Thursday, May 30, 2019
By Anagha Vinod
Technological innovation has changed the world drastically. FinTech, which is short for financial technology, means embracing the novel digital technology for the efficient delivery of financial services. The services offered not only include payment and borrowing but also crowdfunding, cryptocurrency, robo advising and insurance. This has helped in fostering financial inclusion as more and more people started adopting the method of mobile payments considering its convenience. The FinTech industry includes start-ups and some of the big companies in the world. These companies have taken a strong root in countries like India and China. Despite all these, FinTech also has its flip side. It is important to determine how much the industry should be regulated and how high should the barriers to entry be.
The main factors which influence the market structure can be categorised into two viz., supply factors and demand factors. Most of the barriers to entry come under the supply factors which include technological innovation, licensing and supervisory regulations. The demand factors include changing customer expectations. The issues of malpractices, mismanagement, uncertainties, provision of credit to undeserving applicants and privacy breach, etc make it important to restrict the entry of firms into the market. The emerging trends like behavioural banking can help tackle these issues. Lowering the barriers can help these companies as the industry is small and growing. FinTech is perceived as more socially responsible and of greater social value than conventional banking, especially by the digital natives and millennials.
Another threat or hurdle which is holding back the entry of these firms is the competitive impact of BigTech firms. BigTechs are different even if they are a part of the FinTech industry. The major BigTech firms like Alibaba, Tencent, Baidu, Google, Amazon, etc enjoy name, recognition and trust with a large and established customer base. They have access to innovation, whereas the emerging FinTech companies do not even have access to proper funding. Big companies deliver services at a lower cost so that they can use the data obtained for other businesses too. It is difficult for small FinTech companies to operate in such a situation.
The existing barriers to entry mainly include regulation, funding, technology and establishment of trust. Regulation is a tool for dampening competition. Countries like Germany, the Netherlands, the US and Australia have strict regulations on credit provision by FinTech companies. Restrictive data protection regimes are coming up all over. Other regulations include systems and control for risk assessment, lending restrictions and prescribed capital and liquidity requirements. Insufficient funding, due to the lack of angel investors, is a major obstacle for these companies. The level of technology also differs in different regions. Another concern is how developed the infrastructure is. The right size and the cost effectiveness of technology are hence important. Most of the companies limit themselves from entering into the market as establishment of trust and reputation takes time due to the existence of traditional banking institutions and the BigTechs. What they can do is partner up with these institutions in service delivery. This can help the entrants in widening their customer base and reducing their regulatory compliance burden.
A total of 125 FinTech start-ups were launched in India in the year 2018. The RBI has promoted the Unified Payment Interface, Bharat Bills Payment System, digital payments, P2P lending and use of automated algorithms to provide financial advice. In India, opportunities for these companies are expanding. But the industry was negatively affected by the Supreme Courts’ decision to strike down Article 57 of the Aadhar act which enabled sharing data with private entities and the introduction of the Personal Data Protection Bill which urged the FinTech companies to upgrade their infrastructure from a data privacy and client onboarding perspective. The Indian government has introduced various schemes like Jan Dhan Yojana and digital India to encourage the growth of FinTech ecosystem in India. But, the examples of companies like LendingClub, TrustBuddy and Ezubao which became infamous for data manipulation and Ponzi schemes make policymakers sceptical about reducing the entry-level barriers to the market. There are also different views regarding FinTech being a bubble in this era of Artificial Intelligence and Machine Learning which only time will tell.
(Anagha Vinod is a Research Intern at Centre for Public Policy Research. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)
Saturday, May 25, 2019
By Ragavi R
(Imae source: echalliance.com)
Jeremy Bentham, a utilitarian philosopher in the 18 th century invented the institutional form of surveillance model called “Panopticon”. Panopticon is a model where the inmates in a prison are watched by a single guard and the inmates are unaware that they are being watched. What is the link between Panopticon and Data Protection Regulation? Well, the answer lies in the way how the 21 st century business and its ecosystem functions.
‘Uber’, one of the largest taxi companies, owns no cars.
‘Facebook’, the popular media owner, owns no content.
‘Alibaba’, the most valuable retailer, has no inventory.
