Weekend reading links

1. A Brookings paper draws attention to studies which show that the World Bank's greater success in influencing country governments consistently and permanently came from its advisory and analytical products/services than its development lending. Annually, the former is $200 mn and the latter $30 bn.

2. Reliance Industries is reported to be planning to spend $1.6 bn globally to buy up tech firms and invest in start-ups. This is on the back of the spectacular series of small tranches of equity sales to some of the leading names in the private equity and sovereign wealth fund worlds. So far, in just over six weeks, Reliance Jio has sold 19.9% of its stake and raked in Rs 1.05 trillion from Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, and Mubadala. And apparently more from Saudia Arabia's PIF and Abu Dhabi's ADIA is on the works. 

3. Shyam Saran has a very good oped that describes China's border policy, in the context of the stand-off between India and China at Galwan Valley in Eastern Ladakh,

China would be content if, after altering the facts on the ground, the stand-off is defused, say by a limited disengagement of a few metres between the troops, leaving most of the encroached territory in Chinese hands. China may agree to vacate the occupied area but expect concessions in return... The bottom line — facts on the ground remain altered to China’s advantage although India’s action forestalled further ingress. Therefore, unless India is able to find an effective counter-strategy to this pattern of Chinese behaviour, incidents of the kind we have seen at many points on LAC are not only likely to continue but to intensify.

There is another feature to the Chinese playbook. This is evident at the India-China border and in other theatres such as the South China Sea, the Taiwan Straits and the Yellow Sea. Each Chinese action, taken in isolation, may not be regarded as threatening enough to require a strong and countervailing military riposte. Over a period of time, however, a string of such “isolated” incidents add up cumulatively to a significant change in the balance of power on the ground. China’s dominance of the South China Sea, its occupation and militarisation of several offshore islands, have reached a point where only a major military offensive, perhaps even war, may be necessary to reverse Beijing’s advantage. As is apparent, such risky actions are unlikely. At the most, one may expect the now alerted major powers, to prevent any further gains by China. So this is another important part of the playbook — incremental advances short of the threshold of a likely military response from adversaries, but resulting over time in a more favourable balance of power...

There is a third element in the Chinese playbook that needs attention. China calibrates its posture towards any country based on a careful assessment of the balance of economic and military capabilities. This may sometimes go wrong because Chinese leaders are relatively insular and self-centred in their outlook. There is a cultural predilection towards tactical agility, even deception, in interState relations and little patience with notions of statesmanship. After the 1962 war, China’s default position on the border was the so-called package proposal, essentially formalising the prevailing status quo. In 1985-86, after the Wandung incident in the eastern sector, the package proposal was reinterpreted to mean that a settlement required India to make “meaningful concessions” in the east, the area of largest dispute, for which China would make appropriate-though-undefined-concessions in the western sector. Subsequently, it was conveyed that in any settlement, Tawang would have to be “returned” to China. What we now see is a further moving of the goalposts, with China’s behaviour suggesting that the ambiguity over the precise alignment of LAC gives it the opportunity to trigger incidents at points of choice in order to make both local, tactical gains but to also convey a larger message that it has a stronger hand when dealing with India.

One proposed response to this strategy,

We have seen this at the India-China border over the years. There has been constant nibbling activity which the Indian side confronts, but it is unable or unwilling to go on a military offensive to reverse Chinese gains. We have to understand these salami-slicing tactics and develop an effective counter-strategy. This may require the ability to use the ambiguity of LAC to make asymmetric gains in zones where we have a tactical advantage. Only then will there be some bargaining chips available with us to restore the status quo.

4. On India-Nepal relations, C Rajamohan questions the policy of basing the relationship on historic, cultural, and other sentiments and argues for grounding it on shared interests. He writes,

It makes no sense for Delhi to hanker after a “special relationship” that a large section of Kathmandu does not want. If Delhi wants a normal and good neighbourly relationship with Kathmandu, it should put all major bilateral issues on the table for renegotiation — including the 1950 treaty, national treatment to Nepali citizens in India, trade and transit arrangements, the open border and visa-free travel. Delhi should make it a priority to begin talks with Nepal on revising, replacing, or simply discarding the 1950 treaty. It should negotiate a new set of mutually satisfactory arrangements. India had conducted a similar exercise with Bhutan to replace the 1949 treaty during 2006-07. The issues and political context are certainly more complicated in the case of Nepal... Rather than object to Kathmandu’s China ties, Delhi must focus on how to advance India’s relations with Nepal. It should bet that the logic of Nepal’s economic geography, its pursuit of enlightened self-interest, and Kathmandu’s natural balancing politics, will continue to provide a strong framework for India’s future engagement with Nepal.

