1.Money changer

India needs to move forward on introducing an official digital currency

In contrast to India’s continued ambiguity over the legality of cryptocurrencies, its stance on introducing an official digital currency has been reassuringly clear and consistent over time. And, four years after an inter-ministerial committee recommended that India launch fiat money in digital form, the Reserve Bank of India has indicated that pilot projects to figure out its viability are likely to be launched soon. In a speech a few days ago, T. Rabi Sankar, Deputy Governor, RBI, said, “RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption.” The clarity is welcome, given that the much-awaited Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is yet to be introduced. In recent years, the significant rise of private cryptocurrencies such as Bitcoin and Ether has spooked central banks throughout the world, and pushed the case for official digital currencies. Mr. Rabi Sankar himself cited a 2021 BIS survey of central banks, which found that 86% were actively researching the potential for such currencies, 60% were experimenting with the technology, and 14% were deploying pilot projects. China, having already engaged in pilot projects for its digital RMB, is in fact planning a major roll-out soon. There has been little doubt, therefore, that India needs a digital rupee. The important questions are about the details and the timeline.

There are crucial decisions to be made about the design of the currency with regards to how it will be issued, the degree of anonymity it will have, the kind of technology that is to be used, and so on. It is possible that the question of the degree of anonymity, especially, will be quite a challenging one. While official digital currencies can borrow the underlying technology feature of private cryptocurrencies, they significantly differ from the latter in their philosophy and goals. Also to be considered are possible impacts of the introduction of an official digital currency on people, the monetary policy, and the banking system. There are risks to be considered as well, not the least of which will be those emerging from cyberattacks. What is more, many laws need to be amended to make the digital rupee a reality. So, while India might have done exceedingly well in digital payments in recent years — the Deputy Governor said they have grown at a compounded annual growth rate of 55% over the last five years — the digital rupee will be something else altogether. Notwithstanding all these challenges, it would seem that the answer to Mr. Rabi Sankar’s speech title, ‘Central Bank Digital Currency – Is This the Future of Money’, is a yes.

Background

With the creation of Bitcoin in 2008 till present date, cryptocurrencies have gained much significance all around the world. The gains made by this sector since the onset of Covid-19 pandemic in January 2020 are astounding; the “cryptomarket” grew by over 500%.

However, in the 2018-19 budget speech, the Finance Minister announced that the government does not consider cryptocurrencies as legal tender.

Considering the fact India was a late adopter in all the previous phases of the digital revolution – when semiconductors, the internet and smartphones made their mark, there is a need for a change in the thoughts and acceptance for these virtual currencies as they mark India’s first step towards entering the new phase of digital revolution.

Cryptocurrencies

• Rise of Cryptocurrencies: The pioneer cryptocurrency, Bitcoin, was traded at just $0.0008 in 2010 and commanded a market price of about $65,000 in April 2021.
  • Many newer coins have also been introduced since Bitcoin’s launch and their cumulative market value touched $2.5 trillion by May 2021.
• Significance of Cryptocurrencies:
  • Corruption Check: As blocks run on a peer-to-peer network, it helps keep corruption in check by tracking the flow of funds and transactions.
  • Time Effective: Cryptocurrencies can help save money and substantial time for the remitter and the receiver, as it is conducted entirely on the Internet, runs on a mechanism that involves very less transaction fees and is almost instantaneous.
  • Cost Effective: Intermediaries such as banks, credit card and payment gateways draw almost 3% from the total global economic output of over $100 trillion, as fees for their services.
    • Integrating blockchain into these sectors could result in hundreds of billions of dollars in savings.
• Cryptocurrencies in India: In 2018, The RBI issued a circular preventing all banks from dealing in cryptocurrencies. This circular was declared unconstitutional by the Supreme Court in May 2020.
  • Recently, the government has announced to introduce a bill; Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to create a sovereign digital currency and simultaneously ban all private cryptocurrencies.
  • In India, the funds that have gone into the Indian blockchain start-ups account for less than 0.2% of the amount raised by the sector globally.
    • The current approach towards cryptocurrencies makes it near-impossible for blockchain entrepreneurs and investors to acquire much economic benefit.

Issues Associated with Banning Decentralised Cryptocurrencies

• Blanket Ban: The intended ban is the essence of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. It seeks to prohibit all private cryptocurrencies in India.
  • However, categorising the cryptocurrencies as public (government-backed) or private (owned by an individual) is inaccurate as the cryptocurrencies are decentralised but not private.
  • Decentralised cryptocurrencies such as bitcoin aren’t or rather, can’t be controlled by any entity, private or public.
• Brain-Drain: Ban of cryptocurrencies is most likely to result in an exodus of both talent and business from India, similar to what happened after the RBI’s 2018 ban.
  • Back then, blockchain experts moved to countries where crypto was regulated, such as Switzerland, Singapore, Estonia and the US.
  • With a blanket ban, blockchain innovation, which has uses in governance, data economy and energy, will come to a halt in India.
• Deprivation of Transformative Technology: A ban will deprive India, its entrepreneurs and citizens of a transformative technology that is being rapidly adopted across the world, including by some of the largest enterprises such as Tesla and MasterCard.
• An Unproductive Effort: Banning as opposed to regulating will only create a parallel economy, encouraging illegitimate use, defeating the very purpose of the ban.
  • A ban is infeasible as any person can purchase cryptocurrency over the internet.
• Contradictory Policies: Banning cryptocurrency is inconsistent with the Draft National Strategy on Blockchain, 2021 of the Ministry of Electronics and IT (MeitY), which hailed blockchain technology as transparent, secure and efficient technology that puts a layer of trust over the internet.

