Friday, November 16, 2018

"Reinterpreting public interest broadcasting", Vivan Sharan, LiveMint, 09 November 2018

Populist politics tends to lead to short-term policy goals in most democracies. This is why many economic policies aim at instant consumer gratification in India—and explains why even minimal fuel price cuts regularly make headlines. Part of the job of a responsible bureaucracy is to espouse more balanced public interest objectives. This includes acknowledging the fact that the long-term welfare of market participants such as producers and intermediaries also affects consumers. However, line ministries like the ministry of information and broadcasting (MIB) often fail to perform this balancing act for the markets they govern. 
Unenviably, the MIB functions as a licensor in a broadcasting market where there are hundreds of private operators spanning print, television and radio. The need for economic liberalization three decades ago had already confirmed that licences are inimical to market growth. Today, licencing is reminiscent of a bygone era of acute market scarcities. Additionally, the internet has rapidly democratized consumer access to content markets globally, outside of any such licencing paradigm. Yet, the MIB shows a persistent bias towards licencing-inspired interventions to stay relevant. For example, its latest rulemaking initiative may permanently distort the market for sports broadcasting in India. 
Specifically, the MIB plans to introduce a legislative amendment to force content owners to share live sports signals deemed to be of “National Importance” with the public broadcaster, Prasar Bharati, for re-transmission over private TV distribution networks. It would do so through the relevant Doordarshan channels. A public consultation document has been floated by the MIB in mid-October to this effect. 
TV broadcasts are carried to over 150 million homes by private cable and satellite distribution networks. Another 30 million homes access public-service broadcasts through direct to home and terrestrial networks owned by Prasar Bharati. The Sports Broadcasting Signals Act, 2007 (“the Act”) which the MIB wishes to amend, was promulgated to make sports-broadcasts of “national importance” available to low-income homes. Simultaneously, all distributors are mandated to carry Doordarshan channels by an older law governing private networks. Until recently, Prasar Bharati chose to employ a combined interpretation of both laws to retransmit sports broadcasts acquired under the Act through public and private networks. 
However, in August 2017, the Supreme Court clarified the obligation of content owners as being limited to sharing of sports signals for re-transmission only over Prasar Bharati’s networks. The MIB now seeks to bypass this judicial interpretation, in order “to ensure access to the largest number of viewers”. This motive is suspect because free sports programming of national interest is already made available on the airwaves under the Act. Any lack of consumption of free programming is simply a function of consumer choice in favour of private networks. It is safe to assume that households which can pay for private networks can easily put an additional dish or antenna to access free sports programming. 
Conversely, if a live signal is carried simultaneously on both paid and free TV, advertisers would naturally pay less for their time slots on private networks, eroding the margins of businesses which own the underlying content. And Prasar Bharati would see a windfall without taking any production risk because live sporting events would draw greater advertising revenues than its usual repertoire of content.
Reducing the scope for monetising privately-held intellectual property (IP) is akin to throttling the lifeline of the sports economy in India—a fact not unknown to the MIB. Prasar Bharati had negotiated acquisition of five-year rights to broadcast Indian cricket matches for a paltry sum of ₹227 crore in 1999 with the BCCI, whereas a similar set of rights were subsequently sold for about 12 times this value to a private broadcaster in 2006. A panic-struck MIB pre-empted its inability to compete in an open market, and issued an ordinance which served as a precursor to the 2007 Act. 
IP rights for broadcasting account for well over 85% of hockey and football revenues too. The growth of regional sporting leagues which has finally made sports a viable career is fuelled by similar economics. Owing to limited scope for scaling up government expenditure, most future investments in local sports be private sector driven. The global sports market is already worth around 1% of gross domestic product (GDP), whereas the annual ‘Khelo India’ cash outlay works out to less than 0.04% of India’s GDP.
Unfortunately, the creation of market value spurs predatory impulses within corresponding line ministries. Consequently, the MIB is interpreting public interest narrowly and in self-interest—by forcibly acquiring private IP for profit. Prasar Bharati barely generates enough revenue to cover its own programming costs—and is dependent on heavy grants from the MIB. Re-transmitting the IP owned by others will perpetuate this culture of handouts rather than stimulate any impetus towards creating quality public-service content. Prasar Bharati may soon become completely unable to overcome its structural deficits, like many other publicly-owned body corporates. This would leave Indian consumers worse-off in the long run, even as the proposed legislative amendment nips the growth of the nascent sports economy in the bud. 
Vivan Sharan is a Partner at Koan Advisory Group, New Delhi. These are is personal views.

