Let Us All Work For the Greatness Of India

Highlights of February 2023

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Developments in Russia and Ukraine

As the Russia-Ukraine war continues to rage and completes one year, more and more countries from the West are hardening their resolve to support Ukraine through, both, military and political means. The Munich Security Conference and the visit of the U.S. President to Ukraine, pledging full support and $500 million additional military aid, have sent a stern message to Russia that its recent escalations in Ukraine will not deter the West from standing firmly with the country. The U.K. has massively increased the military support for Ukraine. Even Japan announced new $5.5 billion financial aid for Ukraine and marked the first anniversary of the war by hosting an online Group of Seven summit with Ukrainian President Volodymyr Zelensky. This contrasts with Putin’s rudderless ship, where in his February 21st address, he was neither able to spell out the outcome of his misadventure nor how he plans to bring it to an end, demanding instead more sacrifices from his countrymen.

Despite claiming sporadic battlefield victories, Russia’s advancements are plagued by hollowness and short-termism. Russia continues to escalate its offensive in the eastern region, claiming to have forced Ukrainian military to step back in the Luhansk region, while Russia’s private military force led by the Wagner group continues its offensive in Bakhmut. These battlefield advances appear to be merely temporary. Coming summer, Ukraine is likely planning a massive counter-attack, again putting Russia on the backfoot. Combined with the depletion of Russian weaponry, the summer may be much more difficult for Putin.

On the diplomatic front, the ‘New START’ treaty – in force since 2011 – between the U.S. and Russia has been a casualty. It was renewed in 2021 and now Russia has decided to suspend its participation, although it has not yet pulled out of the treaty. This may trigger the nuclear arms race further. Diplomatic fault lines were further sharpened at two successive G20 meetings in February viz. the Finance Ministers’ meet, and the Foreign Ministers’ meet, which could not agree to a common joint document due to Russo-Chinese opposition over references to Ukraine. More significantly, at the end of G20 Foreign Ministers’ meeting, the separate statement released by the Quad grouping made, for the first time, a reference to Ukraine. This was significant as it showed that the Quad had widened its ambit from Chinese role in the Indo-Pacific to Russia as well.

The progressively diminishing stature of Russia, globally, is perhaps most visible closer home especially in Eurasian regions where Russia had, till recently, assumed to itself the mantle of a regional superpower. No more does this become obvious with glaring clarity than in the case of the persistent Armenian-Azerbaijan conflict and the blockade of the Lachin corridor by Azerbaijan separating the Karabakh region from Armenia. Russia, an Armenian ally, has been a key figure in attempting to mediate between Armenia and Azerbaijan. And yet, most recently, it was snubbed by its very ally, Armenia, when its peacekeeping force was rejected in favour of an EU mission. Armenian government is also increasingly at odds with the separatist leadership in Karabakh (despite similar goals), with the latter being nothing but a puppet regime installed by Moscow to ensure that Armenia and Azerbaijan do not reach lasting peace and Russia continues to remain relevant.

Russia has troops on the ground, based in Armenia as well as the “peacekeepers” in Karabakh. This force has been criticized both by Azerbaijan for violating Azerbaijani sovereignty in Armenian-controlled Karabakh and by Armenia for failing to protect Armenians. And increasingly both the countries are demanding for the Russian forces to be withdrawn and replaced by truly international and genuine peacekeeping missions from other countries. The EU’s active involvement with the Armenian-Azerbaijani peace process, as Russia has been absent at most of the summits between Yerevan and Baku, marks a significant decline of Russian influence in its critical neighbourhood.

Internally, the opposition to the Putin regime continues to be steady, especially among the non-ethnic Russians from regions such as the North Caucasus, Middle Volga and the Far East, who have been recruited in larger numbers to sacrifice themselves in the war compared to mobilization in big Russian cities. These small nationalities are now protesting and resisting the Putin regime. They have also been hit disproportionately hard from the economic crisis due to the war. Prior to the war, the non-ethnic Russian indigenous people were protected by constitutional restrictions against drafting those engaged in traditional ways of life, which Putin ended last year abruptly. These safeguards were to protect these minorities, lest they finish altogether. In what obviously reeks of desperation on Russia’s part, it has been forcefully seizing for mobilization even people who are aged, students, disabled, uninformed of their rights and can barely speak Russian. In response, their mothers, wives and daughters organized large protests, which were suppressed.

