1. Good interview with Shivshankar Menon on the India's foreign policy reset with China.
2. Very good article by Arjun Srinivas in Livemint on India's anti-trust challenges. In particular, the rise of Reliance Jio in the internet market, while a matter of pride for an Indian company, also raises important long-term concerns about the market in India.
3. Karan Thapar makes good points about the use and misuse of the contempt of court provisions by courts in India.
In 1987, after the Spycatcher judgement, when the Daily Mirror called British Law Lords “You Old Fools” or, in 2016, after the Brexit ruling, when the Daily Mail called three judges “Enemies of the People” the British judiciary consciously and sensibly ignored the headlines and did not consider contempt prosecution. In fact, Lord Templeton’s comment on the Spycatcher headline is worth recalling: “I cannot deny that I am old; it’s the truth. Whether I am a fool or not is a matter of perception of someone else … there is no need to invoke the powers of contempt.”
Justice AP Shah writes,
Already, contempt has practically become obsolete in foreign democracies, with jurisdictions recognising that it is an archaic law, designed for use in a bygone era, whose utility and necessity has long vanished. Canada ties its test for contempt to real, substantial and immediate dangers to the administration, whereas American courts also no longer use the law of contempt in response to comments on judges or legal matters. In England, too, from where we have inherited the unfortunate legacy of contempt law, the legal position has evolved... But Indian courts have not been inclined — or at least, not always — to display the same maturity and unruffled spirit as their peers elsewhere... It is regrettable that judges believe that silencing criticism will harbour respect for the judiciary. On the contrary, surely, any efforts to artificially prevent free speech will only exacerbate the situation further.
4. I've never been convinced about the arguments on lowering corporate taxes in India. The highest marginal income tax rates are misleading assessment of the tax burden on corporates. The effective tax rates are much lower. Christophe Jaffrelot and Utsav Shah advocate higher taxes on the super-rich,
Last year, the IIFL Wealth Hurun India Rich List showed that the fortune of the 953 richest Indian families was more than 26 per cent of the country’s GDP. This means that a tax rate of 4 per cent on them would give the government the equivalent of 1 per cent of GDP – the amount of the first and second COVID relief packages.
For a country which may already be one of the most unequal societies, a new and higher tax rate for the richest may be just what is required. On certain important public issues, it may be necessary to ignore entrenched narratives (like capital fleeing, or other distortions).
5. Interesting distortion arising from GST rates on automobile manufacturing in India,
Aspects of India’s internal duty structure on cars have restricted the growth of the export market. In particular, the multi-tier nature of goods and services tax (GST) has distorted the market and, thus, the production capacity within the industry. The political decision to try and have a different structure for “affordable” and other goods — where “affordable” is often arbitrarily defined — is never a good idea. In the case of automobiles, this political imperative has translated into two different sets of duties on cars with a length of over and under 4 metres. Petrol cars that are under 4 metres in length have GST and cess together at 29 per cent, while that goes up to 45-50 per cent for cars over 4 metres. The consequence is that companies producing in India for the domestic market have created capacity specifically for the under 4 metre segment. Yet, globally, that is only a small fraction of cars sold, as Mr Boparai pointed out. In India, over two-thirds of the cars sold are under 4 metres; globally, that fraction is under 7 per cent and declining. The consequence of this divergence is that India cannot benefit from economies of scale when it comes to exporting cars. This is particularly problematic in this case as the margins and value added are much higher when it comes to higher end cars. Its duty structure is thus causing India to lose out on many export markets.
This is not an easy policy choice. There is merit in encouraging making in India for Indians. But that should try to avoid such distortions.
6. Fascinating rise of Luxshare as Apple's preferred prospective iPhone contract manufacturer for Chinese market.
When 21-year-old Wang Laichun walked through the gates of a connector factory owned by Taiwan’s Foxconn in 1988, she was just another migrant worker. Little did she — or her employer — know that 32 years later, she would turn into a serious challenger for Foxconn, the company which has dominated the production of tech gadgets for decades. In July, Ms Wang’s company Luxshare said it would buy two China-based subsidiaries of Foxconn rival Wistron, including one iPhone plant, in a Rmb3.3bn ($474m) deal that puts assembly of the iPhone, the centrepiece of global technology manufacturing, in the hands of a Chinese company for the first time... After 11 years working at Foxconn and Cheng Uei, the electronics manufacturing group run by the brother of Foxconn’s founder Terry Gou, Ms Wang set up her own business in 1999, working with her brother Wang Laisheng to supply connectors to Foxconn. “They were our subcontractor,” said a Foxconn executive. Soon Luxshare also started selling to other electronics contract manufacturers including Flextronics, Cheng Uei and Lite-On, and established very close ties with some. Cheng Uei even invested Rmb40m in Luxshare before its 2010 initial public offering and acquired 25 per cent stakes each in two subsidiaries — a tie-up the Taiwanese company ended in 2018.