Even though the statement sounds pessimistic, it provides an insight into the fact that we are racing towards a “data world”. The collection, organisation and processing of data have become ubiquitous. According to the Information Technology Act 2000, the definition of “data”, is the representation of knowledge, information, facts, concepts, instructions which are being prepared or have been prepared in a formalised manner, and it is intended to be processed in a computer system or network, and may be in any form (including computer printouts, magnetic or optical storage media, punched cards, punched tapes, etc) or stored internally in the memory of a computer. Data protection law is a comprehensive set of privacy laws, policies and regulations that aims to minimise the intrusion. India does not have a comprehensive Data protection Regulation Act.
Personal Data Protection Bill, 2018
The emergence of a data protection bill in India is predominantly contributed to the Justice K S Puttaswamy (retd) vs Union of India case. The nine-judge bench declared Right to Privacy as one of the fundamental rights and intrinsic part of the Article 21. Justice D Y Chandrachud stated that, “Informational Privacy is a facet of the right to privacy. The creation of a regime needs to balance between individual interest and legitimate concerns of the state”. A committee headed by Justice Srikrishna was formed in drafting the Data Protection Bill, 2018. The main objective of the data protection regulation in India is to ensure that the growth of digital economy does not happen at the cost of individual’s privacy. The bill also tries to define the responsibility of the state and to ensure a trust-based relationship between the data fiduciaries and data principles.
Means of the Data Protection Regulation
Personal Data Protection Regulation Bill is a comprehensive bill that takes into account the dynamics of information privacy. It has defined what data is and has bifurcated the data into personal data and sensitive data. The critical data (no mention of what is “critical data”) will be stored within India. There are several other cyber agencies like National Technical Research Organization, Defense Intelligence Agency and National Critical Information Infrastructure Protection Centre that perform cyber protection function in India.
Data localisation is the act of storing the data on a domestic device, which is physically present within the borders of a specific country where the data is generated. A study by Gartner in the year 2015 revealed that India had only about 1.2 per cent of the world’s data centre infrastructure, which is insufficient. The cloud Infrastructure in India is substandard compared to other countries.
What is the road ahead?
As far as data localisation is concerned, it is not favourable in the international arena. Many researchers are suggesting alternatives like Mutual Legal Assistance Treaties (MLATs). India has already signed MLATs with 39 countries. However, the scope of this treaty is ambiguous. There is a provision in the data protection bill, which states, “Personal Information that doesn’t serve ‘public activity or interest’ cannot be disclosed unless it is deemed to be of public interest”. This particular provision is in conflict with the Section 8(1) of Right to Information Act, 2005. The argument boils down to transparency and privacy. If transparency is necessary, privacy is affected and if privacy is required transparency should be withheld.
The data world, in which we are existing, is an asymmetric battleground. In a similar way how a central guard watches his inmates, we are also being watched without our knowledge. On the one hand, we trade off our privacy for some other utility (popularly called as “privacy paradox”) and on the other hand, we are constantly involved in debating on data protection. Can public policy initiatives tackle this sensitive issue?
(Ragavi R is a Research Intern at Centre for Public Policy Research. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)
Friday, May 24, 2019
by Subirthana M S
On May 2019, BJP President Amit Shah reacting to former Chief Minister of Jammu and Kashmir (J&K) Omar Abdullah’s statement that J&K should have a separate Prime Minister, said that if the BJP comes to power again with Narendra Modi as the Prime Minister, Article 370 that gives special provisions to the state of J&K will be removed for sure.
In response to BJP’s 2019 manifesto, attempting to do away with Article 370, Omar Abdullah — the Vice-President of National Conference — on April 2019 had demanded a separate Prime Minister and President for J&K. He pointed out that until 1965 Kashmir had its own President (sadar-e-riyasat) and Prime Minister (wazir-e-azam). He said his party will work with anyone who promises to protect Article 370 and Article 35A and claimed to restore the internal autonomy that existed during the accession of Kashmir to India.
