Mind map of the Russian Influence Campaign on the US 2016 Presidential Elections

There is a myriad of information, along with conflicting views of whether and how Russia influenced the 2016 US Presidential elections. With multiple stakeholders on both sides of media and intelligence agencies attempting to convince or confuse the populace, the the issue gets complicated to make sense of even the basic aspects of this information war.

So we mapped out a simplified version of the issue.

Russian Information Influence Campaign

 

Note:

  • This map gives the basic information on purpose, strategy and tactics allegedly used by Russia.
  • It does not include all information that’s public regarding this issue. We will include more information as I continue to work on it based on its relevance.
  • The goal is get a basic grasp on  the issue for a better understanding of the current geo-political climate.
  • This is part of a bigger research project about Indian vulnerabilities to foreign influence such as the above.

What vulnerabilities does India face? Who has the most to gain from interfering in our affairs? Do they have the capacity to do so? What are the triggers or indicators that can give away their positions? How can we safeguard from such interference?

We welcome your comments and suggestions on this.

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India needs a Guccifer of its own to play in the big leagues

Russian influence campaign against US 2016 elections shows the need for India to develop its own information warfare capabilities, not only to protect itself from foreign influence, but also to launch offensive operations to protect its national interests.

During the 2016 US Presidential election race, Wikileaks leaked over 19,000 emails and 800 attachments from the members of the US Democratic National Committee (DNC), the governing body of the US Democratic Party. The leaked information shed light into the some of the DNC member’s “corrupt and bias” nature of their actions acting against Bernie Sanders while in support of Hillary Clinton. Consequently, four of the DNC members, including the Chairperson, resigned their positions due to their involvement in the scandal.

The DNC leak was the smoking gun that significantly influenced public trust in the democratic process of the country, pushing away lot of educated voters from voting for Clinton.

The hacker Guccifer 2.0 was behind the data theft and penetration of the DNC email networks. The name Guccifer 2.0 is named after a legacy left by a Romanian hacker called Guccifer, currently serving sentence in US prison, who victimized numerous US politicians and celebrities with many scandals. The list included Colin Powell, George Bush’s sister, Sidney Blumenthal (the former aide to Bill Clinton), and members of Council on Foreign Relations.

Per the recent joint Intelligence report by CIA, FBI & NSA, leaking DNC’s sensitive information was part of the Russian sanctioned influence campaign to interfere with the 2016 US elections, and get Trump elected. In addition to the data leak, Russia supposedly deployed anti-Clinton propaganda via its international media channels and social media, mostly via RT news and Sputnik, to sway public opinion.

In other words, Russia launched a massive information war interfering with the US elections, and helped Trump, who is supposedly pro-Russia, get elected. This level of foreign interference in other countries’ governance systems isn’t something new. The whole of cold-war can be simplified as an information warfare between US and Russia to attain global dominance. The US itself has been behind many military coups and regimes changes post World War II, notably Iran, Guatemala, and Chile.

This shows the significance and the need of enhancing one’s information warfare capabilities. Not only to protect oneself from foreign bias and interventions, but also to be able to launch offensive operations that protect our national interests, economic development and international relationships.

Hence, as India emerges as a global economic power, we need to step up our information warfare capabilities. We need our own Guccifers that can launch sophisticated cyber operations and gather information on our counterparts. We need our own RTs and Sputniks that can bolster our image and neutralize foreign bias against us.

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Exploring Mongolia’s balancing behaviour

In the near future, it’s unlikely that Mongolia will position itself as one of the allies in India’s efforts to balance out Chinese influence | by Pranay Kotasthane (@pranaykotas)

Mongolia’s supposed volte-face has attracted the attention of India’s strategic community in the last few days. A simplified sequence of events is as follows: In May 2015, Mr Modi made a trip to Mongolia, the first ever by an Indian Prime Minister to that country. The most substantial outcome for Mongolia from this visit was the announcement of a $1 billion line of credit. Notably, the $1 billion amount is the second largest credit line issued by the Government of India, since the inception of this assistance programme in 2003-04. This was followed the Dalai Lama’s ninth visit to Mongolia in November 2016 (the last planned visit in August 2014 was cancelled by Mongolian authorities because President Xi was to set foot there on the same dates). China unsurprisingly objected to the November visit: it closed down a key border crossing between the two countries and cut-off talks on providing a $4.2 billion debt to Mongolia. Soon enough, the Mongolian Foreign Minister was made to publicly apologise for permitting the visit. He went on to say that the Dalai Lama will not be allowed to visit Mongolia under the current administration henceforth.

China’s official response to the events was sullen — an approach that has come to characterise its relations with most of its neighbours. The Chinese Foreign Affairs Spokesperson said:

we hope that Mongolia will truly learn lessons from this incident, truly respect the core interests of China, honour its promise and make efforts to improve the relations between China and Mongolia.” In turn, the Mongolian ambassador to India on called on India to extend support in this moment of crisis.

