Monday, October 30, 2017

Two cases & a sunrise sector, Prachi Arya, Head of Legal, writes for the Deccan Herald, 30th Oct

On March 22 this year, the Finance Bill 2017, became law, and paved the way for the enactment of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules. The two laws merged some tribunals, abolished others and pigeon-holed all into one set of Rules. The functions of the Copyright Board were transferred to the Intellectual Property Appellate Board (IPAB), including the administration of rights related to the broadcasting sector.

In the past few months, the Act and Rules have attained a reputation akin to infamy. It has attracted scathing criticism from a sundry group that includes environmentalists and the intellectual property industry, for being "prima facie in contravention of the directives of the Hon'ble Supreme Court" as observed by the Madras High Court. Since then, four other High Courts (including Bombay and Delhi) and the Supreme Court have issued notice to the government to justify the constitutionality of the laws.

While there has been no further movement on the judicial front, the government has selected Justice Manmohan Singh to chair the, hitherto headless, IPAB. The much-awaited appointment may provide some relief to the under-attended IP sector. It is certainly hoped that the industry will be steered with a forward-looking agenda. However, the multi-pronged litigation extends the conundrum as the validity of the laws and consequent actions remain subject to the Madras High Court's final judgment – and any other interim order from the five Courts.

To be fair, the abolished tribunals, such as the Copyright Board, were consistently languishing or had become defunct. The incessant vacancies at the Copyright Board and consequent litigations must have, in some part, prompted the government to strike it off the lawbooks and replace with the IPAB.

Perhaps this move was intended to ease business by improving adjudication. It has accelerated the appointment of IPAB's
Chairperson but what would be the point of merging one headless tribunal with another?

In truth, however, formulaic one-size-fits-all government interventions are becoming a worrying go-to fix for complex sectoral issues. The FDI framework saw similar sweeping reforms starting 2016 – allowing 100% infusion of FDI in certain facets of the broadcasting sector such as for cable and teleports; easing permission requirements for licensed industries such as broadcasting and telecommunications; and abolishing the Foreign Investment Promotion Board (FIPB) earlier this year.

Undoubtedly, it is beneficial to conduct generic reforms and shape the overall economic direction. However, it can only bring about meaningful change if fortified by bottom-up, sector-specific solutions.

Indeed, many of the widespread sectors impacted by the sweeping reforms need far more than well-intentioned legislations to flourish, foremost among which is the copyright industry. The Indian content industry has shown steep growth, and the broadcasting sector is rising fast among the myriad creators, earning the reputation of being a sunrise industry.

At the same time, a closer look at the sector highlights a negative trend. Illustratively, the government's concerted effort to streamline FDI is yet to provide sectoral relief, as the broadcasting industry continues to see large foreign corporates exit the country more persistently than new entrances that invigorate competition and enrich media and entertainment.

Notably, Walt Disney closed its Indian production unit despite the resounding success of one of its last movies, Dangal. After all, despite showing higher growth rates (28% in 2016 according to the Motion Picture Association of America), the Indian box office is much smaller at $1.9 billion ($7.3 billion when adjusted for PPP) compared to the North American figure of $11.4 billion in 2016.

More worryingly, not only is the broadcasting industry the primary benefactor of television and film content but is also bootstrapping India's nascent but promising cluster of over-the-top video services, such as Star supporting Hotstar, and Zee's venture Ditto TV. However, to sustain this two-partite growth story, the broadcasting sector needs the regulatory space to race alongside its online counterparts, many of which compete at the global level, such as Netflix, Disney's Hulu and Amazon Prime.

To compete with its global contemporaries in a highly disruptive era, legacy Indian broadcasters must diversify their content and meet the changing demands of a digital populace. For this to happen the lawmakers must adapt to the new, expanded market that has injected competition in media and entertainment far more effectively than any regulation or artificial stimuli.