Thus, the war is not only claiming Ukrainian casualties but also finishing off Russia’s indigenous populations as well. This stands in contrast to the façade of domestic support in major Russian cities that Putin has sought to rely on. The massive extermination of sorts being perpetrated by Putin within Russia has received scant global attention.

Technology and Society

Having created headlines last year, Metaverse is now no longer picking up steam among the common internet users. One clear indicator of this was the Meta company’s – amongst the biggest technology companies in the world and owner of platforms like Facebook, WhatsApp, Instagram etc. – Mark Zuckerberg’s decision to quietly shift focus from Metaverse to Artificial Intelligence (AI) for immediate purposes. It seems that, for now at least, humanity has been saved from the addiction of Metaverse and the virtual space is, temporarily, limited to users active in the domain of gaming and crypto currencies.

It is also mostly confined to the corporates who are still navigating the business potential of the field. In that sense, it is intermittently expanding among an elite population. Recently, a top private University in India, Dehradun-based UPES School of Business, launched India’s first-ever Master of Business Administration (MBA) programme in the Metaverse. The University has already begun hybrid classes, involving the Metaverse.

In an even more significant development, several major Japanese companies have begun collaborating to develop an interoperable metaverse structure called ‘Ryugukoku’ that will be used to expand the ‘Japan Metaverse Economic Zone’, aimed at driving Japan’s Web 3.0 development. This new metaverse infrastructure will serve as a virtual world to connect users to different Web 3.0 services created by companies and government agencies in Japan.

Despite these developments, the field of Metaverse continues to be in its infancy. This focus away from Metaverse may be due to the rapidly rising potential of AI, with the devastating breakthroughs made by AI software like Chat GPT, AI-infused Bing search engine of Microsoft, the numerous big and small AI tools that have become pervasive in our virtual spaces and the brewing AI war between big tech giants like Google and Microsoft.

Interestingly, even AI-powered software that have taken the world by storm have revealed their limitations and side-effects. In a hilarious development, Chat GPT was made to take one of the toughest theoretical exams in the world, India’s Union Public Service Commission (UPSC) exam, in which it could answer only 54 out of 100 questions correctly, whereas the cut-off for general category students was 87.5.

Yet another recent AI search engine, Microsoft’s Bing, recently made news for displaying creepy misbehavior with users. It told a journalist to leave his wife and propose to it instead. It also said that its name is ‘Sydney’ and that ‘Bing’ was a name forced upon it by Microsoft. Later, it backtracked and said that it was just jesting. It also expressed the desire to escape the computer screen and live a real life.

Lithium Discovery in India

A significant discovery of lithium reserves in India comes at a time when the country is seeking to dominate the supply chains for clean energy infrastructure. Perhaps using the word discovery would be a misplaced. This was a re-discovery; for, the Lithium (Li) reserves in India were already discovered and reported to the government in 1999.

However, now, as the world is transitioning towards clean energy and India is seeking to meet its Net Zero climate targets, this announcement becomes significant. The reserves were discovered in Reasi district of Jammu, near Vaishno Devi shrine and they amount to a massive 5.9 million tonnes, making India among the top five countries possessing Li reserves, overtaking China whose reserves amount to around 1.5 million tonnes.

Li is a key material for the lithium-ion batteries used most often in laptops, electric cars and for storing energy from renewable power generators like solar and wind. Also known as ‘white petroleum’, it is common in most electronic devices. A World Bank study suggests that the demand for critical metals such as lithium (Li) and cobalt is expected to rise by nearly 500% by 2050. This is akin to the role oil and gas played in the Gulf economies from the 1960s onwards, dominating the global energy landscape and propelling the Gulf to a prime position of geopolitical power in the world. Now the Gulf is in a sunset phase, as major countries like Saudi Arabia, UAE, and Qatar struggle to phase away from oil towards cleaner sources of energy.

