of Finance Minister also ushered us into the Amrit Kaal, the next 25 years of India which will hold a lot of promise for our nation. India will be the beacon of hope for the world. It will be one of the largest and strongest growing economies in the world and in fact the world looks up to India to carry the burden of the growth for rest of them. Positioning this as a priority goal, what do you think Prime Minister’s vision was in terms of this Amrit Kaal of 25 years and how did the budget reflect India’s trajectory into these 25 years?

Jayant Sinha: Amrit Kaal is based on two absolutely important pillars. The one pillar which is the ease of doing business is intended to ensure that India becomes a successful economy, that our corporate sector and our start ups do very well, that our MSMEs get the support that they need. And so, we have focused on ease of doing business, enabling investment to happen, enabling the growth of our start-up ecosystem. So ease of doing business, continuing to support our enterprises is very important for us and obviously that’s one of the pillars. The other important pillar is ease of living. So, we focus on ease of doing business on the one hand and easier living on the other hand, through all of that our economy will do really well. We will be able to train them and support them and that will usher in the era of prosperity and a golden era for India, which is what the honourable Prime Minister has called as Amrit Kaal from our 75^th year of independence to 100 years of independence. This is a time when many factors are lining up for India so that India is generally in a sweet spot because our demographics are really excellent, our democracy remains robust. A lot of global factors are moving in our direction as well and when you add all this up, we are absolutely in a sweet spot.

Rajat Sethi: This year’s budget was less on popular side and more focused around futuristic goals laying out the foundation for robust growth and sustainable growth out in the future. What was going on in the Government of India’s mind when they were highlighting talking about futuristic sunrise sectors in the budget which so far have never got a mention in any of the budgets previously in all of these years. What do you think about such a futuristic sort of a budget anchoring around the youth of this country?

Jayant Sinha: Prime Minister Modi is a visionary leader and he has very correctly understood that on the one hand there is this incredible trend towards digitisation where we have to build a digital economy and we are building a digital economy incredibly successfully. India has the cheapest data rates in the world. 4G is available everywhere. We are moving towards 5G. Everybody has a smartphone, everybody has a computer, we are rolling out Bharat Net down to our panchayats, so on the one hand the digitisation of the economy is moving very quickly and when we think about digitalisation, we obviously think about cutting edge technologies like artificial intelligence and machine learning, we are thinking about quantum computing which has been referred to in the budget. We are obviously thinking about drones we are thinking about high-speed supercomputing capabilities all of this has found mention in our budget. We are going to ramp up our solar panel manufacturing. We are going to build a completely new type of grid with massive amounts of battery storage. We are going to advance manufacturing of batteries. We are really looking out for things like solar pumps which are getting a lot of attention as well. And of course we are looking at offshore wind and wind supply of many kinds. So whether it is digitising the economy, of greening the economy, both of these two mega-trends are going to be extremely important so that India gets to the green frontier. India gets to a point where we are absolutely at the cutting edge of the global economy and we build a sustainable competitive economy which I would like to say Atmanirbhar Bharat (ANB). ANB equals CSR. Competitive, Sustainable, Resilient. So, it is absolutely an Atmanirbharta budget but on the other side of the coin on the flip side it is also a jobs budget. It is very much a jobs budget. We understand for a young population we have to create jobs and that is why people were surprised when they looked at the budget and they said there are five state elections coming up but there wasn’t even the slightest hint of populism that you would have expected. That is why we have emphasised jobs, capital expenditure and those investments in the economy which are going to create jobs

Rajat Sethi: There are sectors which are moving out of favour and there are new sectors which are coming in and as you were pointing out, several of these sectors carry the promise of providing lakhs of jobs to our youth and we should skill ourselves to constantly add greater amount of value in these. How do you analyse this?

Jayant Sinha: India’s exports have grown to levels that we could never have imagined. As of now, our exports are at US $400 billion. So we are clearly doing something right when it comes to the PLI schemes, when it comes to the policies we have been following in smart phones, in electronics, manufacturing in textiles, in small automotive two-wheelers and so on. We are clearly growing our exports because our economy is getting steadily more competitive day by day.

Rajat Sethi: India’s fiscal deficit last year was around 6.8 % and the projected fiscal deficit for this budget is somewhere around 6.4% aiming for around the same range. What do you think should be the glide path going forward in terms of having these deficits accounted for in a sustainable manner in our public debt numbers which have shot up because of the extra expenditure that the government had to do? And it has risen above 90%. How do you think a proper glide path to bring it down around 70-72% would look like?

Jayant Sinha: There are two very important aspects around what you have asked. First is that our government has laid out a fiscal glide path. So right now, you are absolutely right. We are at 6.8% going down to 6.4% but we have said very clearly that we intend to go down to 4.5% over the next two or three year. That is consistent with all other countries around the world that have raised spending during the Covid pandemic when, because of the lockdown, economic activity had to be shutdown and that happened throughout the three waves that we have had. So this is the time when you have to spend. Every country in the world, every large economy in the world has spent, and for everyone, fiscal deficits have gone up. So this was to be expected. This is being correctly applied in terms of the fiscal stimulus and the government, in a very responsible way, has laid out a glide path to get down to 4.5% again. And as I said, it is also a question of how you spend. Because we have stayed away from populism and instead focused our attention on capital expenditure which is much more stimulative for the economy and is a much higher economic multiplier, the quality of our growth is going to be much better. So that is one part to your question. The second part your question is also to understand that we have taken this opportunity to clean up India’s balance sheet. This is very important, for in the past, in the UPA government for instance, a lot of liabilities were taken off the budget and they were stuck into things like oil bonds for example for which we are still paying. Lakhs of crores of spending which should have been in the budget were taken and put into oil bonds so that they would not be in the fiscal deficit but they actually were a liability on the government. This time, for example, liabilities associated with the Food Corporation of India, which is the money we are spending on the Food Security Act instead of being taken off the balance sheet has been incorporated on the balance sheet and included in the budget which is why some of our deficit numbers have gone up. But this was the right thing to do because by cleaning up our numbers and being transparent, which the Finance Minister has done, we are setting the stage for robust transparent, non-inflationary growth going forward.

Rajat Sethi: Some of the analysts have been saying that strongest headwinds that India is going to face in the next year or so would be a) inflation b) Fed tightening and it might throw the markets into a similar kind of a paper tantrum. How do you think budget exercise and India’s financial planning takes into account these exogenous factors?

Jayant Sinha: Global inflation has spiked. It has reached over 7% in the United States, over 5 or 6% in the United Kingdom. It is at rates that have not been seen in mature advanced economies for 40 years. So global inflation is in spate, with the situation that’s developing in the Ukraine also resulting in oil prices going up. They are starting to touch US $100 a barrel and of course whether it is the economic survey, the budget speech or the Prime Minister’s comments after the budget, all of them reflect these risks and uncertainties that we are dealing with right now. The good news in India is that inflation in India has been in a comfortable (as per RBI) range of between 2-6%. The RBI has done an exemplary job of managing monetary policy through a very difficult time, through very challenging conditions. The rupee remains stable, our foreign exchange reserves are over US $600 billion and therefore, even while there is all this inflation coming in through external inflation, we have built up our productive capacity. Our supply chains are working reasonably well and therefore, inflation in India is much more manageable and much more under control than it is elsewhere.

Rajat Sethi: Please share your views about Cryptocurrency and the future of finance. The budget touched upon taxation of cryptocurrencies to the tune of what ideally a lottery would be taxed at. And also, there was talk about India’s digital rupee being launched in 2023. What is the governments vision around this futuristic dimension which is opening up and where do you see things shaping up in the future?

Jayant Sinha: Every time a new financial technology comes along like, for example digital payments in the past, and now cash flow-based lending which are new financial technologies, we have to balance innovation with regulation. So our job as policymakers and as regulators is to make sure that people are knowledgeable about the risks that they are taking, that there are not any excesses and that people are protected when they have to deal with new types of innovation. Now it is very much a fact that millennials in India, young people in India, are very excited about cryptocurrencies. When it comes to cryptocurrency in India, we have a very unique set of issues as far as cryptocurrencies are concerned, which Japan, Singapore, the United Kingdom, the US do not have to deal with. Which is that we have capital controls when it comes to our currency, our currency is managed through the foreign exchange management act (FEMA). So we cannot allow free flow of international currencies through India. Hence, we have to be very careful about how all of this develops and progresses from here. In addition to that, there is no global consensus that has yet developed on cryptocurrencies. So I think the government has taken a watchful position and they said that there are some good use cases for a sovereign digital currency which is why that has been announced. The RBI will come out with a better digital currency, which is going to be controlled and managed by the RBI.

Rajat Sethi: You are a seasoned investor as well. How promising does India’s growth trajectory in its near term look like to you and what would be the message to all these global analysts and watchdogs that are looking at India and really eager to understand how is India going to progress in the next few years?

Jayant Sinha: I really cannot guess at all what is going to happen in the short term. In the long term we know one thing that today our GDP is US $3 trillion, the market capitalisation of India’s traded stocks is also about US $3 trillion. Now the Indian economy is growing at 6-7% a year in real terms and what that means is that over the next few years we will have a 5-7 trillion-dollar economy. So when we get to let’s say US $5 trillion economy and the ratio of GDP to market cap remains as much as it is right now, we are going to go from US $3 trillion of market capitalisation to US $5 trillion of market capitalisation. That means over the next few years (if historical correlations hold then) we are going to add US $2 trillion of wealth to our listed securities. That is a tremendous amount of wealth creation on a base which is already very sizeable of US $3 trillion. Our economy, demographics, entrepreneurship, innovation are so strong that as we progress to an US $5 trillion economy, we are likely to create US $2 trillion of wealth as well. So, this is going to be one of the great wealth creation opportunities around the world and there will be very few others that can match the scale of what is possible in India.

Brief Bio:

Shri Jayant Sinha is Chairperson, Parliamentary Standing Committee for Finance and Member of Parliament, Lok Sabha.

Shri Rajat Sethi is Author, Economist and Advisor to Chief Minister of Manipur.

The Russian invasion of Ukraine will have far reaching consequences on the world order as we know it. Many analysts believe that the inability of the NATO alliance to come to the aid of Ukraine spells the emergence of a new world order based on multiple power centres. India has chosen to walk a tight-rope, keeping lines open to both Moscow and Washington, while not taking sides in the conflict. Pragmatism in such a policy is dictated by India’s close ties with Russia and its heavy dependence on Russian equipment for India’s Armed Forces. India is also closely aligned with the US as a member of the Quad, a four-nation grouping focused on a rules-based order in the Indo-Pacific.

It is to be hoped that the forthcoming talks scheduled at Minsk between President Putin of Russia and President Zelenskyy of Ukraine lead to a ceasefire and eventual withdrawal of Russian forces from Ukraine. The war has already sent energy prices soaring with crude oil prices breaching the USD 100 per barrel mark. After two years of the negative impact of the Covid 19 pandemic on India’s as well as the world’s economy, from which India has just about begun to recover, the fallout of a prolonged war in Ukraine will cast a shadow on India’s growth story. While India, by herself may not be able to exert the required pressure to ensure return of peace in Ukraine, in conjunction with other major powers, it perhaps may be possible to do so.

Looking into the future, it is important for India to achieve a higher level of indigenous defence preparedness to obviate dependencies on other countries, which could limit India’s strategic decision-making options. Technology will remain the game changer, with the technologically advanced nations having a disproportionate influence on the world economy as well as in creating strategic choices. Towards this end, India needs to move on two fronts. First, is to invest in future technologies, especially in the field of Artificial Intelligence (AI), so that it does not have to play the catch-up game. Second, is to make the home environment conducive to the Atmanirbhar growth story, which is receiving full political support, but would require appropriate legislation to perform up to potential as also a very receptive and supportive bureaucracy.

India needs to take a hard look at the Mittelstand model which propelled German industry to world leadership in the small and medium-sized enterprises. These were small family-owned businesses which were supported to become world class enterprises. With the stress that India is laying on the SME and MSME sectors, it would be instructive for India’s political leadership as well as the bureaucracy to see how this model enabled the sector to flourish.

In the defence sector, the government is laying great stress on becoming self-sufficient in defence needs. This is, of course, a work in progress as the customer base for the supply of weapons, ammunition and equipment has a limited market and the lead time for manufacture is very long. There is also a risk involved in such manufacture as despite the heavy investment made by the private sector, there is no surety that the product will have a buyer. But it is here that the SME and MSME sectors can deliver, if provided the right enabling environment, in partnership with one of the bigger firms to supply components and sub components of platforms and weapon systems. In the two defence corridors that are coming up, one in Tamil Nadu and the other in Uttar Pradesh, such enabling of SMEs and MSMEs can contribute greatly to reducing India’s dependence on imports.

