RMB Goes Digital: Economic Imperatives or Ambitions?
Munish Sharma
May 12, 2020
Riding the technology wave, China eyes global dominance of RMB as a reserve currency and a favourable international monetary environment for its economic development.
The People’s Bank of China (PBC) has rolled out pilot trials of its digital currency beginning with Shanghai, Chongqing, Shenzhen, Hangzhou, Suzhou and Xiong’an New Area.1 China intends to partially digitise its existing monetary base or the cash in circulation – first in the world to do so. Beginning with the integration of digital currency with the monetary system, the first step is to pay the salaries, subsidise transport and spur adoption in the retail sector. Digital means of payment are not new to the Chinese people. The use of smartphone apps such as Alipay or WeChat to pay at the grocery stores, to buy tickets or transfer money is quite widespread in the country. In 2019, around 223.34 billion electronic transactions to the tune of 347.11 trillion yuan were made in China, half of which were attributed to mobile payments.2
As China emerges out of the COVID-19 pandemic, cash usage is slated to dip with people turning to contactless modes of payments. The pandemic may have throttled up the digital currency rollout for applications which apparently sound rudimentary, but the seeds of the idea were sown half a decade back. The project takes off right under the supervision of the highest echelons of political leadership, showcasing China’s prowess in FinTech (Financial Technology) innovation and possibly expediting internationalisation of the Renminbi (RMB).
A Digital RMB
The PBC, since 2014, has been working on the idea of partially digitising China’s existing monetary base, or cash in circulation, under the project called DC/EP or Digital Currency/Electronic Payments.3 The bank established a Digital Currency Research Institute in 2017 and launched a pilot programme in Beijing in December 2019. This endeavour aligns with the guidelines of the Fourth Plenary Session of the 19th CPC Central Committee and the Central Economic Work Conference and implements the FinTech Development Plan (2019-2021).4 China’s DC/EP leverages blockchain technology, but the ensuing digital currency is not a cryptocurrency. In fact, it is the electronic version of RMB, a digital legal tender pegged 1:1 to the RMB, backed by the Chinese Government, and much more stable than a typical cryptocurrency such as Bitcoin. The digital currency, which could be used without being linked to any bank account, is expected to replace physical cash in high-frequency but small denomination transactions pivoting on low issuance costs, efficiency and usability.5 If required, two phones in proximity can execute a contactless transaction, even doing away with the need for an internet connection.6 The circulation of the digital currency will be under the purview of the PBC, while the commercial banks will process the payments and deposits.
A Chamber of Digital Commerce study has examined in detail the patent applications (84 in number as of January 2020) attributed to the Digital Currency Research Institute and a few of the PBC subsidiaries, unveiling the mechanics behind the management of the digital currency, its circulation and settlement, payments processing and deposits, and the underlying distributed ledger technology.7 The study concludes that the circulation of the currency and its settlement and deposits will find seamless integration with the conventional banking processes, analogous to the fiat currency. Moreover, the transactions will be anonymous from the user’s perspective, but the DC/EP Platform will allow sufficient oversight on the transactions (value and identity of the transacting parties) and traceability to ferret out tax evasion, money laundering, and terror financing – in line with the existing regulatory requirements.
The project has been in the limelight, technology-wise as well as politically. The Political Bureau of the Communist Party of China (CPC) Central Committee has already undergone a group study session on the development and trend of blockchain technology in October 2019. Presiding over the session, President Xi Jinping had pressed for accelerated development of innovation in blockchain technology.8 More than domestic adoption, it is the global outlook of the idea which has garnered much attention, especially when China’s dissatisfaction with the dominance of the United States Dollar (USD) as the global reserve currency and its aspirations to get the RMB reckoned internationally are overt.
DC/EP and RMB’s Internationalisation
The USD holds a dominant position as investment and reserve currency under the existing international monetary system. Data from the International Monetary Fund (IMF) suggests that, as of 2019, the USD accounted for 61 per cent of all central bank foreign exchange reserves, followed by the Euro at 20 per cent, with RMB at just 1.96 per cent.9 Around 47 per cent of the global payments are in USD and it is involved in 88 per cent of foreign-exchange trading.10 More than a decade ago, in 2009, China, along with Russia, had called for “a new reserve currency” to replace the USD, basically, a currency “that is disconnected from individual nations”.11The US has been accused on multiple fronts, even by the European countries, for using the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system to enforce economic sanctions, as it did with Iran and Cuba.12SWIFT is a global financial messaging service used by 11,000 institutions around the world to securely transmit information and instructions to enable cross-border payments.13 China believes that the US maintains its dominance on SWIFT’s decision-making by holding the majority in the organisation’s board.14 China has been extremely wary of the punitive sanctions or the threats of exclusion (both at the country and company level) from a USD-based (or the US-dominated) settlement system, and the DC/EP provides it with the much needed alternative – an RMB-based trade settlement system,15 seen as one of the ways to reduce the dominance of the USD in trade and financial transactions.16 But the prime motive behind DC/EP is to enhance international adoption of the RMB.
Internationalisation of the currency actually gives the issuing country a lot of leverages. The exporters can limit exchange rate risk, and so do the domestic enterprises and financial institutions when accessing international financial markets. It reduces the cost of capital and allows the government to finance part or all of its budget deficit by issuing debt in domestic currency on international markets, that too without drawing down its reserves.17 Internationalisation of the RMB could be termed as China’s long-standing aspiration, which essentially aims to create a stable international monetary environment for its own economic development.18 Since 2009, China has pushed aggressively for international acceptance of RMB and its use in international trade and investment, but the last five years have been quite eventful especially in the DC/EP hindsight.
The PBC had set up a ‘Cross-border Interbank Payment System’ in 2015 – its own international payments system to provide clearance and payment services for financial institutions in the cross-border RMB and offshore RMB business.19 In October 2016, the IMF added RMB to the Special Drawing Right20 (SDR) valuation basket as the fifth currency, along with the USD, Euro, Japanese Yen, and the British Pound.21 For inclusion into the SDR basket, the issuer of the currency (an IMF member or a monetary union that includes IMF members) has to be one of the top five world exporters, and the currency has to be widely used to make payments for international transactions and traded in the principal exchange markets.22 China has, thereafter, made several efforts to propel international acceptance of RMB,23 such as currency swap lines with foreign central banks, encouraging international trade pricing and payment settlement in RMB,24 and enhancing its status as value storage and reserve currency.25 China also attaches great importance to RMB as a reserve currency because it could then serve as a standard unit for international payments and cushion RMB against shock, but it fundamentally rests on the confidence others have in China’s ability to meet its obligations.
The DC/EP fits into China’s overarching plan for the international adoption of the RMB. It clears the way for a high table in the international monetary system at par with China’s standing in the world trade. For instance, China is the largest exporter of goods in the world trade, but this hardly reflects in the international monetary system. The RMB is already the second most-used currency in global trade, but it still falls far behind USD on many parameters. A Deutsche Bank report even dubbed China’s DC/EP as a soft or hard power tool, which can potentially erode the primacy of the USD in the global financial market if companies adopt digital RMB for their cross-border transactions.26 With countries adopting the DC/EP - probably beginning with the region or the countries part of the Belt and Road Initiative (BRI) - China can reduce its exposure to the US financial institutions and vulnerability to American sanctions,27 essentially a counter to the alleged “weaponization of the dollar”.28
Conclusion
In the aftermath of the COVID-19 pandemic, digital means are going to be the favourable mode of transactions. Unlike physical cash, digital transactions over a digital wallet or a digital currency are traceable. Looking at the nation-wide expanse of facial recognition technology, China’s ability and intent to scale up technology innovation for intrusive surveillance programmes remain undisputed. Replacing cash with the digital currency, especially when the salaries are paid in this form, extends the Chinese Government’s surveillance net to the elusive territory of cash transactions. However, the DC/EP was conceived to serve a much bigger objective. China’s concerns arise out of its susceptibility to American punitive actions, especially when the political face-off shows no signs of dying down. A digital currency, therefore, intends to bypass US-dominated financial infrastructure, for instance, the SWIFT system.
In the next step, China is likely to extend the reach of the DC/EP to regions and countries which are part of the BRI for an RMB-based trade settlement system. Riding the technology wave, China eyes global dominance of the RMB as a reserve currency and a favourable international monetary environment for its economic development. The dominance of a currency in the global economy is often associated with the financial power of the issuing country and its ability to influence the economic calculations of others. However, it is a distant dream without transparency and the trust and confidence of others, and China is deficit of all three of them at present.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Redrafting the chapter on post-contract management, expatiating the concept of contract operating officers and clearly defining their role and responsibilities vis-à-vis the other agencies, could go a long way in serving its purpose.
A new chapter on Post-Contract Management (PCM) has been included in the draft Defence Procurement Procedure (DPP) 2020.1 While it is a good idea to have such a chapter in the DPP, the title as well as the contents of the chapter are a bit perplexing.
First, the entire gamut of activities connected with a contract can be divided into three phases. The first phase comprises the activities that precede the signing/award of a contract. Almost the entire DPP is devoted to this stage, right from germination of a requirement to the conclusion of the contract.
The second phase covers the actual implementation/execution of the contract. During this stage, whatever had transpired in the run-up to the signing of the contract matters little as the relationship between the buyer and the seller is governed by the express terms of the contract. This is the contract management stage, which lasts until the delivery of goods and services are completed.
The third and the last phase is what should be called the post-contract management phase in which residual matters, which survive successful completion/execution of the contract or its termination, are to be dealt with. Such matters would typically include settlement of pending claims, release of the final payment, warranty, etc.
It appears that the chapter on PCM is intended to cover the second phase, in which case the word ‘post’ could be deleted from its title. However, with or without this change in the title, the chapter would be incomplete without the inclusion of a distinct section covering the third phase, which seems to be missing from the draft chapter.
Second, the chapter is replete with provisions, selectively culled out from the first two chapters of the DPP, and the templates of the Statement of Case (SoC), Request for Proposal (RfP) and the Standard Contract Document (SCD). The contents of this chapter relating to the effective date of the contract, documents to be submitted for claiming payment, liquidated damages, warranty, arbitration, repeat order and option clauses, exchange rate variation, et al., fall in this category.
To illustrate further, a note below the section that deals with the documentation required for claiming payment states, “Depending upon the peculiarities of the procurement being undertaken, documents may be selected from the list given above and specified in the RFP and supply order/contract”.2 Certainly, this is of no relevance during the contract management stage.
Besides being unnecessary, the inclusion of generic contract clauses could be confusing as the contract is supposed to be a complete document in itself and the contractual relationship between the buyer and the seller has to be regulated exclusively as per the terms and conditions specified therein. The contract is a ‘given’ for those assigned the responsibility of managing it, and what matters at this stage is the written word of the contract.
This chapter must, therefore, begin with an unambiguous direction to the contract managers that they need to familiarise themselves with the terms of the contract and manage it only in the light of those terms.
Third, it is not clear whom this chapter is meant for. Though there is a passing reference to the ‘Contract Operating Officer’ (COO) somewhere in the middle of the chapter, the concept requires clearer articulation.
Ideally, a COO or a Contract Manager (CM) should be designated for every contract, along with one or two deputies (depending on the complexity of the contract) and their particulars mentioned in the contract, and any changes therein should be made by way of an amendment to the contract.This will make it easier to manage the contract and provide a single point of contact to the vendors.
Fourth, the function and responsibilities of the COOs/CMs need to be clearly defined. The chapter should specify the action to be taken by them at every stage during the implementation/execution of the contract until the deliveries are completed. It will be helpful if an indicative stage-wise checklist is included in the chapter.3
Of course, the COOs/CMs will have to customise the generic checklist, if provided in the DPP, by juxtaposing the functions/responsibilities mentioned in the checklist with the express provisions of a given contract. In any case, even if there is no generic checklist to go by, they will have to draw up a contract-specific checklist. It is this checklist which should then form the basis of managing the contact.
Fifth, the COOs/CMs cannot be made responsible for every action associated with the management of a contract. Payment, for example, is a complex function which involves several agencies. This is true of many other contractual provisions, such as organising pre-despatch/joint receipt inspections, operation of the price variation clause, raising of quality/ quantity claims, imposition of liquidated damages, etc.
The extent of responsibility of the COOs/CMs in such situations needs to be carefully defined. Ideally, it should be limited to monitoring the progression of such issues through the bureaucratic maze and raising timely alerts to the relevant agencies or specified higher authorities about inexplicable delays and impending breach of any contractual term. The division of responsibility between them and the user and other directorates as well as the acquisition wing, etc., should be defined.
Sixth, the chapter seems to selectively cover the capital as well as the revenue procurement contracts. Considering that revenue procurements are governed by the Defence Procurement Manual (DPM), which is also under revision, and keeping in view the difference between the revenue and capital procurement contracts, mixing up of the two would not be desirable. This also conflicts with the scope of the DPP defined in Chapter 1 of the draft DPP, according to which the provisions of this document are applicable primarily to capital acquisitions.
The confusion may arise from the fact that some provisions like the one related to change in the name of the vendor figures in this chapter, but it is yet to be included in the DPM. Similarly, there is a reference to the chapter on design and development in the paragraph dealing with indigenous development cases, but there is no such chapter in the DPP, while there is a chapter on design, development and fabrication contracts in the DPM.
Seventh, the COOs/CMs need not remain associated with a contract in the third phase, once the delivery is completed, or after a contract is terminated. The workload related to the management of a contract during this phase would be comparatively lighter, making it possible to club several contracts under the management of a single team of officers. This responsibility could be taken over by a centralised authority in the service headquarters/Ministry of Defence, whose particulars should also be included in the contract.
Redrafting the chapter, expatiating the concept of the COO/CM, and laying down their role and responsibilities vis-à-vis the other agencies involved in the implementation of a contract, preferably by way of a checklist, should go a long way in serving its purpose.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
In the last 20 months of his rule, Prime Minister Imran Khan has not only failed to solve his people’s problems but also has made the life of the common man miserable.
The rampant ceasefire violations along the Line of Control (LoC) by Pakistan, together with high incidences of infiltration and terrorist attacks in Kashmir, highlight that Pakistan has reverted to its old games. During the first three months of this year (2020), Pakistan indulged in ceasefire violations as many as 1144 times. The corresponding period in 2019 and 2018 saw 685 and 627 violations, respectively.1
March recorded the highest 411 violations just when the COVID-19 positive cases swelled in Pakistan and across the globe, including in the Kashmir Valley. Pakistan has been reportedly pushing militants infected with COVID-19 into Kashmir to spread the illness among the people of the Valley. There are 242 active terrorists in Jammu and Kashmir (J&K), including 104 Pakistanis belonging to Lashkar-e-Toiba (LeT) and Jaish-e-Mohammad (JeM).2
The first week of April 2020, likewise, witnessed a major infiltration bid by the LeT militants in the Keran Sector of Kupwara District. Five terrorists were killed in the encounter with para-commandos. On April 18, militants opened fire at a Central Reserve Police Force (CRPF) party at Noorbagh in Sopore. Four days later, on April 22, an encounter took place at Melhora village of Shopian District. Both attacks resulted in the death of four militants and an equal number of CRPF jawans. In another encounter at Awantipura in Pulwama District, two more terrorists and one of their associates were killed on April 25. Recently, two army officers and one police officer besides two soldiers were killed in an operation in Handwara on May 2 against two militants who had taken civilian hostages. Both the militants including one from LeT were eliminated. Besides, the Pakistan-backed terrorists or their sympathisers in the valley are targeting civilians to coerce them to follow Pakistan’s ‘azadi’ narrative.