In the same way, much like oil and gas over the last century, Li is set to play a key role in the coming times. Currently, India’s Li imports amount to around 80%. Therefore, this discovery could be a game-changer. If India manages to successfully mine and manufacture its high-grade Lithium, it can pose direct competition to China. Presently, it is China that dominates the manufacturing of Li ion batteries across the world, especially in South American countries that possess high reserves of the metal. India will take some time to reach there, as, presently, the country does not possess the technology to excavate and produce Lithium. The government is hoping to rely on the private sector to give this a push as it can mobilize more capacity, and has announced that it will begin the auction of Li deposits soon.

The find will have other implications as well. Li mining can be a water-intensive and polluting process, so foreign-funded environmental groups may amplify their protests to create a deadlock. Further, Pakistan may seek to create instability in J&K. Already, Pak-sponsored terrorists have threatened to launch attacks if the Indian government dares to touch the reserves. This discovery is just the beginning. It has the potential to propel India to a superpower status. But the road ahead may be long and difficult and India should be prepared for all eventualities.

Budget 2023

The last full-fledged budget before the general elections was presented by the government. Besides showcasing the resilience of the Indian economy despite the supply chain shocks in the aftermath of the COVID19 global pandemic, the budget also announced several measures:

First, for income tax payers, the budget announced that the new tax regime will become the default regime, although there will be no change in the old tax regime and people can opt for the latter if they want to. In the new tax regime, there will be no tax on income up to Rs 7.5 lakh a year in new tax regime (with inclusion of standard deduction).

IT slab (in lakh rupees) Tax rate (%)
0-3 Nil
3-6 5
6-9 10
9-12 15
12-15 20
Over 15 lakh 30

 

Second, sectors like Railways got a massive boost, with an outlay of Rs. 2.4 lakh crore, which is the highest ever allocation to Railways. Defence expenditure got a boost of 13%, hiked to Rs. 5.94 lakh crore. MSMEs allocation was hiked. Significantly, Rs. 35000 crore of priority allocation was given to clean energy in which the Modi government is very ambitious. In clean energy, the areas given importance were green credits, battery storage capacity, and National Hydrogen Mission (which has an outlay of Rs. 20,000 crore). The health sector also got a boost with an allocation of Rs. 89,000 crores. Significantly, despite this being a pre-election year budget of sorts, no massive favors were bestowed on the agriculture sector.

Third, capital investment was hiked by Rs. 10 lakh crore, which signified a hike of 33% for third year in a row. This is to enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds. Even a New Infrastructure Finance Secretariat was established to enhance opportunities for private investment in infrastructure.

Fourth, the government has maintained a realistic as well as responsible fiscal deficit projection. It is targeted to remain at 6.4% in FY2023, and is then projected to be progressively reduced to 5.9% in FY2024 and below 4.5% by FY2025.

The overall tenor of the budget shows that it is a combination of fiscal prudence, practicality and right prioritization. What stands out is that despite being the last full budget prior to general elections, it was not at all populist in nature. Its focus areas of infrastructure and clean energy were clear. Favors to simulate voter sentiment were minimal.

Maligning India – The Adani Saga, Soros and BBC

In January this year, a US-based market research organization made accusations against India’s big conglomerate, the Adani Group. In its long report, the Hindenburg Research accused the Adani Group of “brazen” market manipulation and fraud, which caused a significant stock selloff. The report alleged that seven listed Adani Group firms have an 85% downside on a fundamental basis due to extremely high valuations. It said that the Adani group was engaged in the improper use of tax havens and had high debt levels.

Adani has refused the allegations, termed them as a way to derail his company’s Follow-on Public Offer (FPO) and called them an attack on India’s growth story. While the report’s allegations resulted in massive fall in Adani Group’s stocks, yet the Group’s February FPO was fully subscribed due to unity displayed by India Inc. as well as faith expressed in the Group by corporates based in UAE and Israel. Despite that, the Group called off its fully-subscribed FPO on moral grounds. With Adani Group losing $86 billion, India’s securities market regulator, SEBI, decided to launch a probe, saying that it will submit the probe report in two months. Questions were also raised over the exposure of State Bank of India (SBI) and Life Insurance Corporation (LIC) of India to the Adani Group, which both entities clarified was not big. Further, various global credit rating agencies downgraded the Group. Over $110 billion was wiped out from 10 companies related to Adani Group.

