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Samir Saran & Vivan Sharan: Behind the lines of credit

The government should use lines of credit to transition India’s economic engagements towards a more durable, defined framework

by Samir Saran & Vivan Sharan

March 28, 2015 Last Updated at 21:48 IST, Business Standard

Original link is here

Last year Indian PM Narendra Modi announced a $1 billion concessional line of credit (LoC) on his maiden visit to Nepal. More recently he announced a concessional LoC in his March visit to Mauritius of $500 million for civil infrastructure projects, and a similar line to Sri Lanka of $318 million for development of railway infrastructure. Clearly, LoCs are becoming a key arrow in India’s economic diplomacy quiver.

The Indian government subsidises the interest rate on concessional LoCs under its Development Cooperation Programme. Since LoC projects are demand-driven, recipient countries first have to make a request for a LoC to the ministry of external affairs, which considers political and economic aspects before handing over the structural and disbursement process to the ministry of finance and the Export Import Bank, respectively. The sheer size of the LoCs committed to Nepal and Mauritius in particular is indicative of the shift in India’s foreign policy priorities towards its neighbours.

The importance given to LoCs comes at a critical juncture in the global development discourse. There is little agreement on a ‘universally applicable’ global development agenda. The heydays of structural macroeconomists arguing for deficit reduction as a precondition to ‘development assistance’ are perhaps behind us. In the aftermath of the global financial crisis, OECD countries are racking up large debts in an attempt to spend their way out of deflation. As world leaders prepare to negotiate Sustainable Development Goals to succeed the Millennium Development Goals, key development questions will be up for debate.

The negotiations will be rough and tough. A number of politically sensitive questions must be addressed if a truly inclusive and sustainable development agenda is to be crafted: What should be the measure of effectiveness of financial flows, such as LoCs? Who or which body should have the mandate to measure this effectiveness? How critical a role will financial markets play in the maximisation of development impact? What should be the criterion for assistance? How can economic incentives between development partners be aligned?

A study by the Observer Research Foundation on India’s concessional LoCs to East Africa has helped shed light on some of these issues. One of India’s largest LoC tranches, of $640 million, has been given to the Ethiopian government for expanding sugar refining operations. According to the Ethiopian Sugar Corporation, production from three assisted plants, which would total close to 1.6 million tonnes of sugar annually, would help Ethiopia become a net sugar exporter. The effectiveness of LoCs, therefore, is closely tied to the shift away from structural import dependence. The Ethiopian exchequer could earn $376 million annually through sugar exports from 2015, but the qualitative impact is perhaps wider. The credit extended will help generate livelihoods both directly and indirectly through infrastructure and supply chain creation; it will generate additional revenues for development objectives and create a new industrial ecosystem. Given that this entire process was demand-led, local stakeholders are perhaps best-equipped to measure the developmental and economic impact of the LoC.

From the Indian perspective, two aspects must be revisited to exponentially increase the impact of such LoCs. First, the role of the local agency is central. Often, countries from where LoC demands originate require handholding and technical support. The commercial sections of Indian missions in countries to which large development flows have been committed require support of experts and technocrats. Since the Indian Foreign Service is smaller than New Zealand’s, it is vital that the government breaks down silos reserved for diplomats, and supplements its missions with professionals possessing the requisite expertise in handling and supporting commercial projects. Prime Minister Modi would know that economic outcomes are not going to wait for the Indian bureaucracy to reform or for officials to reconcile themselves to the fact that horizontal hires need to be paid market wages. Billions of dollars are at stake, important relationships need nurturing and none of this should be jeopardised by a handful of egos.

The second key issue is the involvement of Indian vendors in funded projects. Under the concessional LoC framework, recipient countries have to procure a variable proportion of goods and services (between 65 and 75 per cent) from Indian firms towards project implementation. Anecdotal evidence gathered for the ORF study suggested that the pre-tendering and tendering processes have much scope for improvement. Given this government’s emphasis on expanding the Indian industrial base, there is an opportunity to make the LoC-linked tendering process more competitive and inclusive. Many stakeholders privately confessed that the process is not transparent and is geared to cater to a select few. The government must, therefore, use the new commitments to Nepal and Mauritius as an opportunity to revise the tendering process and to offer a level playing field. The bureaucracy must be kept at arm’s length from market operations in order not to replicate the very system of state patronage that the Indian PM hopes to dismantle.