Referring to the recent attacks, Director General of Police, J&K, Dilbagh Singh said that when the entire world was making efforts to fight the coronavirus pandemic, Pakistan and its sponsored terrorists were attempting to disrupt the measures being taken to safeguard the lives of the people of J&K.3 In fact, it appears that Pakistan has found in COVID-19 a new weapon to hurt India. It is indulging in false propaganda accusing India of not providing medical aid and relief to the Kashmiris. It further asserted that the lockdown and internet blockade imposed by India is making it impossible for the Kashmiris to fight the coronavirus. Pakistan’s State Minister of Health Zafar Mirza demanded that the lockdown in J&K should end to help fight the coronavirus outbreak.4
While there is no denying that Pakistan’s civilian and military leadership have not given up their thrust on ‘K’ word, they appear to have revved up their efforts in recent months for the domestic audience. Pakistan Army has to demonstrate for domestic consumption that it has given a bloody nose to India. Moreover, the Inter-Services Intelligence (ISI) is in a hurry to recoup its post-August losses in the wake of the abrogation of Article 370 in J&K and beef up its proxies as speedily as possible in the changed political situation. With the state becoming a Union Territory, the militants appear to be at a disadvantage. The familiar pro-militancy political voices in the valley are not active as they are unclear about the direction of the wind, particularly after Pakistan’s failure to mobilise the world opinion in favour of its agenda at various world fora. Islamabad is also conscious that Beijing’s pro-Pakistan actions since last August were limited at needling India as a part of its much larger regional agenda. Simply put, the all-weather friends are not on the same page when it comes to J&K and their respective core interests.
Pakistan is also flouting its commitment to the Financial Action Task Force (FATF). The money laundering and terror financing watchdog at its plenary meeting held in Paris in February 2019 had criticised Pakistan for not demonstrating a proper understanding of the terror financing risks posed by militant outfits, most of whom are active in J&K and Afghanistan. The FATF had placed Pakistan in its ‘Grey List’ in June 2018. It gave Pakistan a four-month grace period to complete its 27-point Action Plan after noting that the country had delivered only on 14-points. It asked Pakistan to deliver on the remaining benchmarks by June 2020 with foolproof arrangements against money laundering and terror financing. In the wake of the COVID-19 pandemic, the FATF has deferred the deadline to October 2020. This means a reprieve of four more months to Pakistan even as it stares at the threat of being placed in the blacklist.
Like always, Pakistan is misusing the FATF window. It has reportedly taken off the names of some 3800 notified terrorists from the prescribed list, with no explanation on offer.5 Simultaneously, Pakistan has strengthened its launching pads and has started pushing its trained militants into J&K under the cover of heavy mortar shelling and firing by its army.
While coronavirus has given the nations a rare chance to put aside their differences and fight the pandemic jointly, Pakistan on its part is reluctant to cooperate. When India organised a virtual meeting and called upon all the SAARC (South Asian Association for Regional Cooperation) leaders to demonstrate a united effort against COVID-19 and create an emergency fund to fight against the pandemic in the region, Pakistan refused to cooperate and contribute in any meaningful manner. Such actions demonstrate that Pakistan is working on two planks: first, to malign India especially among the Muslim countries by launching fake news campaigns as well as obstructing its efforts to deal with coronavirus, and second, to take advantage of India’s engagement in the fight against coronavirus by resuming militancy in J&K. Pakistan is also seeking to take advantage of the coming summer season to push infiltrators in the valley in a renewed attempt to boost the strength of the terrorists, as 60 of them have been killed by the security forces since January 2020. They included 30 Hizbul Mujahidin, eight JeM, six LeT, three from the Islamic State in Jammu & Kashmir, besides 20 from unidentified outfits.6The local youth are reluctant to join militancy given the shortage of weapons and slow communication due to the absence of 4G. They are also aware that their life expectancy decreases exponentially once they join the insurgency. That out of 139 youths who joined militancy in 2019, only 89 survived reinforces this argument.7
Pakistan knows that at this moment it cannot satisfy its people by raising then Kashmir bogey. The problem of the people of Pakistan is not Kashmir but the high cost of living, shortage of food items, and joblessness. More than 73 years after its independence, Pakistan is facing a crumbling economy with half of its population living under poverty. In the last 20 months of his rule, Prime Minister Imran Khan has not only failed to solve his people’s problems but also has made the life of the common man miserable. Today, the Pakistan Government meekly depends on China’s help and propaganda against India.
Pakistan is playing politics against the demand of the grim situation. As India has repeatedly asked Pakistan to end cross-border terrorism in Kashmir, it should also continue to expose Pakistan’s design by launching a vigorous diplomatic campaign at various international fora. Incidentally, Imran Khan is drawing flak in Pakistan for his failure to send relief and ration to his countrymen under lockdown. Besides exposing Pakistan, a sustained political campaign must be launched to win the hearts and minds of the Kashmiri people for they know their future lies with India.
Mr. S K Sharma has co-authored books titled “Militant Groups in South Asia” and “Pakistan Occupied Kashmir - Politics, Parties and Personalities”, both published by the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Humanity is much better equipped today to mitigate the loss in life and collateral economic damage resulting from a pandemic, as demonstrated through the deployment of new-age tools such as artificial intelligence, big data, machine learning, neural networks and internet of things.
Humanity is much better prepared in 2020 to mitigate to a degree the loss in life and collateral economic damage resulting from a pandemic. Some good work has been demonstrated globally through the deployment of new-age tools such as artificial intelligence (AI), big data, machine learning, neural networks and internet of things.
A Toronto-based AI firm ‘BlueDot’ had identified the coronavirus disease (COVID-19) outbreak in Wuhan in China by December 31, almost nine days before the Chinese agencies or the World Health Organisation (WHO) made any official announcement.1 It used AI and machine learning models and data from a wide range of sources including news outlets, airline ticketing trends, demographic data like population density and age stratification, microclimate models, infectious disease trends, etc. BlueDot correctly predicted the spread of the virus to cities within China and the neighbouring countries. Similarly, a firm called ‘Metabiota’, based in San Francisco, had used AI, machine learning, big data and natural language processing (NLP) algorithms to study the social media trends to predict correctly the spread of COVID-19 to countries such as Japan, Thailand, Taiwan and South Korea even before a single case appeared in these regions.2 In comparison to all previous epidemics or pandemics, it is clear that AI is at the forefront of accurately predicting in advance the onset of the next pandemic, which it is said is inevitable.
Another firm called ‘Insilico Medicine’, based in Maryland, too employed AI to search vast databases of existing drugs to identify those molecules that could be used for the treatment of COVID-19 patients within just four days.3 Such incredible computing power is providing the urgently required medical ammunition to the frontline healthcare workers in treating very sick patients. It is also clear that the employment of AI programmes has created a new speed benchmark in key milestones towards the discovery of a new COVID vaccine. It is expected that this vaccine may be available for mass use anywhere within the next nine to 15 months. Scientists working at Flinders University, Australia have used advanced cloud computing and AI modelling in addition to state-of-the-art manufacturing to develop a candidate COVID-19 vaccine4 that could be fast-tracked for animal experiments and possible human trials in the United States.
One of the recent technology-related breaking news stories was the meeting of the tech giants - Facebook, Apple and Google and their discussions with the WHO to create an interoperable application programming interface (API) that will enable accessing data and communication with validated public health apps. This new feature will be available on Google and Apple IOS stores for downloading from May this year.5 Similarly, ‘Fitbit’, a San Francisco-based company known for fitness and activity tracker products, could play a crucial role in identifying patterns of resting heart rates and sleep cycles to predict a geographical pattern.6 Another San Francisco-based smart thermometer manufacturer – ‘Kinsa’, which connects with a smartphone using blue tooth is able to visually aggregate fever patterns across a country based on the total number of smart thermometers available per capita in the population.7 This will greatly aid public health authorities in monitoring infectious clusters in real-time.
With the massive surge in 24x7 news coverage and social media, panic-stricken people began calling hospital helplines to seek proper information, and soon these phone lines became overwhelmed necessitating several Indian hospital chains to launch AI-based chatbots that had legitimate content and aided in navigating through commonly asked questions. Smart symptom check tools were also launched to relieve unnecessary mental tension. Within overwhelmed hospitals, various smart technologies have been deployed to assist the human caregivers. The AI-based computed tomography (CT) scan reading technologies have cut down the CT-based COVID-19 diagnosis from the earlier six minutes to just 20 seconds.8
In late February, Chinese technology giant Alibaba Group announced an AI algorithm from its research unit, DAMO Academy, that can diagnose suspected cases within 20 seconds with 96 per cent accuracy. The algorithm is being used in 26 hospitals in China, where it has already helped diagnose more than 30,000 cases.9 The draconian success of the lockdown in China to reduce community-based transmission was greatly due to the deployment of a vast array of facial recognition technology in closed-circuit television (CCTV) cameras along with mobile apps and drones to identify and isolate suspect cases. The same lessons are now being used in countries like Singapore, Korea, Turkey and Russia. Chinese drones have identified and sprayed disinfectants in sensitive zones and also used infrared technology to detect the surface skin temperature of individuals within its range.
Within India, the use of Aarogya Setu mobile app launched by the government on April 2 helps users identify whether they are at risk of COVID-19 infection.10 This contact tracing app is a technological innovation that helps to speed up the process and keep pace with the extraordinary speed of transmission of the virus. This app is connected to a central server that updates any time a person is identified as COVID positive and notifies not just the phone contact list but also uses the global positioning system (GPS) for locating the smartphone and creating a spatial description of the hotspot based on AI algorithms. Police forces in various Indian states have also successfully deployed drones to ensure the effectiveness of the lockdown.
India has the potential to leverage its large pool of gifted human resources and state-of-the-art infrastructure spread across several institutions to establish a manufacturing ecosystem that produces all vital and strategic healthcare equipment, and to incubate healthcare IT start ups that will aid in combating both pandemics and the annual seasonal disease clusters.
Institutions like the Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Defence Research and Development Organisation (DRDO), Indian Space Research Organisation (ISRO), Indian Institute of Technology (IIT), and the Indian Institute of Science (IISc), along with leading private sector biotech and manufacturing units, should come together on a mission mode to accomplish this. There is a ready concept template from the short and long-term monsoon forecasts made by the India Meteorological Department (IMD). The question is, could such complex data algorithms be used to predict the next pandemic?
In conclusion, despite the staggering human and economic losses, humanity overall is much better equipped today to prepare itself well in advance for the next pandemic, all thanks to the AI.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Draft DPP 2020 - Legacy Issues in Offset Guidelines
Amit Cowshish
April 30, 2020
It would be advisable to review the proposed offset guidelines keeping in view the feedback from the industry, especially the foreign vendors who carry the primary obligation to execute the offset contract, as also the legacy issues.
The defence offset guidelines included in the draft Defence Procurement Procedure (DPP) 20201 is different in many ways than the elaborate guidelines promulgated in July 20122 and amended several times since then, most recently in November 2019.3
Some policy changes proposed in the draft have attracted great attention. The exemption of single vendor cases covered by the inter-governmental agreements and Foreign Military Sales programme, for example, is a major perplexing shift in the policy as it will greatly shrink the offset-related business opportunities available to the Indian defence companies, especially the micro, small and medium enterprises.
Deletion of ‘services’ as an avenue for discharging the offset obligation will also have the same effect, apart from restricting the options for the foreign vendors, who will also be impacted by the change in the system of multipliers and, most importantly, by the withdrawal of the provision for offset banking. It is not clear what now will happen to the already banked offsets, and banking proposals already in the pipeline or in the process of being submitted.
The existing guidelines require the offset obligation to be discharged within a time frame extendable by a maximum of two years beyond the period of performance (PoP) of the main procurement contract. The PoP includes the warranty period of the equipment being procured under the main contract, effectively expanding the PoP beyond two years.
The benefit of the warranty period being reckoned as a part of the PoP of the main contract is now proposed to be withdrawn. With there being no cap on the imposition of the penalty for non-performance of the offset contract beyond the PoP, the vendors will come under greater pressure and face uncertain liability in the event of failure to discharge offsets within time.
There are some other proposed policy and procedural changes which are debatable on account of their underlying intent or textual ambiguity, but it is some of the legacy issues, especially the ones which have a bearing on the performance of the offset contract, which surprisingly remains unaddressed.
First, the preamble of the model offset contract requires the vendor to undertake that he “understands and agrees to the Offset Clause given in the RFP and the Defence Offset Guidelines at Appendix-D of Chapter-II of the DPP, referred to as the Defence Offset guidelines.”4 (italics added) The blanket reference to the aforesaid appendix in the offset contract makes it open-ended.
Ideally, all contracts should have an ‘entire agreement clause’ signifying that “the parties agree that the terms of the contract between them are to be found within the text of the contract document and nowhere else.”5 Every contract must be complete in itself to obviate interpretational disputes. This also requires a mention being made of all clauses of the main contract that are applicable to offsets in the offset contract itself.
Second, the existing provision relating to the settlement of differences and disputes has been amended. It now provides that “any differences or disputes with vendors will be settled through discussion and, if not resolved, will be referred to the Independent Monitors (IMs) for advice with the approval of Secretary (Defence Production). IMs would provide their advice preferably within 02 months” and that the “decision of the Acquisition Wing and of the DOMW6 in respect of matters relating to offsets within their respective jurisdiction shall be final.”7This is not in harmony with the arbitration clause of the main contract which is also applicable to the offset contracts.8
Fourth, the format for the submission of technical offset offer (along with the commercial offset offer) by the date stipulated in the request for proposal requires the vendor to give details of the avenues for the discharge of the offset obligation, the Indian offset partners (IOPs) through which the obligation will be discharged, timeframe for discharge, etc. The format needs to be synchronised with the following provision which allows the vendor other options.
The provision in question says that the vendor is “expected to provide details pertaining to IOP wise work share, specific products and supporting documents indicating eligibility of IOPs in addition to conformity with other clauses in the offset guidelines” to the Technical Offset Evaluation Committee (TOEC) and if he is “unable to provide these details at the time of the TOEC, the same may be provided to DOMW either at the time of seeking offset credits or one year prior to discharge of offset obligations through that IOP.”9
Fifth, considering the stringent penalties for default in discharging the offset obligation, it is important that there is no ambiguity in the provisions related to acceptance of the offset claim and affording of credit to the vendor. The provision in the draft DPP 2020 says that the “DOMW shall convey discharge of offsets to the vendors” on “approval of offset claims by the competent authority from time to time.”10 This is vague and can cause problems for the vendor, especially if a claim is rejected belatedly, putting him under pressure to make up for the rejected claim and, in addition, rendering him liable to pay penalty.