2.Joining the dots in the second coming of Pegasus

This time, Pegasus shines a light on the Government for civil society to see it as a clear accountable entity

Pegasus is not a stranger to our shores. It first surfaced in our public discourse towards the end of 2019. Researchers from University of Toronto’s Citizen Lab called up some telephone numbers in our country and informed them that their WhatsApp chats were compromised. There were some stirrings, but the controversy died out quietly and disappeared from our public discourse. The attention then was predominantly on the issue of how secure WhatsApp was and how weak its claims of end-to-end encryption were. WhatsApp’s public relations exercise to reassure its customers of its safety and privacy grabbed disproportionate attention. All these deflected the public’s attention from our Government’s involvement in the ugly saga and the misuse of NSO of Israel’s spyware to snoop on its own citizens. Parliament and civil society let the Government off easily. Perhaps, the impression that the surveillance then was largely confined to the Bhima-Koregaon happenings also contributed to its limited appeal.

Signs of a surveillance state

Most of us failed to connect the dots. The frequent and prolonged instances of Internet shutdowns; use of the sedition law on critics of the Government’s policies; use of the Unlawful Activities (Prevention) Act (UAPA) ; rushing of crucial pieces of legislation affecting core sectors of our economy through the Houses of Parliament; consigning the data privacy Bill to a select committee; the framing of rules to rein in digital news platforms, and the demonic efficiency with which State governments were toppled appeared less dramatic and had no shock value as unconnected events. But if connected with each other, and the Pegasus spyware running in the background, they present a picture of India’s descent into a surveillance state.

Treated separately, each one of those incidents, caused little more than a few days of screaming headlines, reprimanding editorials, raucous prime-time television debates, weak and short-lived protests by political parties and rights activists. The probability that the second coming of Pegasus into our political discourse will not be very different from its first appears very real, if this too is treated as a separate and isolated event. Fortunately, this time it came with two major differences.

The targets now

This time the attention is exclusively on the Government’s role and there are no red herrings in the form of questions about the safety of encryptions offered by service providers. The people involved in the revelations are not just little known activists. They range from the Leader of the Opposition, a constitutional authority, a number of journalists, human rights activists, Ministers in the Government, ruling party leaders, several political leaders, serving or retired officers. The list also revealed that the government agencies made no distinction between state interests and the interests of the ruling party. The expansiveness of the global list of people named as intended targets of the spyware and the prestige of publications involved in cross-border collaboration are indeed arresting.

Pegasus’s second coming has yet another distinction. It foregrounds the collusion between government and weapons grade surveillance tech that has no intermediary functions to confuse us. The episodes that were hitherto played out as government versus tech in our country allowed the combatants to compete for our support. The government and the tech companies claimed to fight one another on our behalf. However, they were actually fights between tech and government for possession and control of our data. Government sought its possession to control society, to eliminate dissent and opposition. But it tried to portray to us that it sought to tame the tech companies to protect our interests, privacy, and the security of the realm. Tech companies sought to possess our data sets to make prediction products out of them and sell them to advertisers. Both the Government and tech companies vied for surveillance over us. One for control and the other for profits. However, there is always the undetected possibility of their interests coalescing. In the case of Pegasus the collusion is evident. The NSO Group does not compete with the Government for the possession of data surplus of its application. It is a pure and simple provider of surveillance-as-a-service to the Government. In the event, Pegasus this time shines a light on the Government for civil society to see it as a clear accountable entity.

Government stonewalling

It is evident that the Indian government till now is acting out of a standard play book. It is stonewalling. It has so far evaded the essential questions that are raised by the revelations. Ministers and representatives of the ruling party are questioning the credibility of claims made by the global consortium of media organisations that announced the startling revelations. They are accusing the publications of acting with ulterior motives to undermine India’s democratic institutions. Supporters of the Government’s narrative charge the publications with attempting to defame the country. The Government’s, and its supporters’, defence so far is essentially semantic quibble and based on raising doubts on the source of the telephone numbers that the media consortium says is from a leaked list accessed by media portal Forbidden Stories.

The uncommonly cautious wording of the preface to the consortium’s admittedly limited claims to their findings is sought to be used to undermine the extraordinary significance of its revelations. The consortium desisted from making sweeping claims. It said, the leaked list of 50,000 numbers “are believed to have been selected as those of people of interest by government clients of NSO Group”. The consortium also said that the list “indicates the potential targets” identified in advance by the NSO’s clients for “possible surveillance”. The list is only “an indication of intent” and the appearance of a number in it does not reveal “whether there was an attempt to infect the phone” or “whether any attempt succeeded”.