In 2012, the total amount of open LoCs crossed $10 billion and this instrument is only likely to gain further prominence. Yet India is itself a developing country with urgent development needs of its own, and a limited budget. Thus the Modi administration must extract maximum ‘bang for the buck’ from LoCs, while making sure that the concessional lending programme can stand the strictest tests of public scrutiny. For this, the first step is to institute a stakeholder feedback process that would include the private sector, civil society and perhaps even unbiased voices from recipient countries. Recipient governments rarely critique the Indian government, as it would be considered ‘undiplomatic’. What would distinguish the new administration from its predecessors would be the willingness to actively solicit criticism and refine existing processes for the larger public good and efficacy of its primary instrument for economic diplomacy.

In the early post-independence years, the thrust of India’s external engagements and economic diplomacy (not necessarily described as such) was with countries with similar colonial experiences and economic realities in the neighbourhood and Africa. More recently, its engagements in groupings such as BRICS have resulted in new development financing instruments like the recently announced New Development Bank. The country’s involvement in the G20 following the financial crisis compelled India to commit to an IMF-led euro zone-focused stabilisation fund. The new government must now attempt to transition India’s economic engagements towards a more deliberate, durable and definitional framework. Well-administered LoCs offer a great avenue to do this – and therefore must be given commensurate strategic priority and attention.

The writers are with the Observer Research Foundation, New Delhi

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Indian court rejects ban on ‘offensive’ Internet messages

Associated Press

KATY DAIGLE, March 24, 2015

An Indian man sits on a hospital stairs and looks at his smartphone in New Delhi, India, Tuesday, March 24, 2015. India’s top court reaffirmed people’s right to free speech in cyberspace Tuesday by striking down a provision that had called for imprisoning people who send “offensive” messages by computer or mobile phone. The provision, known as Section 66A of the 2008 Information Technology Act, says sending such messages is a crime punishable by up to three years in prison. (AP Photo/Altaf Qadri)

NEW DELHI (AP) — India’s top court affirmed people’s right to free speech in cyberspace Tuesday by striking down a provision that had called for imprisoning people who send “offensive” messages by computer or cellphone.

The provision, known as Section 66A of the 2008 Information Technology Act, had made sending such messages a crime punishable by up to three years in prison.

In its ruling, the Supreme Court said the provision was “clearly vague” in not clarifying what should be construed as offensive. It also said the provision violates people’s freedom of speech and their right to share information.

“The public’s right to know is directly affected,” the judges said in deeming the provision unconstitutional.

A law student who filed the challenge in 2012, Shreya Singhal, applauded the court’s rejection of a provision she said was “grossly offensive to our rights, our freedom of speech and expression.”

“Today the Supreme Court has upheld that, they have supported our rights,” Singhal said. “I am ecstatic.”

The law has been invoked in at least 10 recent cases, most often involving criticism of political leaders.

In 2012, a chemistry professor and his neighbor in Kolkata were arrested for forwarding a cartoon that made fun of West Bengal’s top elected official, Mamata Banerjee.

Police arrested a man last year for saying on Facebook that Prime Minister Narendra Modi, then still a candidate, would start a holocaust in India if elected to office.

And last week, police in the northern state of Uttar Pradesh arrested a teenage student for posting comments on Facebook he attributed to a top state minister.

The student, jailed for two days before being released on bail, told reporters he was happy the provision was scrapped, though he was still recovering from “a very rough time.”

Former finance and home minister P. Chidambaram welcomed the court’s ruling, although his son had filed a police complaint in 2012 against a businessman for allegedly disparaging him in Twitter messages.

“The section was poorly drafted and was vulnerable,” Chidambaram said of the law, which was passed while his Congress party was in power. “It was capable of being misused and, in fact, it was misused.”

Cyber analysts said the ruling marked a positive step in ensuring that the Internet would be governed by the same norms and laws as newspapers, TV commentary and other forms of communication as India’s Internet users increase from today’s 100 million online.

“This sets the tone for the future of India’s democracy and participation in this medium,” said Samir Saran of the New Delhi think tank, Observer Research Foundation. “It’s the ethos around freedom of expression that is being reaffirmed. It tells us that arbitrary executive infringements of the constitution will be struck down.”

He and other analysts said, however, that there was still more work to be done in guaranteeing the Internet was governed fairly, including a provision that allows the government to block websites without announcing or explaining its decision to do so. The Supreme Court on Tuesday upheld that part of the law.

“That’s wrong. That’s bad,” Saran said, calling for a review to decide criteria for “why something should be blocked and when it should be blocked.”

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Securing digital terrain

Analysis, Observer Research Foundation , ORF Cyber Monitor , 17 March 2015

Original link is here

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The Sony hack is a textbook example of the fog of cyberwar. The whole incident is a telling manifestation of the many aspects of cybersecurity: There is the allegation of a state-sponsored international incident by North Korea and the promise of a ‘proportional response’ by the United States of America. The Sony hack brings to mind the question of state behavior in cyberspace; the threat to business advancing public-private cooperation in combating such attacks; and the question of motive – an assault on the freedom of expression, as opposed to the more predictable motivations of theft, terrorism and war.