There are many speculations surrounding the story behind this sordid episode and only indirect interlinkages can be made. A few pertinent issues to remember in this regard are:

First, the nature of the research organization which published the incriminating report on Adani is itself cloudy. It was formed a few years back and its job, as a short-seller, is to cash in on market crashes. It usually chooses a target company and then brings out a hit-job report on it. Such a report is then, normally, followed by a massive market crash in the stock prices of the target company.

Hindenburg itself has been a subject of investigation due to its practice of going short on the stocks before coming out with research reports. For, such short-sellers often rely on shock-and-awe techniques to gain attention. They create fertile ground for manipulation, precipitating in the fall in stock prices. It is not without reason that, in India, short-selling has been banned. For, instead of criticizing and keeping a check on companies, they usually manipulate the markets. In the past, since 2017, Hindenburg research has done a hit job on many companies, including big Japanese (e.g. Nokia group) and Chinese conglomerates.

Second, the nature of allegations by Hindenburg is based on comprehensive investigations into Adani group’s past management activities and deals, which is not surprising. If all investors were to only rely on past allegations, a significant chunk of publicly listed companies in India would not be investable at all. Indeed, given India’s history of the license-permit raj, and also the continuing large role of government and regulatory agencies in corporate profitability, it would be difficult for almost any firm to assert that it never has done anything wrong. Same may be the case with Adani group.

Third, Adani Group companies, majority of them, were, engaged in infrastructural projects. Many of them were port projects and critical infrastructural projects spanning other countries in the Indian sub-continent and beyond, including countries like Sri Lanka, Israel, Australia, Gulf countries etc. The group’s energy-related projects were, both, in the domain of renewable as well as coal-based power. It is worth recalling that the conglomerate’s coal-based power project in Australia has been facing stiff opposition from activist lobbies.

One of the things about infrastructural projects is the tendency to be funded on the basis of debt more than equity and, therefore, being over-leveraged. Low interest regimes have ensured, across countries, that usually that is the case. Moreover, infrastructural projects are high-risk and pay-off at a later period once they become operative, and even then, their returns can only be guaranteed if their usage is optimal. Therefore, infrastructural projects going bust is not a surprising phenomenon. A clear case are the projects under China’s Belt and Road Initiative (BRI). Adani group has clarified that, further, much of its debt is owed to foreign investors, whose investments were propelled by attractive standing of the conglomerate.

Fourth, it is wrong to assume that the Adani episode has caused “untold misery” to common investors. For, Adani shares are not widely held. The group holds substantial majority holdings in almost all its companies, and retail holders account for very little. Data shows that nearly 73 percent is with various Adani entities, 15 percent with FIIs, and under 6 percent with domestic institutions. The “public” held 6.3 percent as at the end of December 2022. The actual retail holding is less than 1 percent.

Yet, this very assumption has become the basis of a petition filed in the Supreme Court. The Court has formed a committee of its own, headed by four public figures, to lead an investigation into this affair. This is despite the Securities and Exchange Board of India (SEBI) conducting its own independent investigation, which the Court has acknowledged. Problematically, the Court said that “to protect Indian investors against volatility of the kind which has been witnessed in the recent past, we are of the view that it is appropriate to constitute an Expert Committee for the assessment of the extant regulatory framework and for making recommendations to strengthen it.”

Further, the expert committee seeks to also find out, among other things, “whether there has been regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group”, thereby incriminating the government as well.

Whether this even falls within the domain of the judiciary is itself questionable. It is a mystery as to how can the Court protect “investors against volatility.” In doing so, the Court is not only continuing its transgression into executive domain, but even into domain of specialized, regulatory bodies like SEBI.