But amidst all this extraordinary caution is this devastating revelation which the Indian government chooses to deliberately ignore to indulge in semantic wrangling: “However, forensic examination of a small sample of mobile phones with numbers on the list found tight correlations between the time and date of a number in the data and the start of Pegasus activity — in some cases in as little as a few seconds.” Amnesty International’s forensic lab found that of the 67 phones examined, 23 were infected and 14 showed signs of attempts to penetrate. The rest were cases of possible change of devices or those using the Android operating system that did not keep record of logs needed for forensic work. By any standard this is considered an overwhelming basis for further investigation. It establishes an unquestionable basis for subjecting all the rest of the numbers from the list of 50,000 numbers for investigation. And in India’s case, all the 300 numbers from the country that were found in the list. Already, over 10 of them were forensically examined and found to be either successfully infected by Pegasus or attempted to be penetrated. That is enough of a case for a comprehensive investigation into the claims of the media consortium. But the Government narrative harps on words such as ‘indicative,’ ‘possible’ and ‘potential’ as being too general and dismisses snooping charges.

The Indian government’s defence that rests on questioning the source of the list has little merit. Investigative journalism is under no obligation to reveal its sources. In fact, it is ethically bound to not reveal in order to protect the identity of its sources.

As important as the questions that the Government forcefully articulates is its remorseless stonewalling of the most important question repeatedly asked of it. It does not tell us in unequivocal terms whether it has or has not purchased the Pegasus spyware. It did not answer that question during the country’s first brush with the spyware in 2019 too. Even today it seems to be firm in its resolve not to answer. It hopes to wear down the political opposition, activists, human rights groups, and civil society. It evidently thinks that it can wait out the news cycles to run their course. It probably can. Civil society and the media, cannot, beyond a point, keep the pressure on. A government with brazen determination, brute majority in the legislature, and as yet unchallenged political capital, can afford to wait out the limited firepower of its political opponents’ artillery.

Judiciary as bulwark

The only institution in the present situation that can make the Government accountable is the judiciary. The track record of our top court on major issues of defining importance to our national life is at best mixed in the recent past. What it chooses to do or not do now can make a difference to India. The options before it are clear as they are stark. To allow the present government a free run in turning India into a surveillance state is one. The other is to stop the Government in its tracks, restore to its people the gift of a free and liberal state that the founding fathers of the Republic gave them. The country has very little time.

Why in News?

WhatsApp recently filed a lawsuit in the U.S court against Israel’s NSO Group, alleging that the firm was incorporating cyber-attacks on the application by infecting mobile devices with malicious software.

Key Points

• Members spread across at least 20 countries in Africa, Asia, Europe, the Middle East, and North America were affected by the spyware.
  • Targeted users in India included journalists, human rights activists, political dissidents, lawyers, and diplomats.
• The spyware named ‘Pegasus’ is developed by the Israeli cyber arms firm NSO in 2016.
  • Pegasus exploited a weakness in WhatsApp’s video-call feature that allowed attackers to inject the spyware on to phones simply by ringing the number of targets’ device. It enters the phone even if the call is not answered.
  • Once Pegasus is installed, it can access the targeted users’ private data, including passwords, contact lists, calendar events, text messages, and live voice calls from popular mobile messaging apps.
  • It can also turn the phone into a spying device by switching on its camera or microphone.

3.Are law and technology a solution to fake news?

Stakeholders are attempting to find a robust and effective solution to sift fact from fiction

Fake news and its associated social problems have been a major concern and the Indian government has been attempting to bring in several legal amendments to deal with its creation, propagation and effects. Social media companies, too, are investing billions of dollars into technological solutions such as Artificial Intelligence (AI) to identify fake news and its proliferation. Are these the best solutions to solve a problem as old as humanity or is there any other effective solution?

Looking at statistics on the justice delivery system in India, the legal system needs to become more robust before it can be considered an effective solution. Further, the formulation of laws in themself do not prevent a wrong action.

When Timnit Gebru, former co-lead of Google’s ethical AI team, made an unceremonious exit, the MIT Technology Review identified the key aspects of her unpublished paper that had caused a stir within Google. In summary, to train large AI models, massive computing power and energy is required and this has been expanding since 2017, along with an ever-increasing carbon footprint. The Technology Review stated that the ‘Transformer’ model, as on January 2019, used 6,56,347 kilowatt-hour (kWh), producing a carbon footprint of 6,26,155 lbs of CO2 equivalent at a cloud computing cost between $9,42,973 and $32,01,722 for a single training of the AI model. Further, since the models tend to use text already present on the Internet, there is a tendency for the AI to reflect strong negative human biases.

Fake news is disinformation that has no basis in reality, but is presented as fact. Being designed to manipulate both the intellect and emotions of a person, it can evoke strong emotional reactions in its reader, which could sometimes result in violence.