The Ordnance Factory Board has been disbanded and the 41 Ordnance factories that came under it have been amalgamated into seven DPSUs (Defence Public Sector Undertakings). This has been a huge step taken by the government, against great opposition from the unions. But the ultimate test will come when the seven DPSUs are able to show a marked improvement in performance. If these units are going to be managed in the same manner as before, with the same lot of personnel, we may not get the desired results to enhance quality, increase manufacture, reduce costs and ensure timely delivery. A new management, perhaps form the private sector which understands and is attuned to a competitive marketplace with a flair for business may be the mantra required to convert these units into great industrial powerhouses. It can be done, if the government and India’s bureaucracy is prepared to provide them an enabling environment, with appropriate regulations where they have the freedom to execute policies in line with the private sector.

Of great import is the decision by the government to export the Brahmos missile to Philippines. This marks a radical shift in India’s defence policy which had earlier been wary of exporting upper end offensive weapon systems. But if the Brahmos missile can be exported, the field is now open to export of all types of weapons and equipment. It is indeed an exciting time for the defence sector and both the public and private sector must do what they can to promote exports. The government of course would have to come up with enabling legislation, but the renewed thrust on defence exports fits in well with the Prime Minister’s vision of achieving defence production capability of USD 25 billion by 2025, of which exports would comprise USD 5 billion. While this may appear ambitious, India has the capability to not just achieve these goals, but to surpass them too. All that is needed is an enabling environment.

Author Brief Bio: Maj Gen Dhruv C Katoch is Editor, India Foundation Journal and Director, India Foundation.

The pandemic is not yet over. However, humankind has shown extraordinary resilience by not only devising a number of preventive vaccines in a record time, but also by making a continuous stride towards economic revival. In some parts of the world, economic recovery is happening faster than projected – the European Commission’s autumn forecast shows GDP in the EU and the eurozone area reaching 5 per cent by 2021, higher than the previous forecast of 4.8 per cent. Moreover, it is projected to grow by 4.3 per cent in 2022 and by 2.5 per cent for the EU and 2.4 per cent for the eurozone in 2023.^[1] The fact that this global economic revival is constantly threatened by an aggravating climate crisis and rising inflation and economic inequality may undercut the pace and it will be unwise to assume India can remain insulated from such threats. However, much of it can be averted by adapting to the best practices and implementing policies with decisiveness that brings benefits to the people and society and fosters greater good. In the past two years, access to nutrition, health, education, and employment remained some of the biggest concerns for the government, its policymakers as well as the common people. As India slowly emerges from the third wave of COVID-19 and pedals the growth accelerator with the Union Budget this year, it must probe into health and education – areas that call for the greatest attention as they impact human life like no other.

Holistic Healthcare and Disease Prevention Key for Post-COVID Health Systems

Until the pandemic struck, the term ‘health’ was more indicative of treatment of diseases than ‘… a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.’ as defined by the World Health Organization (WHO). Before COVID-19, common people were largely reacting to health problems, while policy discussions on health were often centered around the cost of healthcare. This has a precedence in the history: In the 19th Century, when New York was under repeated attack of cholera epidemics, prevalence of cases among poor, working-class, and immigrant populations living in without proper access to water, sanitation, and hygiene (WaSH), forced the state legislature pass the Metropolitan Health Law in the second half of the century. It mandated municipal governments to maintain adequate sanitary conditions and created a Board of Health that implemented practices to limit the city’s death toll and inspired similar laws and organizations around the US.^[2] In the post-COVID growth, health must be considered an investment and for a developing country like India, it can offer stupendous returns: As per estimates, a 10 per cent reduction in malaria incidence is associated with an increased annual economic growth of 0.3 per cent.^[3]

Following are a few aspects investing in which can enrich the post-COVID Indian healthcare systems:

Focus on improving SDH parameters: The social determinants of health (SDH) are the non-medical factors that influence health outcomes, including income and social protection, education, working life conditions, food insecurity, housing, basic amenities and the environment, and access to affordable health services of decent quality. The WHO estimates find SDH accounts for between 30-55 per cent of health outcomes,^[4] and addressing SDH appropriately plays an important role in improving access to health services and reducing inequities in health. SDH parameters can vary greatly between urban and rural areas and for men, women, children, and marginalised communities. The pandemic has put the spotlight on the glaring inequalities in the society and underscored the importance of ensuring these parameters are met to enable people live a healthy and productive life.

Nutrition for health and wealth creation: To think that food meets a person’s physiological needs will be a serious underassessment of its importance. However, in the early days of the pandemic, over 3 lakh children under the age of 5 in India may due to reduced routine health services coverage and increased wasting.^[5] Estimates show that multiple forms of malnutrition (MOM) may reduce nearly 8 per cent of India’s economic growth driven by reduced days to school, cognitive impairments, compromised adult productivity, and increased healthcare costs. Malnutrition may impose a steep cost to the economy, as high as USD 3.5 trillion per year, or USD 500 per person.^[6] Food, and in turn right nutrition, can well become the engine of economic growth in the aftermath of the pandemic. Ensuring nutrition security can yield impressive economic benefits – for every dollar invested in wasting and stunting of children, a return of USD 18 is received. In India, the yields are between USD 34.1 and USD 38.6, three times more than the global average. India must ensure that supplies to beneficiaries of its impressive nutrition programmes continue without any disruption and innovative forms such as nutraceuticals, gummies and chewables are inducted.

Prevention of non-communicable diseases: Non-communicable diseases (NCDs) are India’s biggest health threat and affects a large share of the pre-adult and adult population of all ages. The four major NCDs in India are cardiovascular diseases (CVDs), cancers, chronic respiratory diseases (CRDs) and diabetes[7], driven by four behavioral risk factors – unhealthy diet, lack of physical activity, and consumption of tobacco and alcohol. According to the India State-Level Disease Burden Initiative in 2017, the Indian Council of Medical Research (ICMR) estimates that the proportion of deaths due to NCDs in India have increased from 37.9 per cent in 1990 to 61.8 per cent in 2016. During the pandemic, NCDs have emerged as the single biggest risk factor, termed as comorbidity, that can accelerate disease progression and even cause death and studies have found that in 70 per cent of observed states in India, a high NCD prevalence was accompanied by high Covid mortality and vice versa.^[8] While India has a National Programme for Prevention and Control of Cancer, Diabetes, Cardiovascular Diseases and Stroke (NPCDCS), there is an urgent need to widen its coverage and monitor the progress.

Building climate-resilient health systems: The devastating second wave of COVID was a rude reminder of how inadequately India is equipped to handle large-scale outbreaks as common supplies like oxygen fell short of what was required. And even though last year’s union budget had extensive plans to ramp up health infrastructure, the actual numbers are far and few between. The importance of a system-based approach towards health is one of the biggest learnings of COVID for all developing economies across the world, including India, something that acts as the foundation of well-developed health systems. As the country is likely to face increased droughts and floods, it is important to build health systems that do not crumble under the sustained pressure of health emergencies or cases. This will require attaining the optimum doctor-patient ratio as recommended by the WHO, strengthening of digital platforms for patient data and disease history, training manpower to use transformative platforms such as telemedicine / teleconsultation, and ensuring seamless supply using drones to widen access to health e-com in smaller towns, rural and remote areas. At the same time, it is also important to look into the carbon footprint of the healthcare sector – if the global healthcare sector were a country, it would be the 5th highest emitter on the planet.^[9] India contributes to 2 per cent of global healthcare’s climate footprint and investing in the decarbonization of local and national energy systems as well as advocating use of clean, renewable energy can address the concern.

Using latest R&D for insightful health policy: Health policies play an important role in analysing the unmet needs of the people and finding innovative ways to bridge the gap. The pandemic has highlighted the varying needs of people and adopting an analytical approach, such as systems science, can help understand the complex relationships between communities and develop targeted interventions to improve health and improve health equity by facilitating alternative policies. Australia benefited from this approach by creating the HE2 Diagram—a model that outlined the determinants of inequity in healthy eating.^[10] In the United States, a large‐scale system dynamics model evaluated the impact of local interventions on long‐term outcomes of cardiovascular diseases among all US adults. The simulated interventions ranged from increasing access to and marketing of options for physical activity, taxing junk food, and banning smoking at work and public places, to implementing air pollution control regulations. The results were then used by health planners and policymakers in counties in Texas to support local strategy and interventions. With the ambitious IndigGen project already gathering steam, it will be crucial to meet the target set for this year. Whole genome sequencing (WGS) can play a significant role in public health in several ways, right from revealing population-level predispositions to diseases to assisting in finding ways to mitigate rare genetic diseases. Given that COVID has injected a fresh lease of life to genome sequencing, India must use genomic insights for public health policy formulation.

Rebuilding Post-COVID Economy with an Equitable Education System

If focusing on health helps people live, focusing on education enables them to live a productive life. There is no denying the fact that together with health, education form the cornerstones of productive society and are key enablers of economic growth of a country. Sadly, even before the pandemic struck, learning crisis was a reality in developing economies – about 258 million children of primary- and secondary-school age across the world were out of school, and the Learning Poverty (being unable to read and understand a simple text by age 10) rate in low- and middle-income countries was a whopping 53 per cent – meaning that over half of all 10-year-old children could not read and understand a simple text even before the disruptions began.^[11] In the past two years, as the pandemic dented the learning curve of students not only by prohibiting their access to classrooms but also affecting their social skills and mental health, it won’t be surprising to see staggeringly high numbers of students in the bracket of Learning Poverty. Diverse socio-economic conditions across the country amplified the gaps and made it difficult for students to either attend or follow online classes. Therefore, it is urgent and imperative upon policymakers to build an education system that meets immediate needs and addresses inequities.

To help countries recover from the impact of pandemic and accelerate learning in a post-COVID scenario, the World Bank suggests the following 10 actions:^[12]

• Assessing learning loss and monitor progress, when children return to school and during remote instruction;
• Providing remedial education and socio-emotional support to help students catch-up and ensure school retention;
• Restructuring the academic calendar, to adjust for lost school days due to the pandemic;
• Adapting the curriculum, to prioritize foundational learning (including social-emotional learning) accounting for the lost time;
• Preparing and supporting teachers, to manage burnout, improve digital skills, identify those students needing support and adjust instruction to meet them where they are at;
• Preparing and supporting school management, to develop and implement plans that ensure health and safety conditions for children’s return to schools and learning continuity;
• Communicating with stakeholders, to build ownership and support from parents/ caregivers, teachers, school staff and the broader community for school reopening plans;
• Encouraging re-enrolment, with special emphasis on at-risk of dropout populations;
• Minimising disease transmission in schools, supporting campaigns for vaccination rollout and following epidemiological guidelines for sanitation and hygiene to prevent outbreaks, activation of remote instruction; and
• Supporting learning at home, by distributing books, digital devices where possible and resource packs for remote learning to children and parents.

Designing and implementing learning recovery programmes: As India’s young adults head back to school, it is important to ensure that thoughtful learning recovery programmes are designed to help those who lagged for reasons beyond their control. Learning losses due to the pandemic can foster insurmountable inequities as these children are at risk of being further pushed behind in future, especially when it comes to skill building and employability. This necessitates countries to design learning recovery programmes that help disadvantaged students receive the support they need to catch up to expected learning targets. In June 2020, British Prime Minister Boris Johnson announced an USD 1.3 bn pupil catch-up fund, and a portion was set aside for tutoring that was launched in November.^[13] According to research in the UK, 12-week programmes of tutoring can help students make progress equal to three to five months of normal schooling. In Italy, middle school students who received three hours of online tutoring a week via a computer, tablet, or smartphone saw a 4.7 per cent boost in their performance in math, English, and Italian.^[14] Ukraine, a middle- and lower-income country like India, is implementing learning continuity programmes – the country’s Ministry of Education and Science (MOES) and Ministry of Digital Transformation, established the All-Ukrainian Online School platform for distance and blended learning for students in grades 5–11 that helps to connect teachers and students, and where the latter can access educational materials and continue schooling during enhanced quarantine / lockdowns. The platform contains lessons in 18 basic subjects and consists of videos, tests, and a compendium of lessons and has the facility for them to track their learning progress. This is somewhat similar to the SWAYAM platform launched by India which could be adapted for the lower grades and limited internet connectivity to support distance learning. According to the World Bank, besides such learning continuity programmes, Ukraine could consider supporting “just-in-time” student assessments to measure the extent of learning losses and identify the students who may need additional targeted support to catch up through accelerated learning programmes, a step that can be emulated by India as well.