Sixth, there is a provision which empowers the DOMW to have the actual status of implementation of offsets verified/audited by a nominated officer or agency on submission of the offset discharge claim.11 This entails an element of uncertainty, even risk, for the vendors. It will enable the vendors to submit audit-compliant claims if the audit drill followed by the auditing agency is notified.
A provision also needs to be made to enable the vendors to interact with the auditing agency to offer clarification on audit observations. This will also expedite the processing of the claims and add to the transparency in the system. It would be useful if an audit report, with necessary redaction, is released by the auditing agency/Ministry of Defence every six months or so.
Seventh, considering that the offset guidelines clear specify – or, at any rate, should specify, the criteria for selection of IOPs by the vendors, the admissible avenues for the discharge of the offset obligations, etc., the need for MoD’s prior approval of proposals for rephasing of the offset implementation schedule and change of IOPs requires reconsideration.
It is not clear what value this opaque control by the MoD adds to the process.12 On the contrary, it can disrupt the vendor’s momentum and deny him flexibility in discharging the offset obligation for which he, and he alone, is responsible.
It would be advisable to review the proposed offset guidelines keeping in view the feedback from the industry, especially the foreign vendors who carry the primary obligation to execute the offset contract, as also the legacy issues, some of which have been highlighted above.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
1.“Draft DPP-2020”, Ministry of Defence, Government of India, March 20, 2020.
Individual Rights and Collective Good: A Historical Perspective
Prakash Menon, Kajari Kamal
April 29, 2020
Any dichotomy between the individual rights of the people and the powers of the state has to be dealt with through a nuanced approach.
In an article published recently in the Times of India, author Rohini Nilekani expresses her concern, rather persuasively, about the gradual shift away from “primacy of the individual” to a world where surveillance and privacy infringement for the collective good of the society are becoming more acceptable. The turn away from individualism, she argues, was largely caused by developments such as the 9/11 terror attacks and 2008 economic meltdown that have necessitated the broadening of the state’s role aided by technology tools, which ironically had given wings to the netizens in the first place.1
The writer rightly, albeit briefly, differentiates between the modern Western-style of individualism and the inherently traditional notions of individualism in India. However, alternative explanations of the concept of individualism in the Indian context could plausibly point to different conclusions than the ones arrived at in the above-mentioned article.
Historically, India’s traditional political and social organisations have centred on the notion of ‘village self-government’ or ‘village republics’. The society was characterised by interdependence and displayed mutual obligations, supremely predicated on the concept of dharma. The ‘reflexive consciousness’ has been to think in terms of ‘we’ rather than ‘I’. The Western society, in contrast, shifted to individualism starting with the Enlightenment and believed in a rights-based view rather than a dharmic one.
A large part of the modern Indian political thought is reflective of its encounter with Western ideas. The colonial period has had a substantial impact on how Indians envision the political framework. This assimilation of Western ideas into a body politic with qualitatively distinct roots has had its pros and cons. Swami Vivekananda had rightly cautioned: “The Westerners should be seen through their eyes; to see them through our eyes, and for them to see us with theirs – both these are mistakes”.2
The distinctiveness of the idea of individualism lies in an individual’s relationship with the state or the social group. It advocates the superiority of the interest of the individual over the state. In this context, it would be worthwhile to delve a little deeper into history to figure out the basis of the ancient Indian state and how its relationship with the people was conceived.
Eminent texts of the ancient Hindu political thought such as Mahabharata, Manu Samhita and Shukra Niti are united in their exposition of the ‘state of nature’ being reflective of matsya-nyaya (Law of the Fish). This anarchical political environment got transformed into an orderly state through the doctrine of danda (punishment, restraint or sanction). It is through the state’s coercive actions that matsya-nyaya was curbed and dharma was upheld. This primary conceptualisation of state in ancient India is well expounded in Kautilya’s Arthashastra.
One may ask what is the rationale of danda and why should states have the monopoly over the use of force. The answer lies in the ‘original nature of man’. Men are selfishly predisposed and it is only through the fear of punishment that individuals are made to perform their respective duties or svadharma. The king is the danda dhara – the bearer of the torch of sovereignty, and he embodies the state.
How then are the ruler and the people looped in? What are the terms of the contract? On one end, the ruler through the administration of danda saves the state from reversion to the logic of fish. He is bound by rajadharma (duties of the ruler) to serve as the ‘first servant’ of the state, and is the embodiment of sovereignty ensuring raksha (security) and palana (welfare) of his subjects. The maladministration of danda, however, causes his fall – a logical check on possible absolutism.
At the other end, it is the people who provide legitimacy to the state’s authority. This legitimacy is contingent on the state’s actions being harmonious with the interests of the populace. Consequently, if the state’s interests (manifest in the state’s actions) diverge from those of the people, political stability and order are compromised.
The theory of dharma (as duty), therefore, has a strong bearing on the state. The ruler resuscitates the people from disorderliness and establishes the legal order through the doctrine of danda. The praja (people), in turn, is bound by svadharma (one’s own duty) to recognise and accept the order. The ‘laws’ of the state are recognised as ‘duties’ by its members.
This delicate bond between the ruler and the ruled sits firmly on two seemingly opposed pillars – rational-prudent and abstract-ideal. The endeavour of the Kautilyan State to enhance the state’s capacities is intrinsically linked to the welfare of its people; political rationality is concomitant with normativity. In a sense, then, the individual is part of a collective whose happiness is of prime importance to the running of a state.
Culturally, the people of India have maintained the proclivity for the collective. This is reflected in the preference for the family system even though there is a gravitating trend among the educated urban Indians towards the Western concept of individualism. By and large, the Indian identity remains anchored in the family system that is linked closely to religion, caste, ethnicity, language and geography et al.
Politically, the founding fathers tended to privilege the individual even as they grappled with the notion of protecting the collective. A 'social revolution' experiment was hardcoded in the Constitution,3 given that inequities had crept into the society. It visualised that the job of the state – an all-powerful yet benevolent entity – was to rescue the individual from the ills of the collective. At the same time, certain individual rights could be superseded for the collective good, for instance, to ensure 'law and order', 'public order' and 'state security'. However, several archaic laws, propounded earlier by the British, that still find a place in India's statutes, creating a dichotomy of sorts, need to be reviewed and addressed.
To conclude, any dichotomy between the individual rights of the people and the powers of the state has to be dealt with through a nuanced approach. Neither can have an absolute approach. The challenge is not so much about adopting a position on individualism versus the collective represented by the state. Instead, it is about righteously balancing both, depending on the context.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
2. Swami Vivekananda, “The East and the West”, The Complete Works of Swami Vivekananda, Vol. V, 11th edition, Advaita Ashrama Publication Division, Kolkata, 2006, pp. 507-519.
It is the need of the hour that India and the African countries collaborate to control the outbreak of the pandemic and to mitigate its long-term economic impact.
As of April 28, there are more than 33,627 confirmed cases of COVID 19 across Africa.1 With the exception of Comoros and Lesotho, the pandemic has spread to 52 countries in the continent. Egypt, South Africa, Morocco and Algeria are the countries with large number of cases. This global pandemic has brought the public health infrastructure in the region under stress. It is also likely to have a damaging effect on the African economy. As African countries firm up strategies to deal with the pandemic, they are looking for support from long standing partners such as India.
Vulnerable Health Systems
The number of COVID positive patients in Africa is comparatively less than many other parts of the world. For example, as of April 29, there are over a million confirmed cases in the United States, over 82,858 in China and 92,584 in Iran.2 In comparison, South Africa, the country with highest numbers in Africa, had only 4,996 confirmed cases.3 However, it is clear that the pandemic will stretch the health care facilities of the continent to the limits.
The Director General of World Health Organisation (WHO), Dr. Tedros Adhanom Ghebreyesus, former health minister of Ethiopia, has urged the African countries to wake up to the threat, as the continent is least equipped to deal with the highly infectious disease.4 However, Africa is not new to virus outbreaks and has successfully dealt with HIV/AIDS (human immunodeficiency virus/acquired immunodeficiency syndrome) and Ebola in the past. While the healthcare systems have been strengthened since the 2014 Ebola crisis, critical gaps still remain. Lifesaving equipment such as ventilators are a luxury for some African countries. There is also a critical shortage of intensive care unit (ICU) beds, personal protective equipment (PPE), testing equipment and masks.
Economic Downturn
The World Bank has forecast that the pandemic will lead Sub-Saharan Africa into its first recession in 25 years. It predicts that economic growth in the region will decline from 2.4 per cent in 2019 to between -2.1 per cent and -5.1 per cent in 2020. It also anticipates greater poverty and food insecurity in the region.5 Simultaneously, several African economies are also dealing with the double shock of plunging commodity prices. The COVID-19 pandemic and the resultant suspension of global economic activity have had a disastrous impact on commodity prices.6 It has led to a fall in the prices of industrial metals like copper. The price of the metal fell to a four-year low last month.7 This is bad news for African countries such as Zambia where copper accounts for 70 per cent of the country’s exports.
In the commodities market, the impact is most visible in the case of crude oil. Last week in the United States, for the first time in history, the Western Texas crude oil prices turned negative $44 per barrel.8 The oil price collapse has had a deep impact on African economies dependant on oil revenues. Oil exports are a major source of revenue for nations such as Nigeria, Angola, Algeria, Egypt, Congo-Brazzaville, Gabon, Equatorial Guinea, Ghana, and others. The impact would be devastating in case of Nigeria and Angola, as oil accounts for 90 per cent of their export earnings and two-thirds of the government revenue.
The coronavirus has also hit the tourism sector on the continent. Over the years, tourism had become an important source of revenue in many African economies. According to the World Travel and Tourism Council (WTTC), tourism contributed 8.5 per cent of the continent’s gross domestic product (GDP) in 2018. Also, the tourism industry in Africa grew speedily, next to Asia-Pacific, in the same year.9 However, due to the pandemic, tourist hotspots and hotels are shut all across Africa. It is estimated that this closure will lead to a loss of $50 billion.10
Coping With Pandemic
Going by their past experience, the African governments have stressed on prevention strategies to deal with the crisis. Several countries announced closure of schools and other educational institutions before documenting their first COVID-19 cases. Most African governments took pre-emptive measures by declaring a state emergency or proclaiming the onset of a national disaster. Many countries like South Africa, Uganda, Ghana, Zimbabwe and Kenya have been in a lockdown to deal with the crisis.
At the continental level, the African Union has established an Africa Taskforce for Coronavirus (AFTCOR) to develop a unified strategy. African governments have also decided to set up an African Union COVID-19 Response Fund. This fund, launched jointly by the African Union and the Africa Centres for Disease Control and Prevention (Africa CDC), calls for a public-private partnership and aims to raise between US$ 150-400 million for a sustainable medical response to the pandemic. Several African countries have provided the initial funding of US$ 12.5 million for this initiative. Private sector organisations such as Africa Health Business, Global Infectious Disease Services and SpeakUpAfrica are partnering in the initiative. Similarly, banks such as the Standard Bank and Ecobank are also contributing to this initiative.11 Though a laudable initiative, it is minuscule given the requirements of the continent. According to the World Bank and International Monetary Fund (IMF), Africa needs an estimated $114 billion in 2020 in its fight against COVID-19.12
India-Africa Partnership
Africa lacks the financial resources and the capacity to mount an effective response to the pandemic. African leaders have appealed for international support to deal with the crisis. Calls have also been made for debt cancellation. India has a special relationship with Africa. In recent years, it has given a high priority to improving relations with countries on the continent. During the last India-Africa Forum Summit, India had pledged support of US$ 10 billion for development projects in the region.13 It had also offered an additional grant US$ 600 million.14 It is hoped that India will come up with a structured response to support the African countries in their fight against the pandemic.
At the moment, India’s response is limited to supply of anti-malarial drug, hydroxychloroquine, considered to be effective in treating COVID-19 cases, to several African countries including Zambia, Madagascar, Uganda, Burkina Faso, Niger, Mali, Congo, Egypt, Chad, Zimbabwe, Jordan, Kenya, Netherlands, Nigeria, South Africa, Tanzania, Algeria, Mauritius and Seychelles.15 A video conference with member countries of the African Union to explore further cooperation may be considered. As the world grapples with the COVID-19 pandemic, it is the need of the hour that India and the African countries collaborate to control the outbreak of the pandemic and to mitigate its long-term economic impact.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Although initially the Maoists suffered some setbacks due to the lockdown, their indulgence in violent incidents over the past one month indicates that they are exploiting the situation to have an upper hand vis-à-vis security forces.
The outbreak of the COVID-19 pandemic and subsequent countrywide lockdown to prevent its transmission have variedly impacted the Indian Maoists. While there are no verified inputs that suggest confirmed cases of coronavirus among their cadres, the lockdown has certainly increased Maoists’ desperation to meet their demands of food supplies and other essentials.1 Maoists, all across the left wing extremism (LWE)-affected states, primarily procure their rations and other essential commodities through a network of aides from village-level haat bazaars (weekly markets). With haat bazaars being temporarily shut, they are reportedly facing acute shortage of food supplies.2 Also, since the entire economic and construction activities have been grounded in these areas to ensure the efficacy of the lockdown, the Maoists’ finances have taken a beating given that extortions from contractors, mining industry, truck drivers, etc., formed a major part of their finances.
Nonetheless, the Maoists are reported to have devised a few coping mechanisms to overcome the impact of the lockdown on their supplies of rations and finances, albeit in a minuscule way. The Maoists in Bastar are forcing the village headmen and others to arrange rations for them. Places where villagers are unable to arrange large stocks of rice, the Maoists are snatching a one-month free ration from each of the below poverty line (BPL) families.3 The Maoists are also allegedly transporting stranded migrant workers to their respective villages in lieu of money.4 The lockdown situation has increased Maoists’ desperation and they are exploiting the villagers for meeting their ends.