The desired systemic reform is exemplified by another matter before the Madras High Court, where Star India and Vijay TV have challenged regulatory jurisdiction and the long-existing practice of imposing economic regulations on broadcasting organisations. Although the matter is currently awaiting final judgment, irrespective of the court's decision, the government is perfectly within constitutional vires to ease or erase economic regulation imposed on the market-based content industry that has so recently been infused with competitiveness.

The persistence of an archaic system, wherein market players are preemptively regulated on the basis of little empirical evidence, is going to bog down the broadcasting industry even further as media and entertainment moves online and remains open to further disruption. Regulatory practice must also be disrupted to respond to the novel opportunities offered by new forms of media and entertainment.

Unlike more controversial reforms such as the tribunal rejig, not only will reduced regulation lessen litigation, but also aid ease of doing business and facilitate investor confidence. It will allow the Indian media and entertainment sector, already popular among the domestic audience, to grow and compete at a global stage.

(The writer is head of legal research at Koan Advisory Group. Previously, she was an advocate at the High Court of Delhi and the Supreme Court of India.)

ORF Occasional Paper on "Exports and e-commerce in India", by Vikash Gautam, Lead Economist for Koan Advisory, Oct 27

This paper attempts to make a contribution in the context of the recent push in making India an e-empowered economy for promoting exports. The study stems from the premise that exports respond significantly to the costs associated with breaking into foreign markets and sustaining in those markets, whereas e-commerce offers a ready platform to minimise such costs. The empirical exercise focuses on export decision and export intensity, after adjusting for self-selection in exporting, to establish their responsiveness to e-commerce treatment. The possibility to choose the treatment in a purely non-random manner prompts the use of an endogenous treatment-effects regression model. Using a sample of 2,191 manufacturing firms in the period 2010-16, the results show that, on average, firms adopting e-commerce are 21.8 percent more likely to be exporters, and their intensity of export is likely to increase by 7.9 percent.

Vivan Sharan speaks at CyFy 2017, Oct 2-4

"Breaking free of the digital dragon: Responding to China’s growing control over India’s ICT", Co-Authored by Yash Bajaj, Programme Associate, Sept 2017

India is poised to become one of the world’s fastest growing consumers of electronics over the next five years, with domestic imports expected to reach over US$400 bn by 2020.[1] At the same time, the country is becoming increasingly dependent on information and communication technologies, and the government has launched several initiatives for rapid digitisation. India, however, lags behind global competitors in its production capabilities, and 75 percent of that demand is projected to be fulfilled by imports – almost certainly dominated by China, which already supplies half of India’s electronics imports.[2] This dependence has the potential to create economic and security-related vulnerabilities for India, and is made complicated by its geopolitical contestations with China. This report explores the extent of India’s dependence on Chinese technology products and analyses the vulnerabilities created by them. It suggests several linked responses to the threat, core among them being a unified, strategic mindset...

To read more please visit:

Vivan Sharan at the Digital Citizen Summit 2017

Vivan Sharan spoke on the role of regulation and competition in facilitating access to digital financial services at Digital Citizen Summit 2017, New Delhi

Vivan Sharan speaks to NewsX on the proposed Bullet Train, 14 Sept

Assessing the 25 billion digital payments target, Vivan Sharan for the Mint, 23 Sept