Increasing budgetary allocations for education: Given the disproportionate expenses incurred to handle the pandemic, there is a fear of budget cuts for the education sector. However, in the latest budget, India has successfully averted that trap – the Union Budget this year set aside INR 1.04 lakh crore for education, marking an increase of around INR 11,000 crore or 11.86 per cent from the allocation of 2021-22 Budget.^[15] This can play a significant role in helping students from underprivileged backgrounds to overcome the gap caused by the pandemic. The increased funds can be used to help the most vulnerable students and the government must focus on funding and allocating resources to support schools delivering remote instruction, particularly those serving high-poverty and high-minority students. The fund must also increase provisions to incentivise students, such as scholarships. Ukraine has taken concrete steps to protect and shore up education spending in 2021 – it increased transfers to local governments for teaching aids and equipment, provided additional support and social protection to teachers and academic staff by increasing salary, and opening new channels of transfer to local governments for school safety and other measures to combat COVID-19. While India too increases its focus on digital-enabled education, expanding the ‘One classroom, one channel’ programme, the establishment of a Digital University, 750 virtual labs for science and mathematics, and the DESH-Stack e-portal for skilling, it is important to track the progress of these programmes and the students they aim to benefit.

Address barriers to overcome future shocks: The learnings from the pandemic are immense, and most significant of them is that being flexible is no longer an option. This is applicable to schools and educational institutions as well who are now faced with the possibility of physical interactions to blended models of education, for good. They must be better prepared to switch easily between face-to-face and remote learning to protect the education not only during future pandemics, but also during other shocks forcing school closures, such as natural disasters or other adverse events. Therefore, areas that are more prone to endure the most of erratic climatic patterns should be encouraged more to build their capabilities in blended learning. Being flexible about modes of education as well as suitable curriculum may also create opportunities for more individualized approaches to teaching and learning and help take a more empathetic view of what the students need. This will also necessitate the ‘Train the trainer’ module for teachers, especially in rural and remote areas, to adapt to the realities of the post COVID world – digitisation, simulated classrooms, remote learning, building critical thinking and emotional and social intelligence capabilities in students, and the likes. It will be wise to offer short training courses to improve their digital skills and help them strategize ways to reduce screen time for students when prolonged screen-based learning is required. They must also be trained to counsel students on building new-age, tech-based skills, keeping the evolving job market in mind. These may include, but not limited to, cybersecurity, robotics, cloud computing, blockchain, augmented reality (AR) and virtual reality (VR). At the same time, parents and the community at large must be enabled to support students during challenging times since they are critical to children’s education, and implementing family-level and community-level programmes may help to a great extent. Given that girl children comprise a lion’s share of the school dropouts and are disproportionately affected during the pandemic, extra care and focus should be given to build WaSH infrastructure in schools to arrest girl student dropouts and bring back such to the fold as we tread the path of economic recovery.

Conclusion

This was not the first pandemic the world has seen, nor will it be the last. However, the damages it has caused may have a lasting impact, unless thoughtful measures are implemented to drive the recovery. Having said that, covering a population of 1.3 billion is a herculean task for any government; collaboration and partnerships will remain the key to achieve the measures that can prepare India better for future pandemics or any other widespread disruption. India must formulate policies that will encourage corporates in undertaking public-private partnerships as they will remain critical in improving social markers and pave the way for economic growth. Besides, to meet the realities of a post-COVID world, India must focus on building and strengthening last-mile internet infrastructure across the country – upcoming technologies like 5G needs special focus and headway in India for the solutions to work in a post COVID world. At the same time, international collaborations will form a critical inroad for new ideas and know-hows that can substantially improve the quality of life of an average Indian.

Author Brief Bio: Parul Soni is Global Managing Partner of Thinkthrough Consulting and founder and Secretary-General of Association of Business Women in Commerce and Industry (ABWCI) – a Virtual Chamber of Commerce for Women. He is a consummate professional with over 25 years of experience and expertise in international investment, bilateral and multilateral trade, cross-border policies, regional trade agreements and negotiations at national and international levels. He has worked in over 54 countries with Fortune 500, companies, global alliances, industry associations, international development organisations and knowledge institutions. He has been working actively with fast-growing Indian entrepreneurial and global organisations for establishing and expand their presence across South Asia.

References:

^[1] https://www.euronews.com/next/2021/12/15/europe-s-economy-to-bounce-back-faster-than-forecast

^[2] https://jamanetwork.com/journals/jama/fullarticle/2776672

^[3] https://www.livemint.com/Politics/PuYLifV8TNzD13GqiK3JmN/Healthcare-and-economic-growth.html

^[4] https://www.who.int/health-topics/social-determinants-of-health#tab=tab_1

^[5] https://health.economictimes.indiatimes.com/news/industry/indias-fight-against-covid-19-and-malnutrition/75858953

^[6] https://www.thehindubusinessline.com/specials/pulse/malnutrition-a-major-impediment-in-indias-economic-growth/article29799682.ece

[7] http://www.publicnow.com/view/2BFE9E840B4D6D9256751A5C48804DBB973C424B?1644306798

^[8] https://theprint.in/health/from-goa-to-maharashtra-what-covid-deaths-say-about-states-non-communicable-disease-burden/802811/

^[9] https://ncdc.gov.in/WriteReadData/linkimages/GreenClimateResilienthealthcarePHFI.pdf

^[10] https://www.ahajournals.org/doi/10.1161/JAHA.121.022721#d1e1077

^[11] https://www.worldbank.org/en/news/immersive-story/2021/01/22/urgent-effective-action-required-to-quell-the-impact-of-covid-19-on-education-worldwide

^[12] https://www.worldbank.org/en/news/immersive-story/2021/01/22/urgent-effective-action-required-to-quell-the-impact-of-covid-19-on-education-worldwide

^[13] https://www.economist.com/britain/2020/11/05/englands-catch-up-tutoring-programme-has-bold-ambitions

^[14] https://www.worldbank.org/en/news/opinion/2021/04/02/the-impact-of-covid-19-on-education-recommendations-and-opportunities-for-ukraine

^[15] https://www.hindustantimes.com/india-news/union-budget-2022-gives-fillip-to-covid-hit-education-sector-101643741866571.html#:~:text=The%20Budget%20set%20aside%20%E2%82%B9,to%20%E2%82%B988%2C00.52%20crore.

Abstract: Startups and innovations in Businesses, by definition challenge the boundaries of current regulatory frameworks. However, nations that have been flexible from a regulatory perspective, have had larger number high impact startups. India needs to have a clear, centralised mechanism for regulatory changes. In addition, there is an urgent need to ward off the tendency of the judiciary to create regulatory frameworks, without the institutional capabilities.

Introduction

Uber was illegal in most countries when it started off. And it would have been a dead-on-arrival idea, had it not been for the US states to start creating enabling regulatory spaces that gave Uber the toehold in its home country. This gave Uber the ability to change the regulatory spaces in other countries and emerge as a multi-billion-dollar global phenomena.^[1]

India too has its share of startups that are getting throttled because of existing regulatory frameworks, that were created for a different technological ecosystem. An excellent example is that of the entire drone startup ecosystem, that was on the grey zone between legal and illegal, till the government stepped in to clear the air and come out with well deliberated enabling policies and regulations on drones. In the absence of such policies, even suppliers of drones to the military were engaging in unlawful actions, every time they would fly a drone for testing purposes.

In fact, our home-grown commercial vehicle aggregators face pushback when they try to do something as simple as trying to get an auto-rickshaw to deliver a package. Such an activity of enabling an auto-rickshaw to deliver a package would lead to increase in the income of the auto-rickshaw driver and would increase the asset utilization in the economy, as well as increase efficiency in the economy. However, as per regulations it is illegal for auto-rickshaws to carry goods instead of passengers. In the era of aggregating everything via apps, it is seriously debilitating to not being able to use auto-rickshaws to deliver goods. It does not help startups that are trying to change the status quo and have to create new markets, deal with attracting funds, attracting talent, aligning with the compliances in the country and then also engage in public policy discussions to change regulations that are limiting the ability of the modest auto-rickshaw drivers from earning more, thereby also reducing tax collections of the government.

Case of e-education

During the Wuhan Covid pandemic, e-education saved more than a year for millions of students in this country. Given the experience in being able to deliver e-education at scale, there is a clear need for frameworks and policies that enable e-education to be delivered for K-12 and for higher education in courses where physical labs and physical meeting is not required. This would enable not just delivery of education where it is not being delivered, but also improving the quality of education where it is currently being delivered.

The Union Budget 2023 declared the setting up of a Digital University, under the aegis of the government. However, it would be worthwhile to also promote strong entities from the private sector to also bolster the Digital Universities infrastructure and capabilities, thus being able to export education digitally to the world, earning precious foreign exchange. If India needs to upgrade the educational qualification of its workforce and increase their productivity at scale, digital universities are perhaps one of the most potent ways to do so in a short period of time. However, India does not even have a regulatory framework for Digital Universities. A non-governmental body cannot even apply to become a Digital University as such a concept is non-existent.

Case of other Innovations

Indian vehicles get certification at ARAI for scooters, cars, busses and other existing vehicle types. However, if someone comes out with a vehicle that does not fit the above definitions, then they cannot get the certification required to sell their vehicles in India. So, if a startup creates a trike, which is a three-wheeler bike with two wheels in the front and one in the back, there is no category of such a vehicle and hence the startup will not be able to get their product to see the light of the day. In comparison, we already see a patent war in Europe where the Italian scooter manufacturer Piaggio has stopped the french manufacturer, Peugot Motorcycles, from manufacturing similar trikes (2 wheels in front and one in the back) as Piaggio claimed it had a patent on it. It is also interesting to note that Piaggio exercised its patent right only after Peugot Motorcycles moved under the ownership of Mahindra & Mahindra. However, the point to note is that the Indian ecosystem would not have even allowed such a vehicle type of trike to be created in India due to regulatory constraints. Of course, we will eventually accept such a vehicle type when foreign players start looking at India for such a vehicle type, with mature foreign technology, while India did not give the regulatory space for such vehicle types to come up within India.

It is pertinent to bring up the case of our regulatory frameworks that drove one of our finest scientist to die by suicide. The then governments and regulatory frameworks prevented Dr. Subhash Mukhopadhay, who had independently invented in vitro fertilisation (IVF), to share his innovation with those who needed it in India. Moral and ethical issues were quoted to even give a very real threat of arrest to Dr. Mukhopadhay. He died by suicide. Eventually IVF was allowed in India, only when foreign entities brought the concept to India.

In recent times, in 1997, a Dr. Baruah, a doctor from Assam was lampooned in the media and in the policy circles and arrested for attempting to implant a pig’s heart into a human. Instead of providing more funding for continued research, the doctor had been hounded out of practice. Dr. Baruah was clearly not a quack, being a Fellow of the Royal College of Surgeons and Physicians in the UK.^[2] The same has now been done by doctors in Europe and subsequently in US. Our inability to provide a safe regulatory space for such innovations and scientific breakthroughs to happen and to flourish, will continue to impede India from being a technological and economic powerhouse. With not being able to take this breakthrough forward, India has lost out in a future multi-billion-dollar xenotransplantation industry.

In fact, Indian regulatory framework is preventing simple income-enhancing changes such as letting an auto-rickshaw carry a package or setting up of Digital Universities. As one has perennially rued, India will allow such innovations only if it has been done elsewhere and hence only if a foreign company brings it to India.

Regulatory frameworks as an independent source of generating value in the economy^[3]

Taking the example of Bike taxis, which is a concept that is already prevalent in many southeast asian countries, we analyse how regulations can generate value. In India, where we have overloaded three wheelers of all sizes carrying commuters who would like to commute at the cheapest cost possible, it is but obvious that a bike taxi would be of immense demand for commuters. However, bike taxis are actually not yet legal in most states of the country. Making bike taxis legal would lead to millions getting a livelihood while providing a cheaper and more convenient mode of transportation to many millions in our crowded cities. Needless to say, it would also lead to more tax collection and an increase in the size of the economy.

While there is no central legislation regulating bike taxis, the Central Government has recommended that bike taxis be allowed for commercial use and had also directed the State Governments to consider allowing private bikes to be converted into taxis so as to be used for commercial purposes and the regulations around the same. The matter of whether or not bike taxis are permissible, now lies in the hands of individual State Governments. Till then, we continue to lose the ability to increase efficiency of commuting in our cities.