The Maoists had reportedly offered a temporary unilateral ceasefire early this month in the states of Andhra Pradesh and Odisha,5 especially in the regions falling under Andhra Odisha Border Special Zonal Committee (AOBSZC). While the Maoists’ refrain is to ‘facilitate government’s relief operations in their core areas to fight COVID-19’, it is believed that the offer is opportunistic and misleading.6 The factors that might have influenced the Maoists’ decision to initiate a truce call are: achieving a possible breather in hitherto intensified security offensive in their core areas7, and the increased social pressure to pave the way for COVID-19 relief operations in remote villages, which otherwise might increase the miseries of the underprivileged masses. The veracity of the truce call is also debatable as it has not come from the all-powerful Central Committee of the Communist Party of India (Maoist) or CPI (Maoist). Moreover, the Maoists have not relented on their violent campaigns in the most affected states of Chhattisgarh, Jharkhand8 and Bihar.9 The Maoist ambush of March 21-22, wherein 17 security personnel were killed and 15 others severely injured in Chhattisgarh’s Sukma District is a case in point.10
The Maoists are, in fact, shoring up their strength and preparing for future operations. They are reportedly holding village-level meetings and recruiting ground-level forces in the remote villages of Jagdalpur, Dantewada, and Sukma districts. It is believed that the Maoists could also offer money and enlist the jobless migrant workers returning to their villages. Recently, a large group of armed Maoists from Andhra Pradesh, Telangana, Maharashtra, Jharkhand, Odisha and West Bengal has reportedly joined their Bastar colleagues to up the ante against the security forces.11 They are torching road construction vehicles, digging up the roads that lead to the strategically important police camps in remote villages12 and planting landmines on the deserted lanes to target the security patrols.13 Besides, the Maoists’ recent forays in the areas of Todma and the Dantewada-Katekalyan main road are testimony of their increased activities during the lockdown.14
In the wake of COVID-19 pandemic, the security forces in Bastar have scaled down their anti-Maoist operations for fear of being exposed to the infection as well as apprehensions of likely shortage of essential items for the personnel. The Chhattisgarh Police has reportedly decided to suspend massive area domination exercises involving large forces and are instead taking up “fewer dedicated offensives” in the Maoist core areas based on specific intelligence.15 Moreover, the various Central Armed Police Forces (CAPFs) units deployed in the Maoist-affected areas have been shouldering the additional responsibility of spreading awareness about the pandemic and providing relief assistance to the villagers. With the majority of security forces now confined to their camps or undertaking relief operations for over a month now, the Maoists seems to be enjoying a much-needed respite from the hitherto stepped up security offensives, especially in the remote Bastar Division. It is important to recall here that prior to the commencement of the COVID-19 lockdown, the security forces in Bastar had launched a massive combing operation – ‘Prahar 2020’ – which was carried out simultaneously from the border areas of Telangana, Maharashtra and Odisha, deep into the forests of Sukma, Narayanpur, Bijapur and Dantewada districts of Chhattisgarh.16 As a result, the joint forces were largely successful in dominating and subsequently liberating substantial areas under the Maoist control, forcing them on the back foot and confining them to smaller areas.
While it is true that desperate times call for desperate measures, however, the forces mandated with anti-Naxal operations in the LWE-affected districts should not be diverted to the COVID-19 related relief work. They should continue with the area domination exercises in Maoist core areas and undertake dedicated intelligence-based operations. It is even more necessary given that the lockdown period also coincides with the CPI (Maoist) Tactical Counter Offensive Campaign (TCOC) which commences from February to June (until the onset of monsoons) every year. During TCOC, the rebels launch their attrition war by conducting audacious attacks on the security forces and inflicting maximum damages to the government property. In fact, with the Sukma ambush of March 21, the Maoists have heralded the beginning of their TCOC. Although initially they suffered some setbacks due to the lockdown, their indulgence in a series of brazen violent incidents over the past one month indicates that the Maoists are exploiting the situation to have an upper hand vis-à-vis security forces.
Given that the Maoists are now led by Nambala Keshava Rao (65), alias Basavraj, who is known for his experience in military statecraft and use of improvised explosive devices (IEDs), anticipating a Maoist downfall/retreat may be too early. The Maoists’ call for a ceasefire in certain areas should by no means be a reason for the security forces to lower their guard. Besides catering to the security needs, the governments of the LWE-affected states must address the employment needs of the returning migrant workers lest they fall prey to the Maoists’ propaganda and swell their cadre base.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
7. Since the beginning of the year, the security forces in Chhattisgarh, Odisha and Andhra Pradesh have stepped up their offensives and are largely successful in cornering and confronting the Maoists in their strongholds.
12. Over the past one month, the Maoists have repeatedly targeted the strategically important roads like Aranpur-Potali road and Dornapal-Jagargunda road using IEDs. These roads are lifelines for several villages and also for thousands of security personnel deployed in the worst-affected areas of south Bastar.
The prevailing environment has underlined the importance of a balanced market to the oil producers. India has been consistently reiterating the need for oil to be priced responsibly to ensure the stability of the oil market.
It took a global pandemic to trigger another major oil shock, akin to the historic 1973 one which was set-off by the Arab-Israeli conflict. COVID-19 forced Saudi Arabia and Russia to come together on April 10, 2020, along with the other major oil producers, to end the price war that had resulted in prices dropping to unprecedented levels.1 Its genesis lay in the massive increase of 3 million Saudi barrels of oil per day as a retaliation against Russia’s refusal to further cut production, as proposed by Riyadh, in the pivotal March 7, 2020 meeting of OPEC+. This had resulted in a global glut leading to a crash in crude prices.
The new deal will now shave off close to 10 million barrels of crude oil a day (mbd). A nudge from the United States (US), which had been pushing for an end to the price war in order to protect its shale industry, was a key driver in the formulation of the agreement. Ironically, Russia and Saudi Arabia had started the price war in an attempt to drive rival American shale production out of the market. Eventually, however, the prospect of a worsening economic and financial situation in both Moscow and Riyadh, as well as globally, made it difficult to prolong the price war indefinitely.
Notably, Saudi Arabia’s revenues are expected to decline by 50 per cent vis-à-vis the previous year in the event of the projected crude oil prices being in the mid-US$ 30s per barrel range for the rest of the year and even beyond. In real terms, the Saudi economy is likely to take a hit of US$ 105 billion.2 Similarly, Russia, though better placed than Saudi Arabia primarily due to its flexible exchange rate (as against Riyadh’s fixed rate) and a lower fiscal deficit, would also have found it difficult to absorb the decline in revenue on account of low demand for oil as well the massive price drop.
The Deal
The OPEC+ deal envisages a production cut of 9.7 mbd, starting May 1, 2020, for an initial period of two months, that is, till June 2020. For the next six months, from July 1 to December 31, 2020, the cuts will taper off to 7.7mbd, followed by another tapering off to 5.8 mbd for 16 months, that is, till April 30, 2022. The agreement will be reviewed in December 2022. Of the 9.7 mbd to be cut initially, Saudi Arabia and Russia will each cut 2.5 mbd while the other OPEC+ producers are expected to account for the rest.3
The OPEC+ had sought contributory cuts from both non-OPEC+ as well as Group of 20 (G-20) producers, which met a day after the OPEC+ meeting. It was agreed that the US, Brazil and Canada will contribute an additional 3.7 mbd production cut, while other G-20 nations will reduce production by 1.3 mbd. Notably, Mexico, which had initially refused to cut its allocated share of 400,000 bpd, thereby putting the whole deal in jeopardy, conceded to pump 100,000 less bpd only after President Donald Trump’s intervention.4
Will the Agreement Resuscitate Oil Market?
While the agreement is being perceived as historic given the size of the cuts, whether it will be sufficient to revive the prices is a moot question.
First, a day after the deal was announced, prices moved up by two per cent. However, as Fatih Birol, the Executive Director of International Energy Agency (IEA), said during a recent interview with an Indian news channel (ET Now, April 10) that nothing less than 15-20 mbd will make a significant difference to the price. At best, the initial cut of 9.7 mbd may resolve an impending storage crisis, and even stop oil prices from falling into single digits. But with the global economy showing no sign of recovery for the rest of the year, the lack of demand is unlikely to allow prices to go past the $40/barrel mark.
Second, the commitments to cut production by 3.7 mbd made by non-OPEC countries like the US, Brazil, and Canada are non-binding, given that oil production in these countries are privately owned and not under government regulation, and may not translate into actual reduction in output. These producers are likely to push for the ongoing decline in their production, on account of a fall in demand, to be accepted as the allocated production cuts. Canada, for example, has stated that its production has fallen by 800,000 b/d.5 Similarly, American production has declined by 2 mbd due to the closure of several shale firms who have found the low oil prices unsustainable.6
Third, the cuts will have to be sustained for several months, perhaps even a year, before the huge inventories built up by several countries can be exhausted and prices begin to go up. However, with the global economy ravaged by the pandemic, a fact highlighted by the International Monetary Fund (IMF) Chief Kristalina Georgieva, it is unlikely that demand will increase sufficiently to wipe out the crude stock.7 According to some analysts, the loss in demand is likely to be 30-35 mbd from the daily demand of 100 mbd. With global inventories at an all-time high and a low demand, it is likely that stocks will get reduced only after several months.8
Fourth, the current supply/demand imbalance, as per the OPEC Secretariat’s assessment, can lead to an excess volume of 14.7 mbd in the second quarter of 2020. Given that the global oil storage capacity stands at over 1 billion barrels (bb), the excess volume can add another 1.3 bb to existing global inventories.9 Arguably, the spectre of the world running out of oil storage space was a major factor that triggered the truce between Moscow and Riyadh.
Notably, on April 16, Saudi Arabia and Russia have indicated that they may consider further cuts after the historic deal to curb production failed to stem the crash in prices. In fact, since then, the oil prices have plunged by more than 20 per cent (Brent) while the US benchmark West Texas Intermediate (WTI) futures even traded, albeit briefly, at (minus) -$37 per barrel on April 2010 – the biggest drop in its history driven by technical and timing issues over contract deadlines – amidst reports of lack of storage and a massive supply of Saudi crude being headed for the US.
This raises the question of the fallout of the crisis once the dust settles. According to veteran oil analyst Edward Morse, the future can be “a benign low cost price arena or a higher cost politically charged one.”11 A new order can even be in the offing particularly when the position of the US as the world’s leading oil producer is being increasingly challenged.
Time for a Larger Market Re-balance
It is, therefore, apparent that while the over-supply in the market has caused some damage, the real cause of the current crisis has been the lack of global demand for oil. The prospect of an early recovery appears unlikely till at least the third financial quarter with the COVID-19 virus showing little signs of retreating.
Prior to the current crisis, the largest on record decline in oil demand had been a 10 per cent drop between 1979 and 1982. It is now projected that as much as 20 per cent of the global demand can be wiped out over the next few months.12 Much of this is due to the lockdown in the transport sector, as commercial flights have been grounded, and road and rail traffic restricted with several countries ordering their citizens to stay at home. India, the world’s third-biggest consumer, has seen its demand for oil collapse by around 70 per cent or 3.1 mbd. A similar trend has been observed in several major European economies.13
However, amidst all the doom and gloom, there exists a silver lining, at least for the big oil importing countries like India, even though the current price shock is a mixed bag. While the Indian upstream companies are facing a demand crunch leading to a fall in production, the oil marketing companies and consumers are benefiting from the sustained low-price environment. The Indian Government, meanwhile, has used the opportunity of rock bottom prices to fill its strategic inventories even as the country’s oil import bill has been substantially reduced.
Most importantly, the prevailing environment has underlined the importance of a balanced market to the oil producers. India has been consistently reiterating the need for oil to be priced responsibly in order to ensure the stability of the oil market. The G-20 meeting held in April 2020 had also highlighted the need for a modus vivendi between the producers and consumers in order to ensure a healthy balance between the demand and supply of oil.
The pandemic, therefore, has underscored a stark reality for oil producers that in the current environment where the very future of oil is being debated, there is no energy security for them without adequate and sustained demand.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
The inevitable reprioritisation of the central government’s expenditure in the coming union budgets would affect the resource allocations particularly for big ministries like the MoD, which will be forced to realign their business practices.
The COVID-19 pandemic continues to take a huge toll on both human and economic front across the globe. The world economy is staring at the worst recession since the Great Depression of the early 20th century. India, given its early and timely decision to impose a nation-wide lockdown, has so far escaped a human catastrophe of the magnitude seen in several other countries. On the economic front, however, the deadly virus is wreaking havoc, with almost all major segments of the Indian economy either shut-down or operating below normal capacity. The Indian economy, which was slowing for the last several consecutive years, is now poised to record its lowest growth rate in the post-liberalisation period. The shut-down of factories, malls and businesses, in general, will severely affect the government’s budget and cash management.
Anticipating the deleterious effect of COVID-19 on its cash management, the central government has already started tightening its purse. On April 8, the Ministry of Finance (MoF) circulated an office memorandum, imposing expenditure cuts on several ministries and departments.1 The Ministry of Defence (MoD), which accounts for nearly one-seventh of the central government’s total expenditure, has been asked to limit its first quarter (April-June 2020) spending to 15-20 per cent of its full year allocated budget of Rs. 4,71,358 crore. From the defence ministry’s point of view, what is more worrisome is that its budget will remain under stress far beyond the first three months of 2020-21.
Because of the slow nature of economic recovery, India’s gross domestic product (GDP) is unlikely to witness a high growth trajectory anytime soon. The slow pace of recovery, whenever it happens, will affect the government’s revenue collection, especially the tax collection, which, in turn, will affect the distribution of the resources.
Even if the growth returns to normal soon after the lockdown is lifted, the MoD is unlikely to see a quick and major jump in its budget because of the likely reprioritisation of central government’s expenditure. The pandemic has yet again shown that the national security is much more than just military security. Its impact in terms of loss of human lives, extreme suffering of the population living on the margins, loss of jobs and other serious economic setbacks are no less than the ravages inflicted in an inter-state war.
To fight the COVID-19 menace, the central government has earmarked an emergency fund of Rs. 15,000 crore.2 To prevent a similar pandemic from wreaking havoc in the future, India would require much higher spending particularly on healthcare infrastructure which has remained in a poor state due to decades of underfunding. Suffice it to say that in terms of density of medical doctors and spending on healthcare, India fairs rather poorly in comparison to many peer countries, including the BRICS (Brazil, Russia, India, China and South Africa) partners. At present, India has eight doctors per 10,000 people, compared to Brazil’s 21, Russia’s 40, China’s 18, and South Africa’s nine.3 India’s health expenditure is a mere 3.7 per cent of the GDP. The comparative figures for other BRICS countries range between 5-12 per cent.4
The inevitable reprioritisation of the central government’s expenditure in the coming union budgets would affect the resource allocations particularly for big ministries like the MoD, which will be forced to realign their business practices. However, the MoD, given the many radical reforms undertaken by the government in the recent past, is better prepared to withstand the likely resource crunch. The appointment of the first-ever Chief of Defence Staff (CDS) and the creation of Department of Military Affairs (DMA) under him are expected to enable the MoD to undertake the much-needed prioritisation of imminent expenditures.
However, any reprioritisation undertaken by the MoD in the short term is not going to be easy, considering that the MoD is already in the midst of a huge resource crunch. In 2020-21, the gap between its fund requirement and budget allocation was nearly Rs. 1,03,000 crore.5 Any further cut in the existing allocation or slow growth in the budget thereafter is going to be extremely painful and may affect the defence readiness, to say the least.
Since the MoD does not have many short-term measures to tide over the impending resource crunch without affecting the combat capability of the armed forces, it has little option but to think long term. It is in this context that Defence Minister Rajnath Singh held a meeting on April 20 with top officials of the MoD and the Services to review the status of the recommendations of the Shekatkar Committee,6 which was appointed by the government to suggest measure to improve the combat capability of the armed forces and rebalance defence expenditure.