In an experimental study conducted among first-year undergraduate History students, who were given some historical content, it was found that novice learners made claims that did not have supporting evidence, were either inaccurate or unrelated.

India’s diversity is its strength, but also the source for numerous conflicts that have persisted over the decades. These conflicts, being rooted in historical claims around politics, culture and religion, will intensify if the historical assumptions and data behind related fake news are not contextually analysed. The problem is aggravated with the decline in history learning programmes worldwide. While the National Council of Educational Research and Training (NCERT) curriculum has elements of historical thinking, State boards are primarily focused on the memorisation of content.

The Constitution of India provides a long-term solution under Article 51A (h), which says, “It shall be the duty of every citizen to develop the scientific temper, humanism and the spirit of inquiry and reform.” While the National Education Policy, 2020, captures the needs of the nation, it misses out on historical thinking.

Historical thinking is the set of thinking skills required for learning history. It consists of concepts like points of view, evidence, validity and reliability of the source, contextualisation, and corroboration, apart from other skills. Historical thinking skills can also be applied to law, forensic science, politics and research, and dealing with ‘fake news’.

In the case of fake news, a person would have to be able to read a piece of news, examine the source for bias and ascertain whether the claims being made are factual or whether they constitute deliberate misinformation. Since fake news is designed to appeal to emotion, it becomes all the more important that a person is skilled at interrogating evidence, contextualising the information and corroborating it with alternate sources. If historical thinking has such widespread application, why is it missing from active public discourse and in the education system?

At the two day G-20 summit in Osaka in Japan, the Prime Minister of India underscored the significance of Digital Economy & Artificial Intelligence. He emphasised the government’s reliance on the 5 ‘I’s that stand for Inclusiveness, Indigenization, Innovation, Investment in infrastructure & International cooperation in developing these two areas. The concept of Artificial Intelligence is based on the idea of building machines capable of thinking, acting, and learning like humans.

Artificial Intelligence (AI)

• It describes the action of machines accomplishing tasks that have historically required human intelligence.
• It includes technologies like machine learning, pattern recognition, big data, neural networks, self algorithms etc.
• The origin of the concept can be traced back to the greek mythology, although it is only during modern history when stored program electronic computers were developed.
  • Example: Million of algorithms and codes are there around the humans to understand their commands and perform human-like tasks. Facebook’s list of suggested friends for its users, a pop-up page, telling about an upcoming sale of the favourite brand of shoes and clothes, that comes on screen while browsing the internet, are the work of artificial intelligence.
• A Complex Technology: AI involves complex things such as feeding a particular data into the machine and making it react as per the different situations. It is basically about creating self-learning patterns where the machine can give answers to the never answered questions like a human would ever do.

AI is a Different Technology

• AI is different from hardware driven robotic automation. Instead of automating manual tasks, AI performs frequent high volume computerised tasks reliably.
• AI is often misunderstood for machine learning. AI is a broader concept with a bunch of technologies that include machine learning and other technologies like natural language processing, inference algorithms, neutron networks etc.

Evolution

• In the year 1956, American computer scientist John McCarthy organised the Dartmouth Conference, at which the term ‘Artificial Intelligence’ was first adopted. From then on, the world discovered the ideas of the ability of machines to look at social problems using knowledge data and competition.
• There used to be several dedicated projects on the same and the government was funding the research.
• Every aspect of science and especially when one starts looking at empowering machines to behave and act like human beings, the questions of ethics arise. About 70’s and late 80’s there was a time when the governments stopped funding research into AI.
• AI experienced a resurgence following concurrent advances in computer power and large amounts of data and theoretical understanding in the 21^st century.
• AI techniques now have become an essential part of the technology industry helping to solve many challenging problems in computer-science. From Apple Siri to self driving cars, AI is progressing rapidly.

AI Methods

India and AI

• According to a Canada based company’s report, Global AI Report 2019, India stood at the ninth position in terms of the number of the AI specialists working in the field. The US, China and the UK topped the list.
  • The top ranked countries in this report have many academic institutes with programs on AI. They have therefore a much greater number of people skilled to do research in the field.
  • India, on the contrary, lacks the opportunities in formal education in data science but is slowly trying to encourage the adoption of AI in educational institutes.
• Starting this year, the CBSE has AI as an elective subject for its ninth grade classes.
• IIT Hyderabad has launched a full fledged Bachelor of Technology (B Tech) program in AI becoming the first Indian educational institution to do so. It is also most likely the third educational institute in the world after Carnegie Mellon University and the Massachusetts Institute of Technology to have a full fledged B Tech program on AI.
• IIIT Hyderabad is another educational institute that introduced popular executive programs on AI and machine learning and blockchain and distributed ledger technologies.
• Defence forces of India are now venturing into the products and technologies which will aid defence measures using the AI and technologies.
• In India, corporates have started collaborating with academia on AI. IBM’s Blue project is an example.
• There are many startups in the country which are doing great work in image analytics, data analytics, predictive intelligence etc.
• It is estimated that AI will add 957 billion dollars to India’s GDP by the year 2035 boosting India’s annual growth by 1.3% points.