5. Very good articulation of the sophisticated nature of racial exploitation in the US by Pratap Bhanu Mehta,

American history is a profound collision between two exceptionalisms. The first is the exceptionalism of self-image: A country providentially endowed with liberty, equality, rule of law, democracy and capitalism. But the second exceptionalism just requires putting “race” in front of these ideals. The story flips easily. The story of liberty turns out to be a story of one of the largest, racially structured mass incarcerations of any society in the world. The story of equality turns out to be a story of racial hierarchy, especially for African Americans. The story of rule of law goes hand in hand with a deeply violent society that uses law as an instrument to subjugate particular communities. The story of democracy turns out to be a story of repeated attempts at democratic disenfranchisement. And capitalism turns out to racially tinged: Who can or cannot participate in the market order, in urban spaces, has been profoundly shaped by race... It is a cliché about American democracy that its original sin, “race”, shows up the pathology of each one of its ideals and its policies: Everything from gun control, voting procedures, federalism, and the politics of welfare is coloured by the shadow of race.

6. Very good profile of India's largest online stockbroking firm, Zerodha. 

As of April 2020, the platform had 1,598,948 active clients and a market share of over 14 per cent – up from less than one per cent market share, and just 30,000-odd active users in 2015... The tipping point for Zerodha was introducing the “zero brokerage model” in December 2015. This meant that equity investments on the platform now had no upfront fees, no minimum volume, or any hidden clauses. Though they were still charging a discount fee-based brokerage for F&O and intraday trades, this was less than what peers charged.

The company charges a Rs 20 per trade as brokerage. 

This makes Zerodha distinctive in the world of VC-financed startups,

The company remains bootstrapped to this day. Kamath admits that not taking external investment was the only choice left after Zerodha was rejected by almost all big Venture Capitals (VCs)... “The year 2010 was probably the worst year to start a broking firm. After the 2008 collapse, the activity in the market had dropped, and there were no trading volumes. It was a risky bet then and no investor was keen to back us,” Kamath says. Zerodha had the option to grow at a faster pace by acquiring smaller players, and consolidating. Yet, the company chose to grow organically without diluting equity or accumulating debt on its books. Now that the company has scaled, the business is generating cash for itself, and there is no need for external funds...

Zerodha runs its consolidated operations as a partnership firm, and, going by its statements, the company posted a net profit of Rs 400 crore on a total revenue of over Rs 850 crore last year. With no easy money at its disposal, Zerodha never had the chance to burn capital for customer acquisition. Kamath explains: “We have not spent a single rupee on advertisement, which is the biggest cost in running a business these days.” According to a report on Indian brokerage industry released in 2019 by ICICI Securities, Zerodha’s total operational expenses as a percentage of its total revenue was 36 per cent, lower than all its peers. HDFC Securities is the only player close to Zerodha, at 37 per cent. For others, this metric falls in the range of 60-80 per cent. The report estimates total expenses for Zerodha during 2018-19 at around Rs 320 crore... According to Kamath, “The game was never about pricing. It was about product proposition.” He believes that whoever offers a better product experience to the customer wins the race. “Between Google and Yahoo, users prefer using Google because they like the experience.”

As a counterpoint, I struggle to see even a single VC-financed startup story which has grown this way to become a market leader in any segment. And Zerodha's growth raises questions about the so-called VC-financed growth narrative, and highlights the value of hunkered down execution to refine and demonstrate value proposition, get the unit economics right, and grow at a pace that you can sustain. 

7. TN Ninan points to a reason for the central government's fiscal hole,

Back in 2013-14, the states got 28 per cent of the Centre’s gross tax revenue. By 2017-18, this share had gone up to 35 per cent. Since then, the Centre has found various ways of clawing back some of the lost ground; last year, the states’ share was 31 per cent. Central transfers as a share of the states’ own revenue have climbed from 45 per cent 2013-14 to 62 per cent (Budget estimates for 2019-20). The Centre’s net tax revenue has grown 102 per cent, while its tax transfers to the states have gone up by as much as 168 per cent. The states’ total revenue (tax and non-tax) has grown 132 per cent over the six years, compared to 93 per cent for the Centre. And the states-to-Centre ratio of total government receipts has pivoted from 56:44 to 65:35. For every rupee that the Centre now spends, the states spend almost two.

8.  More on China. The US foreign policy with China was for long premised on the belief that a policy of engaging with China and integrating it with the multilateral system and the international order will help soften the authoritarian regime and liberalise the economy and society and lead to a mutually beneficial relationship. But, that, as we now know has proved to be an unsuccessful endeavour.