BJP as a party has also been very vocal about the abrogation of Article 370. This mention of being done away with the Article has been a part of its election manifestos for a number of years now. However, for the very first time, the Central Government has turned its focus on Article 35A and the need for annulling it. The argument put forward by the government is that Article 35A is discriminatory against the non-permanent residents of the state. The separate Constitution of J&K is also seen as unconstitutional on many grounds. Its existence is against the supremacy of the Indian constitution and conflicts the Indian motto “One Nation, One Constitution, One National Anthem and One National Flag”. The PIL filed against J&K in the Supreme Court of India also challenges “Articles 6, 7, 8 and 144 of the Constitution of J&K as arbitrary and contrary to the fundamental rights under the Indian Constitution.
The Central Government also favours the return of Kashmiri Pandits to the state. Why is the government so particular about the re-entry of Kashmiri Pandits into the region? Well, some argue that it is a deliberate attempt to change the demography of the state.
Addressing an election rally, National Conference President Farooq Abdullah said the Government of India has been saying this for a long time. “Go and do it. The moment you do, it will end J&K’s accession with the Union of India. Let them do it and we will become aazad (free),”
People’s Democratic Party (PDP) President and former Chief Minister Mehbooba Mufti said “Once you break that bridge Indian rule will become illegal in Kashmir. It will become an occupational force”.
Although, the Central Government claims to have restored normalcy and security in J&K in the past five years, there has been a significant increase in militancy, terror attacks and ceasefire violations. The overwhelming majority of the Valley’s residents think that the security forces abuse their powers and often accuse them of killing innocent people and violating the basic human rights under the ambit of Armed Forces (Special Powers) Act (AFSPA), a law that largely protects soldiers from prosecution.
Significance of Article 370 and 35A
Article 370 is the bedrock of the constitutional relationship of J&K with the rest of India. The state of J&K has its own historical significance which gave it a special status in the first place. Under Article 370, the Central Government can make laws only with the approval of the state government which practically gives the state government a veto power. Articles 352 and 360 pertaining to National and Financial Emergency, respectively, are not applicable to the state of J&K. Article 356 of the Indian Constitution, which gives the President of India the authority to impose his rule over a state cannot be enforced in the case of J&K, unless the governor issues a proclamation to that effect. Article 370 confers dual citizenship for the residents of J&K. Also, under this Article no outsider can buy property in the state. The Anti-Defection Law is also not applicable to the state. The abrogation of Article 370 will raise the question over Kashmir’s accession to India.
Another issue pertaining to the state is Article 35A, which confers permanent residence to the residents of J&K. It restricts people from elsewhere from working, settling or owning property in the state. The ruling party in the centre believes that the special status, rights and privileges enjoyed by the residents of the state will only give rise to alienation and separatist identity in J&K. It also points out that Article 35A is a clarificatory provision and it does not itself assure any special status.
Articles 370 and 35A are the only promise Kashmiris get from the Indian side for their protection. Despite having the special status, Kashmir still faces security issues. Not only this, Kashmir is tied to India only through these Articles and if they do not exist, there is no other way to prove its integration to India. This point has been stressed by Kashmiris very strongly time and again. In case the Articles are done away with, Kashmiris argue that they will choose independence over India or Pakistan.
However, what is more important here at the moment is instead of J&K being viewed as a security issue, it should rather be viewed as a political issue and needs to be resolved by negotiations with key stakeholders.
(Subirthana M S is a Research Intern at CPPR Centre for Strategic Studies. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)
Wednesday, May 22, 2019
By Anupama Ghosh
(Image source: the quint)
The largest democratic exercise of the world came to an end with the voting in the seventh and the last phase of the General Elections on May 19. While the country awaits the results of the elections to be announced on May 23, the results of the various exit polls are out.
Most of the exit polls predict an easy win for the Bharatiya Janata Party (BJP)- led National Democratic Alliance (NDA). The veracity of the exit polls will only be known on May 23 when the results will be announced. However, there is no denying the fact that these poll predictions pose a number of serious questions for the major players of Indian polity — the larger national as well as prominent regional parties.
Congress — No Lessons Learnt?