Benefits

• In Policing: India still has a conventional policing. AI based products open a new window of opportunity to do predictive policing in India. With the help of AI, one can predict the pattern of crime, analyze lot of CCTV footage which are available across the country to identify suspects.
  • Government is digitizing all the records, especially the crime records putting it into one single place called CCTNS where all the data including the image, biometrics, or the criminal history of a convict or suspect is available.
• In Agriculture: It has many uses, for example, it can help sense one how much water the crop needs.
• For solving complex issues like efficient utilization of available resources.
• Analyzing the Data: The AI technology helps in analyzing data and thus can improve the efficiency of the systems like power management in cars, mobile devices, weather predictions, video and image analysis.

Negative Impacts of AI

Steps taken by the Government

• In 2018-19 budget, the government mandated NITI Aayog to establish the National Program on AI with a view to guiding research and development in new and emerging technologies.
  • NITI Aayog then adopted a three pronged approach undertaking exploratory proof of concept AI projects in various areas, crafting a national strategy for building a vibrant AI ecosystem in India and collaborating with various experts and stakeholders.
• On 20^th March, 2019, NITI Aayog circulated the cabinet note to establish a cloud computing platform called AIRAWAT (Artificial Intelligence Research, Analytics and Knowledge Assimilation Platform.
  • The note circulated by NITI Aayog proposes that the government should pump in Rs. 7,500 crore rupees over 3 years as well as set up a high-level task force that will oversee the roll out and implementation of AI.
  • The move to create cloud computing platform is part of the government’s goal of making India a pioneer amongst emerging economies with regards to AI and transform sectors like education, health, agriculture, urbanization and mobility.
• In Budget 2018, the government announced funds to support the country’s AI, machine learning, robotics and IoT sector.
• As part of the initiative, NITI Aayog in the year 2018, published a draft National Strategy for AI, planning its scope for research, adoption and commercialization.
  • It envisioned AI use case clearly in the sectors like healthcare, agriculture, education, smart cities and infrastructure, smart mobility and transportation.
• The Commerce and Industry Ministry has also set up task forces to explore the use of AI and Big Data technologies in the country.
• In the Budget 2019-20, the government has announced setting up of a National Sports Education Board under Khelo India to prepare youth for new age skills, Artificial Intelligence, IoT, Big Data, 3D Printing, Virtual Reality etc.

AI in China

• China has been consistently building an ecosystem to fuel its ambition to become a world leader in AI by the year 2050.
• A report on China AI development released in the year 2018 said that from the year 2013 to the first quarter of the year 2018, the investment and financing in AI technology in China accounts for 60% in the world valued at 27 billion dollars in the year 2017.

4.Deal on Gogra, Hot Springs likely soon

India, China could reach an agreement for disengagement at the next round of military talks, say officials

India and China are set to hold the 12th round of Corps Commander-level talks aimed at resolving the stand-off in eastern Ladakh soon, and an agreement for disengagement at Gogra and Hot Springs is likely to be reached.

China had suggested July 26 as a possible date for the talks, but the Indian side conveyed that the day being Kargil Vijay Diwas, it would not be convenient. Fresh dates are expected to be agreed upon soon.

“The situation on the ground is stable. There have been no attempts to reoccupy the peaks vacated. The sense is they (China) are ready to disengage from all places. We got positive inputs and it will happen,” a senior defence official said. “We continue to talk at all levels.”

The two sides are also looking at a Major General-level talks to be held after the 12th round of talks, a second official said. Since the stand-off began, the two sides have held 10 Major General-level talks, 55 Brigadier-level talks and around 1,450 calls over the two hotlines. India and China have two hotlines for communication at Chushul and Daulat Beg Oldi.

Friction points

While disengagement was completed on both banks of Pangong Tso in February, the other friction points that remain to be resolved are Gogra and Hot Springs, Demchok and Depsang. The buffer zones established in some places as part of earlier talks remain in place. “Buffer zone varies from place to place,” the first official said.

In eastern Ladakh, India and China have two mutually agreed disputed areas — Trig Heights and Demchok — and 10 areas of differing perception. Officials said since the stand-off last year, additional five friction points have emerged. These are Km 120 in the Galwan area, Patrolling Points 15 and 17, and Rechin La and Rezang La on the south Bank of the Pangong Tso, the second official said.

“China wants de-escalation first and disengagement later which is not acceptable to India as they can bring back troops and equipment much faster then we can do,” the second official said. Some of the People’s Liberation Army’s (PLA) peace locations are located as far as 3,000 km from the LAC, but they can mobilise much faster, the official said.

Access issues

For India, the area is cut off for several months a year which is not the case with China. Both the Zoji La and Rohtang passes were kept open longer than usual last year due to the stand-off and are available for seven or eight months. Construction work on several tunnels is under way on a priority basis, including at Baralacha La and Tanglang La, among others, the officials said.

Stating that they have a clear picture of what the PLA is doing and they have vacated and gone back in some places, the official said China has not increased its troop levels since the stand-off began but has rotated its troops. The PLA, too, is closely watching the movements of the Indian military. “We have about 1,000 vehicles going up and down the Rohtang axis everyday,” the official added.