While the MoD has implemented several recommendations given by the committee, they have not yet shown much result because of lack of focus on some critical areas of reform, especially those related to manpower. Rationalisation of manpower strength, both uniform and civilian employees, and more significantly the terms of engagement need a hard re-relook. Suffice it to add that the MoD’s manpower expenditure is exorbitantly high and clearly unsustainable for defence modernisation. Presently, it is spending over 60 per cent of its budget on salary and pension. In comparison, the US, the biggest military power in the world, spends 39 per cent of its total military expenditure in personnel cost. Some other major military powers such as the United Kingdom, France and China spend between 31-45 per cent.7 Addressing the manpower cost will go a long way in dealing with the COVID-19 inflicted resource crunch in a more sustainable way.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Riding the technology wave, China eyes global dominance of RMB as a reserve currency and a favourable international monetary environment for its economic development.
The People’s Bank of China (PBC) has rolled out pilot trials of its digital currency beginning with Shanghai, Chongqing, Shenzhen, Hangzhou, Suzhou and Xiong’an New Area.1 China intends to partially digitise its existing monetary base or the cash in circulation – first in the world to do so. Beginning with the integration of digital currency with the monetary system, the first step is to pay the salaries, subsidise transport and spur adoption in the retail sector. Digital means of payment are not new to the Chinese people. The use of smartphone apps such as Alipay or WeChat to pay at the grocery stores, to buy tickets or transfer money is quite widespread in the country. In 2019, around 223.34 billion electronic transactions to the tune of 347.11 trillion yuan were made in China, half of which were attributed to mobile payments.2
As China emerges out of the COVID-19 pandemic, cash usage is slated to dip with people turning to contactless modes of payments. The pandemic may have throttled up the digital currency rollout for applications which apparently sound rudimentary, but the seeds of the idea were sown half a decade back. The project takes off right under the supervision of the highest echelons of political leadership, showcasing China’s prowess in FinTech (Financial Technology) innovation and possibly expediting internationalisation of the Renminbi (RMB).
A Digital RMB
The PBC, since 2014, has been working on the idea of partially digitising China’s existing monetary base, or cash in circulation, under the project called DC/EP or Digital Currency/Electronic Payments.3 The bank established a Digital Currency Research Institute in 2017 and launched a pilot programme in Beijing in December 2019. This endeavour aligns with the guidelines of the Fourth Plenary Session of the 19th CPC Central Committee and the Central Economic Work Conference and implements the FinTech Development Plan (2019-2021).4 China’s DC/EP leverages blockchain technology, but the ensuing digital currency is not a cryptocurrency. In fact, it is the electronic version of RMB, a digital legal tender pegged 1:1 to the RMB, backed by the Chinese Government, and much more stable than a typical cryptocurrency such as Bitcoin. The digital currency, which could be used without being linked to any bank account, is expected to replace physical cash in high-frequency but small denomination transactions pivoting on low issuance costs, efficiency and usability.5 If required, two phones in proximity can execute a contactless transaction, even doing away with the need for an internet connection.6 The circulation of the digital currency will be under the purview of the PBC, while the commercial banks will process the payments and deposits.
A Chamber of Digital Commerce study has examined in detail the patent applications (84 in number as of January 2020) attributed to the Digital Currency Research Institute and a few of the PBC subsidiaries, unveiling the mechanics behind the management of the digital currency, its circulation and settlement, payments processing and deposits, and the underlying distributed ledger technology.7 The study concludes that the circulation of the currency and its settlement and deposits will find seamless integration with the conventional banking processes, analogous to the fiat currency. Moreover, the transactions will be anonymous from the user’s perspective, but the DC/EP Platform will allow sufficient oversight on the transactions (value and identity of the transacting parties) and traceability to ferret out tax evasion, money laundering, and terror financing – in line with the existing regulatory requirements.
The project has been in the limelight, technology-wise as well as politically. The Political Bureau of the Communist Party of China (CPC) Central Committee has already undergone a group study session on the development and trend of blockchain technology in October 2019. Presiding over the session, President Xi Jinping had pressed for accelerated development of innovation in blockchain technology.8 More than domestic adoption, it is the global outlook of the idea which has garnered much attention, especially when China’s dissatisfaction with the dominance of the United States Dollar (USD) as the global reserve currency and its aspirations to get the RMB reckoned internationally are overt.
DC/EP and RMB’s Internationalisation
The USD holds a dominant position as investment and reserve currency under the existing international monetary system. Data from the International Monetary Fund (IMF) suggests that, as of 2019, the USD accounted for 61 per cent of all central bank foreign exchange reserves, followed by the Euro at 20 per cent, with RMB at just 1.96 per cent.9 Around 47 per cent of the global payments are in USD and it is involved in 88 per cent of foreign-exchange trading.10 More than a decade ago, in 2009, China, along with Russia, had called for “a new reserve currency” to replace the USD, basically, a currency “that is disconnected from individual nations”.11The US has been accused on multiple fronts, even by the European countries, for using the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system to enforce economic sanctions, as it did with Iran and Cuba.12SWIFT is a global financial messaging service used by 11,000 institutions around the world to securely transmit information and instructions to enable cross-border payments.13 China believes that the US maintains its dominance on SWIFT’s decision-making by holding the majority in the organisation’s board.14 China has been extremely wary of the punitive sanctions or the threats of exclusion (both at the country and company level) from a USD-based (or the US-dominated) settlement system, and the DC/EP provides it with the much needed alternative – an RMB-based trade settlement system,15 seen as one of the ways to reduce the dominance of the USD in trade and financial transactions.16 But the prime motive behind DC/EP is to enhance international adoption of the RMB.
Internationalisation of the currency actually gives the issuing country a lot of leverages. The exporters can limit exchange rate risk, and so do the domestic enterprises and financial institutions when accessing international financial markets. It reduces the cost of capital and allows the government to finance part or all of its budget deficit by issuing debt in domestic currency on international markets, that too without drawing down its reserves.17 Internationalisation of the RMB could be termed as China’s long-standing aspiration, which essentially aims to create a stable international monetary environment for its own economic development.18 Since 2009, China has pushed aggressively for international acceptance of RMB and its use in international trade and investment, but the last five years have been quite eventful especially in the DC/EP hindsight.
The PBC had set up a ‘Cross-border Interbank Payment System’ in 2015 – its own international payments system to provide clearance and payment services for financial institutions in the cross-border RMB and offshore RMB business.19 In October 2016, the IMF added RMB to the Special Drawing Right20 (SDR) valuation basket as the fifth currency, along with the USD, Euro, Japanese Yen, and the British Pound.21 For inclusion into the SDR basket, the issuer of the currency (an IMF member or a monetary union that includes IMF members) has to be one of the top five world exporters, and the currency has to be widely used to make payments for international transactions and traded in the principal exchange markets.22 China has, thereafter, made several efforts to propel international acceptance of RMB,23 such as currency swap lines with foreign central banks, encouraging international trade pricing and payment settlement in RMB,24 and enhancing its status as value storage and reserve currency.25 China also attaches great importance to RMB as a reserve currency because it could then serve as a standard unit for international payments and cushion RMB against shock, but it fundamentally rests on the confidence others have in China’s ability to meet its obligations.
The DC/EP fits into China’s overarching plan for the international adoption of the RMB. It clears the way for a high table in the international monetary system at par with China’s standing in the world trade. For instance, China is the largest exporter of goods in the world trade, but this hardly reflects in the international monetary system. The RMB is already the second most-used currency in global trade, but it still falls far behind USD on many parameters. A Deutsche Bank report even dubbed China’s DC/EP as a soft or hard power tool, which can potentially erode the primacy of the USD in the global financial market if companies adopt digital RMB for their cross-border transactions.26 With countries adopting the DC/EP - probably beginning with the region or the countries part of the Belt and Road Initiative (BRI) - China can reduce its exposure to the US financial institutions and vulnerability to American sanctions,27 essentially a counter to the alleged “weaponization of the dollar”.28
Conclusion
In the aftermath of the COVID-19 pandemic, digital means are going to be the favourable mode of transactions. Unlike physical cash, digital transactions over a digital wallet or a digital currency are traceable. Looking at the nation-wide expanse of facial recognition technology, China’s ability and intent to scale up technology innovation for intrusive surveillance programmes remain undisputed. Replacing cash with the digital currency, especially when the salaries are paid in this form, extends the Chinese Government’s surveillance net to the elusive territory of cash transactions. However, the DC/EP was conceived to serve a much bigger objective. China’s concerns arise out of its susceptibility to American punitive actions, especially when the political face-off shows no signs of dying down. A digital currency, therefore, intends to bypass US-dominated financial infrastructure, for instance, the SWIFT system.
In the next step, China is likely to extend the reach of the DC/EP to regions and countries which are part of the BRI for an RMB-based trade settlement system. Riding the technology wave, China eyes global dominance of the RMB as a reserve currency and a favourable international monetary environment for its economic development. The dominance of a currency in the global economy is often associated with the financial power of the issuing country and its ability to influence the economic calculations of others. However, it is a distant dream without transparency and the trust and confidence of others, and China is deficit of all three of them at present.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Redrafting the chapter on post-contract management, expatiating the concept of contract operating officers and clearly defining their role and responsibilities vis-à-vis the other agencies, could go a long way in serving its purpose.
A new chapter on Post-Contract Management (PCM) has been included in the draft Defence Procurement Procedure (DPP) 2020.1 While it is a good idea to have such a chapter in the DPP, the title as well as the contents of the chapter are a bit perplexing.
First, the entire gamut of activities connected with a contract can be divided into three phases. The first phase comprises the activities that precede the signing/award of a contract. Almost the entire DPP is devoted to this stage, right from germination of a requirement to the conclusion of the contract.
The second phase covers the actual implementation/execution of the contract. During this stage, whatever had transpired in the run-up to the signing of the contract matters little as the relationship between the buyer and the seller is governed by the express terms of the contract. This is the contract management stage, which lasts until the delivery of goods and services are completed.
The third and the last phase is what should be called the post-contract management phase in which residual matters, which survive successful completion/execution of the contract or its termination, are to be dealt with. Such matters would typically include settlement of pending claims, release of the final payment, warranty, etc.
It appears that the chapter on PCM is intended to cover the second phase, in which case the word ‘post’ could be deleted from its title. However, with or without this change in the title, the chapter would be incomplete without the inclusion of a distinct section covering the third phase, which seems to be missing from the draft chapter.
Second, the chapter is replete with provisions, selectively culled out from the first two chapters of the DPP, and the templates of the Statement of Case (SoC), Request for Proposal (RfP) and the Standard Contract Document (SCD). The contents of this chapter relating to the effective date of the contract, documents to be submitted for claiming payment, liquidated damages, warranty, arbitration, repeat order and option clauses, exchange rate variation, et al., fall in this category.
To illustrate further, a note below the section that deals with the documentation required for claiming payment states, “Depending upon the peculiarities of the procurement being undertaken, documents may be selected from the list given above and specified in the RFP and supply order/contract”.2 Certainly, this is of no relevance during the contract management stage.
Besides being unnecessary, the inclusion of generic contract clauses could be confusing as the contract is supposed to be a complete document in itself and the contractual relationship between the buyer and the seller has to be regulated exclusively as per the terms and conditions specified therein. The contract is a ‘given’ for those assigned the responsibility of managing it, and what matters at this stage is the written word of the contract.
This chapter must, therefore, begin with an unambiguous direction to the contract managers that they need to familiarise themselves with the terms of the contract and manage it only in the light of those terms.
Third, it is not clear whom this chapter is meant for. Though there is a passing reference to the ‘Contract Operating Officer’ (COO) somewhere in the middle of the chapter, the concept requires clearer articulation.
Ideally, a COO or a Contract Manager (CM) should be designated for every contract, along with one or two deputies (depending on the complexity of the contract) and their particulars mentioned in the contract, and any changes therein should be made by way of an amendment to the contract. This will make it easier to manage the contract and provide a single point of contact to the vendors.
Fourth, the function and responsibilities of the COOs/CMs need to be clearly defined. The chapter should specify the action to be taken by them at every stage during the implementation/execution of the contract until the deliveries are completed. It will be helpful if an indicative stage-wise checklist is included in the chapter.3
Of course, the COOs/CMs will have to customise the generic checklist, if provided in the DPP, by juxtaposing the functions/responsibilities mentioned in the checklist with the express provisions of a given contract. In any case, even if there is no generic checklist to go by, they will have to draw up a contract-specific checklist. It is this checklist which should then form the basis of managing the contact.
Fifth, the COOs/CMs cannot be made responsible for every action associated with the management of a contract. Payment, for example, is a complex function which involves several agencies. This is true of many other contractual provisions, such as organising pre-despatch/joint receipt inspections, operation of the price variation clause, raising of quality/ quantity claims, imposition of liquidated damages, etc.
The extent of responsibility of the COOs/CMs in such situations needs to be carefully defined. Ideally, it should be limited to monitoring the progression of such issues through the bureaucratic maze and raising timely alerts to the relevant agencies or specified higher authorities about inexplicable delays and impending breach of any contractual term. The division of responsibility between them and the user and other directorates as well as the acquisition wing, etc., should be defined.
Sixth, the chapter seems to selectively cover the capital as well as the revenue procurement contracts. Considering that revenue procurements are governed by the Defence Procurement Manual (DPM), which is also under revision, and keeping in view the difference between the revenue and capital procurement contracts, mixing up of the two would not be desirable. This also conflicts with the scope of the DPP defined in Chapter 1 of the draft DPP, according to which the provisions of this document are applicable primarily to capital acquisitions.
The confusion may arise from the fact that some provisions like the one related to change in the name of the vendor figures in this chapter, but it is yet to be included in the DPM. Similarly, there is a reference to the chapter on design and development in the paragraph dealing with indigenous development cases, but there is no such chapter in the DPP, while there is a chapter on design, development and fabrication contracts in the DPM.
Seventh, the COOs/CMs need not remain associated with a contract in the third phase, once the delivery is completed, or after a contract is terminated. The workload related to the management of a contract during this phase would be comparatively lighter, making it possible to club several contracts under the management of a single team of officers. This responsibility could be taken over by a centralised authority in the service headquarters/Ministry of Defence, whose particulars should also be included in the contract.
Redrafting the chapter, expatiating the concept of the COO/CM, and laying down their role and responsibilities vis-à-vis the other agencies involved in the implementation of a contract, preferably by way of a checklist, should go a long way in serving its purpose.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
In the last 20 months of his rule, Prime Minister Imran Khan has not only failed to solve his people’s problems but also has made the life of the common man miserable.
