Saturday, June 29, 2019
India’s next government is poised to inherit a troubled economy. Several indicators point to a reduction in demand, including for packaged consumer goods and two-wheelers which had earlier seen consistent growth. Conscientious policymakers have consequently begun to highlight that this lack of demand is a symptom of a deeper malaise—namely, lack of income growth for a majority of Indians. A vicious cycle like this can only be remedied by resuscitating economic activity wherever possible. As far as manufacturing is concerned, the “Make in India" programme has thus far been unsuccessful in catalysing such activity.
A large thrust of “Make in India" has been on localizing mobile phone manufacturing. Trade metrics, however, paint a dismal picture. Broadly, mobile manufacturing entails two steps—the higher-value activity of making components and the lower-value assembly of these. Traders can import parts and assemble them locally, or import ready-to-use phones, depending on relative advantages under prevailing import duty regimes. While imports of fully-built mobile phones have reduced substantially over the last five years, imports of components has risen manifold. Specifically, imports of ready-to-use phones on which India imposes 20% duty have fallen 80% from ₹47,439 crore in 2014-15 to ₹9,592 crore in 2018-19 (until February). However, imports of mobile components rose by around 116% from ₹47,011 crore in 2014-15 to ₹1.02 trillion in 2018-19 (until February). It thus seems an “Assemble in India" paradigm has emerged that serves the interests of companies that only wish to make nominal investments in local supply chains for trading profits, and not for manufacturing value addition.Typically, assembly does not account for more than 5-6% of a smartphone’s value. Lack of local value addition is worrying not just because it militates against the logic of “Make in India", but because it’s directly related to lack of income growth in India’s economy.
A sharp contraction in exports of mobile phones from India worsens the outlined challenges. Mobile phone exports peaked in 2012-13 at ₹14,487 crore. By 2018-19, they had fallen to under ₹9,000 crore. That is, imported parts were not used to make complete products for re-export. Instead, these component imports fuelled a trading and assembly ecosystem which contributes very little value locally. Indian consumption demand, then, is not doing much to drive domestic income growth.
Evidently, “Make in India" has been limited in ambition and scope. Its vision follows from an outsize focus on erecting tariff barriers to protect domestic industry, instead of incentivizing manufacturing competitiveness through tax breaks, infrastructural support and other structural interventions. A similar tariff-led approach failed to catalyse the local manufacture of solar cells, the technologies of which have evolved rapidly like phone technologies. Keeping up with the technology curve requires serious investments in local research and development, which high-tariff regimes do not encourage.
India’s tariff-led approach is reminiscent of a bygone era of industrial policies. However, greater specialization of industrial production today means that countries must adopt holistic policies that address supply chain complexities. Instead, in 2016, India chose to adopt a simplistic Phased Manufacturing Programme (PMP) under “Make in India", to levy duties on component imports hoping to stem related merchandise inflows.
The PMP is a sequential application of tariffs that are raised gradually for different mobile phone components. Lower-value parts such as battery packs and chargers are sought to be localized first, followed by higher-value components like display screens and cameras. However, the disadvantages of manufacturing in India, including acute infrastructural deficits, cannot be offset by high tariffs alone. This is already visible in import statistics relating to low-value components covered under the PMP’s first phase. More such components are being imported at cheaper rates, perhaps an indication of the large surplus capacity of Chinese companies, which dominate the Indian smartphone market.
It could be argued that Chinese companies cannot similarly reduce costs on higher-value components. However, both the European Union and Japan have recently filed consultation requests at the World Trade Organization on the tariffs imposed by India on several ICT products, including ready-to-use phones and several assembly components covered under the PMP. Such consultations constitute the first step towards initiation of disputes at the WTO. Given that India had already committed to keeping its tariff levels at zero on such products prior to the notification of PMP, the programme may have a short shelf life.
It is also worth highlighting the strategic opportunity India currently enjoys, wherein it can leverage the ongoing trade spat between the US and China to attract firms that may be looking to hedge bets and shift some manufacturing capacity out of China. However, lacklustre inward investment in manufacturing shows that such re-orientation is contingent on a re-balancing of incentives and tariffs under “Make in India". The next government could begin to address such concerns with an immediate impact assessment of the PMP, particularly since the success of “Make in India" and income growth in the economy are correlated.
Vivan Sharan is partner at Koan Advisory Group, New Delhi. These are the author’s personal views
Digital music giant Spotify, which entered the Indian market earlier this year, has already opened its account in local courts. Music behemoth Warner Music, a former investor in Spotify, has sued the company over a matter that promises to send ripples through India’s intellectual property regime. Specifically, Spotify recently invoked a statutory licensing provision (Section 31-D) under India’s Copyright Act, in an attempt to gain access to content owned by Warner Music, for redistribution. Warner Music has, in turn, filed an injunction at the Bombay High Court to prevent Spotify from accessing its content through such means.