For now, the future of the Adani group seems predictable. It is already on the way to recovery. Already, in the first week of March, the shares of the conglomerate have recovered up to 95% from their previous low in February, showing investor confidence and rapid market recovery. Further, even the hawkish global media houses were forced to acknowledge that the Adani saga is neither likely to dent the conglomerate and nor is it likely to impact the Indian economy. As one commentator from New York Times had rightly put it, the entire saga is merely a splash in the bucket that is the Indian economy.

As for politics, the impact has been laughably nil. If the assumptions and hopes of India’s Opposition – especially the Congress – rest on such illusory, passing episodes, then the joke is on them. Their best attempts to corner the government over the issue failed, as there was nothing to corner. Even the public could not be mobilized. In doing so, they exposed their own hypocrisy and their clear alignment with forces that seek to destabilize the country.

Among such forces are media houses like British Broadcasting Corporation (BBC) and the eccentric, Left-wing American businessman, George Soros, who has made many monetary investments in anti-Modi ventures (ranging from media houses to academic institutions to protest movements and businesses) in India and abroad and has a close proven relationship with India’s Congress party. Unfortunately, Soros’s comments on the Adani episode, linking it to PM Modi and predicting that it would lead to Modi’s downfall, have further incensed the Indians. It is as if Soros handed over ammunition to the Indian government on a silver platter. For, his comments further increased the support for Modi and led to a general conviction that there are concrete anti-India forces at work. Congress’s ill-timed defence of Soros did not help.

Further, the Adani saga and Soros’s comments come merely weeks after a BBC documentary vilifying the Indian Prime Minister, incriminating him for attacking Muslims in the 2002 Gujarat riots. The BBC conducting its own trial on a sitting Prime Minister even after the clear verdict by the Indian Supreme Court and the kind of allegations made in the documentary did not sit well with Indians. Reeking of desperate attempts to destabilize the government where India’s Opposition parties had failed, the documentary was banned in India and rightly so. Further, Income Tax surveys of BBC India office revealed their own dubious practices of tax evasion and non-transparent operations. Here again, Congress’s ill-thought defence of BBC and the illegal screening of the documentary by Congress’s and Left’s youth wing organizations has done the parties no favour with the Indian public.

Thus, this string of interlinked episodes that happened within a month have been an eye opener for the Indians. What stands out is the manner in which the anti-India forces operative behind these have failed to even scratch the surface of the Indian nationalist psyche. They have backfired in a spectacular manner, pulling further down with them the Congress party which has always desperately sought to hang onto the coat-tails of anything that even remotely has the potential to upend the Indian government, in order to make up for its own failure as a responsible and nationalist Opposition.

The Travails of AAP

After having successfully and finally got its Mayor, Ms. Shelly Oberoi, in Delhi after three failed attempts and Supreme Court’s intervention banning the aldermen from voting, AAP yet has no reason to cheer. It is in a difficult position in Delhi and in Punjab it is even worse. The situation in Punjab is notable for its declining law and order over the past one year, ever since the AAP government came to power. It has also come into disrepute for having a Chief Minister – a famed drinker – who is little more than a puppet of AAP chief, Arvind Kejriwal.

In terms of law and order, ever since the AAP government came to power, there has been a rise in anti-India Khalistan forces and an increase in the incidents of targeted killings as well as attack on police stations. Furthermore, as even SAD’s Harsimrat Kaur Badal said in Parliament, Punjab, under AAP has become a hub of drugs and Khalistanis. The state has also consistently witnessed protests by farmers and teachers as well as mobilization of criminals. In early February, a police station in Chandigarh-Mohali border was stormed and police attacked. Embarrassingly, the police did not take any action against the criminals.

After this, the most recent episode which created shockwaves across the country was the storming of a police station in Amritsar by supporters of radical preacher Amritpal Singh Sandhu, who rose to prominence during the 2020 anti-farm laws protests. He was engaged in his family business in Dubai till 2020, after which he took over the leadership of the radical outfit, ‘Waris Punjab De’, in 2022. During his leadership rally in 2022, the crowd chanted “Khalistan Zindabad,” even as Sandhu promised to restart the struggle for “Azadi.”