Trade Policies Should Define Digital Products to Enable and Negotiate Market Access, Vivan Sharan and Mohit Kalawatia, FirstPost, 06 November 2018

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A host of export-services have gained prominence in India, especially since service providers now leverage technology to access geographically remote markets. Most of India’s prominent export-services are knowledge and skill intensive and can be delivered electronically. The delivery of such services has also garnered the attention of trade negotiators globally.
For instance, India is in the midst of negotiating e-commerce related issues within the proposed Regional Comprehensive Economic Partnership (RCEP)  a mega-regional trade-pact involving ASEAN countries, India, China, Australia, Japan, South-Korea and New-Zealand. A key issue being discussed here is the treatment of ‘digital products’  products which were formerly delivered in tangible form but now can be delivered in electronic form.
While no international consensus has been reached, several bilateral trade agreements already define digital products. India’s own approach as with most technology policy questions has been piecemeal.
The Singapore-Australia free trade agreement (FTA) which came into force in 2003, was among the first bilateral pacts to contain trade obligations linked to digital products. Thereafter, as e-commerce provisions started appearing more frequently in trade agreements, such obligations became increasingly prevalent globally. For instance, the India-Singapore Comprehensive Economic Co-operation Agreement inked in 2005 contains provisions related to digital products. Herein, the term is defined expansively to include all services or products that can be delivered electronically. Categories of such products include audio-visual content, e-books, text services such as e-mail and software. Replicating such a broad definition in future trade agreements will implicate the wider domain of knowledge and skill intensive services.
With renewed momentum towards formal negotiations on e-commerce at the WTO, advanced countries such as the US, Australia, Japan, and Singapore are in favour of an all-encompassing definition of digital products. Conversely, in private discussions, Indian officials have raised concerns about the potential loss in customs revenues owing to new technologies such as additive manufacturing (3D printing) within the construct of digital products. As per a 1998 WTO Work Programme on e-commerce, of which India is a part, electronic transmissions are exempt from such tariffs.
Notably, existing domestic statutes including the Information Technology Act do not define digital products, and consequently, the bilateral agreement with Singapore serves as the only precedent in the Indian context. While the 2016 FDI Policy on e-commerce makes a passing mention of digital products, details on the types of goods and services which qualify as such are conspicuously absent.
To be clear, India needs to define digital products, in order to better negotiate market access for its service industries in future trade agreements. In 2017, India’s share in global merchandise exports stood at 1.7 percent, whereas its contribution to global services exports was 4.6 percent.
Notably, the World Intellectual Property Organisation’s Innovation Index, 2018, and the WTO’s World Trade Statistical Review, 2018, ranked India first and second in the export of ‘ICT-services’ and ‘computer-services’ respectively.  Additionally, the emergence of global value chains has increased opportunities for specialisation in services. Even as China continues to dominate merchandise supply chains, India can potentially position itself as a hub for services by leveraging e-commerce, including manufacturing-linked services such as design and refurbishment.
Adopting a broad definition of digital products would bring new technologies within the regulatory fold, is unlikely to yield optimal economic outcomes. For instance, circumscribing 3D printing through an entirely new policy on digital products may be premature and may inadvertently compromise the development of local supply chain capacities for the same. Perhaps a similar realisation led to the shelving of the e-commerce policy. However, the absence of trade rules on digital products altogether could mean future regulatory uncertainty for Indian service providers in accessing global markets. While there is no silver bullet, it is imperative to begin a balanced conversation on digital products in earnest.
Some useful ideas have already been put on the table through the consultations on the aforementioned e-commerce policy, conducted earlier this year. For instance, India can seek customs carve-outs for digital products which require conversion to physical form. This will address revenue concerns linked to 3D printing.
Additionally, India can adopt a ‘negative-list approach’ in tariff notifications, wherein services/goods which shall remain outside the ambit of the definition of digital products can be explicitly spelt out. This approach can also potentially enable periodic reviews of the commitments undertaken for such products under future trade commitments.
Commerce Minister Prabhu recently announced that his Ministry is formulating a comprehensive strategy to double India’s exports by 2025. This is an ambitious target which would rely heavily on the performance of 12 “Champion” export-service industries, identified under a Cabinet Action Plan in February.
If India wants low tariff thresholds to harness export markets, it will have to envision a similar reciprocal regime for service imports. Unlike manufacturing, in which India was unable to build export-competitiveness, it still has time to ensure that future trade rules align with its innate economic strengths in export-services.
The authors are technology policy experts at Koan Advisory Group, New Delhi.