Statutory licensing serves as an exception to the exclusive economic rights of a copyright holder. This makes copyright licensing a minefield of litigation. The Spotify-Warner case will add a nebulous layer of jurisprudence to an economic area that merits more detailed legislative attention.
India’s copyright regime is ostensibly based on the premise that “knowledge must be allowed to be disseminated". This public-interest rationale stems from a much-cited 2008 Supreme Court judgement. The ruling firmly established that the use of non-voluntary licences to enhance consumer access can be availed of by private entities, as well as public entities. However, the proliferation of information and communication technologies (ICTs) has changed the knowledge-dissemination paradigm. The dominance of digital markets necessitates a relook at the existing copyright regime—which is not a job for courts.
Historically, music licensing in India has involved bundling of the underlying rights for musical composition, lyrics, performance, and even synchronization with the copyright for the sound recording. Until a seminal legislative amendment in 2012, which made such underlying rights “non-assignable", the wholesale transfer of rights to movie producers was a common practice. Such producers would then transfer these rights to record labels. This gave primary-rights owners, such as lyricists, performers and composers, no claim on future royalties. In many ways, the erstwhile regime was fit for a market where the music industry was primarily financed by the film industry, particularly Bollywood. However, the Bollywood-centricity of music markets is being disrupted by internet streaming.
Market disruptions notwithstanding, judicial intervention is never far from upending accommodative legislative reform in India. In 2016, in another court case with large economic ramifications, the pre-2012 practice of transfer of rights was re-allowed for sound recordings that are not embedded in a cinematograph film. Primary-rights owners were dealt a blow through a judicial intervention that paid insufficient attention to changing market dynamics. Independent of the legal rigmarole, India’s music industry has managed to cross the₹1,000-crore mark in 2018, and need not play second fiddle to films forever. Through sustained growth of internet streaming revenues, the industry can become a force to reckon with in its own right.
In fact, technology has helped several Indian industries overcome challenges stemming from static regulatory regimes. For instance, TV broadcasters in India have invested heavily in online video platforms to disseminate new content. Such investments will help them overcome a legacy of prescriptive economic regulations in the TV market. Similarly, in the case of the music industry, digital platforms will enable greater consumer reach, as well as product and service innovation, to maximize industry revenues.
To its credit, the government recognized an untapped export potential of the audio and video industries last year and gave them “Champion Sector" status. The earning prospects of audio-visual exports are linked to the growth of digital markets.
Several Indian industries, ranging from telecom to mining, have suffered the consequences of judicial overreach in economic matters. As a principle, such interventions should be curtailed to instances of discernible market failure. Moreover, digital markets are exceptional on several counts, necessitating that judicial interventions be narrow in scope. First, internet streaming does not rely on the use of scarce public spectrum, as television or radio broadcasting does. Second, the cost of switching between streaming services is negligible as it does not involve replacement of any equipment or distributors. And third, in theory, there can be no discrimination between large and small streaming businesses at the network level of the internet, thanks to network neutrality rules.
Wisely, Indian legislators have held back from expanding the scope of statutory licensing from broadcasting to internet streaming. However, the department for promotion of industry and internal trade issued an “Office Memorandum" in 2016, seemingly attempting precisely this. While the legality and impact of the memorandum remains untested, it underlines a latent impulse to carry over legacy licensing constructs into the new economy. The Warner-Spotify dispute may heighten similar impulses within the judiciary, which seldom bothers to frame interventions in the context of market forces. The 17th Lok Sabha would do well to redraft the country’s copyright law to reflect the realities of digital markets, before other arms of the government begin to redefine public interest in this issue.
These are the authors’ personal views
Industry experts believe India has huge potential as the next manufacturing hub for Apple, especially coupled with China-US geopolitical pressures. However, some believe gains will be symbiotic. “Frankly, this seems to be more of a miss for the Indian government, than the other way round,” says Vivan Sharan, partner, Koan Advisory, a public policy advisory which has Netflix and Amazon as its clients.
Thursday, March 28, 2019
Vivan Sharan moderates panel on "Specialisaiton vs. Scale: What work for Indian M&E?" at FICCI FRAMES, March 2019
vs. Scale: What works for Indian M&E?