Let us consider the case of Digital maps. Up until 2021, Digital Maps in India were illegal. Indian laws required Indian firms to seek licenses and additional approvals to create and publish topographical data. Such a regulation not only deprived the nation of an extremely useful asset, but also led to handicapping local digital map players while providing foreign players an iron grip over the Indian market. Although this regulation was changed in early 2021 and it has led to significant economic activities, it had already done the damage of blocking the growth of robust Indian digital mapping companies. In fact, no less than the Prime Minister of country noted that the “deregulation” step will help the country become more self-reliant and help reach its US $5 trillion GDP goal.

India also has unicorn startups running online gaming industries where the founders wake up every morning to check if they have been banned yet. State governments after state governments have been seriously considering the idea with total bans and partial bans on online gaming. Even though the government understands that one cannot stop the march of technology, we still have a situation that entire industries and the millions of people working in it, are perpetually on tenterhooks if their industry will continue to operate the next day.

That brings us to the case of cryptos. Much has already been analysed on cryptos. It has significant economic and geopolitical implications. But what would be difficult to do would be to impose a blanket ban on cryptos. Hence, however difficult it may be, creating a regulatory framework would be essential.

We also had the case of industries being declared out-of-bounds for the private sector, because public sector enterprises were operating in those sectors. Hence, startups providing bus services were illegal as they competed with the state’s bus services. Or providing food on train was illegal as it competed with Indian Railway Catering and Tourism Corporation (IRCTC). Even voice over IP (what many of us commonly use on a daily basis over messaging apps such as WhatsApp and Telegram) was illegal in India as it competed with VSNL (a telecom company that was then under the government) and BSNL.

In fact, even delivering medicines to consumers was illegal, and so is delivering alcohol to consumers, thus inhibiting aggregator startups that were into online pharmacies and inhibiting aggregators that can enable alcohol delivery (which is a major source of revenues for most state governments).

Regulatory Destruction of Economic Value: Case of banning vehicles based on age^[4]

The previous sections captured on how regulations can, and are leading to considerable value creation in the economy. However, there are also regulations that destroy very significant economic value. These are not necessarily regulations by the executive, but regulations that have come out due to the judiciary.

Judicial intervention leading to banning vehicles based on their age is unprecedented globally and would lead to enormous value destruction. If the aim is to reduce pollution, then emissions should be the criteria. Wanton destruction of private property is not judicious.

Specifically, if one looks at the Supreme Court order on October 29, 2018, that prohibited the plying of 15-year-old petrol and 10-year-old diesel vehicles in the national capital region and directed the transport department to announce such vehicles to be impounded if found plying, it is leading to a humungous destruction of property and economic value. It is especially of concern since the central government had subsequently come out with a new voluntary vehicle scrapping policy, which looks at the vehicle’s fitness as the criteria for scrapping and not its age.

Evaluating the impact of the regulatory change brought in by judicial intervention, approximately 3 lakh two wheelers will get scrapped annually and about 1 lakh four wheelers will get scrapped annually. Taking a conservative residual value of two wheelers to be Rs 10,000 on average, and residual value of four wheelers to be Rs 2 lakhs on an average, that is a value destruction of a whopping Rs 2,300 crore annually. What are we getting in return? We are supposed to get (a) cleaner air, (b) more demand for vehicles and hence more jobs, (c) creation of a vibrant scrappage industry and hence more jobs and (d) creation of an electric vehicles retrofitting industry. Are these really the benefits that we will get? Let us look at each one of them more closely.

Looking at the first supposed benefit of cleaner air, if this was really the objective of NGT and the courts, then the order would be have been to have stricter norms for pollution check. The criteria for scrapping vehicles would have been their fitness check and pollution emission checks and not the age of the car. This is exactly the regulation that the central government has brought in, which focusses on the fitness of the vehicle rather than merely the age. The orders to scrap vehicles based on age appears to be more driven towards creating a market. The cost is being borne by the middle class who did not know at the time of purchasing their vehicle that the life of their property will in future be curtailed by judicial orders. It needs to be debated if the courts have the right to snatch away property from people based on specious arguments of pollution being linked to age of a personal vehicle. Such arguments may hold for commercial vehicles but not for personal vehicles. One needs to ask what is a pensioner expected to do when she bought what she thought was the last vehicle that would be hers for the rest of her life, now that that vehicle is being taken away from her. We need to consider where is she expected to get the money to buy another vehicle. When she had bought the vehicle, the “contract” with the government was that she can drive the vehicle till it is fit to drive. It was not based on the age of the vehicle. Why are the courts and the state government now suddenly taking away that vehicle by citing pollution when clearly one can have emissions as a norm for scrapping cars and not age. Such regulations push people into poverty with respect to their current standard of living.

If at all a regulation is to be brought in which scraps vehicles based on age, then that rule should have been declared at the time of buying the vehicle, and not midway through the life of the vehicle. Such an action would be tantamount to cheating the people of their property. Such regulation may be prospective but never retrospective.

In fact, around the world, age has rarely ever been used as a criteria to scrap vehicles. Most vehicle scrappage policies are driven by incentives and not by fiat. By forcing the scrappage of vehicles by age, the courts are taking away property from citizens.

In fact, the Constitution originally provided for the right to property under Articles 19 and 31. Article 19 guaranteed to all citizens the right to acquire, hold and dispose of property. Article 31 provides that “no person shall be deprived of his property save by authority of law.” It was also provided that compensation would be paid to a person whose property has been taken for public purposes, and that is how the USA had designed its own vehicle scrappage policy.

Unfortunately, the provisions relating to the right to property were changed. The 44th Amendment of 1978 removed the right to property from the list of fundamental rights. A new provision, Article 300-A, was added to the Constitution, which provided that “no person shall be deprived of his property save by authority of law”. Subsequent liberalisation of the economy and the government’s initiative to set up special economic zones led to many protests by farmers and led to calls for the reinstatement of the fundamental right to private property. In fact, the Supreme Court itself had sent notice to the government questioning why the right to property should not be brought back. And now we see the Apex Court itself taking away property from citizens in a manner that begs to have more rationale. However, none of this should imply that in a democratic setup, properties will be taken away by changing the regulatory frameworks.

If age was a criteria for taking away property, we should look at the thought experiment of the courts deciding that all houses that are over 30 years of age should now be demolished and rebuilt as it has been found that a few houses above the age of 30 years have collapsed. It would obviously lead to a massive demolition industry, lead to new buildings being created, and many jobs getting created. But is that the right thing to do? At whose cost would these industries and jobs get created? Such actions may happen in countries like China. However, in a democratic country like India, regulations should not be used in such draconian manner, leading to destruction of economic value. It appears that pollution was an excuse for this massive value destruction.

In fact, vehicle owners cannot even get their vehicles converted to electric vehicles as the norms are not ready and the homologation rules are too complex to make electric retro-fitment economically viable. Moreover, we have not even considered the possibility of creating an industry to refurbish the vehicles and export them to other countries, the way Japan does.

Let us look at the second projected benefit of more demand for vehicles and hence more jobs. We need to do an in-depth study on whether people really have that kind of disposable money to be able to buy new vehicles. With rising expenses and rising cost of medical care, buying new vehicles will really not be top priority. We also need to consider if it is morally right to take away someone’s vehicle so that that the person is then forced to buy another vehicle. This then bring us to the hypothetical but equivalent case on the need to pass a regulation to demolish all houses above the age of 30 years as people would then buy new houses and grow the economy. The argument is obviously not an acceptable argument.

Similarly, if we look at the third and fourth benefits of creating a scrappage industry and creation of electric retrofitting industry, both arguments are unacceptable as we are creating these industries by taking away someone’s hard earned property. To add to the woes, there is no clarity on how the electric vehicle retrofitting will work as retro-fitment kit for each model of a vehicle would require homologation which is extremely expensive and time consuming. Again, one only needs to compare it with the hypothetical order of demolishing all houses that are above the age of 30 years, to see the   unethical nature of this order.

One has not witnessed such large-scale destruction of economic value through regulations in the recent past. Unfortunately, since the orders supposedly lead to a larger market for the automobile giants, it is a losing battle for the weak middle-class to be able to challenge the order. The middle-class cannot do dharnas and choke arterial roads and highways. They have to get up in the morning and go for their jobs and keep the economic engine running and mutely submit themselves to the regulatory burdens. And thus, yet again, it is the middle class that will be at the receiving end of a regulatory intervention that helps large companies rather than protecting the vulnerable.

Regulations distorting the economy

The government has been charging a tax on digital payments while promoting digital payments. It is tantamount to a tax on a tax paid purchase and inhibits the growth of digital payments. Since it is obvious from economics that an indirect tax distorts the economy, an indirect tax on the indirect tax, further distorts the economy.

When one makes a digital payment to a merchant, using a card, the merchant usually incurs a facilitation charge which is a small portion of the value of the transaction. So, if one is paying by say credit card for buying medicines, the chemist needs to pay a small amount of the transaction value to the credit card network, in order to receive the payment. This amount actually is not just the cost of facilitating the payment, but is also the interest cost of the payment as the payer then gets around 45 days of credit to pay back that amount. Thus, it also becomes an important tool for providing access to small credit to the common people.

These charges are legitimate charges for a legitimate service being provided. However, one needs to pay 18% as GST on the digital payment charges. So, in effect, to make a payment digitally, one needs to pay separately to the government also. This is unacceptable as one is already paying taxes on the goods or service being purchased, and on top of it, one has to also pay an additional tax to the government if one is making the payment digitally. And this is especially convoluted in the context that the government is promoting digital payment.

To be fair to the government, the government does give a waiver of taxes on digital payments of values less than Rs 2,000. However, as seen in recent cases in the industry, the indirect taxes arm of the government (CBIC) believes that such waiver is only for banks and not for fintechs. Hence fintechs who did not charge a GST on transactions below Rs 2,000, were presented with show cause notices and humungous tax demands. It seems to be a classic case of left arm not knowing what the right arm is doing.

Even if this issue of taxing the transactions facilitated by fintechs is resolved, and payment transactions below Rs 2,000 are not taxed, the fundamental issue stays – is it right to levy an additional tax on the payments when the payer is already paying a tax on the goods or services purchased? Should we treat payments as a service? Consider the case that someone pays their taxes using a credit card. The person has to then make an additional tax payment on the tax payments since they are using digital payments to make that payment. This is indeed convoluted. And as is the impact of any convolution, it has a deep impact on ease of doing business. Consider small businesses trying to keep track of GST on each of their digital payments so that they are able to claim an input tax credit on all these payments. It is a challenging situation.

How big is the impact of the GST on payments? Typically, credit cards charge around 2% as the transaction facilitation charges (also called as MDR which stands for Merchant Discount Rate). This 2% is then shared across multiple players who orchestrate the transaction in the backend, each player getting small fraction of this 2% charge, and the share goes down to as small as 0.05%. After GST, the total cost of making digital payment bumps up to 2.36%. So, the government ends up getting 0.36% which becomes one of the largest chunks for facilitating the payments. What also needs to be noted is that the government does not have any direct role in facilitating the payments, and yet gets a lion’s share of the total transaction charges that a citizen incurs for getting small credit and for making a payment digitally.

The government has also been working hard along with the card networks to reduce their charges. However, if the government itself stops levying a tax on payments, the charges would reduce by a whopping 18%.

The Challenges of Regulating Crypto^[5]

Cryptos pose a significant challenge to the regulatory framework. It would be difficult to ban cryptos and it is challenging to construct a regulatory framework that protects the people and the financial institutions from cryptos. Hence it is important to consider cryptos separately, in order to understand the dimensions of creating regulatory frameworks for economic growth through new technologies.

Much has been debated over the cryptocurrencies that has posed a significant regulatory challenge to policymakers. In its worst, the argument of cryptocurrency backers is the threat of the nuisance value of crypto i.e., many people have already invested into cryptos and hence any regulatory framework that leads to reduction in the value of the cryptos will hurt the considerable number of people who have invested into cryptos. This is not a tenable argument since the government must ensure that there is no further harm to the rest of the public.

In fact, to begin with, cryptocurrency itself is a misnomer as its legal existence in most countries is that of a commodity and not a currency. What it implies is that most countries globally do not accept cryptos as legal tender. As free people of free nations, one is free to buy anything that they want with their tax-paid money, and hence people are free to buy cryptos. But the cryptos cannot be uses as a currency. They can buy it only as a commodity and trade in it, pretty much like the way children trade in cricket cards (or baseball cards in US). So perhaps, we should refer to cryptos as crypto-commodities or perhaps as crypto-assets for those who believe cryptos to be assets.