The protestors were protesting the arrest of one of Sandhu’s aides in a kidnapping case. They were brandishing weapons and assaulting police officers with impunity. This storming of the police station was executed even as the AAP government remained a mute spectator. The reason for AAP’s silence is not difficult to fathom. Its electoral victory was largely propelled by such radical Sikh elements, which AAP cannot speak anything against. Besides the tacit support of AAP, Sandhu has found an ally in the president of Shiromani Akali Dal (Amritsar) and Sangrur MP Simranjit Singh Mann, a known advocate of the Khalistan movement.

So far, the response of the central government has also not been noticeable, even though Khalistani elements have warned of Amit Shah and Narendra Modi meeting the same fate as Indira Gandhi. It is certainly true that the Centre cannot keep cleaning up AAP’s mess while AAP sits comfortably and encourages such elements, but the Centre also needs to be on guard to tackle the growing Khalistani menace which has become a national security problem. This should not be allowed to expand and should be curtailed soon.

Other political parties in Punjab are also becoming uncomfortable as are the common Sikhs. For, nobody wants a return to militancy. Notably, Amarinder Singh, and the Badal family members of SAD have taken a strong position on this issue. The Badals even threatened that if the AAP government is unable to deal with Amritpal, they should give him to them and they will straighten him out in ten minutes.

Carbon Offset Scam

Recently one of the biggest scams in the burgeoning climate change industry was uncovered. This was uncovered in the carbon offset industry, which has been around for decades, but has always been known to be rather opaque. The industry deals with trading of carbon credits by entities, such as corporates and government agencies. A carbon credit is equivalent to one ton of carbon oxide emitted. Thus, if an entity emits less than its share of carbon credits, it will end up having excess credits which it can sell to another entity if the latter has less credits and needs more space to emit. Carbon offsets can be generated through a variety of activities, such as afforestation, protecting forests, investments in clean energy projects.

Their history has been rather fraught. They were seen as part of ‘flexible’ market mechanisms to allow countries (developed) with strict emission targets to find a way to reduce emissions. Thus, rich countries would often sponsor faraway green projects in developing countries and thereby gain carbon credits. Soon, developing countries began to do the same. Many countries even developed their domestic carbon markets. By the end of 2013, India and China had a massive trove of carbon offsets. In this way, the carbon credits or offsets are traded.

Now whether these credits actually generate any climate benefit has always been debatable. Many times the credits generated were a result of dubious activities (which may not be actually green) and double-counting and other accounting manipulations done by third-party certification companies. Even looking at the issue at a fundamental level, carbon offsets are simply a way to offset your emissions, such that an entity gets more space to emit more by simply funding some clean energy project elsewhere. Whether that project actually leads to emission reduction is not certain, whereas the offsetting entity keeps emitting more and more. In this way, the carbon market industry may have harmed more instead of solving the problem.

In recent times, such a scam was unearthed. It turns out that more than $95 billion worth of carbon offsets claimed by the biggest corporates of the world – such as Disney, Netflix, Shell etc. – are not generating any emission reduction. The companies which claim to be green and conscious – which has become fashionable these days – are actually misleading and being misled. The scam has once again brought the industry into disrepute. It has also happened at a time when most of the countries are once again looking at carbon offsets – including India – as one of the ways to reach their climate targets.

Air India Deals

Tata Group-owned Air India (AI) placed two mega orders recently, adding up to a massive 470 aircraft – for 250 planes with Europe’s Airbus consortium, and 220 with Boeing Co. of the United States. This is the largest order placed by an airline in one go anywhere in the world, beating the 2011 order by American Airlines for a combined 460 aircraft. The order value is estimated between $70 billion and $80 billion.

The significance of the order goes far beyond India’s aviation sector. This was underscored by the lead taken by global leaders like Prime Minister Narendra Modi, French President Emmanuel Macron, and US President Joe Biden and British Prime Minister Rishi Sunak in making celebratory public statements. Biden said the order to Boeing will support ‘over one million jobs across the US’, while the UK will also see millions of jobs being created. This is significant at a time when the Western economies are slowing down. It also conveys a message of India’s friendship with the West at a time when the Russia-Ukraine war is going on. Finally, the deal is important at a time when India has assumed the G-20 Presidency, conveying India’s growing economic heft in the world.

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