M&E space is in the throes of transition. Production processes are becoming
increasingly specialized as a result of technological changes and fragmentation
of global supply chains. Simultaneously, convergence and consolidation are
driving the need for creative businesses to achieve scale, to reach more
consumers and remain export-competitive in global markets. The panel will
debate how stakeholders in the Indian creative economy, including within civil
society and government, should balance these imperatives.
Vivan Sharan, Partner, Koan Advisory Group
Arun Thapar, Head of Content, A+E Networks
Shohini Sengupta, Fellow,
Shreyas Srinivasan, Founder and CEO, Insider.in
Dinraj Shetty, Director, Digital Sales, licensing and Business
Development, Sony Music Entertainment
Karan Ahluwalia, Senior President and Country Head, M&E,
Fine Arts, Luxury and Sports Banking Group, Yes Bank
Koan Advisory experts blog about various sessions held at FICCI FRAMES 2019, for the Motion Pictures Association.
The blogs can be found at this link:
The blogs can be found at this link:
The submission can be found here:
Twitter furore shows need to empower local executives, Vivan Sharan and Trishi Jindal, Mint, 12 February 2019
Original link: https://www.livemint.com/opinion/online-views/opinion-twitter-furore-shows-need-to-empower-local-executives-1549991606777.html
The quicker technology companies operating in India realize the merits of empowering their local executives, the faster the Indian digital economy will come of age. Technology regularly outpaces regulation globally, necessitating nuanced debates between industry and government in every major jurisdiction, and therefore, decision-making agility on both sides. Additionally, India has a complex digital culture that doesn’t easily lend itself to quick fixes by government or industry. This is evident in the case of ongoing discussions on regulating social media platforms that are marred by the lack of a solutions-oriented approach on either side.
India’s Standing Committee on Information Technology recently summoned Twitter to testify before it on matters relating to “safeguarding citizen’s rights on social media platforms". This ostensibly followed from a protest lodged with the committee on selective censorship of political views online. Though some local Twitter officials did appear before the committee this week, the company had initially sought a deferment citing short notice and reportedly submitted that “no one who engages publicly for Twitter India makes enforcement decisions". If reports are true, the submission is a rare and candid admission that local executives are not empowered to negotiate their own interests.
In the past, policymakers were predominantly concerned with providing access to the internet, which led to many debates on privatization of information infrastructure. Good sense prevailed in letting private sector investments flourish, precipitating a virtuous cycle of greater connectivity and consumer access. While India still has millions of “digital have-nots"—individuals who remain unconnected—it also has a substantial infrastructural backbone with close to half a billion broadband users expected to come online before 2020.
A corollary of exponentially greater consumer access to the internet is that policymakers must now contend with much more complexity in digital markets, a reality that industry executives must also empathise with. Moreover, the government’s under-preparedness to manage new challenges at the intersection of technology and society may prompt overregulation of new markets. Where the internet was meant to liberate society as a force removed from it, it now appears closer to a manifestation of many of the ills of society, such as hate speech and violent extremism, phenomena that are particularly concentrated on social media. While curtailing online speech would be antithetical to democratic values, global companies must recognize local context. Online speech is largely unregulated in advanced jurisdictions because of better state-capacity to deal with negative outcomes offline.
Tech scholars like Daphne Keller have characterized internet policies today as fighting poorly defined harms with remedies that remain untested. Indian policymakers have been unable to pinpoint the nature and quantum of harms caused through social media platforms. To wit, there is no official report on the mechanics of lynch mobs—how are they triggered, how online misinformation campaigns are funded, or even what role political actors play, if any. Equally, adequate remedies such as the balancing of stricter enforcement with institutional and legal safeguards for protecting free speech and expression are rarely discussed within government.
Protectionism adds another dimension to the mix of new digital policy questions that are only just being addressed. Recent debates on e-commerce policies, data protection laws, and regulation of online intermediaries, characterize this dimension. How do we protect interests of domestic companies without being brazenly discriminatory? Should we look at global standards to mould domestic templates for internet governance? Or should we forge our own prescriptive and exceptional regulatory norms in isolation?
Local executives of global companies can play an important role in resolving such questions from their informed vantage points. They have line of sight on the dynamic landscape of global markets. Simultaneously, they are well-placed to leverage global exposure to the cutting-edge of internet governance. Instead, most such executives are compelled to take conservative positions in India and resist any hint of enhanced government interface, even as their global counterparts engage in serious debates in the US and EU. Consequently, the Indian state acts in its limited self-interest by overregulating what it feels it can’t control.