Monday, November 5, 2018

Vivan Sharan moderates panel on "India Online", at FICCI Fast Track India Summit, 1st November, 2018


"LOW COST SMARTPHONES MAKE MONEY OFF OUR PRIVACY, IT'S TIME WE FIXED THIS", Vivan Sharan, FirstPost, 23 October 2018

The digital economy is receiving a lot of attention of late. The recently approved National Digital Communications Policy 2018, an imminent data protection law, and policy conversations on e-commerce are examples of this. The public interest implications of rapid internet adoption are driving this momentum. Internet adoption displays an S-shaped curve globally – representing initial moderate growth, steep growth in the middle-phases and stable growth towards the end. The plummeting cost of data and devices seem to have catapulted India to the middle of this curve, a path of frenetic activity, and equally of heightened risks.
In many ways, the pace and pattern of internet adoption in India seem to mirror the process of urbanisation which has been equally feverish for longer. The prospects of efficiency, connectivity and progress have driven urban migration, and are the drivers of digital migration as well. A citizen experiencing in-situ urbanisation is similar to a digital native experiencing swift and inexorable technological change. Finding itself amidst such fundamental transitions, the Indian State is trying to discover legitimate levers of regulatory control, balancing consumer aspirations with the security and stability of the digital ecosystem.
This balancing act is going to be particularly hard when it comes to regulating device ecosystems. Smartphones are at the epicentre of consumer aspirations, with low-cost Chinese brands accounting for nearly 60 percent of the Indian smartphone market. These brands manage to offer hardware specifications comparable to higher-end smartphones and remain profitable despite unfavourable customs duties for equipment imports and lack of a localised components base. But there is a trade-off. Specifically, low-cost brands derive their margins by bundling applications, operating systems, and user consent – a combination that facilitates cross-subsidisation at the cost of ecosystem integrity, as explained below.
Firstly, many low-cost smartphone brands pre-bundle third-party applications that range from news aggregators to social media services. Such pre-installed software, also called “bloatware” in technology circles, not only takes up an asymmetric amount of processing memory relative to functionality, it often creates ecosystem vulnerabilities. For instance, according to a Pew Research Center study, the most common permission sought by application providers is to access information related to Wi-Fi connections. Such requests can enable access to device data from an entire network, with only one user’s permission. Digital advertising, unfortunately, thrives on such unethical collection of data. And the companies that make data-collection applications, in turn, cross-subsidise device makers. This grand-bargain of pre-bundling deprives users of any choice in the matter.
A second challenge is the prevalent practice of pre-bundling of older generation operating systems (OS) on low-cost smartphones. Again, owing to their own unit economics, smartphone makers often make important qualitative choices of behalf of unsuspecting users. This is problematic because low-cost devices running old software on cheap chipsets, often form the weakest link in interconnected digital communications ecosystems. This challenge is exacerbated by the fact that a single OS provider accounts for 90 percent of the mobile-OS market in India. Earlier this year, a comprehensive study by German researchers found that low-cost smartphone brands running this OS often failed to update relevant software patches that guarantee user-security.
Additionally, there is little monetary incentive for OS providers to indefinitely support their old products. Low-cost device manufacturers, on the other hand, benefit from installing old systems, which are naturally cheaper as the level of support offered by OS providers is minimal. Indians have already suffered significant financial harm owing to the prevalent use of outdated OS on ATM machines. Consequently, the Reserve Bank of India mandated “immediate action” to control vulnerabilities from unsupported versions of OS running on ATMs, in June this year.
Lastly, some smartphone manufacturers bundle the consent provided by users while first accessing their devices, with blanket permissions given to pre-bundled software, aggravating the aforementioned risks. India’s imminent data protection law is expected to mandate separation of such consent requests from the standard device-level service terms and conditions. Although this is a commendable step, it may not reduce take-it-or-leave-it consent propositions. This is because consumers tend to value convenience over security, expecting established brands to underwrite their security.
It is evident that disallowing pre-bundling practices may lead to higher costs being passed on to consumers. This may not be a politically acceptable outcome. Therefore, India must rely on setting requisite quality standards for smartphones. Several international templates exist for this, such as ISO-approved Common Criteria standards. However, the sheer pace of digital adoption means that enforcement of such standards will remain challenging until the requisite testing infrastructure is developed. In fact, implementation of a comprehensive regime for mandatory certification and testing of smartphones and other devices, envisioned by the Department of Telecom, has been inordinately delayed owing to this infrastructural gap. This is an opportunity for building deeper public-private partnerships for Digital India, much like Smart-Cities, and scaling up testing infrastructure. Industry must participate meaningfully in building such capacity, a process that perhaps remains contingent on the State articulating a multi-stakeholder approach towards digital economy regulation.
Vivan Sharan is a Partner at Koan Advisory Group, New Delhi. The views expressed here are personal.