The Grand Old Party of India crumbled to its lowest in the 2014 General Elections, when it managed to win only 44 seats. Marred by the corruption allegations during the regime of UPA II, followed by the dismal show in the 2014 elections had necessitated the Party to reinvent itself, in order to remain
Was the Congress able to do so? It does not seem that the party was able to take up the challenge to counter the narratives of the BJP in the following Assembly Elections. In these intermediate years, Congress did manage to give a scare to the BJP in Gujarat, and was also able to form a coalition in Karnataka. In late 2018, it was able to wrest Rajasthan, Madhya Pradesh and Chhattisgarh
from the BJP. Was that a revival for the Congress? The verdict is split on that question. One opinion is that the victory of the Congress was in reality, a vote against the BJP, especially due to the farmers’ distress. Even in Rajasthan and Madhya Pradesh, the party managed to scrape through to victory with a slim margin.
So, was the party ready for the 2019 challenge? It does not seem so. Even though the Congress came up with an election manifesto much before than the other major parties, it seems that it was lost in the din of the narratives of national security and the Balakot airstrikes.
Was the Opposition Viable?
The Samajwadi Party and the Bahujan Samaj Party formed an alliance to counter the BJP in the most electorally prominent state of Uttar Pradesh. The caste dynamics of Uttar Pradesh may make the alliance a formidable one, as pointed out by some of the exit polls as well. But its inability to bring the Congress into its fold resulted in a three-way contest in the state. This may only weaken the chances of the Mahagathbandhan, as the results of the exit polls stand right now.
The same was the case in neighbouring Delhi, where the Congress was unable to forge an alliance with the Aam Aadmi Party (AAP). After rounds of unceasing discussions, an alliance for seven seats could not be managed.
This shows the inability of the opposition parties to come forth to rise up to the challenge of the BJP and Prime Minister Narendra Modi. The election campaign did not see the emergence of a united opposition, but only a fractured group, which could come together if the need arises post May 23. This may have alienated the electorate more and put the election campaign of the BJP on a much stronger ground. In the face of such a fractured opposition without any narrative, the discourse of national security after the Balakot strikes may have struck a chord with the masses.
BJP — the Leadership Factor
The past few months have seen a rise of issues like farmers’ crisis, unemployment and a decline in economic growth to come up in the national discourse. The terrorist attack at Pulwama and the successive airstrikes at Balakot in February saw the BJP successfully shift the narrative from the
economic distress and unemployment to that of national security. In the face of the Congress manifesto consistently raking up the Rafale deal, the BJP remained steadfast on its talk of national security.
For many across the electorate spectrum, there is no alternative in the political milieu of the country, except Prime Minister Narendra Modi. While a lot of questions may be asked on the basis of employment opportunities, economic distress, the exit polls show that the electorate may not see any other viable alternative to take over the reins of the country.
The truth, if the exit polls are to be believed, is that the country has a leader on whose persona an election can be fought and maybe, even won. This can be a big lesson for the opposition parties, on how the elections are fought and maybe, even won.
(Anupama Ghosh is Senior Research Associate at CPPR. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)
Saturday, May 11, 2019
(Image source: Business Line)
The Election Commission of India (ECI) is an autonomous constitutional body that is responsible for conducting smooth, free and fair elections and monitoring the election processes of the political parties and candidates. It enforces the code of conduct as soon as the dates for the Assembly election in a state or the Lok Sabha polls are announced, and it stays effective until the completion of the poll process. Article 324 of the Indian Constitution provides the electoral commission with the power to monitor the Central/State governments, the candidates, their political parties and the polling processes. The violation of the Model Code of Conduct (MCC) does not warrant any punitive action. However, some steps were taken under the Representation of People Act 1951 to grant certain provisions of the MCC legal sanctity and label them as illegal practices punishable with a jail time for up to two years, a fine or both. The ECI has not been pushing for the MCC to be legally enforced and become a written law as it believes it to be a “self-defeating measure”. During the 45- day period of the elections, when the code is imposed, any breach of the code demands a quick and effective action as time is of the essence. A prompt action is not possible if the matter is taken to the courts as a regular judicial process will take a long time to take measures against the violators. Certain actions under the MCC considered as “corrupt practices” or “electoral offences” are: aggravating existing differences, appealing to caste and communal feelings for securing votes, using places of worship as a forum for election propaganda, bribing voters, intimidating voters, impersonation of voters, canvassing within 100 metres of polling stations, holding public meetings during the period of 48 hours before the polls, transporting voters to and from polling stations, obstructing an opponent’s political campaign or procession, and serving or distributing liquor on the day of or before the polling day.