Equally, it is about time that the state recognizes that not all solutions can come from within. Some global companies have shown the ability to propose and implement practical solutions to local challenges. For instance, government-industry dialogue has led to the adoption of a Code of Best Practices by nine large online curated content firms this January. The code redoubles industry commitment to protecting kids from accessing adult content. Transparent self-regulation can protect free speech and promote plurality of opinions, whereas prescriptive government regulation almost always leads to excessive censorship. Proactive standard-setting must be welcomed as a first wave of corporate enlightenment in digital India, a wave that can truly lift all boats by securing values shared by policymakers, industry and citizens.
Vivan Sharan & Trishi Jindal are technology policy experts at Koan Advisory Group, New Delhi. Views are personal.
Digitalization has rapidly altered the contours of the Indian economy, especially in terms of improved consumer access to goods and services. Tens of millions of new participants have been added to digital markets through the expansion of telecom and internet services in 2018. In the midst of this feverish activity, confusion persists over what constitutes a definitive and durable vision for a digital India—exemplified by debates on why Indian companies struggle to generate value within domestic digital markets.
China has about 15 times as many unicorns—billion-dollar startups—as India does, despite the fact that the Chinese economy is 2.5 times that of India’s in terms of gross domestic product (GDP) adjusted to purchasing power parity. Such asymmetry of outcomes reflects in global comparisons too. India has some of the lowest average revenues per user in telecom markets despite some of the highest data consumption volumes in the world, and a tiny subscription market for digital products such as audiovisual services, which is dwarfed by small countries such as Singapore.
Value creation tends to involve innovation in the production of goods and services that people are willing to pay for. Naturally, intellectual property must lie at the heart of this process, finely balanced alongside consumer access. However, a form of “digital socialism" seems to have manifested itself in India’s digital economy discourse as a panacea for the lack of value. This school of thought seems to emphasize a large role for state intervention in redistributing the value created in digital markets, which largely resides in data.
The desire for state intervention is most visible in regulatory consultations on areas such as data protection and licensing of online applications, parts of which focus on treating all data as a public good. Ongoing discussions lack nuance in differentiating between the implications of unrestricted access to government data and private data. China is naturally a source of inspiration for those who evangelise the benefits of state-intervention to actualise what is essentially an over-broad interpretation of the notion of “open data".
Admittedly, China’s micromanaged market growth has been nothing short of astonishing. The country accounted for just under 4% of world GDP in 1991 and now accounts for 15%. Mandating data-sharing is not dissimilar to mandated joint ventures in China’s industrial ecosystem. However, both dilute incentives to innovation and lower chances of safeguarding privately held intellectual property. It is important to recall that China appropriated space in the global economy from emerging markets such as India. Conversely, countries with a strong culture for innovation and monetization of intellectual property such as the US have held on to their share. The US has consistently accounted for around 25% of global GDP despite China’s swift rise over the last three decades.
It is likely that if India lowers its focus on incentivizing and safeguarding innovation in favour of creating an unqualified and unfettered open data ecosystem, China will be its biggest beneficiary.
Chinese firms are already dominating India’s digital markets, from devices to online applications. And the modus operandi of China’s digital giants strongly resembles that of its manufacturing giants. China’s industry majors are offloading their excess capacity in India and focusing on extracting incremental value. For instance, Chinese smartphone brands account for a two-third market share in India—and seem to be the biggest beneficiaries of India’s aspirational consumption. Similarly, the imposition of digital socialism will not deter China’s cash-rich online giants from extracting value from India’s digital markets— consonant with its expansionist Belt and Road Initiative.
The fact is that Chinese businesses will willingly acquiesce in over-regulation in return for a captive market. They have had more than a practice run at embracing the notion of state-controlled digital economy. So, how should India prevent Chinese colonisation of its digital markets, and build focus on creating competitive IP-based digital ecosystem that delivers both access and value?
Value creation will require a fresh policy mindset in 2019. A point of departure could be to better understand how countries such as the US have retained their economic strength in times of global flux. Part of the answer lies in the correlation between trade and intellectual property (IP). The US accounts for around one-third share of global IP exports—far outpacing China, which does not even figure in the top ten IP exporters despite frenetic patenting activity. While China has understood the need for more IP, its markets remain state-controlled.
Nevertheless, it is axiomatic that innovation-centricity impacts the realization of economic value. In 2018, researchers found that while less than 10% of US manufacturing firms made IP filings, those that did accounted for 90% of its total merchandise exports. The nexus between innovation and competitiveness is universal. A balanced vision for domestic digital markets must therefore reflect the centrality of incentivizing and protecting innovation. And to be clear, this will require active state support in the entire spectrum of innovation, from engendering a culture of research to stronger enforcement of IP.
Vivan Sharan is a technology policy expert and partner at Koan Advisory Group, New Delhi.