However, what is more critical is that cryptos do not have any inherent value per se. There are other currencies also that do not have any inherent value. In fact, most modern currencies, starting with the US dollar, do not have any inherent value. In 1971, the US dollar delinked itself from gold and rescinded from its commitment to pay one ounce of gold for every USD 35. This made the US dollar the first “crypto” from the perspective that it had absolutely no underlying value any more. And hence, the US government could print as much of US dollars as it wanted, to fund its own growth, while being within certain economic and monetary policy constraints.

The rest of the world gave credence to such a currency and accepted the US dollar to be the benchmark currency and the de facto currency for most international trade. This was driven by the fact that the US dollar was backed by the strength of the US economy. The powerful US economy was one of the largest exporter as well as importer of goods and services and hence it commanded the currency for trade, which obviously was the US dollar. In addition, the US government and military ensured that all energy trade in the world happens through US dollar. Whenever there was a threat of such trade happening through other currencies such as the Euro, Rouble or the hypothetical African Union Currency, such trade structures and regimes were violently displaced. And thus, a currency with no underlying value, became the strongest currency in the world.

With this argument, the question that arises is, why cannot a crypto, with absolutely no underlying value, become a strong currency. Actually, it can, as cryptos such as Bitcoin, are actually backed by a large economy, which is largely black in nature. Bitcoin gained popularity as trade on the “Silkroute” increased. “Silkroute” is not the trade route of the past but is a place in the darknet where drugs, guns and other illegal commodities are traded on the internet. Therefore, need for anonymity while dealing with such illegal commodities becomes paramount. One cannot pay for drugs online using their bank account or credit card as the buyers can be traced and caught. This is where bitcoin comes in. It enables the payment for such illegal commodities being traded in the darknet. Fiat currencies just cannot be used as it would leave trace of the buyer and lead the person to be identified and caught. Hence Bitcoin was the perfect currency for this darknet trade and therefore, Bitcoin is backed by this dark economy, just as US dollar was backed by the US economy. This is primarily where the Bitcoin derived its early value from. Bitcoin is not controlled by any one person or government. It provides perfect anonymity.

Till June of 2021, it was widely believed that cryptos provide the anonymity described above. However, in May this year, there was a ransomware attack in the US on the pipeline system by the name Colonial Pipeline, which is the largest oil pipeline system in the US. A very large sum of ransom was paid to the attackers and this money was paid in Bitcoins. The attackers conveniently thought that no one would be able to catch them, once they have the Bitcoins, as Bitcoins is anonymous and not traceable. But, within weeks, the US government was able to trace the Bitcoins and recover them. This is possible since the Bitcoins actually have a public ledger where one can see which email address is owning them. With the resources at the disposal of the US government, it was possible for the US government to trace out the IP addresses and the ownership of the Bitcoins and recover the same. The same cannot be easily done by other governments. For other jurisdictions, such as India, cryptos remain de facto anonymous.

The question that then arises is why would anyone prefer to use cryptos for payments over say a centralised construct such as UPI. Why would people move to an energy-guzzling, high carbon footprint crypto such as Bitcoin over an easy-to-use, low carbon footprint solution like UPI? The answer is the same as for the use of Bitcoin for Silkroute – anonymity. For long, it was theoretical that cryptos can be used for money laundering and for terror financing. Towards the end of 2021, it turned out that the Enforcement Directorate of India had identified that using cryptos, Rs 4,000 crore has been laundered out of India in the last one year. In addition, the global body on terror financing, FATF (Financial Action Task Force) updated its Guidance for a Risk-Based Approach to Virtual Assets (cryptos) and Virtual Asset Service Providers (VASPs). The FATF standards now require countries to assess and mitigate their risks associated with crypto transactions and subject them to supervision or monitoring by competent national authorities. This guidance is supposed to help countries and VASPs understand their anti-money laundering and counter-terrorist financing obligations, and effectively implement the FATF’s requirements as they apply to this sector. Ones needs to understand that the implication of not aligning with FATF is severe. As an example, FATF has put Pakistan on the grey list and has threatened to put them on the black list, which will severely limit the ability of Pakistan to raise funds and to do transactions.

With so many challenges, regulating cryptos becomes a tough job. On the other hand, it is also difficult to ban the march of technology. But how does one regulate something, which transcends the jurisdiction of one’s own country? One can perhaps put KYC (Know Your Customer that banks use to ensure they know whose account they are opening up in order to remove anonymity) on crypto exchanges operating in India. But what about crypto exchanges that are operating outside of India and are accessible from India, just like any other Internet based service? Such exchanges will not follow the laws of the Indian government. What if money laundering is done through the fungibility of the exchanges per se? How can one enforce any regulation brought in by the government?

It appears to be a situation where the government needs to do a tightrope walking on the issue and cannot rush into creating a regulation. It will be a challenging situation for governments across the world to regulate cryptos within the FATF framework and to manage the diminishing control of central banks on their monetary policies due to cryptos replacing their fiat currencies in a creeping manner.

Conclusion

In the brave new India, where a plethora of changes are being brought in by the government, by the society and by the industry, it is only right to have a channel where startups can reach out to and enable regulatory frameworks to change quickly for enabling startups to bring innovation and prosper, and in the process, enable the nation to also prosper. The government has already done it in the case of drones. We need to have a structured process wherein we can quickly create supporting regulatory structures that can propel India into leadership in many future multi-billion-dollar industries.

Quick, appropriate regulatory frameworks that respond to technological changes and innovations are in themselves a significant source of value creation in an economy. One can be reminded of the Sarai Act of the late 19th century. The act mandated that all sarais (hotels and inns) would need to mandatorily keep an earthen pot of water outside for all visitors and passers-by and provide a place to tie the horses. That law carried on till the 21st century till the government finally abrogated the law. We need to make such changes much more rapidly. Perhaps, looking at the Better Regulation Office of the UK Government as an example of an institutional structure that is dedicated to overhaul older laws and enable increased efficiency in the economy would be a good starting point.

Author Brief Bio: Dr Jaijit Bhattacharya is a noted expert in technology policies and technology-led societal transformation. A recipient of the prestigious APJ Abdul Kalam Award for innovation in Governance, he is currently President of Centre for Digital Economy Policy Research. He is also CEO of Zerone Microsystems Pvt Ltd, a deep-tech startup in the fintech sector.

Reference:

^[1] https://www.indiatoday.in/opinion-columns/story/regulate-regulations-india-boost-startups-1887529-2021-12-14

^[2] https://timesofindia.indiatimes.com/home/science/in-1997-this-indian-doctor-tried-pig-heart-transplant-was-jailed/articleshow/67111349.cms

^[3] https://www.indiatoday.in/opinion-columns/story/gdp-india-regulatory-frameworks-1892828-2021-12-28

^[4] https://www.indiatoday.in/opinion-columns/story/ban-on-aging-vehicles-regulatory-destruction-economic-value-1899590-2022-01-13

^[5] https://www.indiatoday.in/opinion-columns/story/why-regulating-cryptocurrencies-is-a-big-challenge-for-1882386-2021-11-30

In August 2014, India’s newly elected Prime Minister Shri Narendra Modi gave a clarion call to the nation to focus its attention on making India a manufacturing powerhouse with his ‘Make in India’ vision^[1]. Defence manufacturing was identified as one of the 25 sectors in this vision^[2].

India has been one of the largest importers of defence equipment for over three decades and had the ignominious distinction of being at the top of the list from 2004 to 2014. As per the authoritative data base released by the Stockholm International Peace Research Institute (SIPRI) in 2020, India’s defence imports reduced by 33% from 14% of the global total in the period 2011-2015 to 9.5 % in the period 2016-2020, with Saudi Arabia pushing India to the second position.^[3] Whether this drop was due to the success of the indigenisation process or due to the complexity of the acquisition procedure will become evident only when the figures for the current five year period are released. India is slated to procure some significant military hardware in the next few years including its most expensive ever import, the S-400 Air Defence system from Russia, 24 Sikorsky MR-60 helicopters from the USA, two Type 1135.6 Krivak class frigates and possibly, a nuclear-powered attack submarine on lease from Russia. The Air Force and the Army are also in need of modernisation and not all requirements can be met indigenously due to the capacity and capability constraints of the Indian defence industry.

Indigenisation and self-reliance in defence manufacturing is a strategic imperative for India. As a regional Indo-Pacific power, India’s dependence on imports is a critical vulnerability. This has been exposed more than once; the first time was when the Soviet Union collapsed and so did its defence industry which left the Soviet equipped Indian Armed Forces facing a spares crisis with serious consequences for the country’s security. The second instance was the sanctions imposed by the West in the wake of the nuclear tests carried out by India in May1998 which also affected India’s military preparedness adversely. Both these events led to a thrust on indigenisation but was limited in scope and substance and focussed more on addressing the immediate crisis.

In 2020, the Ministry of Defence unveiled a Draft Defence Production and Export Promotion Policy^[4] to energise the defence manufacturing sector and set an ambitious target for defence turnover of USD 25 billion in ‘Aerospace and Defence Goods and Services’ with exports worth USD 5 billion by 2025. It is also intended to double defence procurement from the present Rs 70,000 crore to Rs 140,000 crore in the same time frame. Presently, the share of domestic procurement is about 60% of the total procurement^[5]. The recent Budget has increased this allocation to 68%, which in percentage terms is 10% more than the current financial year. With the projected capital allocation of Rs 1.52 lakh crore^[6], this amounts to a considerable Rs 1.03 lakh crore. This is ambitious but attainable and when seen in conjunction with the review of all ‘Buy Global’ cases undertaken by the Defence Acquisition Council in January 2022, it clearly spells out the intent to minimise the dependence on imports and invest more in developing indigenous capability. While this is indeed encouraging and necessary, there are considerable capacity and technology constraints in the defence industrial ecosystem which will need to be addressed. Perhaps an indication of how much of the 58% committed in the current FY has actually been spent on indigenous equipment would offer an insight into the probability of attaining the intended target.

In 2021, the Government listed a total of 209 items which would be produced indigenously with the timeline reflected against each in two ‘Positive Indigenisation Lists’. Another ‘Positive Indigenisation List’ included 2,851 items including assemblies. Components and sub-components, imports of which are also embargoed. In addition, various other initiatives have been taken to encourage indigenous defence production. These include the ‘Innovations for Defence Excellence’(iDEX) scheme to encourage MSMEs, the Implementation of “Public Procurement (Preference to Make in India), Order 2017, the launch of the SRIJAN portal to facilitate indigenisation and the establishment of two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu^[7].

Revisiting the Defence Acquisition Procedure

The Ministry of Defence has always been pro-active in promulgating policies encouraging the growth of the defence manufacturing base in the country, promoting indigenisation and meeting the requirements of the Armed Forces. However, regrettably, implementation has been found wanting. At the turn of the century, it was decided to streamline the defence procurement process through an institutionalised mechanism to ensure transparency, probity and above all timely procurement. This led to the promulgation of the first Defence Procurement Procedure (DPP) in 2002. Since then, this document has undergone numerous iterations (2005, 2008, 2011, 2013, 2016 and the latest in 2020, now renamed the Defence Acquisition Procedure). The document has grown from 141 pages (DPP 2005) to a humungous 657 pages (DAC 2020). These well-intentioned improvements over the years have led to it becoming increasingly complex in its understanding, interpretation and implementation.  This is primarily because successive iterations have rarely been a result of any meaningful internal audit of the existing procedure as newer categories of acquisition and procedural terms and conditions have been added without adequately analysing the success, or lack of it of the existing ones.

To illustrate the point, MoD introduced the ‘Make’ category in DPP 2006 with the intention of developing indigenous capability in some core areas. Amongst the first programmes announced with great expectation was the plan to build an indigenous FICV (Future Infantry Combat Vehicle) with active participation from all the leading private players including MSMEs. Other programmes included a nation-wide Defence Communication Network (DCN) and a Battle Management System (BMS). The FICV programme was cancelled after a few years which led to industry incurring considerable losses on its investment. While the larger players were able to absorb this, it was the MSMEs which bore the brunt. Subsequently, a revised ‘Make’ procedure was reintroduced and since then it has continued to evolve. In the DAP 2020, ‘Make’ has been subdivided into Make 1,2 and 3. It is too early to assess the effectiveness of this but the bottom line is that the Indian Army is no closer to getting a FICV today than it was 15 years ago.