Evolution of the Code of Conduct The idea of the MCC for political parties during elections was adopted from the State of Kerala and
first observed in the 1962 general elections. In 1967, it evolved to a 10-point code and a committee consisting of seven members was set up to observe political campaigns and to ensure smooth, fair and free polls. The Code was first revised in 1974 and again in 1979 to include the 7 th section in the MCC — the role of the party in power. The Code did not enforce its rules and its observance was totally left to the “good sense” of the contesting political parties. The 1991 general elections were a game changer for the MCC as this was the first time the Code came into force right from when the election dates were announced. The 1997 High Court judgment granting the Election Commission (EC) the right to take necessary steps to conduct free and fair elections from the date of announcement created tensions and disagreements between the EC and the Central and State governments as the political candidates did not like the restriction the Code imposed on them right from the start of their electioneering. Finally, in 2001, the disagreements regarding the start of the MCC’s operations were resolved and the EC has been implementing the code ever since. In 2014, the final part referring to the manifestos and to regulate their content was added.
Violations of Model Code The rise of the Internet and its impact on users (reaching 627 million users in India in 2019) paved the way for social media to be used as a platform by political parties and their supporters to campaign for elections and sway the voters in any way they can. This move causes an influx of misinformation and fake news intended to influence voters and mislead them. There have also been instances of bribing the voters on WhatsApp. Though the model code has not been updated to suit the technological era, the underlining rules stay the same. Various measures are being taken along with the Internet and Mobile Association of India (IAMAI) to curb the misuse of information and to process any violation of the code within three hours. Companies like Google, Facebook, WhatsApp, ShareChat, Twitter, BIGO and ByteDance have agreed to adopt the code of conduct and work swiftly to take the required action on the complaints received by the nodal officer appointed to monitor fake news, political advertisements and any online content that violates the MCC. Around 500 Facebook posts, 2 twitter threads and one WhatsApp account were removed as they were in violation of the code that prohibits the propagation of election matters during the 48-hour silent period before the polls. In addition to that, 702 Facebook pages and accounts misleading voters and spreading fake news related to Congress’ and BJP’s supporters were taken down by Facebook during electioneering. The poll body also banned the release of Prime Minister Narendra Modi’s biopic stating that its release during the elections would have disturbed the level playing field among the candidates. It ordered for re-polling at five booths in Andhra Pradesh due to the polling day violence in the booths, the malfunctioning of the Electronic Voting Machines (EVMs) and various other circumstances that obstructed a free and fair poll. Although the ECI set a limit of `70 lakhs for political campaigning specifically for a roadshow, it is hardly being enforced. Prime Minister Narendra Modi was accused of crossing the set limit for his roadshow in Varanasi. So far, the Congress has filed 11 complaints against the PM and BJP president Amit Shah pertaining to alleged hate speeches, the PM holding a rally on the day of the polls in Gujarat, defaming the opposition and for repeatedly referring to the Balakot airstrike and misusing India’s armed forces for political campaign purposes. The electoral body issued an advisory on 10 March specifying that there should be no mention of the defence forces during the election campaigns. Despite the warning, the BJP continually used the photo of the fighter pilot involved in the Pulwama attack for its campaigning purposes, clearly violating the MCC. The ECI has also been relatively quiet regarding the issue and paid no attention to the PM’s repeated alleged violations until the Supreme Court intervened and demanded the ECI to explain its silence and take a decision on the complaint. Of the 11 complaints, the ECI has ruled two in favour of the BJP claiming that Modi’s speech in Latur and in Wardha did not go against the MCC violations. While some of the complaints are still pending before the poll body. The Supreme Court also had to intervene for the ECI to take action against Uttar Pradesh Chief Minister Yogi Adityanath’s hate speeches, eventually banning him from campaigning for 72 hours, and BSP supremo Mayawati’s campaigning for votes on the basis of religion. She was banned for 48 hours from her poll campaigns. Apart from all the appeals in the Supreme Court, the ECI has also received millions of references and complaints on their mobile app (cVIGIL) and through social media since the code has come into effect on March 10. They are unable to keep up with the volume of the work and the technological advancements. N Gopalaswami, former Chief Election Commissioner states that, “No election commission is completely partisan,” some may strive to be unbiased but commission as a whole cannot be completely unprejudiced. This was evident when a BJP campaigning material was found inside an official ECI vehicle in Uttarakhand. Though the commission admits that it is ‘toothless’ and has no power to de-recognise or disqualify a person other than temporarily banning him/her from electioneering, there have been instances in the past where the ECI was robust in carrying out its duties. T N Seshan, the 10 th Election Commissioner in 1990, showed the country how powerful the ECI can be and the authority it holds by hosting a range of reforms to conduct free and fair elections. So, rather than blaming the commission for its inefficiency, the process of the appointment of officials in the ECI should be scrutinised.