The former US National Security Advisor, HR McMaster is only the latest voice echoing the failure and calling for a revised paradigm. He describes the Chinese policy as one of "co-option, coercion, and concealment". He writes,

The party’s leaders believe they have a narrow window of strategic opportunity to strengthen their rule and revise the international order in their favor—before China’s economy sours, before the population grows old, before other countries realize that the party is pursuing national rejuvenation at their expense, and before unanticipated events such as the coronavirus pandemic expose the vulnerabilities the party created in the race to surpass the United States and realize the China dream. The party has no intention of playing by the rules associated with international law, trade, or commerce. China’s overall strategy relies on co-option and coercion at home and abroad, as well as on concealing the nature of China’s true intentions. What makes this strategy potent and dangerous is the integrated nature of the party’s efforts across government, industry, academia, and the military. And, on balance, the Chinese Communist Party’s goals run counter to American ideals and American interests...

The Chinese Communist Party is not going to liberalize its economy or its form of government. It is not going to play by commonly accepted international rules—rather, it will attempt to undermine and eventually replace them with rules more sympathetic to China’s interests. China will continue to combine its form of economic aggression, including unfair trade practices, with a sustained campaign of industrial espionage. In terms of projecting power, China will continue to seek control of strategic geographic locations and establish exclusionary areas of primacy. Any strategy to reduce the threat of China’s aggressive policies must be based on a realistic appraisal of how much leverage the United States and other outside powers have on the internal evolution of China. The influence of those outside powers has structural limits, because the party will not abandon practices it deems crucial to maintaining control.

Like many others, he urges the need to take a historical perspective when engaging with China and understanding its motivations. His experiences point to an entrenched conviction within the Chinese rulers about a longing for world dominance, a tianxia—over “everything beneath heaven" and therefore pursuing a "great rejuvenation of the Chinese nation".

9. The pile of evidence on the value of hydroxychloroquine (HCQ) grows with each passing day. Ananth has a very good article which links to several articles in this regard.

A meta-study published by Oxford University Press, on behalf of the Johns Hopkins Bloomberg School of Public Health, and authored by Harvey Risch of Yale University, calls for HCQ and azithromycin to be made widely available and promoted immediately for physicians. He says,

“For the earliest trial, between now and September, assuming a flat epidemic curve of 10,000 deaths per week, I estimate that approximately 180,000 more deaths will occur in the US before the trial results are known... In this context, we cannot afford the luxury of perfect knowledge and must evaluate, now and on an ongoing basis, the evidence for benefit and risk of these medications... the FDA, NIH and cardiology society warnings about cardiac arrhythmia adverse events, while appropriate for theoretical and physiological considerations about use of these medications, are not borne out in mortality in real-world usage of them.”

This comes amidst the drama surrounding a controversial study drawing on data from a little known healthcare data analytics company Surgisphere published in Lancet which found significant higher risk of death due to the use of HCQ, which forced the WHO into issuing an advisory suspending the use of the drug on Covid 19 patients, which in turn triggered a strong response from the Indian government and ICMR and 180 scientists globally. The full story here. The outrage forced Lancet to formally retract the study and even issue an Expression of Concern.

The Surgisphere data, which claimed to have been acquired from 671 hospitals in six continents, also highlights the limitations of application of big data techniques to analyse such issues,

The concerns, which have built over the past several days on social media, highlight larger issues with using big databases to draw conclusions about medicines, an approach that has been gaining rigor in the era of big data. Experts warn that conducting such studies properly is far more difficult than it appears.

Interestingly, as this Guardian investigation shows, Surgisphere appears to be virtually a shell company with no expertise and track record which has supplied its data to several Covid 19 studies without explanations about its data and methodology. Experts have dubbed the company's database a scam. This has the trappings of being the Theranos of Covid 19, albeit without the valuations.

In the years ahead, this will be held up as one more example in the long list of  failings of the excessive trust on datacracy.

Who's apologising to President Trump?

10. As Covid 19 endures, tales of chronic poverty from across India.

Boiled rice with milk: about half a litre of milk for the six-member family, including four children. A rice gruel with more water than milk, and salt added to taste... Just providing rice and wheat at a highly subsidised price of ₹2-3 per kg may not be enough when day jobs are scant and families have no cash in hand. Is it possible to survive on just boiled rice and rotis? But most families are doing exactly that: consuming boiled rice and salt or wheat flatbread with chilly paste. Even potatoes are unaffordable. During a three-day visit to Bundelkhand last week, this reporter witnessed signs of pervasive hunger and undernourishment. Entire families, including children are skipping meals; families out of the food security scheme are on the brink of starvation... In Musanagar, a tiny hamlet in Atarra town in Banda, women struggling to cook and feed their children were on the edge. Most here start their day before sunrise to unload sacks of groceries at the local market. They receive between 50 paise to a rupee for a bag, but there is too much of a rush nowadays... At least a third of the families in Musanagar do not have ration cards under the National Food Security Act (NFSA), 2013, which guarantees 5kg of grains per person per month.

And this sad tale of a migrant journey.

11. A summary of all the different assessment of informal sector job losses due to Covid 19 in India by Bharat Bhushan.