The rampant ceasefire violations along the Line of Control (LoC) by Pakistan, together with high incidences of infiltration and terrorist attacks in Kashmir, highlight that Pakistan has reverted to its old games. During the first three months of this year (2020), Pakistan indulged in ceasefire violations as many as 1144 times. The corresponding period in 2019 and 2018 saw 685 and 627 violations, respectively.1
March recorded the highest 411 violations just when the COVID-19 positive cases swelled in Pakistan and across the globe, including in the Kashmir Valley. Pakistan has been reportedly pushing militants infected with COVID-19 into Kashmir to spread the illness among the people of the Valley. There are 242 active terrorists in Jammu and Kashmir (J&K), including 104 Pakistanis belonging to Lashkar-e-Toiba (LeT) and Jaish-e-Mohammad (JeM).2
The first week of April 2020, likewise, witnessed a major infiltration bid by the LeT militants in the Keran Sector of Kupwara District. Five terrorists were killed in the encounter with para-commandos. On April 18, militants opened fire at a Central Reserve Police Force (CRPF) party at Noorbagh in Sopore. Four days later, on April 22, an encounter took place at Melhora village of Shopian District. Both attacks resulted in the death of four militants and an equal number of CRPF jawans. In another encounter at Awantipura in Pulwama District, two more terrorists and one of their associates were killed on April 25. Recently, two army officers and one police officer besides two soldiers were killed in an operation in Handwara on May 2 against two militants who had taken civilian hostages. Both the militants including one from LeT were eliminated. Besides, the Pakistan-backed terrorists or their sympathisers in the valley are targeting civilians to coerce them to follow Pakistan’s ‘azadi’ narrative.
Referring to the recent attacks, Director General of Police, J&K, Dilbagh Singh said that when the entire world was making efforts to fight the coronavirus pandemic, Pakistan and its sponsored terrorists were attempting to disrupt the measures being taken to safeguard the lives of the people of J&K.3 In fact, it appears that Pakistan has found in COVID-19 a new weapon to hurt India. It is indulging in false propaganda accusing India of not providing medical aid and relief to the Kashmiris. It further asserted that the lockdown and internet blockade imposed by India is making it impossible for the Kashmiris to fight the coronavirus. Pakistan’s State Minister of Health Zafar Mirza demanded that the lockdown in J&K should end to help fight the coronavirus outbreak.4
While there is no denying that Pakistan’s civilian and military leadership have not given up their thrust on ‘K’ word, they appear to have revved up their efforts in recent months for the domestic audience. Pakistan Army has to demonstrate for domestic consumption that it has given a bloody nose to India. Moreover, the Inter-Services Intelligence (ISI) is in a hurry to recoup its post-August losses in the wake of the abrogation of Article 370 in J&K and beef up its proxies as speedily as possible in the changed political situation. With the state becoming a Union Territory, the militants appear to be at a disadvantage. The familiar pro-militancy political voices in the valley are not active as they are unclear about the direction of the wind, particularly after Pakistan’s failure to mobilise the world opinion in favour of its agenda at various world fora. Islamabad is also conscious that Beijing’s pro-Pakistan actions since last August were limited at needling India as a part of its much larger regional agenda. Simply put, the all-weather friends are not on the same page when it comes to J&K and their respective core interests.
Pakistan is also flouting its commitment to the Financial Action Task Force (FATF). The money laundering and terror financing watchdog at its plenary meeting held in Paris in February 2019 had criticised Pakistan for not demonstrating a proper understanding of the terror financing risks posed by militant outfits, most of whom are active in J&K and Afghanistan. The FATF had placed Pakistan in its ‘Grey List’ in June 2018. It gave Pakistan a four-month grace period to complete its 27-point Action Plan after noting that the country had delivered only on 14-points. It asked Pakistan to deliver on the remaining benchmarks by June 2020 with foolproof arrangements against money laundering and terror financing. In the wake of the COVID-19 pandemic, the FATF has deferred the deadline to October 2020. This means a reprieve of four more months to Pakistan even as it stares at the threat of being placed in the blacklist.
Like always, Pakistan is misusing the FATF window. It has reportedly taken off the names of some 3800 notified terrorists from the prescribed list, with no explanation on offer.5 Simultaneously, Pakistan has strengthened its launching pads and has started pushing its trained militants into J&K under the cover of heavy mortar shelling and firing by its army.
While coronavirus has given the nations a rare chance to put aside their differences and fight the pandemic jointly, Pakistan on its part is reluctant to cooperate. When India organised a virtual meeting and called upon all the SAARC (South Asian Association for Regional Cooperation) leaders to demonstrate a united effort against COVID-19 and create an emergency fund to fight against the pandemic in the region, Pakistan refused to cooperate and contribute in any meaningful manner. Such actions demonstrate that Pakistan is working on two planks: first, to malign India especially among the Muslim countries by launching fake news campaigns as well as obstructing its efforts to deal with coronavirus, and second, to take advantage of India’s engagement in the fight against coronavirus by resuming militancy in J&K. Pakistan is also seeking to take advantage of the coming summer season to push infiltrators in the valley in a renewed attempt to boost the strength of the terrorists, as 60 of them have been killed by the security forces since January 2020. They included 30 Hizbul Mujahidin, eight JeM, six LeT, three from the Islamic State in Jammu & Kashmir, besides 20 from unidentified outfits.6 The local youth are reluctant to join militancy given the shortage of weapons and slow communication due to the absence of 4G. They are also aware that their life expectancy decreases exponentially once they join the insurgency. That out of 139 youths who joined militancy in 2019, only 89 survived reinforces this argument.7
Pakistan knows that at this moment it cannot satisfy its people by raising then Kashmir bogey. The problem of the people of Pakistan is not Kashmir but the high cost of living, shortage of food items, and joblessness. More than 73 years after its independence, Pakistan is facing a crumbling economy with half of its population living under poverty. In the last 20 months of his rule, Prime Minister Imran Khan has not only failed to solve his people’s problems but also has made the life of the common man miserable. Today, the Pakistan Government meekly depends on China’s help and propaganda against India.
Pakistan is playing politics against the demand of the grim situation. As India has repeatedly asked Pakistan to end cross-border terrorism in Kashmir, it should also continue to expose Pakistan’s design by launching a vigorous diplomatic campaign at various international fora. Incidentally, Imran Khan is drawing flak in Pakistan for his failure to send relief and ration to his countrymen under lockdown. Besides exposing Pakistan, a sustained political campaign must be launched to win the hearts and minds of the Kashmiri people for they know their future lies with India.
Mr. S K Sharma has co-authored books titled “Militant Groups in South Asia” and “Pakistan Occupied Kashmir - Politics, Parties and Personalities”, both published by the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Humanity is much better equipped today to mitigate the loss in life and collateral economic damage resulting from a pandemic, as demonstrated through the deployment of new-age tools such as artificial intelligence, big data, machine learning, neural networks and internet of things.
Humanity is much better prepared in 2020 to mitigate to a degree the loss in life and collateral economic damage resulting from a pandemic. Some good work has been demonstrated globally through the deployment of new-age tools such as artificial intelligence (AI), big data, machine learning, neural networks and internet of things.
A Toronto-based AI firm ‘BlueDot’ had identified the coronavirus disease (COVID-19) outbreak in Wuhan in China by December 31, almost nine days before the Chinese agencies or the World Health Organisation (WHO) made any official announcement.1 It used AI and machine learning models and data from a wide range of sources including news outlets, airline ticketing trends, demographic data like population density and age stratification, microclimate models, infectious disease trends, etc. BlueDot correctly predicted the spread of the virus to cities within China and the neighbouring countries. Similarly, a firm called ‘Metabiota’, based in San Francisco, had used AI, machine learning, big data and natural language processing (NLP) algorithms to study the social media trends to predict correctly the spread of COVID-19 to countries such as Japan, Thailand, Taiwan and South Korea even before a single case appeared in these regions.2 In comparison to all previous epidemics or pandemics, it is clear that AI is at the forefront of accurately predicting in advance the onset of the next pandemic, which it is said is inevitable.
Another firm called ‘Insilico Medicine’, based in Maryland, too employed AI to search vast databases of existing drugs to identify those molecules that could be used for the treatment of COVID-19 patients within just four days.3 Such incredible computing power is providing the urgently required medical ammunition to the frontline healthcare workers in treating very sick patients. It is also clear that the employment of AI programmes has created a new speed benchmark in key milestones towards the discovery of a new COVID vaccine. It is expected that this vaccine may be available for mass use anywhere within the next nine to 15 months. Scientists working at Flinders University, Australia have used advanced cloud computing and AI modelling in addition to state-of-the-art manufacturing to develop a candidate COVID-19 vaccine4 that could be fast-tracked for animal experiments and possible human trials in the United States.
One of the recent technology-related breaking news stories was the meeting of the tech giants - Facebook, Apple and Google and their discussions with the WHO to create an interoperable application programming interface (API) that will enable accessing data and communication with validated public health apps. This new feature will be available on Google and Apple IOS stores for downloading from May this year.5 Similarly, ‘Fitbit’, a San Francisco-based company known for fitness and activity tracker products, could play a crucial role in identifying patterns of resting heart rates and sleep cycles to predict a geographical pattern.6 Another San Francisco-based smart thermometer manufacturer – ‘Kinsa’, which connects with a smartphone using blue tooth is able to visually aggregate fever patterns across a country based on the total number of smart thermometers available per capita in the population.7 This will greatly aid public health authorities in monitoring infectious clusters in real-time.
With the massive surge in 24x7 news coverage and social media, panic-stricken people began calling hospital helplines to seek proper information, and soon these phone lines became overwhelmed necessitating several Indian hospital chains to launch AI-based chatbots that had legitimate content and aided in navigating through commonly asked questions. Smart symptom check tools were also launched to relieve unnecessary mental tension. Within overwhelmed hospitals, various smart technologies have been deployed to assist the human caregivers. The AI-based computed tomography (CT) scan reading technologies have cut down the CT-based COVID-19 diagnosis from the earlier six minutes to just 20 seconds.8
In late February, Chinese technology giant Alibaba Group announced an AI algorithm from its research unit, DAMO Academy, that can diagnose suspected cases within 20 seconds with 96 per cent accuracy. The algorithm is being used in 26 hospitals in China, where it has already helped diagnose more than 30,000 cases.9 The draconian success of the lockdown in China to reduce community-based transmission was greatly due to the deployment of a vast array of facial recognition technology in closed-circuit television (CCTV) cameras along with mobile apps and drones to identify and isolate suspect cases. The same lessons are now being used in countries like Singapore, Korea, Turkey and Russia. Chinese drones have identified and sprayed disinfectants in sensitive zones and also used infrared technology to detect the surface skin temperature of individuals within its range.
Within India, the use of Aarogya Setu mobile app launched by the government on April 2 helps users identify whether they are at risk of COVID-19 infection.10 This contact tracing app is a technological innovation that helps to speed up the process and keep pace with the extraordinary speed of transmission of the virus. This app is connected to a central server that updates any time a person is identified as COVID positive and notifies not just the phone contact list but also uses the global positioning system (GPS) for locating the smartphone and creating a spatial description of the hotspot based on AI algorithms. Police forces in various Indian states have also successfully deployed drones to ensure the effectiveness of the lockdown.
India has the potential to leverage its large pool of gifted human resources and state-of-the-art infrastructure spread across several institutions to establish a manufacturing ecosystem that produces all vital and strategic healthcare equipment, and to incubate healthcare IT start ups that will aid in combating both pandemics and the annual seasonal disease clusters.
Institutions like the Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Defence Research and Development Organisation (DRDO), Indian Space Research Organisation (ISRO), Indian Institute of Technology (IIT), and the Indian Institute of Science (IISc), along with leading private sector biotech and manufacturing units, should come together on a mission mode to accomplish this. There is a ready concept template from the short and long-term monsoon forecasts made by the India Meteorological Department (IMD). The question is, could such complex data algorithms be used to predict the next pandemic?
In conclusion, despite the staggering human and economic losses, humanity overall is much better equipped today to prepare itself well in advance for the next pandemic, all thanks to the AI.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
It would be advisable to review the proposed offset guidelines keeping in view the feedback from the industry, especially the foreign vendors who carry the primary obligation to execute the offset contract, as also the legacy issues.
The defence offset guidelines included in the draft Defence Procurement Procedure (DPP) 20201 is different in many ways than the elaborate guidelines promulgated in July 20122 and amended several times since then, most recently in November 2019.3
Some policy changes proposed in the draft have attracted great attention. The exemption of single vendor cases covered by the inter-governmental agreements and Foreign Military Sales programme, for example, is a major perplexing shift in the policy as it will greatly shrink the offset-related business opportunities available to the Indian defence companies, especially the micro, small and medium enterprises.
Deletion of ‘services’ as an avenue for discharging the offset obligation will also have the same effect, apart from restricting the options for the foreign vendors, who will also be impacted by the change in the system of multipliers and, most importantly, by the withdrawal of the provision for offset banking. It is not clear what now will happen to the already banked offsets, and banking proposals already in the pipeline or in the process of being submitted.
The existing guidelines require the offset obligation to be discharged within a time frame extendable by a maximum of two years beyond the period of performance (PoP) of the main procurement contract. The PoP includes the warranty period of the equipment being procured under the main contract, effectively expanding the PoP beyond two years.
The benefit of the warranty period being reckoned as a part of the PoP of the main contract is now proposed to be withdrawn. With there being no cap on the imposition of the penalty for non-performance of the offset contract beyond the PoP, the vendors will come under greater pressure and face uncertain liability in the event of failure to discharge offsets within time.
There are some other proposed policy and procedural changes which are debatable on account of their underlying intent or textual ambiguity, but it is some of the legacy issues, especially the ones which have a bearing on the performance of the offset contract, which surprisingly remains unaddressed.
First, the preamble of the model offset contract requires the vendor to undertake that he “understands and agrees to the Offset Clause given in the RFP and the Defence Offset Guidelines at Appendix-D of Chapter-II of the DPP, referred to as the Defence Offset guidelines.”4 (italics added) The blanket reference to the aforesaid appendix in the offset contract makes it open-ended.
Ideally, all contracts should have an ‘entire agreement clause’ signifying that “the parties agree that the terms of the contract between them are to be found within the text of the contract document and nowhere else.”5 Every contract must be complete in itself to obviate interpretational disputes. This also requires a mention being made of all clauses of the main contract that are applicable to offsets in the offset contract itself.
Second, the existing provision relating to the settlement of differences and disputes has been amended. It now provides that “any differences or disputes with vendors will be settled through discussion and, if not resolved, will be referred to the Independent Monitors (IMs) for advice with the approval of Secretary (Defence Production). IMs would provide their advice preferably within 02 months” and that the “decision of the Acquisition Wing and of the DOMW6 in respect of matters relating to offsets within their respective jurisdiction shall be final.”7This is not in harmony with the arbitration clause of the main contract which is also applicable to the offset contracts.8
Fourth, the format for the submission of technical offset offer (along with the commercial offset offer) by the date stipulated in the request for proposal requires the vendor to give details of the avenues for the discharge of the offset obligation, the Indian offset partners (IOPs) through which the obligation will be discharged, timeframe for discharge, etc. The format needs to be synchronised with the following provision which allows the vendor other options.