(Juanita Justin is a Research Intern at CPPR Centre for Strategic Studies. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)
Thursday, May 09, 2019
By Jayashri Ramesh Sundaram
(Image Courtesy: LiveMint)
In February 2019, bringing relief to digital wallet companies, the Reserve Bank of India (RBI) extended the deadline for them to meet the Know Your Customer (KYC) norms. KYC guidelines help prevent fraudulent activities like money laundering and risks that may arise in the light of expanding technology. An emerging market dealing with money, especially in the digital space, is prone to risk and this attracts warnings by the RBI. Hence, it should be of no surprise seeing the RBI taking measures to prevent fraud via digital wallets. But what has come to everyone’s surprise is the announcement of deadlines to meet KYC with only a non-descript regulation without stating a clear road map. Along with this, RBI specifying on the subject of interoperability mandates the incorporation of Unified Payment Interface (UPI) into the application for the feature to be enabled in respective e-wallets.
This post will examine the future of the wallet business for a digital economy mindful of the recent RBI guidelines in the context of UPI.
Digital wallets can be categorised into four types. (1) Open wallet that allows a user to buy goods and services, withdraw cash at ATMS or banks, transfer funds, and send money to any mobile number bank account (2) Closed wallet, where money is restricted to use for merchandise. The wallet can be used to get cash back, avail gift cards or refunds. (3) Semi-closed wallet that does not permit cash withdrawal or redemption, but allows users to buy goods and services at the listed merchants (4) Device-specific wallets that work based on a combination of software and hardware.
Wallet business has come to be seen as having the potential to disrupt the status quo of the payment structure of India that is transpiring to become a cashless economy. The digital economy of India, according to a report by Business Today, is at 8 per cent of the GDP and is expected to grow further in the upcoming years. Estimates show that the mobile wallet transactions alone increased 40 times in the past five years.
There is no doubt that regulatory and monitory policies are necessary to ensure smooth working of platforms to reduce the disruption of the economy. However, currently, KYC norms for these prepaid instruments cannot be undertaken with biometrics as per the Justice K S Puttaswamy (Retd) vs Union of India judgment. Extending deadlines alone to give time for operators to complete physical KYC (or strategise new efforts) will not suffice. To make security a reality, unintended consequences faced by wallet companies and users have to be addressed.
One of the important aspects to aid the e-wallet business is the provision of interoperability. Interoperability is one of the essentials for any business dealing with money to work. RBI’s “Vision Statement On Payments & Settlement" for 2018 recognised the need to promote interoperability as the basis for a seamless payment experience. Although the Central Bank did address the issue, e-wallet companies are still caught in an unfavourable position since interoperability, as per the regulations, can be added as a feature only if they adopted UPI.
This signals that there has been dissatisfaction in using an application that provides only a single interface -- UPI. By adopting UPI, leading platforms use it as an opportunity to grab the market. This can also help broaden their customer base that looks for options. Illustrating this, BHIM that had enjoyed over 40 per cent of the share in UPI till August 2017, saw Phonepe taking over BHIM’s share and soon becoming the highest contributor of UPI transactions.
In a nutshell, instead of killing mobile wallet companies, UPI has created a potential opportunity for them to develop strategies that offer multi-use payment needs instead of operating as a standalone UPI app.
(Jayashri Ramesh Sundaram is a Research Intern at CPPR Centre for Strategic Studies. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research)