However, at least two officials said the Line of Actual Control (LAC) will not become like the Line of Control (LoC) with Pakistan with very close deployments by both sides. “The LAC will not become like the LoC. But the force levels have gone up as the trust is lost. All agreements are broken,” the first official stated. New protocols have to be worked out, another official stated

Kargil Vijay Diwas

• The Kargil Vijay Diwas is marked on July 26. It is celebrated in the honour of Kargil war heroes. The Kargil conflict is also referred to as Operation Vijay.

• There were three major phases in Kargil war. First, Pakistan captured the Indian controlled section of Kashmir at various high points.
• In the second phase, India responded by capturing several strategic high points. In the third phase, India succeeded in pushing the Pakistani forces back to the Line of Control.
• During the war, the Indian Air Force launched Operation Safed Sagar.
• The war was fought with great difficulties. This is because Kargil, the site of conflict is located at a height of around 16,000 to 18,000 feet above the sea level.
• Thus, the aircrafts were required to fly at 20,000 feet. At these heights, the density of air is 30% less as compared to that of the sea level.

5.China, Pak. outline ‘joint action’ to align Afghanistan strategies

Focus on preventing escalation of war, resolutely combating terrorist forces

China and Pakistan on Saturday said they would more closely cooperate and work together in Afghanistan amid the changing situation in the country, as their Foreign Ministers proposed building the China Pakistan Economic Corridor (CPEC) into “a hub of regional connectivity”.

Meeting in the Chinese city of Chengdu at the third strategic dialogue, China’s Foreign Minister Wang Yi and his counterpart Shah Mahmood Qureshi outlined a five-point joint plan on working in Afghanistan, the Chinese Foreign Ministry said in a statement.

Mr. Wang described the current situation as arriving “at an important juncture” as he criticised “the hasty U.S. withdrawal of troops” for having “neither fulfilled the purpose of fighting terrorism nor brought peace to Afghanistan but created a new security black hole,” the statement said.

He said “both China and Pakistan are most directly affected by the situation in Afghanistan” as its neighbours and it was “necessary for both sides to strengthen cooperation to cope with the change”, which he described as one of the focuses of the dialogue.

Mr. Wang outlined “joint actions” in five areas, starting with “the immediate priority of avoiding the expansion of war and preventing Afghanistan from falling into a full-scale civil war.” The second focus would be to promote the intra-Afghan negotiations between Kabul and the Taliban and establish “a broad and inclusive political structure”.

He said the third joint action would be “to resolutely combat terrorist forces”. Mr. Wang only named the East Turkestan Islamic Movement, which China has blamed for attacks in its western Xinjiang region, underlining China’s concern that instability in Afghanistan could spill over into Xinjiang.

There do, however, appear to be stark differences in how both countries appear to view the terror issue and the role of other outfits in Afghanistan. Earlier this month, Mr. Wang said in a meeting with his Afghan counterpart Mohammed Haneef Atmar in Dushanbe that the “Taliban should stand clear of any and all terrorist forces.” At the same summit on connectivity, Afghan President Ashraf Ghani publicly slammed Pakistan for failing to take actions to stop foreign terrorists from entering the country amid “an influx of over 10,000 jihadi fighters”.

The fourth joint action would be to “promote cooperation among Afghanistan’s neighbours” and “explore the construction of a platform for cooperation among them”. Both would also more closely work on international fora on the Afghan issue, Mr. Wang said.

Terror attack in Pakistan

Both sides, in a “joint press release” issued after the talks that was put out by Pakistan’s Ministry of Foreign Affairs, “reaffirmed their commitment to facilitate and support ‘Afghan-led and Afghan-owned’ peace and reconciliation process” and “their support for the peaceful reconstruction of Afghanistan”.

Both also “vehemently condemned” the recent terrorist attack in Pakistan in which nine Chinese engineers working on the Dasu hydropower plant were killed, along with four Pakistani nationals. Both sides “expressed their firm resolve to expose the culprits and their reprehensible designs through the ongoing joint investigation, give exemplary punishment to the perpetrators, ensure comprehensive safety and security of the Chinese projects, nationals and institutions, and prevent recurrence of such incidents”, the statement said.

The joint release also carried the now customary reference to Kashmir, saying the Pakistani side “briefed the Chinese side on the deteriorating situation in Jammu & Kashmir” while China “reiterated” its stand that it “opposes any unilateral actions that complicate the situation”, a position it has repeated in the wake of India’s 2019 reorganisation.

The Chinese side “reiterated its firm support to Pakistan in safeguarding its territorial integrity, sovereignty and independence” and “striving for a better external security environment,” the joint release said, adding that both sides had agreed to push forward the CPEC “with the aim to continuously unleash the great potential of CPEC to make it a hub of regional connectivity.”