The provision in question says that the vendor is “expected to provide details pertaining to IOP wise work share, specific products and supporting documents indicating eligibility of IOPs in addition to conformity with other clauses in the offset guidelines” to the Technical Offset Evaluation Committee (TOEC) and if he is “unable to provide these details at the time of the TOEC, the same may be provided to DOMW either at the time of seeking offset credits or one year prior to discharge of offset obligations through that IOP.”9
Fifth, considering the stringent penalties for default in discharging the offset obligation, it is important that there is no ambiguity in the provisions related to acceptance of the offset claim and affording of credit to the vendor. The provision in the draft DPP 2020 says that the “DOMW shall convey discharge of offsets to the vendors” on “approval of offset claims by the competent authority from time to time.”10 This is vague and can cause problems for the vendor, especially if a claim is rejected belatedly, putting him under pressure to make up for the rejected claim and, in addition, rendering him liable to pay penalty.
Sixth, there is a provision which empowers the DOMW to have the actual status of implementation of offsets verified/audited by a nominated officer or agency on submission of the offset discharge claim.11 This entails an element of uncertainty, even risk, for the vendors. It will enable the vendors to submit audit-compliant claims if the audit drill followed by the auditing agency is notified.
A provision also needs to be made to enable the vendors to interact with the auditing agency to offer clarification on audit observations. This will also expedite the processing of the claims and add to the transparency in the system. It would be useful if an audit report, with necessary redaction, is released by the auditing agency/Ministry of Defence every six months or so.
Seventh, considering that the offset guidelines clear specify – or, at any rate, should specify, the criteria for selection of IOPs by the vendors, the admissible avenues for the discharge of the offset obligations, etc., the need for MoD’s prior approval of proposals for rephasing of the offset implementation schedule and change of IOPs requires reconsideration.
It is not clear what value this opaque control by the MoD adds to the process.12 On the contrary, it can disrupt the vendor’s momentum and deny him flexibility in discharging the offset obligation for which he, and he alone, is responsible.
It would be advisable to review the proposed offset guidelines keeping in view the feedback from the industry, especially the foreign vendors who carry the primary obligation to execute the offset contract, as also the legacy issues, some of which have been highlighted above.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Any dichotomy between the individual rights of the people and the powers of the state has to be dealt with through a nuanced approach.
In an article published recently in the Times of India, author Rohini Nilekani expresses her concern, rather persuasively, about the gradual shift away from “primacy of the individual” to a world where surveillance and privacy infringement for the collective good of the society are becoming more acceptable. The turn away from individualism, she argues, was largely caused by developments such as the 9/11 terror attacks and 2008 economic meltdown that have necessitated the broadening of the state’s role aided by technology tools, which ironically had given wings to the netizens in the first place.1
The writer rightly, albeit briefly, differentiates between the modern Western-style of individualism and the inherently traditional notions of individualism in India. However, alternative explanations of the concept of individualism in the Indian context could plausibly point to different conclusions than the ones arrived at in the above-mentioned article.
Historically, India’s traditional political and social organisations have centred on the notion of ‘village self-government’ or ‘village republics’. The society was characterised by interdependence and displayed mutual obligations, supremely predicated on the concept of dharma. The ‘reflexive consciousness’ has been to think in terms of ‘we’ rather than ‘I’. The Western society, in contrast, shifted to individualism starting with the Enlightenment and believed in a rights-based view rather than a dharmic one.
A large part of the modern Indian political thought is reflective of its encounter with Western ideas. The colonial period has had a substantial impact on how Indians envision the political framework. This assimilation of Western ideas into a body politic with qualitatively distinct roots has had its pros and cons. Swami Vivekananda had rightly cautioned: “The Westerners should be seen through their eyes; to see them through our eyes, and for them to see us with theirs – both these are mistakes”.2
The distinctiveness of the idea of individualism lies in an individual’s relationship with the state or the social group. It advocates the superiority of the interest of the individual over the state. In this context, it would be worthwhile to delve a little deeper into history to figure out the basis of the ancient Indian state and how its relationship with the people was conceived.
Eminent texts of the ancient Hindu political thought such as Mahabharata, Manu Samhita and Shukra Niti are united in their exposition of the ‘state of nature’ being reflective of matsya-nyaya (Law of the Fish). This anarchical political environment got transformed into an orderly state through the doctrine of danda (punishment, restraint or sanction). It is through the state’s coercive actions that matsya-nyaya was curbed and dharma was upheld. This primary conceptualisation of state in ancient India is well expounded in Kautilya’s Arthashastra.
One may ask what is the rationale of danda and why should states have the monopoly over the use of force. The answer lies in the ‘original nature of man’. Men are selfishly predisposed and it is only through the fear of punishment that individuals are made to perform their respective duties or svadharma. The king is the danda dhara – the bearer of the torch of sovereignty, and he embodies the state.
How then are the ruler and the people looped in? What are the terms of the contract? On one end, the ruler through the administration of danda saves the state from reversion to the logic of fish. He is bound by rajadharma (duties of the ruler) to serve as the ‘first servant’ of the state, and is the embodiment of sovereignty ensuring raksha (security) and palana (welfare) of his subjects. The maladministration of danda, however, causes his fall – a logical check on possible absolutism.
At the other end, it is the people who provide legitimacy to the state’s authority. This legitimacy is contingent on the state’s actions being harmonious with the interests of the populace. Consequently, if the state’s interests (manifest in the state’s actions) diverge from those of the people, political stability and order are compromised.
The theory of dharma (as duty), therefore, has a strong bearing on the state. The ruler resuscitates the people from disorderliness and establishes the legal order through the doctrine of danda. The praja (people), in turn, is bound by svadharma (one’s own duty) to recognise and accept the order. The ‘laws’ of the state are recognised as ‘duties’ by its members.
This delicate bond between the ruler and the ruled sits firmly on two seemingly opposed pillars – rational-prudent and abstract-ideal. The endeavour of the Kautilyan State to enhance the state’s capacities is intrinsically linked to the welfare of its people; political rationality is concomitant with normativity. In a sense, then, the individual is part of a collective whose happiness is of prime importance to the running of a state.
Culturally, the people of India have maintained the proclivity for the collective. This is reflected in the preference for the family system even though there is a gravitating trend among the educated urban Indians towards the Western concept of individualism. By and large, the Indian identity remains anchored in the family system that is linked closely to religion, caste, ethnicity, language and geography et al.
Politically, the founding fathers tended to privilege the individual even as they grappled with the notion of protecting the collective. A 'social revolution' experiment was hardcoded in the Constitution,3 given that inequities had crept into the society. It visualised that the job of the state – an all-powerful yet benevolent entity – was to rescue the individual from the ills of the collective. At the same time, certain individual rights could be superseded for the collective good, for instance, to ensure 'law and order', 'public order' and 'state security'. However, several archaic laws, propounded earlier by the British, that still find a place in India's statutes, creating a dichotomy of sorts, need to be reviewed and addressed.
To conclude, any dichotomy between the individual rights of the people and the powers of the state has to be dealt with through a nuanced approach. Neither can have an absolute approach. The challenge is not so much about adopting a position on individualism versus the collective represented by the state. Instead, it is about righteously balancing both, depending on the context.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
It is the need of the hour that India and the African countries collaborate to control the outbreak of the pandemic and to mitigate its long-term economic impact.
As of April 28, there are more than 33,627 confirmed cases of COVID 19 across Africa.1 With the exception of Comoros and Lesotho, the pandemic has spread to 52 countries in the continent. Egypt, South Africa, Morocco and Algeria are the countries with large number of cases. This global pandemic has brought the public health infrastructure in the region under stress. It is also likely to have a damaging effect on the African economy. As African countries firm up strategies to deal with the pandemic, they are looking for support from long standing partners such as India.
Vulnerable Health Systems
The number of COVID positive patients in Africa is comparatively less than many other parts of the world. For example, as of April 29, there are over a million confirmed cases in the United States, over 82,858 in China and 92,584 in Iran.2 In comparison, South Africa, the country with highest numbers in Africa, had only 4,996 confirmed cases.3 However, it is clear that the pandemic will stretch the health care facilities of the continent to the limits.
The Director General of World Health Organisation (WHO), Dr. Tedros Adhanom Ghebreyesus, former health minister of Ethiopia, has urged the African countries to wake up to the threat, as the continent is least equipped to deal with the highly infectious disease.4 However, Africa is not new to virus outbreaks and has successfully dealt with HIV/AIDS (human immunodeficiency virus/acquired immunodeficiency syndrome) and Ebola in the past. While the healthcare systems have been strengthened since the 2014 Ebola crisis, critical gaps still remain. Lifesaving equipment such as ventilators are a luxury for some African countries. There is also a critical shortage of intensive care unit (ICU) beds, personal protective equipment (PPE), testing equipment and masks.
Economic Downturn
The World Bank has forecast that the pandemic will lead Sub-Saharan Africa into its first recession in 25 years. It predicts that economic growth in the region will decline from 2.4 per cent in 2019 to between -2.1 per cent and -5.1 per cent in 2020. It also anticipates greater poverty and food insecurity in the region.5 Simultaneously, several African economies are also dealing with the double shock of plunging commodity prices. The COVID-19 pandemic and the resultant suspension of global economic activity have had a disastrous impact on commodity prices.6 It has led to a fall in the prices of industrial metals like copper. The price of the metal fell to a four-year low last month.7 This is bad news for African countries such as Zambia where copper accounts for 70 per cent of the country’s exports.
In the commodities market, the impact is most visible in the case of crude oil. Last week in the United States, for the first time in history, the Western Texas crude oil prices turned negative $44 per barrel.8 The oil price collapse has had a deep impact on African economies dependant on oil revenues. Oil exports are a major source of revenue for nations such as Nigeria, Angola, Algeria, Egypt, Congo-Brazzaville, Gabon, Equatorial Guinea, Ghana, and others. The impact would be devastating in case of Nigeria and Angola, as oil accounts for 90 per cent of their export earnings and two-thirds of the government revenue.
The coronavirus has also hit the tourism sector on the continent. Over the years, tourism had become an important source of revenue in many African economies. According to the World Travel and Tourism Council (WTTC), tourism contributed 8.5 per cent of the continent’s gross domestic product (GDP) in 2018. Also, the tourism industry in Africa grew speedily, next to Asia-Pacific, in the same year.9 However, due to the pandemic, tourist hotspots and hotels are shut all across Africa. It is estimated that this closure will lead to a loss of $50 billion.10
Coping With Pandemic
Going by their past experience, the African governments have stressed on prevention strategies to deal with the crisis. Several countries announced closure of schools and other educational institutions before documenting their first COVID-19 cases. Most African governments took pre-emptive measures by declaring a state emergency or proclaiming the onset of a national disaster. Many countries like South Africa, Uganda, Ghana, Zimbabwe and Kenya have been in a lockdown to deal with the crisis.
At the continental level, the African Union has established an Africa Taskforce for Coronavirus (AFTCOR) to develop a unified strategy. African governments have also decided to set up an African Union COVID-19 Response Fund. This fund, launched jointly by the African Union and the Africa Centres for Disease Control and Prevention (Africa CDC), calls for a public-private partnership and aims to raise between US$ 150-400 million for a sustainable medical response to the pandemic. Several African countries have provided the initial funding of US$ 12.5 million for this initiative. Private sector organisations such as Africa Health Business, Global Infectious Disease Services and SpeakUpAfrica are partnering in the initiative. Similarly, banks such as the Standard Bank and Ecobank are also contributing to this initiative.11 Though a laudable initiative, it is minuscule given the requirements of the continent. According to the World Bank and International Monetary Fund (IMF), Africa needs an estimated $114 billion in 2020 in its fight against COVID-19.12
India-Africa Partnership
Africa lacks the financial resources and the capacity to mount an effective response to the pandemic. African leaders have appealed for international support to deal with the crisis. Calls have also been made for debt cancellation. India has a special relationship with Africa. In recent years, it has given a high priority to improving relations with countries on the continent. During the last India-Africa Forum Summit, India had pledged support of US$ 10 billion for development projects in the region.13 It had also offered an additional grant US$ 600 million.14 It is hoped that India will come up with a structured response to support the African countries in their fight against the pandemic.
At the moment, India’s response is limited to supply of anti-malarial drug, hydroxychloroquine, considered to be effective in treating COVID-19 cases, to several African countries including Zambia, Madagascar, Uganda, Burkina Faso, Niger, Mali, Congo, Egypt, Chad, Zimbabwe, Jordan, Kenya, Netherlands, Nigeria, South Africa, Tanzania, Algeria, Mauritius and Seychelles.15 A video conference with member countries of the African Union to explore further cooperation may be considered. As the world grapples with the COVID-19 pandemic, it is the need of the hour that India and the African countries collaborate to control the outbreak of the pandemic and to mitigate its long-term economic impact.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
Although initially the Maoists suffered some setbacks due to the lockdown, their indulgence in violent incidents over the past one month indicates that they are exploiting the situation to have an upper hand vis-à-vis security forces.
The outbreak of the COVID-19 pandemic and subsequent countrywide lockdown to prevent its transmission have variedly impacted the Indian Maoists. While there are no verified inputs that suggest confirmed cases of coronavirus among their cadres, the lockdown has certainly increased Maoists’ desperation to meet their demands of food supplies and other essentials.1 Maoists, all across the left wing extremism (LWE)-affected states, primarily procure their rations and other essential commodities through a network of aides from village-level haat bazaars (weekly markets). With haat bazaars being temporarily shut, they are reportedly facing acute shortage of food supplies.2 Also, since the entire economic and construction activities have been grounded in these areas to ensure the efficacy of the lockdown, the Maoists’ finances have taken a beating given that extortions from contractors, mining industry, truck drivers, etc., formed a major part of their finances.
Nonetheless, the Maoists are reported to have devised a few coping mechanisms to overcome the impact of the lockdown on their supplies of rations and finances, albeit in a minuscule way. The Maoists in Bastar are forcing the village headmen and others to arrange rations for them. Places where villagers are unable to arrange large stocks of rice, the Maoists are snatching a one-month free ration from each of the below poverty line (BPL) families.3 The Maoists are also allegedly transporting stranded migrant workers to their respective villages in lieu of money.4 The lockdown situation has increased Maoists’ desperation and they are exploiting the villagers for meeting their ends.