The rise of Luxshare is perhaps a smart risk management strategy for Apple,
As the US is in an escalating stand-off with China and seeks to cut Chinese companies out of the global technology industry, it could also mark the kick-off for partitioning the iPhone supply chain. “Amid this trade war and tech war, this is a natural step for Apple,” said Alex Ng, an analyst at China Merchant Bank International. “We will eventually see one system for China, and another for non-China.” Executives at Taiwanese electronics manufacturing services (EMS) companies and analysts said giving Luxshare a systemic role in iPhone production was a good risk management strategy for Apple... Industry experts said Apple could let Foxconn, Pegatron and Wistron, the Taiwanese EMS companies that have controlled iPhone manufacturing so far, concentrate on expanding capacity outside China for serving the US and other western markets, while developing Luxshare into the leading assembler of iPhones for the Chinese market. Few doubt Luxshare is up to the task. Ms Wang’s company has conquered key parts of the iPhone supply chain over the past few years. Although its 2019 revenues were only 5 per cent of Foxconn’s, the Chinese company’s market capitalisation soared past that of its Taiwanese rival earlier this year.
Meanwhile, interesting that one of the co-founders of Foxconn has said that China's "days as the world's factory are done". He said that Foxconn's production capacity outside China is now 30%, up from 25% last June, and rising.
Luxshare is also an example of how Chinese government has played a proactive role in facilitating the creation of a local contract manufacturing champion. It has been winning business from other US tech giants like Google, Microsoft, Amazon, HP, and Dell.
The Chinese company first appeared on Apple's top 200 suppliers list in 2013 as a connector provider and emerged as an AirPods assembler in 2017 before securing orders for Apple Watch assembly in 2019. Now, through buying Wistron's plant, it is scheduled to make a small quantity of iPhones from 2021 and enter larger-scale production by 2022,
Incidentally, Luxshare is an example of how complex are the dynamics at play - while it is important for the Chinese government, it is also important for Apple not only to lower risk in its Chinese supply-chains but also to gain bargaining power with other suppliers.
7. More on Apple. The company is working to diversify its production away from China, and appears to have persuaded all its three major contract manufacturers to look at India as an alternative. This may well, in three years, turn out to be a major success for India's manufacturing. Hopefully, it will also be an anchor and demonstration for contract manufacturing in clothing, footwear, and electronics. For that the Governments will have to play a very active role in supporting the first-movers (Pegatron, Wistron, and Foxconn), in their expansion and activities, so that the right message gets disseminated.
However, we need to be realistic about what it can achieve. Even with success, there are hard limits to the attractiveness of India,
To put it in perspective, India is a minuscule market for the global giant, accounting for 0.5 per cent of its global revenues (based on FY2019 figures). Apple’s India revenues are just 3.5 per cent of the revenues from Greater China, Apple’s largest market after US and Europe.... The company faces growing competition in the premium smartphone market (Rs 30,000 and above). In Q2 July, One Plus 8 from China hit the number one slot with a 19 per cent share followed by Vivo V 19 and Samsung Galaxy A71 in the segment, according to data from Counterpoint Research. Apple iPhone SE (10 per cent share), the price warrior, was at number four and Apple iPhone11 at number 5... Analysts agree that the over-Rs 50,000 market, where Apple is big, is tiny — making for not more than 3 per cent of all smartphone sales.
8. Capitalism with Chinese characteristics - the rise and fall of Jia Tianjiang, the founder of Tian Yuan, one of the world's largest manganese miners. The FT article traces his cautionary tale, documenting the close links with the Party and government financiers who bankrolled his ambitious investments and acquisitions. It describes the relationship between Jia and Lai Xiaomin, head of Huarong, the country's state-owned and largest distressed assets financier. Both persons are now under arrest, charged with corruption. This is the instructive point,
“Politicians and the capitalists connected to them rise and fall together,” said Yuen Yuen Ang of the University of Michigan and author of China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, “so the latter must be careful who they tie their fates to”.