On CPEC

China’s Foreign Ministry said in May both countries had been in communication with Afghanistan over extending the corridor. “Afghanistan has imported and exported related goods through the Gwadar Port and Karachi Port. China, Pakistan and Afghanistan are discussing issues related to extending roads and expressways in Pakistan to Afghanistan,” spokesperson Zhao Lijian said, adding that “the CPEC is an economic initiative that is not aimed at third parties, and has nothing to do with territorial sovereignty disputes… and won’t affect our principled position on the Kashmir issue.”

India has opposed the CPEC, which passes through Pakistan-occupied Kashmir, although China has pushed ahead with projects and stepped up its

Information

What is OBOR

• One Belt One Road (OBOR) is an ambitious project that focuses on connectivity and cooperation among multiple countries spread across the continents of Asia, Africa and Europe. OBOR spans about 78 countries.
• Initially announced in the year 2013, the project involves building networks of roadways, railways, maritime ports, power grids, oil and gas pipelines and associated infrastructure projects.
• The project covers two parts.
  • Silk Road Economic Belt: It is land-based and is expected to connect China with Central Asia, Eastern Europe and Western Europe.
  • 21st Century Maritime Silk Road: It is sea-based and is expected to connect China’s southern coast to the Mediterranean, Africa, South-East Asia and Central Asia.

Stated Official Benefits

• China continues to pitch OBOR as project for regional development involving Infrastructure development to enhance transnational and cross-regional connectivity as a priority area for cooperation.
• Economic and trade cooperation among OBOR countries.
• Expansion of production capacity and investment cooperation among the OBOR countries.
• Cooperation and exchanges in cultural, social and other fields.

Advantages of OBOR for China

• It will help China in developing its western region, ensuring safe navigation over sea and improving strategic and economic relations with neighbouring and far-west countries.
• It will help China secure access to energy and mineral supplies allowing China to overcome the “Malacca Dilemma” through access to maritime facilities in the Indian Ocean, granting it an important strategic advantage
• OBOR will strengthen China’s presence in the Eurasian region and puts it in a commanding position over Asia’s heartland.

Potential Advantages to India

• It will help India’s border and outlying areas to develop infrastructure that it presently lacks.
• Funds from financial institutions may be more easily available and support from China and its infrastructure construction companies may also then be readily available.
• This project will help Improve connectivity with India’s neighbours improving economic, diplomatic and strategic relationship.

Issues with OBOR

• Implementation of this project will take many years to complete and also carries risks of failure.
• OBOR’s financing is through loans extended to member countries. Chinese Loans for infrastructure projects are made with understanding that the developing countries award construction contracts to Chinese companies.
• China benefits from both financing and construction of infrastructure projects, while developing countries will bear the financial risk.
• The Centre for Global Development in Washington reckons that eight belt-and-road countries are at risk of debt distress; among them are Laos, Mongolia and Pakistan.
• China will acquire controlling interests in the ports if member countries fail to repay the loans. This situation can prove strategically disadvantageous to member countries.

CPEC

• The CPEC is bilateral project between Pakistan and China, intended to promote connectivity across Pakistan with a network of highways, railways, and pipelines accompanied by energy, industrial, and other infrastructure development projects linking the Western part of China to the Gwadar Port in Balochistan, Pakistan running some 3000 km from Xinjiang to Balochistan via Khunjerab Pass in the Northern Parts of Pakistan.
• It will pave the way for China to access the Middle East and Africa from Gwadar Port, enabling China to access the Indian Ocean and in return China will support development projects in Pakistan to overcome the latter’s energy crises and stabilizing its faltering economy.
• CPEC is a part of OBOR.

Issues with CPEC

• CPEC Passes through Pakistan-occupied Kashmir (PoK) and Baluchistan, both of which are home to a long-running insurgency where it faces terrorism and security risks.
• China would also disseminate its ideology and culture in Pakistan through terrestrial distribution of broadcast TV, which will cooperate with Chinese media in the “dissemination of Chinese culture”. A similar Sinification is visible in the Mandalay town of Myanmar which has impacted local architecture and culture.
• CPEC project’s lack of transparency and accountability is a cause of concern, as it may be skewed in favour of China economically and strategically.
• Chinese approach of not partnering with local companies will not help Pakistan create job opportunities.
• The project may undermine Pakistan’s sovereignty as its foreign policy, especially with India may be dictated by China, complicating the already estranged relations and create political instability in the South Asia;
• The political tension in Afghanistan also may severely impede the benefits of transit corridors in South Asia.

India’s Objections to OBOR-CPEC

• India has not supported OBOR. China’s insistence on establishing the CPEC project through PoK is seen by India as infringing its sovereignty.
• China is building roads and infrastructure in the disputed territory of Gilgit-Balistan, which is under Pakistan’s control but which India claims as a part of Jammu and Kashmir.
• If CPEC project gets implemented successfully, this would hamper India’s strategic interests in the South Asian region. It will serve Beijing’s strategic ambition to encircle India.
• CPEC can aid Pakistan’s legitimacy in the Kashmir dispute.
• China’s increasing footprints in the South Asian region is detrimental to India’s strategic hold e.g. construction of the Hambantota Port in Sri Lanka provided China critical strategic location in Indian Ocean.