The Maoists had reportedly offered a temporary unilateral ceasefire early this month in the states of Andhra Pradesh and Odisha,5 especially in the regions falling under Andhra Odisha Border Special Zonal Committee (AOBSZC). While the Maoists’ refrain is to ‘facilitate government’s relief operations in their core areas to fight COVID-19’, it is believed that the offer is opportunistic and misleading.6 The factors that might have influenced the Maoists’ decision to initiate a truce call are: achieving a possible breather in hitherto intensified security offensive in their core areas7 , and the increased social pressure to pave the way for COVID-19 relief operations in remote villages, which otherwise might increase the miseries of the underprivileged masses. The veracity of the truce call is also debatable as it has not come from the all-powerful Central Committee of the Communist Party of India (Maoist) or CPI (Maoist). Moreover, the Maoists have not relented on their violent campaigns in the most affected states of Chhattisgarh, Jharkhand8 and Bihar.9 The Maoist ambush of March 21-22, wherein 17 security personnel were killed and 15 others severely injured in Chhattisgarh’s Sukma District is a case in point.10
The Maoists are, in fact, shoring up their strength and preparing for future operations. They are reportedly holding village-level meetings and recruiting ground-level forces in the remote villages of Jagdalpur, Dantewada, and Sukma districts. It is believed that the Maoists could also offer money and enlist the jobless migrant workers returning to their villages. Recently, a large group of armed Maoists from Andhra Pradesh, Telangana, Maharashtra, Jharkhand, Odisha and West Bengal has reportedly joined their Bastar colleagues to up the ante against the security forces.11 They are torching road construction vehicles, digging up the roads that lead to the strategically important police camps in remote villages12 and planting landmines on the deserted lanes to target the security patrols.13 Besides, the Maoists’ recent forays in the areas of Todma and the Dantewada-Katekalyan main road are testimony of their increased activities during the lockdown.14
In the wake of COVID-19 pandemic, the security forces in Bastar have scaled down their anti-Maoist operations for fear of being exposed to the infection as well as apprehensions of likely shortage of essential items for the personnel. The Chhattisgarh Police has reportedly decided to suspend massive area domination exercises involving large forces and are instead taking up “fewer dedicated offensives” in the Maoist core areas based on specific intelligence.15 Moreover, the various Central Armed Police Forces (CAPFs) units deployed in the Maoist-affected areas have been shouldering the additional responsibility of spreading awareness about the pandemic and providing relief assistance to the villagers. With the majority of security forces now confined to their camps or undertaking relief operations for over a month now, the Maoists seems to be enjoying a much-needed respite from the hitherto stepped up security offensives, especially in the remote Bastar Division. It is important to recall here that prior to the commencement of the COVID-19 lockdown, the security forces in Bastar had launched a massive combing operation – ‘Prahar 2020’ – which was carried out simultaneously from the border areas of Telangana, Maharashtra and Odisha, deep into the forests of Sukma, Narayanpur, Bijapur and Dantewada districts of Chhattisgarh.16 As a result, the joint forces were largely successful in dominating and subsequently liberating substantial areas under the Maoist control, forcing them on the back foot and confining them to smaller areas.
While it is true that desperate times call for desperate measures, however, the forces mandated with anti-Naxal operations in the LWE-affected districts should not be diverted to the COVID-19 related relief work. They should continue with the area domination exercises in Maoist core areas and undertake dedicated intelligence-based operations. It is even more necessary given that the lockdown period also coincides with the CPI (Maoist) Tactical Counter Offensive Campaign (TCOC) which commences from February to June (until the onset of monsoons) every year. During TCOC, the rebels launch their attrition war by conducting audacious attacks on the security forces and inflicting maximum damages to the government property. In fact, with the Sukma ambush of March 21, the Maoists have heralded the beginning of their TCOC. Although initially they suffered some setbacks due to the lockdown, their indulgence in a series of brazen violent incidents over the past one month indicates that the Maoists are exploiting the situation to have an upper hand vis-à-vis security forces.
Given that the Maoists are now led by Nambala Keshava Rao (65), alias Basavraj, who is known for his experience in military statecraft and use of improvised explosive devices (IEDs), anticipating a Maoist downfall/retreat may be too early. The Maoists’ call for a ceasefire in certain areas should by no means be a reason for the security forces to lower their guard. Besides catering to the security needs, the governments of the LWE-affected states must address the employment needs of the returning migrant workers lest they fall prey to the Maoists’ propaganda and swell their cadre base.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
The prevailing environment has underlined the importance of a balanced market to the oil producers. India has been consistently reiterating the need for oil to be priced responsibly to ensure the stability of the oil market.
It took a global pandemic to trigger another major oil shock, akin to the historic 1973 one which was set-off by the Arab-Israeli conflict. COVID-19 forced Saudi Arabia and Russia to come together on April 10, 2020, along with the other major oil producers, to end the price war that had resulted in prices dropping to unprecedented levels.1 Its genesis lay in the massive increase of 3 million Saudi barrels of oil per day as a retaliation against Russia’s refusal to further cut production, as proposed by Riyadh, in the pivotal March 7, 2020 meeting of OPEC+. This had resulted in a global glut leading to a crash in crude prices.
The new deal will now shave off close to 10 million barrels of crude oil a day (mbd). A nudge from the United States (US), which had been pushing for an end to the price war in order to protect its shale industry, was a key driver in the formulation of the agreement. Ironically, Russia and Saudi Arabia had started the price war in an attempt to drive rival American shale production out of the market. Eventually, however, the prospect of a worsening economic and financial situation in both Moscow and Riyadh, as well as globally, made it difficult to prolong the price war indefinitely.
Notably, Saudi Arabia’s revenues are expected to decline by 50 per cent vis-à-vis the previous year in the event of the projected crude oil prices being in the mid-US$ 30s per barrel range for the rest of the year and even beyond. In real terms, the Saudi economy is likely to take a hit of US$ 105 billion.2 Similarly, Russia, though better placed than Saudi Arabia primarily due to its flexible exchange rate (as against Riyadh’s fixed rate) and a lower fiscal deficit, would also have found it difficult to absorb the decline in revenue on account of low demand for oil as well the massive price drop.
The Deal
The OPEC+ deal envisages a production cut of 9.7 mbd, starting May 1, 2020, for an initial period of two months, that is, till June 2020. For the next six months, from July 1 to December 31, 2020, the cuts will taper off to 7.7mbd, followed by another tapering off to 5.8 mbd for 16 months, that is, till April 30, 2022. The agreement will be reviewed in December 2022. Of the 9.7 mbd to be cut initially, Saudi Arabia and Russia will each cut 2.5 mbd while the other OPEC+ producers are expected to account for the rest.3
The OPEC+ had sought contributory cuts from both non-OPEC+ as well as Group of 20 (G-20) producers, which met a day after the OPEC+ meeting. It was agreed that the US, Brazil and Canada will contribute an additional 3.7 mbd production cut, while other G-20 nations will reduce production by 1.3 mbd. Notably, Mexico, which had initially refused to cut its allocated share of 400,000 bpd, thereby putting the whole deal in jeopardy, conceded to pump 100,000 less bpd only after President Donald Trump’s intervention.4
Will the Agreement Resuscitate Oil Market?
While the agreement is being perceived as historic given the size of the cuts, whether it will be sufficient to revive the prices is a moot question.
First, a day after the deal was announced, prices moved up by two per cent. However, as Fatih Birol, the Executive Director of International Energy Agency (IEA), said during a recent interview with an Indian news channel (ET Now, April 10) that nothing less than 15-20 mbd will make a significant difference to the price. At best, the initial cut of 9.7 mbd may resolve an impending storage crisis, and even stop oil prices from falling into single digits. But with the global economy showing no sign of recovery for the rest of the year, the lack of demand is unlikely to allow prices to go past the $40/barrel mark.
Second, the commitments to cut production by 3.7 mbd made by non-OPEC countries like the US, Brazil, and Canada are non-binding, given that oil production in these countries are privately owned and not under government regulation, and may not translate into actual reduction in output. These producers are likely to push for the ongoing decline in their production, on account of a fall in demand, to be accepted as the allocated production cuts. Canada, for example, has stated that its production has fallen by 800,000 b/d.5 Similarly, American production has declined by 2 mbd due to the closure of several shale firms who have found the low oil prices unsustainable.6
Third, the cuts will have to be sustained for several months, perhaps even a year, before the huge inventories built up by several countries can be exhausted and prices begin to go up. However, with the global economy ravaged by the pandemic, a fact highlighted by the International Monetary Fund (IMF) Chief Kristalina Georgieva, it is unlikely that demand will increase sufficiently to wipe out the crude stock.7 According to some analysts, the loss in demand is likely to be 30-35 mbd from the daily demand of 100 mbd. With global inventories at an all-time high and a low demand, it is likely that stocks will get reduced only after several months.8
Fourth, the current supply/demand imbalance, as per the OPEC Secretariat’s assessment, can lead to an excess volume of 14.7 mbd in the second quarter of 2020. Given that the global oil storage capacity stands at over 1 billion barrels (bb), the excess volume can add another 1.3 bb to existing global inventories.9 Arguably, the spectre of the world running out of oil storage space was a major factor that triggered the truce between Moscow and Riyadh.
Notably, on April 16, Saudi Arabia and Russia have indicated that they may consider further cuts after the historic deal to curb production failed to stem the crash in prices. In fact, since then, the oil prices have plunged by more than 20 per cent (Brent) while the US benchmark West Texas Intermediate (WTI) futures even traded, albeit briefly, at (minus) -$37 per barrel on April 2010 – the biggest drop in its history driven by technical and timing issues over contract deadlines – amidst reports of lack of storage and a massive supply of Saudi crude being headed for the US.
This raises the question of the fallout of the crisis once the dust settles. According to veteran oil analyst Edward Morse, the future can be “a benign low cost price arena or a higher cost politically charged one.”11 A new order can even be in the offing particularly when the position of the US as the world’s leading oil producer is being increasingly challenged.
Time for a Larger Market Re-balance
It is, therefore, apparent that while the over-supply in the market has caused some damage, the real cause of the current crisis has been the lack of global demand for oil. The prospect of an early recovery appears unlikely till at least the third financial quarter with the COVID-19 virus showing little signs of retreating.
Prior to the current crisis, the largest on record decline in oil demand had been a 10 per cent drop between 1979 and 1982. It is now projected that as much as 20 per cent of the global demand can be wiped out over the next few months.12 Much of this is due to the lockdown in the transport sector, as commercial flights have been grounded, and road and rail traffic restricted with several countries ordering their citizens to stay at home. India, the world’s third-biggest consumer, has seen its demand for oil collapse by around 70 per cent or 3.1 mbd. A similar trend has been observed in several major European economies.13
However, amidst all the doom and gloom, there exists a silver lining, at least for the big oil importing countries like India, even though the current price shock is a mixed bag. While the Indian upstream companies are facing a demand crunch leading to a fall in production, the oil marketing companies and consumers are benefiting from the sustained low-price environment. The Indian Government, meanwhile, has used the opportunity of rock bottom prices to fill its strategic inventories even as the country’s oil import bill has been substantially reduced.
Most importantly, the prevailing environment has underlined the importance of a balanced market to the oil producers. India has been consistently reiterating the need for oil to be priced responsibly in order to ensure the stability of the oil market. The G-20 meeting held in April 2020 had also highlighted the need for a modus vivendi between the producers and consumers in order to ensure a healthy balance between the demand and supply of oil.
The pandemic, therefore, has underscored a stark reality for oil producers that in the current environment where the very future of oil is being debated, there is no energy security for them without adequate and sustained demand.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
The inevitable reprioritisation of the central government’s expenditure in the coming union budgets would affect the resource allocations particularly for big ministries like the MoD, which will be forced to realign their business practices.
The COVID-19 pandemic continues to take a huge toll on both human and economic front across the globe. The world economy is staring at the worst recession since the Great Depression of the early 20th century. India, given its early and timely decision to impose a nation-wide lockdown, has so far escaped a human catastrophe of the magnitude seen in several other countries. On the economic front, however, the deadly virus is wreaking havoc, with almost all major segments of the Indian economy either shut-down or operating below normal capacity. The Indian economy, which was slowing for the last several consecutive years, is now poised to record its lowest growth rate in the post-liberalisation period. The shut-down of factories, malls and businesses, in general, will severely affect the government’s budget and cash management.
Anticipating the deleterious effect of COVID-19 on its cash management, the central government has already started tightening its purse. On April 8, the Ministry of Finance (MoF) circulated an office memorandum, imposing expenditure cuts on several ministries and departments.1 The Ministry of Defence (MoD), which accounts for nearly one-seventh of the central government’s total expenditure, has been asked to limit its first quarter (April-June 2020) spending to 15-20 per cent of its full year allocated budget of Rs. 4,71,358 crore. From the defence ministry’s point of view, what is more worrisome is that its budget will remain under stress far beyond the first three months of 2020-21.
Because of the slow nature of economic recovery, India’s gross domestic product (GDP) is unlikely to witness a high growth trajectory anytime soon. The slow pace of recovery, whenever it happens, will affect the government’s revenue collection, especially the tax collection, which, in turn, will affect the distribution of the resources.
Even if the growth returns to normal soon after the lockdown is lifted, the MoD is unlikely to see a quick and major jump in its budget because of the likely reprioritisation of central government’s expenditure. The pandemic has yet again shown that the national security is much more than just military security. Its impact in terms of loss of human lives, extreme suffering of the population living on the margins, loss of jobs and other serious economic setbacks are no less than the ravages inflicted in an inter-state war.
To fight the COVID-19 menace, the central government has earmarked an emergency fund of Rs. 15,000 crore.2 To prevent a similar pandemic from wreaking havoc in the future, India would require much higher spending particularly on healthcare infrastructure which has remained in a poor state due to decades of underfunding. Suffice it to say that in terms of density of medical doctors and spending on healthcare, India fairs rather poorly in comparison to many peer countries, including the BRICS (Brazil, Russia, India, China and South Africa) partners. At present, India has eight doctors per 10,000 people, compared to Brazil’s 21, Russia’s 40, China’s 18, and South Africa’s nine.3 India’s health expenditure is a mere 3.7 per cent of the GDP. The comparative figures for other BRICS countries range between 5-12 per cent.4
The inevitable reprioritisation of the central government’s expenditure in the coming union budgets would affect the resource allocations particularly for big ministries like the MoD, which will be forced to realign their business practices. However, the MoD, given the many radical reforms undertaken by the government in the recent past, is better prepared to withstand the likely resource crunch. The appointment of the first-ever Chief of Defence Staff (CDS) and the creation of Department of Military Affairs (DMA) under him are expected to enable the MoD to undertake the much-needed prioritisation of imminent expenditures.
However, any reprioritisation undertaken by the MoD in the short term is not going to be easy, considering that the MoD is already in the midst of a huge resource crunch. In 2020-21, the gap between its fund requirement and budget allocation was nearly Rs. 1,03,000 crore.5 Any further cut in the existing allocation or slow growth in the budget thereafter is going to be extremely painful and may affect the defence readiness, to say the least.
Since the MoD does not have many short-term measures to tide over the impending resource crunch without affecting the combat capability of the armed forces, it has little option but to think long term. It is in this context that Defence Minister Rajnath Singh held a meeting on April 20 with top officials of the MoD and the Services to review the status of the recommendations of the Shekatkar Committee,6 which was appointed by the government to suggest measure to improve the combat capability of the armed forces and rebalance defence expenditure.
While the MoD has implemented several recommendations given by the committee, they have not yet shown much result because of lack of focus on some critical areas of reform, especially those related to manpower. Rationalisation of manpower strength, both uniform and civilian employees, and more significantly the terms of engagement need a hard re-relook. Suffice it to add that the MoD’s manpower expenditure is exorbitantly high and clearly unsustainable for defence modernisation. Presently, it is spending over 60 per cent of its budget on salary and pension. In comparison, the US, the biggest military power in the world, spends 39 per cent of its total military expenditure in personnel cost. Some other major military powers such as the United Kingdom, France and China spend between 31-45 per cent.7 Addressing the manpower cost will go a long way in dealing with the COVID-19 inflicted resource crunch in a more sustainable way.
Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.
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