Similarly, in a bid to encourage indigenisation, the degree of indigenous content required in various categories has been on the rise. However, this has rarely taken into account either industry’s technology constraints or its appetite to make costly investments either in R&D or in Transfer of Technology (TOT) without any assurance of an adequate return on its investment.

In 2006, MoD introduced the concept of Offsets and issued detailed guidelines. As per this, all Buy Global contracts above Rs 300 crore had to have an Offset element of at least 30%.  The aim was to ensure the induction of cutting-edge technologies. These guidelines met with limited success and were revised in 2016 with the contract value being raised to Rs 2000 crore and multipliers being added to attract technology. However, this too did not give the required boost.  In the DAP 2020, offsets have been waived for procurements through the G2G or the US Foreign Military Sales (FMS) mechanism. This has virtually sounded the death knell for any useful offsets because most big-ticket items come via this route. In fact, with the increase in the indigenous content in most procurement categories, offsets have become more or less redundant and could perhaps be dispensed with.

The MoD claims that the DAP 2020 has been developed keeping in mind the shortcomings of its previous iterations and has included inputs from all stakeholders including foreign and domestic industry. Many new provisions have been added, including the leasing of equipment, encouraging foreign industry to manufacture in India, incentivising technical innovation and providing an impetus to MSMEs and start-ups for developing disruptive and cutting-edge technologies. Timelines to process acquisitions have been tightened with due accountability to reduce procedural delays etc.

The Defence Acquisition Procedure as the very term suggests is a procedure that provides the guidelines for defence procurement and is not a set of rules carved in stone. Hence, in certain cases, a degree of flexibility should be available to ensure timely induction of an essential capability.

The reason this does not happen is because of a glaring anomaly in the country’s higher defence organisation wherein the Armed Forces  headquarters, who are the final users of the equipment and have the knowledge, the expertise and the experience are not an integral part of the Ministry of Defence; they are in fact attached offices which limits their participation in the decision making process to being the ‘repository of technical information and advise the department on technical aspects of question dealt with by them’.^[8] This is hardly conducive to effective or efficient decision making on matters of national security.

The Indian Ministry of Defence is manned by a large and complex organisation of generalist bureaucrats drawn from all departments of the government for limited tenures, more often than not with no background knowledge of matters pertaining either to national security, the armed forces or the technological complexities of defence equipment. Thrust into appointments where they have to take decisions on issues, they know very little about, they often raise queries and seek clarifications on matters which highlights their ignorance and lack of professionalism. Even a single frivolous query can lead to delays of a few months at times and if they keep getting raised by different departments and at different levels this to-and-fro can go on for years, as indeed it does with consequential effects on defence modernisation, combat preparedness, committed liabilities, budget allocations etc. The irony of the Indian MoD is that the Armed Forces have perhaps the least representation in any of the departmentts of the MoD.

In the absence of the professional knowledge to evaluate equipment on the basis of a weighted matrix, the MoD bureaucracy has perpetuated the myth that the lowest bid (L1) is the best criterion for selecting an equipment. It has a mistaken belief that this leads to cost savings whereas in reality it is leading to just the opposite. A weighted index with realistic expectations would deliver better and speedier results. Cost is an important factor in defence procurements the world over but the decision is based on more sophisticated methods of price discovery to select the best their Armed forces require, unlike India which chooses the cheapest. Unfortunately, despite this being common knowledge, little has been done to address this in successive DPPs including the DAP 2020.

Perhaps the most major criticism of the complex Defence Procurement Procedure is that hardly any big-ticket item has been procured via the DPP route. In the past two decades all helicopters, aircraft, ships, submarines and artillery guns procured from abroad have come through the G2G/FMS mechanism. The MMRCA was one programme which followed the DPP till the declaration of the L1 bidder. However, this could not be taken to its logical conclusion for a host of reasons and the Government finally had to resort to a G2G arrangement with France for these aircraft under very different conditions and prices than had been determined via the laid down procedure.

Widening the Defence Industrial Base

It has now been two decades since the defence manufacturing sector was opened to the private sector. However, it has been largely restricted to a network of Defence Public Sector Undertakings (DPSU) which work directly under the MoD’s Department of Defence Production (DDP). This limits the manufacturing capacity in the country and leads to importing equipment to meet the requirements of the Armed Forces. This dependence on imports not only contradicts the Government’s avowed aim of indigenisation and self-reliance, but also creates a strategic vulnerability which it cannot afford. Indian industry has made remarkable progress in other strategic areas like space technology, atomic energy and missile development. A vibrant MSME culture has been the fountainhead of innovation and has contributed significantly in these. However, the defence sector has been unable to replicate this success to the same extent.  This has led to capacity and capability gaps in the country’s defence preparedness. These can be effectively addressed by energising the country’s vast public sector network and creating an enabling environment to encourage private sector participation. There is a perception, and not without reason, that there is an ‘us’ versus ‘them’ syndrome where the ‘us’ (Defence PSUs) have always enjoyed a playing field that is heavily skewed in their favour and thus have a distinct advantage over the ‘them’ (private industry). The MoD’s Department of Defence Production must dispel this belief with policy initiatives that translate into tangible outcomes.

Energising the Public Sector

India’s vast network of public sector undertakings has the unenviable reputation of being inefficient, bureaucratic and lacking the agility to adapt to change. This is often attributed to the lack of incentive in the absence of a competitive environment since they benefit from the preferential treatment by the government. This is especially true of the DPSUs which continue to get most contracts by nomination. Despite this, the DPSUs have fallen far short of expectations in delivering quality products on time and within cost.

One of the success stories in the Indian defence sector has been indigenous shipbuilding which is mainly the preserve of the public sector. For over five decades, the indigenous construction of ships and submarines has been undertaken mostly at the five public sector shipyards, four of which (MDL Mumbai, GSL Goa, HSL Visakhapatnam and GRSE Kolkatta) are under the MoD while CSL Kochi is under the Ministry of Shipping. However, these shipyards, despite their inability to deliver any major platforms in time or within cost have rarely been penalised. This story is not limited only to the shipyards but is also echoed across other DPSUs that have thrived in a non-competitive captive market.

In the current system it is the MoD which defines the requirement and places an order to the MoD for equipment to be manufactured by the MoD at a price decided by the MoD which is then sold to the MoD while ensuring that the MoD does not incur a loss, the delays in delivery and cost over-runs notwithstanding. This internalisation of the ecosystem encourages inefficiency, is counter-productive and is a major anomaly in the system.

However, it would be unfair to single out the only the DPSUs for blame; the stifling oversight of the MoD greatly limits their autonomous functioning and is perhaps another reason for their lack of incentive and innovative spirit. They have the skilled manpower, the desired infrastructure and many decades of rich experience in their core area of expertise. Perhaps a phased privatisation of the DPSUs would make them more competitive and efficient because it would give them the financial and functional autonomy to optimise their core strengths, trim the flab and optimise productivity. However, since this is unlikely to happen at least in the near future, they could, for a start be delinked from the Ministry of Defence and like other industries, be placed under the Industry Ministry. They would then have to compete with private industry in a more level playing field than exists at present and would energise them to realise their full potential.

Defence is a strategic sector where certain critical programmes need MoD/Armed Forces oversight because of the sensitive technologies involved and the demands of national security. Tier 1 and Tier 2 vendors in the private sector are already supporting the DPSUs in sensitive and strategic programmes. India’s private sector has also more than proven its worth, capability and maturity and is operating successfully in a globally competitive environment. Hence MoD oversight can be incorporated into contracts awarded to the private sector as well. Citing MoD oversight as an excuse for nominating DPSUs is not a justifiable argument. This oversight in sensitive programmes can be extended to the private sector, which is fully cognisant of the importance of security.

Some of the recent policy initiatives of the Ministry of Defence give rise to optimism that the private sector is being encouraged to become an integral and important part of the defence industrial ecosystem. Initiatives like the Strategic Partnership model which was introduced in the 2016 edition of the DPP “to institutionalise a transparent, objective and functional mechanism to encourage broader participation of the private sector, in addition to capacities of DPSUs/OFB, in manufacturing of major defence platforms” ^[9] in the manufacture of submarines, aircraft, helicopters and armoured vehicles is a very positive step in the right direction. Two important and long overdue programmes are currently being progressed under this model – Project 75(I) for the indigenous construction of six conventional submarines and the other for the induction of 111 Naval Utility Helicopters (NUH). It is perhaps too early to comment on this model as it is still at a very early stage but for it to be successful, the MoD’s flexibility and agility to adapt will be critical.

Another encouraging development has been the dissolution of the 220-year-old Ordnance Factory Board with its 41 factories now restructured as seven DPSU clusters based on the Union Cabinet’s decision on 16 June 2021. Corporatisation of this behemoth was long overdue and had been recommended by various committees over the years. It is hoped that this restructuring will lead to more efficient functioning in a cost competitive defence manufacturing environment.^[10] However, despite a clarification in Parliament that the terms and conditions of the work force as Central Government employees will continue to be protected, the Unions expressed their dissatisfaction and it required legislation to prevent them from striking work.^[11] The corporatisation of the OFB has been a very progressive step and its success will be keenly observed.

At present it seems unlikely that the MoD will allow its DPSUs either to be privatised or get eclipsed by the private sector but it is encouraging that the MoD is willing to admit that the DPSUs “…continue to enjoy a commanding role based on various forms of governmental support over the past decades…”^[12]. It also acknowledges that the “active involvement of the private sector in the manufacturing of major defence equipment will have a transformational impact. It will serve to enhance competition, increase efficiencies, facilitate faster and more significant absorption of technology, create a tiered industrial ecosystem, ensure development of a wider skill base, trigger innovation, promote participation in global value chains as well as exports.”^[13]

Enabling the Private Sector

India’s security requirements over the next few years requires a synergistic approach to defence manufacturing. India’s private sector, both large and small, is keen to be a part of the defence manufacturing ecosystem. Indian MSMEs have been contributing significantly as sub-suppliers to DRDO and the DPSUs and the Indian entrepreneurial spirit is driving a vibrant start-up culture keen to showcase their skills in harnessing disruptive technologies.

However, despite two decades having elapsed since the private sector was permitted to participate in defence manufacturing with the aim of widening the defence manufacturing base in the country, it has not been able to get the necessary traction and remains less than optimally utilised for various reasons, not least being the lack of both encouragement and a conducive environment.

The fate of the private sector in warship construction is reflective of this. Of the four private sector shipyards which invested large sums in developing warship building skills, three have become insolvent partly because of their inability to deliver but more so because of MoD’s reluctance to allow them to develop their capability. The irony is that while the DPSU shipyards despite building ships for over five decades are unable to deliver ships either on time or within cost and are not penalised for it, these fledgling private shipyards did not get similar support.

Many of India’s leading industrial houses have taken impressive initiatives and made considerable investments in this sector. It is now for the government to develop an enabling policy framework to leverage their skills by ensuring a level playing field, supporting their efforts in the initial stages, and providing some reassurance of an adequate return on their investment. The Government’s production and export policy has set an ambitious defence production target of USD 25 billion by 2025 including exports worth USD 5 billion.^[14] The emerging security challenges in the next decade or so with two belligerent neighbours constantly sniping at our heels will require India to accelerate and augment its capacity and capability development. This will only be possible with the private and public sector working closely together to widen the country’s defence-industrial base towards meeting its requirements and the laid down targets.

It is important that in addition to equipping its own armed forces, the defence industry should also be able to export military hardware to friendly foreign countries. Defence exports provide military and diplomatic leverage and are an important source of revenue generation to support the internal requirements. Diplomatic leverage is an important consideration for an emerging power like India to retain its edge in its strategic sphere of influence. India is ranked within the top 25 countries in defence exports but its share is actually less than 0.2%. The recent contract worth USD 375 million signed with the Philippines for the Brahmos missile is a significant breakthrough and more such contracts should follow.^[15] The MoD should also ease the procedure to ensure that Indian industry, whether public or private is able to operate with the requisite flexibility in a competitive international market.

India recognises that technology infusion requires industry to collaborate with foreign OEMs; it has been repeatedly highlighted that Indian and foreign OEMs should set up Joint Ventures and Special Purpose Vehicles which includes both, a manufacturing and a R&D element. To facilitate this, the Government has been steadily increasing the FDI limits in the defence sector which is presently at 74% to make the Indian defence industry an attractive proposition investment destination and then take advantage of cost advantages to manufacture in India and export to other countries in the region.