The government of Prime Minister Narendra Modi has made two big bets on digital payments. Some weeks after demonetisation, government representatives began to extol the virtues of digital payments as a means to increasing economic transparency, formalizing the economy, and widening the tax base. As outcomes have shown, this was a sober recalibration of the objectives of demonetization. And earlier this year, the government announced the “DigiDhan Mission” to achieve a 25 billion digital transactions target, outlined in the Union budget for this fiscal. This programme aims to establish a robust digital payments ecosystem in a potentially transformative attempt to drain the swamp of illicit monetary transactions. As we approach the completion of the second quarter of this fiscal, it is important to take stock of achievements against this target.
The National Payments Corporation of India (NPCI), an umbrella organization which anchors digital retail payments in the country, has aligned itself with the government target. It has estimated that it will contribute around 11 billion transactions to the government target of 25 billion, through its own bouquet of products and services. By implication, it expects the other 14 billion transactions to come from the Reserve Bank of India’s payments systems as well as private card networks. There are three curious data points which relate to NPCI’s target, that are worth investigating.
First, the NPCI runs the Immediate Payments System (IMPS)—a 24x7 electronic fund transfer service, on which a significant share of interbank transactions are made digitally. In the last fiscal, the IMPS logged just over 500 million transactions. The NPCI estimates that IMPS-based transactions will cross the one billion mark this fiscal, growing at around 100%. With IMPS transactions stabilizing at a monthly rate of 6.5 million in the first quarter, this target will not be met.
Second, NPCI also runs the Aadhaar Enabled Payment System (AEPS), of which the much touted Bharat Interface for Money (BHIM) application is a part; and it has projected 1000% annual growth to achieve 3.3 billion AEPS transactions this fiscal. However, over 95% of AEPS transactions in the last fiscal related to authentication services—that is, authentications by the Unique Identification Authority of India over micro ATMs. The NPCI should be circumspect about including non-financial transactions in its 11 billion target. At the very least, a clear caveat is warranted.
Third, NPCI aims for over 650% growth in RuPay-based transactions to account for around three billion transactions in this fiscal. If first quarter statistics are any indication, the NPCI will achieve less than a fourth of its annual target for RuPay.
The central question therefore is: Why is the NPCI, a non-government body, compelled to set unachievable targets to match unfettered government ambition? One can only hope that this is not a bait and switch measure, especially as accountability may not come easily to the NPCI. The Committee for Digital Payments set up by the ministry of finance under the chairmanship of Ratan Watal, is unequivocal about the fact that “the present ownership structure of NPCI might be conflicted with its pivotal role in the digital payments ecosystem”, in its December 2016 report. And now there are clear indications of this conflict playing out.
The NPCI-owned BHIM application, which facilitates fund transfers using mobile phones, is availing of Rs4.5 billion allocated this fiscal by the government for its aggressive promotion through cash-back and referral bonus incentives. Through a fresh notification on 14 August, the government has further extended these schemes till 31 March next year. Subsidization of NPCI’s gimmicky marketing, to achieve a government target, is reminiscent of the way public sector utilities function. Why are Indian taxpayers investing in the growth of NPCI’s products and services?
The crux of the matter is that the NPCI has shunned an ecosystem approach by disallowing non-bank payment service providers (PSPs) from using its network and interface. For banks, PSPs are a necessary evil. Necessary because consumers now demand the ability to make digital transactions through disparate means. And evil because digitization reduces dependence on traditional banking services, and increases the velocity of transactions—whereas banks would want their deposits to be as inert as possible (to maximize interest earned on the “float”).
Consequently, even though many NPCI owners are private businesses, which are themselves products of fair and open competition, they will not complain about receiving preferential treatment from government. It is the government’s job to recognize that creating markets without economic incentives or depth is meaningless. In fact, NPCI, by being the only company which owns and runs retail payments infrastructure as well as its own products and services, and by setting standards that determine who can and cannot participate on its captive turf, is beginning to look like a combination of a regulator and a natural monopoly. It has done little to dispel such notions, even if they seem exaggerated from within.
Frankly, swadeshi start-ups find it as difficult to prosper in this market as foreign incumbents. And while many remain bullish about India, the country’s narrative cannot forever remain confined to that of immense potential. With slowing growth of gross domestic product, an inflection point is upon us.
The government must show that all of its economic and programmatic targets are serious. In this case, it can begin by holding the NPCI to account and by embracing suggestions from its own committee. These include the diversification of NPCI’s ownership, and a road map for setting up new companies that can own and operate critical payments infrastructure like the NPCI does.
Vivan Sharan is a partner at Koan Advisory Group, Delhi.