9. I have blogged earlier that along with the judiciary, the performance of the defence forces are the least scrutinised, and to that extent the concerns ought to be the highest. Arzan Tarapore examines this surprisingly less debated area of India's defence strategy. He focuses on the failings of the orthodoxy in military strategy,
Indian Army—and by extension, Indian defense policy more generally—is dominated by an orthodox offensive doctrine. This is an approach to the use of force that centers on large army formations, operating relatively autonomously from political direction, seeking to impose a punitive cost on the enemy. The punitive cost often takes the form of capturing enemy territory as a bargaining chip, even though India usually pursues strategically defensive war aims to maintain the territorial status quo... the stubborn dominance of this doctrine renders the Indian military a less useful tool of national policy. The orthodox offensive doctrine is problematic because, given its powerful adversaries, the Indian Army probably cannot seize significant tracts of land or inflict a decisive defeat on enemy forces. This means India’s cost-imposition strategies are unlikely to deter its rivals from continued subconventional provocations. At the same time, India’s punitive strategies have had the unintended effect of motivating its rivals to pursue more destabilizing and provocative strategies of their own, including Pakistan’s tactical nuclear weapons and China’s fait accompli land grabs. And the doctrine exacts an opportunity cost, reducing India’s force projection and deterrence capabilities in the Indian Ocean region... The dominance of the orthodox offensive doctrine has distorted Indian military strategy, skewing it to fight large conventional wars and leaving it ill-equipped to manage more likely scenarios short of war. In several crises in recent decades, New Delhi has been left with an invidious all-or-nothing choice in the use of military force—either start a major conventional war or abstain from action.
He offers three recommendations to rebalance India's military strategy,
- Consider new theories of victory. To deter and defeat coercion, the Indian Army should consider rebalancing its doctrine with greater use of denial strategies. It should more frequently seek to make coercion and territorial revisionism prohibitively costly or unfeasible for the enemy rather than relying on ex post facto punishment.
- Consider how to be the supporting element of a joint force. Indian forces will increasingly be compelled to deter and fight in multiple domains and different theaters, and the army should therefore consider how to play a productive role in new missions where it supports a main effort elsewhere.
- Consider new niche capabilities. The army can make sizable and qualitatively different contributions to joint combat by developing more robust intelligence, surveillance, and reconnaissance capabilities and by increasing its capacity for long-range precision strike.
10. A summary of the state of AI in light of the GPT-3 hype. This is another good summary of the state of AI in general. The point is that, stripped off all the jargon, GPT-3 is still a very powerful pattern recognising system, and does not have any of the human reasoning and common sense. As people say, "It's correct for the wrong reasons"!
The article talks about the emerging area of symbolic learning,
Deep learning involves feeding machines enormous data sets so they can learn to recognize or re-create images or text passages, but it reaches decisions in ways that can’t be explained. Symbolic learning clearly illustrates a machine’s decisions and logic, but it requires humans to encode knowledge and rules. The idea is that if a machine is given explicit knowledge in the form of symbols, such as “bat” and “hit,” then it could use what it knows to make inferences about scenarios, such as what happens if a bat hits a ball. “What’s missing with today’s AI is we have to get beyond the level of the statistical correlations that deep learning models tend to learn,” says Mike Davies, director of Intel Corp.’s neuromorphic computing lab... Neuro-symbolic AI could also improve a system’s ability to explain itself, heading off the criticism that deep learning is a “black box” that reaches conclusions in incomprehensible ways, says Sriram Raghavan, vice president of IBM Research AI...
Ms. Choi of the Allen Institute believes that language understanding needs to be grounded in knowledge about how the world works. If a machine has a database of symbols that represent the real world—including objects and their behaviors and relationships over time—it can then learn to make inferences about scenarios involving those symbols. Ms. Choi and her colleagues used a neuro-symbolic AI approach to train a system to answer what can be assumed about a given situation, using a data set of nearly 900,000 manually written rules of thumb. For instance, for a situation involving someone dropping a match on a pile of kindling, the system can infer that the person “wanted to start a fire” or “needed to have a lighter.” The group’s research found that “neural models can acquire simple common sense capabilities and reason about previously unseen events.”
Again, symbolic learning too will have its deep limitations. Two in particular. One, to the extent that there are rules of thumb that need to be hard-coded, given its infinitude, how do we know something is enough? Two, even if capture all the first-order rules of thumb, how do we know that the second and third-order actions follow from the first-order rules and are not themselves distinct and self-contained rules?
11. Finally, a good examination of the Government of India's idea of creating a stock exchange for social impact investing by Ankur Sarin and MS Sriram. I think this is a very bad idea. At a headline level, it is most likely to degenerate into a lobby platform for tax benefits.
Given where we stand in modern market capitalism, we need less of market incentives and more of social norms if we are to not only promote social impact investing, but also not erode the beneficial incentives currently inherent in it.
11. Finally, a good examination of the Government of India's idea of creating a stock exchange for social impact investing by Ankur Sarin and MS Sriram. I think this is a very bad idea. At a headline level, it is most likely to degenerate into a lobby platform for tax benefits.
Given where we stand in modern market capitalism, we need less of market incentives and more of social norms if we are to not only promote social impact investing, but also not erode the beneficial incentives currently inherent in it.
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