Conclusion

India’s defence manufacturing is poised on a transformational cusp. Many of the impediments of the past which retarded progress in the past are being addressed. The MoD has set ambitious targets for indigenisation and its recent policies are aimed at revitalising this sector with a focus on innovation, technology development, exports, enhancing existing capacity and improving efficiencies in defence manufacturing. Restructuring within the MoD towards improving efficiency and quality is an encouraging development. The entry of the private sector also bodes well for the future. However, there are still areas where the pace of change could be accelerated. The emergence of India as a defence manufacturing hub not only to meet its own security requirements for India but for the entire region will depend on the MoD’s ability and inclination to walk the talk in ensuring that its progressive policies are implemented in both, letter and spirit.

Author Brief Bio: Commodore Anil Jai Singh is the Vice President of the Indian Maritime Foundation. The views expressed are personal.

References:

^[1] PM launches ‘Make in India’ global initiative. www.narendramodi.in/pm-launches-make-in-india-global-initiaitive-6644

^[2] Make in India: List of sectors, Objectives and Budget Allocation (jagranjosh.com).www.jagranjosh.com/general knowledge/list-of-sectors-covered-under-the-make-in-indi-plan-152635017-1

^[3] www.sipri.org/sites/default/files/2021.03/fs_2013_at_2020pdf. Trends in international arms transfers, 2020 (sipri.org)

^[4] Draft Defence Production & Export Promotion Policy – DPEPP 2020 | Department of Defence Production (ddpmod.gov.in). www.ddpmod.gov.in/dpepp

^[5] Ibid

^[6] Ministry of Defence Press Release on Union Budget 2022-23 dated 01 Feb 2022

^[7] Ministry of Defence Press Release on Manufacturing of Defence Equipment dated 04 Feb 2022

^[8] Slide 1 (mcrhrdi.gov.in)

^[9] Chapter 7, Defence Acquisition Procedure 2020.Pp 479.

^[10] Explained: Dismantling the Ordnance Factory Board | Explained News,The Indian Express.

^[11] Home | Directorate of Ordnance (Coordination and Services) | Government of India (ddpdoo.gov.in)

^[12] Chapter 7, Defence Acquisition Procedure 2020.Pp 479

^[13] Ibid.

^[14] Draft Defence Production & Export Promotion Policy – DPEPP 2020 | Department of Defence Production (ddpmod.gov.in)

^[15] In a first, India to export BrahMos missile to Philippines – The Economic Times (indiatimes.com)

The announcement in the budget about the introduction of Digital Rupee and the 30% tax on the income from virtual digital assets has set the proverbial cat amongst the pigeons. Due to a lack of clear and holistic understanding of such technology based financial instruments, there are doubts in the mind of one and all on these aspects. To have a clear appreciation of why Government chose to take the decisions it announced in the budget, let us first examine the most important decision of introduction of the RBI backed Digital Rupee, followed by the taxation on virtual digital assets.

What is Digital Rupee? Digital Rupee is a Central Bank-backed Digital Currency (CBDC). It is not a decentralised cryptocurrency like Bitcoin nor is it a Non-Fungible Tokens (NFT) like Ethereum. Digital Rupee is nothing but a virtual currency having the same intrinsic value of a physical rupee which is a fiat currency^[1], which draws its value from the demand and supply of the currency in the market. This digital currency will not be on a decentralised distributed ledger but shall be an RBI controlled centralised Blockchain. This implies that the Digital Rupee is not the same as a virtual digital asset and shall enjoy a privileged status of being the only recognised and legitimate digital currency in India. The Government and the RBI will never be comfortable with a private non state controlled Crypto currency in the country as it has serious potential to undermine the country’s economy and may lead to high levels of tax evasion and money laundering.

How is the Digital Rupee different from Rupee transactions done through any digital platform such as credit cards, digital applications or UPI wallets? The existing digital platforms, while doing digital transaction, still transact physical rupees at a fundamental level. This means that the RBI has to print all those currencies and make it available to all the banks which are connected to these digital platforms. The Digital Rupee on the other hand is a virtual currency which runs on a powerful blockchain based cryptographic algorithm which secures the transactions. This implies that this virtual currency can be legitimately transacted on a peer-to-peer basis, while the government will have the complete visibility on the entire transaction end to end. This shall give the Government a greater leverage to legislate and bring laws that can bring additional revenues on areas that otherwise escape the tax net.

Decentralised Crypto currencies are often generated by a process called mining. However, in case of Digital Rupee, the RBI shall decide the quantum of currencies that are to be generated. The value of the rupee then, shall be equal to the fiat system value of all the money printed physically by the mint and generated by the digital ecosystem. It is therefore clear that the Digital Rupee shall facilitate ease of transaction while enhancing the security of transactions and reducing the cost of various overheads involved in printing, handling, maintaining and securing the physical rupee. The ownership of Digital Rupee is therefore not akin to owning a Bitcoin or Ethereum like currency whose market values are very volatile and therefore tempt greedy investors with a preposition of making quick money. It is to be borne in mind that the intrinsic value of these currencies is zero.

Currencies like the Bitcoin and Ethereum offer anonymity of ownership which is the main reason why people choose such assets. While the Indian Government has taken all possible legal measures to ensure that every transaction can be tracked when a physical rupee is used to buy a crypto currency, it still has some serious gaps in tracing crypto transactions. For example, if an investor invests Rs 1000 and buys a crypto currency, the government can easily track the process through a mandatory KYC requirement imposed on exchanges that operate inside the ambit of Indian laws and its jurisdiction. However, if a person receives crypto coins through the process of mining or as a consequence of a peer-to-peer transaction from a third party, such transactions cannot be traced by the Indian Government. It is therefore important to note that for some people, Crypto currencies shall still be seen as a better digital asset than a Digital Rupee due to the singular reason of anonymity that it offers.

The Digital Rupee still holds multiple aces up its sleeve and could potentially unleash a plethora of benefits to the economy and Government in unimaginable ways, provided the plan is executed without any hurdle or confusion. One of the biggest challenges in the Indian economy is the relatively low and poor tax compliance. Nationalistic rhetoric cannot boost the revenue collected through direct tax beyond a certain point. Unless technology is designed, implemented and adopted in a transparent fashion, financial transactions can never be traced or formalised. The Digital rupee may just be the tool which could potentially be the right answer to solve the puzzle of tax compliance amongst the people.

One of the key concerns of a Digital rupee is the fear that people may have less deposits in the bank as the currency is primarily stored in a crypto wallet. This may impact the ability of a bank to lend and consequently lead to reduced revenues. The fundamental notion behind such a theory is that money is deposited in the bank for securing it. Beyond security the returns offered by the banks in terms of interest on the deposit also needs to be taken into account. A Digital Rupee shall mean less overheads and expenses, which in turn could mean a higher return for money deposited in a bank. If the RBI delegates the responsibility of managing the crypto wallet with a defined set of guidelines, then the money in the wallet is as good as a bank account and therefore the Digital Rupee would not cause much disruptions in the system as it exists on date. The job of RBI is to act as a watchdog and draft policies rather than getting into services and management of technology. The crypto wallet, recognised by the RBI and operationalised by the registered financial institutions, can manage the issue of credit and liquidity effectively, while ensuring principles of uniformity, standardisation and security of the currency in the digital regime.

The Digital Rupee will only make sense if it is proliferated significantly. While it would not be advisable to completely replace the physical currency with the Digital Rupee, a gradual and regulated infusion of the Digital Rupee in the market while replacing the physical currency must be adopted. Any half-hearted approach could potentially prove to be counter-productive, squandering in the process, all the potential benefits a digital currency can bring to the economy. The eventual target should be to replace the physical currency to at least 60% to 70% levels in an agile timeframe. It is very important to send the right signals, otherwise market sentiments may get confused leading to confusion and chaos.

The Digital Rupee will have to cross the first hurdle of adoption by the people. The following steps could be taken by the government to overcome this hurdle.

1. To begin with, the government may create a free digital wallet for each person with an Aadhaar Card and a Voter ID along with a PAN card. All the three identities may be technically merged into a single virtual token which shall be the finger print for every digital wallet.
2. The Government may transfer all direct benefit transfers (DBT) through various subsidies to these digital wallets during the initial phase to ensure proliferation of the digital rupee.
3. It may incentivise the retail business with lesser GST rates if the transaction is carried out with a Digital Rupee. A 10% discount passed on to the customer may effectively compel the retailers to migrate to a formal banking platform. The government shall pass on the benefits accrued due to lesser overheads to the retailers and the customers for some time.
4. It may disburse all salary and bill payments as Digital Rupee.
5. The printing of new currencies shall be paused till such time the Digital rupee reaches a certain threshold say 50% to 60%. The eventual physical cash may be allowed to operate only at about 30% of the current level and a calibrated decision towards this end may be taken based on the behaviour of the economy and the response from the people.
6. Banks shall have significant downsizing of HR and the reduced overheads in the banking system shall compensate for the revenue shortfalls arising out of the digitisation of the rupee.

Once the targets are met, the discounts offered could be gradually withdrawn. Since there is a likelihood of a widened tax net, the tax rates would stabilise at the discounted levels or at a slightly higher level, based on the economic situation at that point of time. One of the indirect benefits of the digitisation of the rupee shall be that most of the accounts and financial related jobs shall be significantly downsized as AI based Fintech automation platforms will take centre stage. The potential downsizing of people with finance background shall be as much as 80% and these jobs shall mostly get transferred to the IT tech-based jobs. This would result in lesser government jobs and a much leaner government work force. The Tech jobs shall mostly be in the private sector, and therefore the productivity and accountability shall be better. The process of audit and compliance also shall get automated to a large extent leading to better compliance, with little scope for manipulation The overall credit-worthiness, from the individual to business level, will show a dramatic improvement due to the higher compliance, which will result in lesser NPA’s for the banking sector as a whole.

To achieve this, the technology backbone would require a higher degree of resilience and reliability in its architecture. Without a 24×7 power and internet availability, these technologies cannot be sustained, as outages beyond a certain threshold could potentially impact business big time. Offline protocols can introduce security vulnerabilities in the system and therefore, the technology architecture has to be much more robust and resilient, with high availability, if the Digital Rupee has to take off initially.

The boost to the economy shall however come from an altogether different quarter. Indian economy has approximately 93% of its work force in the informal sector. This means a significant part of our economy is in the informal sector and the GDP of the country does not totally account for the actual value of the economic activity. One of the interesting observations of the unorganised sector is that the same owner often creates multiple entities wherein one entity is formal while the others are informal. Based on the situation and comfort, transactions are seamlessly moved between the formal and informal entities to evade tax. The informal entity needs cash to sustain its activity unhindered on a large scale. This is where proliferation of the Digital Rupee beyond 60% shall make it difficult for such business to carry on and may need better tactics and strategy to survive. The demand for a Digital Rupee by the work force due to better value preposition in the market may compel such owners to switch to the Digital Rupee instead of cash.

The government may also impose a transaction tax for deposit or withdrawal of cash in any bank beyond certain limits. This may create another hurdle for free flow of money to and from the system. The details of the deposit may also find a trail in the crypto wallet which may ensure a reasonable trail of transaction and flow of the currency without much overheads.

All these moves may force the informal sector to move into the formal sector, which may effectively boost the GDP figures significantly in a short span of time. This could be the boost the government was looking for to stimulate the GDP figures towards the much hyped 5 Tn economy mark. The projected 10% Y-Y growth in the next three years would imply a growth of 30% for the economy by the year 2024. Add to this a one-time possible correction of at least 30% to 40% due to the formalisation of the informal economy and the net growth would be around 70% if the growth rates are compounded Y-Y. 70% growth in 3 years would attract better FDI which could boost the market sentiments further resulting in the perfect recipe for a big-bang boom of the economy. The market sentiments may give a good push taking the overall growth to well beyond 100 percent of the present GDP levels. This is the only way the country can hope to touch the 5 Tn GDP size in a faster time-frame.

The 30% tax levied on the digital assets is seen by many as a clandestine move to legitimise the Crypto currency in India. This again appears to be a smart move by the government to discourage the use of such speculative instruments while staying clear of banning the technology. Banning would be difficult to justify in a court of law, as the government would need a similar technology to implement the Digital Rupee. Hence, the Government, by announcing 30% tax on digital assets, has standardised the tax for any speculative income arising out of such investments that was left out till date. In short, this taxation is considered at par with the income raised on activities like gambling which are taxed at 30%.

This move will discourage all those involved in speculative crypto investment by fulfilling the KYC requirements through established Crypto stock exchanges which are registered as legitimate Indian companies. There is also a possibility of these exchanges being brought under the GST regime for the transactions they do. So, if they are brought under either the 12% slab or the 18% slab, it shall sound the death knell for legitimate crypto investment in the country.