6.Inflation isn’t in your control, so worry not

If prices are rising quickly, your investments should compensate for the trend; but that does not mean changing your portfolio allocation strategy

These days, a lot of opinions are being voiced on how high inflation is eating into your returns on investments, and how net-of-inflation return, particularly from debt investments, is negative. Those arguments have merit. However, there is a counter to that, too.

The fact that you have a disease and medicines are available does not mean you take the medicines — they should be appropriate for your symptoms and suitable for you.

How do you determine what is appropriate or suitable?

Investment objectives

The primary aspects on which your investment portfolio should be based are your investment objectives, financial goals, time horizon, risk appetite and the risk-return profile of the investments.

While your net-of-inflation real return ought to be positive, your portfolio allocation should not be distorted when inflation is high. As an illustration, if your appropriate portfolio allocation is 60% equity and 40% debt, it should not be 100% equity when inflation is high. If you have the risk appetite for 100% equity in your portfolio, it should have been 100% even when inflation was low. It is generally agreed that for retired senior citizens, equity allocation should be on the lower side. If that is distorted when inflation is high, it means going against the grain.

When inflation rate is high, the relevance for you is that prices of goods and services you consume are rising and that should be compensated for by your investments. If the return on investments (RoI) is lower than inflation, then at the end of the period, the worth of your principal will be less than earlier as it can help buy fewer goods and services than it could before. If your returns are higher than inflation, then it enhances value.

For example, if inflation is 5% and your RoI is 10%, you are well off. If your RoI is 5%, your investment is not making you any better off. Now, if your RoI is 5% and inflation is 6%, your principal is worth less than earlier. In such a situation, what should you do? Nothing much. If you increase the equity allocation in your portfolio just to beat inflation, it may not suit your risk profile. If you take lower-credit-rated, higher-yielding debt, it would raise the credit risk in your portfolio and that also may not be suitable.

Pace of rising prices

Inflation is the pace of rising prices. Of what? If you are basing the allocation in your investment portfolio on inflation, it should be on the basket of goods and services you consume. But that is not the case. The inflation data we see monthly, announced by the Centre, is the inflation for a given basket of goods across the country. But every individual’s lifestyle is different.

Consumption baskets vary across profession, age, location, gender, taste, preference and the like. Hence, the inflation number is at best an approximation of trends in the economy.

Then how would you know what part of the inflation number is relevant for you i.e. your consumption basket? Unfortunately, in a country of 138 crore people, it is not possible to measure as many unique inflation rates.

What does the consumer price inflation basket in India comprise? Almost half the basket constitutes food and food products.

While food is the major chunk of expenses for many people, it is not so for everybody, particularly in upper-income brackets.

Services are missing in the CPI basket, except for house rent and certain aspects of transport / communication. We consume services such as doctor consultation, dining at restaurants, haircuts at salons, app-based cab services, data/wi-fi, education/coaching, driver and domestic help. Net-net, if the headline inflation data for the month, as we see in the media, is say, 5%, then the inflation for your unique individual consumption basket may be, say 7% or even 3%, which is not evident to us. So, it may not be appropriate to build your investment portfolio based on a variable that may not apply to you. What does it all boil down to? The issue at hand is negative real returns in debt investments. Inflation is high, but does not typically remain as high forever. In 2020, CPI inflation averaged 6.6%.

The forecast for FY22 from the RBI, in the last policy review on June 4, was 5.1%. The projection can go wrong as there are certain pressures on inflation such as high crude oil prices, high metal prices, money circulation in the economy being higher than earlier or lockdown-induced supply constraints. These pressures could mean that even if inflation is higher than 5.1%, it could be lower than 6.6%. If you change your allocation, e.g. from debt to a more volatile asset class or high-yielding debt, you are reacting to something not in your control. Inflation and its measurement via a generic basket of goods is not in your control. Market movement, i.e. equity price levels or interest rate levels are not in your control. What is, is your investment portfolio. That should be based on proper, logical criteria about which you must be clear.

Inflation

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
• Inflation measures the average price change in a basket of commodities and services over time.
• Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency.
  
  
  • This could ultimately lead to a deceleration in economic growth.
• However, a moderate level of inflation is required in the economy to ensure that production is promoted.
• In India, inflation is primarily measured by two main indices —WPI & CPI which measure wholesale and retail-level price changes, respectively.

Wholesale Price Index

• It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• It is the most widely used inflation indicator in India.
• Major criticism for this index is that the general public does not buy products at wholesale price.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

Consumer Price Index

• It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
• Four types of CPI are as follows:
  
  
  • CPI for Industrial Workers (IW).
  • CPI for Agricultural Labourer (AL).
  • CPI for Rural Labourer (RL).
  • CPI (Rural/Urban/Combined).
  • Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI is 2012.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation. In April 2014, the Reserve Bank of India (RBI) had adopted the CPI as its key measure of inflation.

CPI vs. WPI

• WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.
• WPI does not capture changes in the prices of services, which CPI does.