Other countries, including India, have observed the consequences with keen interest. This includes the disruptions in North Korea’s Internet connectivity that followed immediately after the attack was successfully attributed to the authoritarian North Korean state by the US. How does this episode play out against all the narratives built to understand and respond to cyber security threats?

At the outset, there are larger questions to consider.

The first is the fundamental understanding that access to the Internet is an essential feature of security; that without connectivity, the citizen is not plugged into the system, as he cannot engage digitally with either his fellow citizenry or the state. After all, security cannot be for security’s sake. It must be based on the premise that security infrastructure is to protect its people, its nation-state, its economic interests within its territory and globally. To this end, India’s ambitious ‘Digital India’ project, which has committed an investment of $21 billion with the stated ambition to secure lastmile connectivity and effective e-governance for every citizen, is only a partial response to the enormous challenges facing the Indian subcontinent in its digital endeavors.

The second question relates to the fundamental tension between development and security. This holds especially true for developing countries like India. They are witnessing rapid internet proliferation, a phenomenon that goes hand-in-hand with cheap devices with questionable security standards and a digitally naïve population susceptible to hackers, thieves and phishers alike. They will be susceptible to sophisticated attacks as well, as they build up their capacity. The inevitably linked trilemma of security, privacy and surveillance, in the face of complex challenges has raised many-layered problems in need of examination. Finding a balance between surveillance and privacy in order to secure citizens without infringing their rights is the order of the day. But countries are struggling to achieve this equilibrium.

Most recently, the UK – to the horror of privacy activists everywhere – has come out in favor of banning encryption to intercept communications so as to ensure security more effectively. There is also the need for accountability of state intelligence agencies. They can quite easily infringe on citizens’ personal communications in their zeal to catch the bad guys. Therefore a strong mechanism needs to be put in place to ensure they are encouraged to act responsibly.

There is also a need for governments, private sector companies and civil society, including those fighting for individuals’ rights, to cooperate in creating robust cyber security frameworks. Key questions on the quality of interconnectivity and appropriate mechanisms for securing critical infrastructure have to be addressed. What are the costs of cyber security and how will they be shared? Who will define and how will we all agree to what is the optimal level of security in cyberspace? What is the role of the private sector in this regard? Governments cannot begin to understand the range, frequency and severity of the attacks on their countries unless critical infrastructure operators and private enterprises share this information with them. In many countries confidence building measures are necessary to develop this relationship.

Thirdly, given that attacks do not only originate from criminals and terrorists, an understanding – ‘norms’ – of state behavior in cyberspace need to be fleshed out. This could be done by way of universal multilateral agreements (desirable but unlikely) or by consensus between like-minded states who wish to set rules of engagement (less inclusive but more efficient). Countries also need to examine what can best be described as ‘unintended consequences’ of state behaviour. For example, the Stuxnet virus, which exploited a weakness in the Microsoft operating system, affected 18 percent of computers in Indonesia and 8 percent in India, causing these countries great financial loss as they had to upgrade their systems to counter the virus.

At the same time, no conversation about cyber security can be complete without addressing online terror. Online terror networks, aided by the multiplicity of communication networks over the Internet, have become a common cause of concern for individuals and states alike. This growing threat cannot be countered unless solutions that enable real-time information sharing between countries are developed. These questions – and more – were at the core of the debates at CyFy 2014 – the India conference on Internet Governance and Cyber Security hosted by the Observer Research Foundation. India’s Deputy National Security Advisor emphasized the importance of international norm-building and central role of the UN Group of Governmental Experts. He stated that “the Indian position on these issues will continue to evolve?”, adding that this group of experts “is a useful forum, but it should be made more representative.” India’s Minister of Communications and Information Technology echoed a similar thought at CyFy – “?this unhindered growth of networks of infected computers across the world – how do we propose to address this problem in the absence of global cyberspace norms to regulate and guide responsible behaviour in cyberspace?”

Which brings us back to the incident involving Sony, North Korea and the United States. It shines the torch on cyber security, state behavior, damages, responses and attacks on freedom of expression. Do we have a blueprint or a road map to respond to such developments? Maybe not – and therefore 2015 will be a vital year for finding common ground to keep the digital world secure.

(The author is Vice President and Senior Fellow at Observer Research Foundation, Delhi. This article originally appeared in The Security Times, a special edition of the Atlantic Times for the Munich Security Conference, February 2015.)