Vivan Sharan speaks to Mirrow Now on quotas for Private Sector Jobs, 25 September 2018


"The perils of digital protectionism", Vivan Sharan, Live Mint, 17th September, 2018

Original Link

Nearly three decades since the balance of payments crisis, a sense of regret is palpable within our polity. It is no longer possible to hyphenate the development trajectories of India and China. At the turn of the century, an Indo-Chinese economic rivalry was widely postulated in global publications, and was celebrated at home. But this did not come to pass, triggering a deep and as yet unresolved angst. India did not manage to create corresponding levels of prosperity and well-being at the wide base of its socioeconomic pyramid, and its companies have been eclipsed in size by Chinese counterparts.
In the digital economy too, Chinese internet giants are far larger, despite our head start in information technology. Consequently, some policy practitioners have begun to advocate a China-like approach to digital economy regulation. That is, India should create firewalls to ring-fence the triad of data, technology and capital, just short of creating a Balkanized Indian internet. However, this is a reductionist proposition.
At the outset, glorification of China’s regulatory approach presupposes that tight control on the aforementioned triad has led to greater equity within its digital markets. This misplaced notion is often accompanied by a legitimate fear of ending up with a “winner takes all” digital economy. In reality, the Chinese markets are also dominated by a handful of companies. The only difference is that large Chinese companies such as Baidu, Alibaba and Tencent are home-grown. This monopoly formation stems from the internet’s universal network effect characteristic. This is particularly useful for digital advertising-led companies. This effect inverts the economic logic applicable to traditional industries by allowing increasing marginal returns.
To manage inevitable cases of abuse of market dominance by large internet companies, India should ideally strengthen its competition regulation capacity. Instead, it has done the opposite by merging the nodal competition appellate tribunal with a purely administrative tribunal under the ministry of corporate affairs.
Moreover, China has a large internal market that allows its companies to achieve scale and then seek longer-term sustenance outside. Consequently, 11 Chinese companies feature in the latest list of the largest 20 global internet companies. Indian companies cannot pursue the same strategy partly because our large middle-class market lacks purchasing power. To wit, despite accounting for 10% of total transactions, mobile wallets accounted for less than 1% of total transaction value in the previous fiscal. Similarly, internet companies looking to scale here find requisite transaction volumes, but struggle to generate value. In the absence of fiscal wherewithal to provide any monetary equivalent of Chinese state support, India cannot afford to cut off capital flows towards Indian internet companies.
Recent conversations on a proposed domestic e-commerce policy framework should also highlight a related challenge. Even if we create domestic e-commerce giants through retail industry protections, we will continue to sell Chinese products. The developmental benefits of this will be negligible. As many as 95% of registered manufacturing micro, small and medium industries in India are micro enterprises—household enterprises with less than five persons. They cannot possibly be expected to compete with sophisticated industrial supply chains. The mobile market is a ready example of this. Chinese imports dominate the Indian retail market despite a duty regime that is supposed to incentivise local production.
A central question is whether we want the Indian economy to constitute of retailers and resellers, or of producers. India’s only serious chance at creating a production base is by leveraging inward flows of finance and technology towards serving global value chains. To do this, India must assimilate new standards, create differentiated products and services, target niche markets, improve forward and backward supply chain linkages, and actualize policy reform. A robust digital market can help accomplish many of these objectives. For instance, India can become a large exporter of creative content through digital markets—ostensibly the reason why the government designated audio-visual services as a “champion sector” earlier this year. Conversely, restrictions on market access will only enable a handful of indigenous firms to create their own digital retail monopolies.
As far as data is concerned, India’s best chance at generating value through data flows is via enhanced market access. The global system that regulates this access is increasingly contingent on the principle of reciprocity. For instance, the European Union’s General Data Protection Rules and the US’ Clarifying Lawful Overseas Use of Data Act, have led to a wide consensus on the regulation of cross-border data flows. Both these approaches emphasize the role of trust and standards, which is consistent with the way such jurisdictions have approached market access issues more broadly.
India’s contribution to the evolving global discourse on digital economy regulations cannot be to reproduce the Chinese template. We must rise beyond a reductionism that only perpetuates panic and instead empower our entrepreneurs and firms to service global markets by deepening access to data, technology and capital.
India can become a large exporter of creative content through digital markets
Vivan Sharan is a partner at Koan Advisory Group, New Delhi.