Any legitimate investment should have adequate checks and balances in the system with protection of the interest of the gullible and naïve investor. Since over 40,000 crore is invested in these platforms, these are the next breeding grounds for a major scam where people may be conned of their money overnight. Since these assets have zero intrinsic value, the possibility of insolvency of the owning company may lead to complicated legal battles which the investors would find difficult to sustain and win in a court of law. Such instruments, therefore, have potential to cause serious political turmoil and the move to tax is one more step to keep the tail clear so that potential scamsters do not find an easy method to stage a big scam. People who still consider such investments would be doing so at their own risk which then could be used as a shield to defend if there is any untoward incident in the fintech market.

It is therefore clear that both the moves announced in this budget have serious potential to transform the economy towards a higher growth trajectory while ensuring better compliance. A higher GDP number means a robust double-digit growth which effectively means higher revenues and less fiscal deficit. If the pandemic subsides without causing further problems for economy and no major conflicts happen, India is set poised to a double-digit growth and the march towards the 5 Tn economy appears most likely be on course. The ruling party can, therefore, potentially seal the fate of the election, even before it begins in May 2024.

Author Brief Bio: Wg Cdr S Sudhakaran (V) is MD & CEO, QuGates Technologies

End Notes:

^[1] Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.

The Covid-19 pandemic has brought renewed focus on a healthier way of living around the world, and India embraced it as an opportunity to showcase its heritage in natural and sustainable living. The pandemic has brought preventive medicine to the limelight throughout the world. After facing a virus that had no cure or vaccination for over a year, it is now well accepted that while allopathy rightfully dominates the curative health market, the preventive healthcare market needs to be developed at par with allopathy.

In India, our rich culture of traditional medicine, which had unfortunately gone dormant over the years, came to life once again as Indians went back to their roots to fight a health enemy that modern medicine did not have a cure for. This is not to say that AYUSH (Ayurveda, Yoga, Naturopathy, Unani, Siddha, Sowa-Rigpa and Homoeopathy) developed a cure for the Covid-19 virus but to reiterate that immunity building is a challenge that the AYUSH system of medicine championed long back. But the journey or the reincarnation of the AYUSH system in India did not start as a response to the pandemic. In 2014, with a vision of reviving the profound knowledge of our ancient systems of medicine and ensuring the optimal development and propagation of the AYUSH systems of healthcare, the Ministry of AYUSH was formed as a historic move in a world that was becoming increasingly globalised and unfortunately leaving behind its traditional knowledge.

Earlier, the Department of Indian System of Medicine and Homoeopathy (ISM&H) formed in 1995, was responsible for the development of these systems. It was then renamed as the Department of Ayurveda, Yoga, and Naturopathy, Unani, Siddha, and Homoeopathy 2003 with focused attention towards education and research but AYUSH medicine still lacked the attention it deserved without being under the aegis of a ministry.

As a testimony to the establishment, India’s Ayurvedic and herbal products export value increased from USD 354.68 Mn in the financial year 2015 to USD 446.13 Mn in the financial year 2019. This is to say that we were making steady progress even before the pandemic hit, but the year 2020 certainly gave the much-needed boost to the government’s efforts.

While nobody predicted back in 2014 that the world would face a crisis such as Covid-19, in hindsight, the formation of the ministry became a larger blessing for the country. As the pandemic hit, the Ministry of AYUSH shared guidelines for safe Ayurveda Panchakarma practice in the COVID-19 pandemic, the AYUSH products saw a 44 per cent increase in sales post the onset of Covid-19^[1] and an AYUSH Covid-19 Helpline was launched by the ministry.^[2] Just like that, AYUSH medicine started gaining its trust back with renewed momentum.

The market size of the AYUSH industry as a whole grew around 17 per cent between 2014 and 2020 with the increase in global and domestic demand, enabled by strong support to regulatory, research and development, and robust infrastructure by the Ministry of AYUSH.^[3] In December of 2020, the Ministry of AYUSH and the Ministry of Commerce and Industry decided to work collectively for setting up AYUSH Export Promotion Council (AEPC) to stimulate AYUSH exports.^[4]

The scope of AEPC, which will be housed in the AYUSH Ministry, includes expediting standardisation of harmonised system code for AYUSH, collaborating between AYUSH Ministry and the Bureau of Indian Standards in order to develop international standards for AYUSH products and services, identification of best practices and success stories and their promotion, ensuring quality and standards of AYUSH products and their price-competitiveness, and creating a brand for Indian AYUSH.^[5]

The government is now aiming to position India as a destination for health and wellness tourism through the AYUSH System. It has developed the Champion Services Sector Scheme for Medical value Travel to enhance medical tourism in the field of AYUSH and to provide support establishing world-class state-of-the-art AYUSH hospitals. A National Medical and Wellness Tourism Board is also formed to boost medical, wellness, yoga, and Ayurveda tourism.^[6] India is already a hub for medical tourism and thus, medical tourism is an excellent area for India to push AYUSH medicine backed by research and development.

As for creating the Indian brand is concerned, incentives are provided to AYUSH drug manufacturers for participating in international exhibitions and trade fairs and for market authorisation and registration of AYUSH products with bodies like USFDA, EMEA, UK-MHRA, NHPD, TGA, alongside other international regulatory agencies abroad for the purpose of export. So far, more than 50 products (Unani and Ayurveda) have been registered in eight countries namely Kenya, the USA, Russia, Latvia, Canada, Oman, Tajikistan, and Sri Lanka^[7] Registration for products is an important milestone for manufacturers to enter into newer markets with registrations in bigger nations like the USA aiding trust development in other partner nations as well.

Under the Ministry of AYUSH, a Memorandum of Understanding (MoU) was also signed between the Pharmacopoeia Commission for Indian Medicine & Homoeopathy (PCIM&H) and the American Herbal Pharmacopoeia (AHP) in September 2021.^[8] This MoU will lead to the constitution of a joint committee to develop the action plan along with timelines for the development of monographs and other activities for cooperation in the field of traditional medicine^[9].

While this MOU will develop the confidence of the global community about the safety of AYUSH drugs, one of the major outcomes of this partnership will be that both PCIM&H and AHP would be working to identify various challenges faced by the herbal market of Ayurveda products or drugs in the USA. This will lead to the adoption of Ayurveda standards developed out of this cooperation by the manufacturers of herbal drugs in the USA as well.

Development of monographs of Ayurveda and other Indian traditional medicine products and herbal products, exchange of technical data for the development of monographs with due acknowledgment between the parties, training and capacity building, exchange of herbarium specimens and botanical reference samples, and phytochemical reference standards are also the part of MoU. There is an understanding for the development of a digital database and identifying further areas of co-operation for the promotion of quality standards of drugs/products used in Ayurveda and other Indian traditional medicine.^[10] The National Medicinal Plants Board (NMPB) under the Ministry of AYUSH also launched a Voluntary Certification Scheme for Medicinal Plants Produce (VCSMPP) in order to encourage good agricultural practices and good field collection practices in medicinal plants. The VCSMPP will enhance the availability of certified quality medicinal plants as raw materials in the country and also boost their export and increase India’s share in the global export of herbs.

Ministry of AYUSH is presently implementing the Centrally Sponsored Scheme of the National AYUSH Mission (NAM). Under this scheme, subsidy at the rate of 30 per cent, 50 per cent, and 75 per cent of the cost of cultivation is provided for the cultivation of 140 prioritised medicinal plants on farmer’s land. Under the Medicinal Plants component of the NAM scheme, supporting market-driven cultivation of prioritised medicinal plants in identified clusters or zones within selected districts of states is being implemented in a mission mode throughout the country. As per the scheme guidelines, support is provided for the cultivation of prioritised medicinal plants on farmer’s land, nurseries with backward linkages for raising and supply of quality planting material are being established, and post-harvest management support with forwarding linkages, primary processing, and marketing infrastructure will also be created.^[11]

While AYUSH healthcare as preventive medicine continues to be developed, it is important to understand that the traditional medicine industry is not limited to drugs given for prevention or treatment of ailment but extends to lifestyle and cosmetic products as well. While the AYUSH drugs industry is still at a nascent stage, it is the lifestyle products and cosmetics industries that have been growing well for over a decade now with many firms from India emerging as market leaders as well.

While India did have big names like Dabur and Himalaya making use of the country’s knowledge in traditional medicine in the lifestyle products segment, we lacked grassroots development of the AYUSH industry through small businesses becoming a part of the industry. Countries like China and South Korea have been able to proliferate their traditional medicine-based products throughout the world at a higher pace than India primarily because of the existence of several manufacturers and suppliers alongside the bigger firms.

With the world moving towards natural products, there is tremendous scope for the export of Indian traditional medicine knowledge and products. According to a 2018 report published by the Food and Agriculture Organisation of the United Nations, the Natural and Organic Beauty Market may reach USD 22 Bn by 2024.^[12] According to research conducted by Kline Group, a global consulting services firm, about 50 per cent of the US consumers surveyed perceive natural over-the-counter (OTC) products to be safer than traditional OTCs. Safety drives substantial use of natural products in the paediatric population and 49 per cent of parents give natural OTCs to their children, with 72.3 per cent giving their children natural OTCs first before administering traditional (allopathic) OTCs.^[13]

The proliferation of lifestyle products can act as a starting point for the promotion of AYUSH drugs abroad as lifestyle products are easier to deliver to consumers, riding on the wave of naturalisation of consumer products. We already have brands such as Forest Essentials and Kama Ayurveda gradually capturing the global market and led by the AYUSH ministry and the Startup India initiative, there are niche brands mushrooming in the AYUSH products industry as well. Recent names include Sadhev, a Kerala-based beauty brand, that is using family knowledge to create beauty and lifestyle products and the firm has already been covered by the likes of Elle and GQ magazines.

The growth of the AYUSH industry at a global scale will be done through the twin strategy of supporting lifestyle brands that are vocal about their use of AYUSH raw material in their products and at the same time the development of a robust research and development ecosystem for the AYUSH drugs to reach a wider audience, first in India and then abroad. Taking this spirit forward, the most recent Indian budget has announced that land up to five kilometres on either side of the River Ganga would be designated for natural farming giving a major boost to organic agriculture in the country.

Despite the pandemic, India’s organic food exports have grown by more than 50 per cent with food material now being exported to European countries like Germany and others. This sustainability push is not merely in food products but also in renewable energy. India’s installed solar power capacity crossed 48 GW in November 2021 and the country is one of the leading players in the world in renewable energy. The country has consistently beaten its own commitments under the Paris Agreement meeting them before time.

The argument in this essay is that this is a turning point in the history of sustainability in the country. There is both appreciation and demand for a better quality of living both at home and abroad and products and services, and rules, are being created to promote sustainability. More work is needed to push both domestic and global consumption and use of Made in India sustainable products and to ensure a ‘green switch’ of the Indian economy. This switch will make the Indian economy future-ready and ensure that the country’s health bill reduces significantly.

Author Brief Bio: Hindol Sengupta is Vice-President and Head of Research, and Karishma Sharma is a Researcher, at Invest India.

References:

^[1] https://www.hindustantimes.com/cities/pune-news/ayush-products-see-44-rise-in-sale-post-covid-outbreak-vaidya-rajesh-kotecha-101612972985581.html

^[2] https://www.ayush.gov.in/

^[3] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1778864

^[4] https://ayushnext.ayush.gov.in/detail/post/ayush-export-promotion-council-is-on-anvil-by-commerce-ayush-ministers-to-stimulate-sector-s-exports

^[5] https://ayushnext.ayush.gov.in/detail/post/ayush-export-promotion-council-is-on-anvil-by-commerce-ayush-ministers-to-stimulate-sector-s-exports

^[6] https://pib.gov.in/PressReleseDetail.aspx?PRID=1739452

^[7] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1778864

^[8] https://pib.gov.in/PressReleasePage.aspx?PRID=1754957

^[9] https://medicaldialogues.in/ayush/ayurveda/news/ayush-ministry-inks-mou-with-us-group-to-enhance-export-potential-of-traditional-medicines-82140

^[10] https://pib.gov.in/PressReleasePage.aspx?PRID=1754957

^[11] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1704851

^[12] https://static.investindia.gov.in/2021-08/GI%20Tagging%20in%20Ayurveda.pdf

^[13] https://static.investindia.gov.in/2021-08/GI%20Tagging%20in%20Ayurveda.pdf