"Overcoming Digital Divide", by Mohit Kalawatia for Daily Pioneer, 10th September 2018

Link to Article

In 2014, the Narendra Modi-led Government came to power with an objective of ‘minimum Government, maximum governance, aimed at showcasing the country as an investment-friendly destination. Thereafter, on various occasions, the Government announced measures to boost private sector investment in the country. To its credit, several high-level policy decisions, like the Goods and Services Tax (GST) and Insolvency and Bankruptcy Code were enacted to improve the business and investment environment. However, the major test for the Modi-led Government is yet to come.
India is on the cusp of laying the foundation stone for the next digital revolution (Industry 4.0). Industry 4.0, synonymous with the digital economy, is expected to contribute one trillion dollar to national output by 2022-23. Given the undeniable potential of the digital economy to contribute outsize growth, it is incumbent on the Government to adopt a delicate, evidence-based approach to put in place an appropriate regulatory architecture that ensures the country reaps full dividends from Industry 4.0.
However, emergent policy recommendations in the past few weeks indicate that the Government is handling the nascent digital economy with a 20th century mindset. These include recommendations of the Committee of Experts, led by Justice (retd) BN Srikrishna, the draft e-commerce ‘policy’ and the draft report of the Working Group on Cloud Computing — the latter two, as reported by the media, amply illustrate the perils of a dated mindset.
For starters, the decision-making process of all the three have remained opaque and had negligible representation from private organisation, let alone investors. Therefore, the final outcome of these groups has been skewed towards one direction, while ignoring the consideration of other stakeholders, in particular investors. For instance, despite highlighting the economic cost and concomitant adverse impact on the start-up ecosystem associated with data localisation in a white paper, the final recommendation of the BN Srikrishna committee endorses the same. Similar provisions for localisation have found their way in Cloud computing recommendations as well as the draft e-commerce policy. It is important to note that storage of data in India would not mean access to that data by local entities. Additionally, such measures can exacerbate cyber-security risks by compelling enterprises to invest in increasing data storage capacity, while apportioning fewer resources to ensure adequate security controls.
Furthermore, voices for protectionism, which are reminiscent of the discourse during the 1991 reforms, are getting louder. Particularly with respect to the draft e-commerce policy, a document, which besides guiding India’s position at the international trade fora, is aimed at promoting the domestic e-commerce ecosystem. This policy will implicate all aspects of the digital economy, and have a key role to play in India’s preparation for the emergent digital revolution.
However, protectionist voices have argued that the Government should formulate different rules for foreign and domestic companies, citing that availability of abundant capital with foreign companies could kill domestic entrepreneurship.
India has come a long way from considering investments as a bail out to solve external payment crises, to recognising that investments bring with them growth and employment, and consequently make a significant contribution to the economy at large. Constant liberalisation of the foreign investment regime in the country is an example of this approach.
Nonetheless, while dealing with digital economy, a constant international best practice which is cited by protectionist voices is that of China. The question to ask is: Can India afford to adopt the Chinese approach? Currently, India’s share in global value chains (GVC) is estimated to be less than two per cent, while China’s share is in double digits. Importantly, China’s peculiar political and economic outlook makes its policies inimitable. For instance, most Chinese players in the digital economy have been supported by state-led investments.
Unlike China, India neither has the economic footprint to deter other countries from taking restrictive reciprocal measures, nor are our entrepreneurs and businesses supported by public sector finance. On the contrary, foreign capital has played a vital role in providing India’s home-grown digital companies like, Ola and Paytm, a global stage. Introducing onerous regulatory conditions and uncertainty could impact the trust of the investors in India as a promising and stable digital market, consequently damaging the image of the country as an investment-friendly destination.
Therefore, it is important that future policy-making is based on economic considerations and on evidence rather than myopic political considerations. Additionally, the need of the hour is to take a nuanced approach with respect to policies which are expected to impact India’s economic aspirations in the coming decade. Given that the 2019 Lok Sabha election are around the corner, the Modi Government will be under pressure to succumb to various protectionist demands. It should take care to avoid such pitfalls if it is to reap economic dividends in its second-term in power which it projects to win.
(The writer is Legal Associate, Koan Advisory Group)