Now, because of the India angle to this story, some analysts pointed out that India’s inability in extending sufficient help was to blame Mongolia’s spectacular capitulation. Accurate or not, this assessment leads us to the following questions: what does this turnaround say about Mongolia’s capacity to challenge China? And, can Mongolia ever demonstrate balancing behaviour and ally with states such as India in countering China? On examining the recent turn of events closely, two possibilities come forth.

The first possibility: it was Mongolia that initially sensed an opportunity — a visit by the Dalai Lama could signal that his reincarnation could appear in Mongolia. Hence, the Mongolian government permitted the visit, albeit one strictly classified as that of a ‘religious nature’ alone. But when the Chinese stick came down with all its might, Mongolia quickly retracted.

Mongolia has played this game before — this was the Dalai Lama’s ninth visit to the country since 1979 and on each occasion, the Chinese response has been unkind. In 2002, China retaliated by closing the border rail crossing for two days, isolating the land-locked country further. The response in 2011 was milder — a ‘stern representation’ was made to convey Beijing’s displeasure at Ulan Bator. With this history in mind, it is difficult to believe that Mongolia permitted the trip without expecting a pushback from China.

The second possibility: India was, either a failsafe option that Mongolia presumed it could revert to in case the Chinese retaliated, or was the one that abetted the Dalai Lama’s visit. In either case, this possibility relies on a perception that Mongolia can be a balancing power — ready to join hands with weaker sides such as India to challenge the regional hegemon.

If this was indeed the intent from the Indian side, we’re on the right track. However, the same cannot be said about the instrument used. It would take a lot more than a mere increase in Line of Credit (LoC) to get a land-locked country — one that is struggling with a ‘$1 billion budget gap and looming debt repayments’ — on your side. A Line of Credit — whatever the amount extended may be — count merely as an attempt that can at best marginally change incentives of the recipient country. Projects undertaken as part of LoCs come with riders — 75% of the value of the contracts must be sourced from India. And the utilisation rates of LoCs are often slow, because of supply side constraints (read incompetence of Indian exporters) or because of demand issues (read inadequacies of recipient nation’s importers). [Data on lines of credit available in this xls sheet from the EXIM bank website.] 

Probably, the truth lies somewhere in between both the possibilities. What is clear is that China’s response this time around was swift and unforgiving, in continuance of China’s aggressive stance against its neighbours under President Xi. And it came at a time when Mongolia is already struggling economically. Under such circumstances, can Mongolia be one of the allies in India’s project of balancing out Chinese influence in the near future? Can, for instance, Mongolia take the risk of allowing the next reincarnation of the Dalai Lama to appear in Mongolia?

Very unlikely, especially if India is unwilling to think beyond Lines of Credit. If India is seriously considering challenging China, that demands it to offer something that can drastically change its partners’ incentives. Perhaps it is time to consider options such as offering unconditional development (if not military aid), or investing in long term developmental projects (like CPEC, minus all the Chinese characteristics) to bolster the capacities of smaller states in China’s neighbourhood. And even that wouldn’t guarantee the balancing credentials of states such as Mongolia, too low on the national power scale to inflict pain to China. Perhaps, a better balancing strategy for India would be to consolidate relations with Vietnam — a country that has the credentials to take the fight to the Chinese in alliance with partners such as India.

Also read: my piece on how India’s Lines of Credit stack up.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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When Popcorn Costs More than the Movie

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Image credit: PVR CInemas

Typical multiplex experience in Chennai – Popcorn: ₹180; Pepsi: ₹200. The all important movie ticket: only ₹120.

By Natarajan Ramalingam (@natrajdr)

While a cinema ticket in a multiplex costs ₹250 or more in other metros, the price caps set by the the state government in Chennai provides the same ticket at significantly lower costs. Sounds good, doesn’t it? Maybe, maybe not.

Tamil film industry has been entwined with the state politics for a long time – with prominent cine actors and writers becoming politicians on one hand and the use of movies as a medium for political messaging and image building on the other. Successive governments in the state have claimed cinema as “the primary medium of entertainment for the common man” . While the validity of the claim is difficult to prove due to the changing times and tastes of the public, the government however continues to make it.

This claim provides the legitimacy for the government to intervene and regulate the industry to make the medium of entertainment “affordable to the common public – especially the poor”.

The increase in popularity of vernacular cable TV during the early 2000s, led to a fall in occupancy rates in theatres. Faced with a consequent fall of the entertainment tax rate, the government allowed for variable pricing during the first two weeks of any movie’s release.

This variable pricing mechanism did not impact tax collection as much of the increase in pricing was in “black” and was pocketed by the cine distribution/exhibition industry. The politicians saw an opportunity in this space to show themselves as pro poor by regulating the prices – with minimal impact on revenue to the state.

On 1st Jan 2007, the State of Tamil Nadu, through an amendment to the Tamil Nadu Cinemas (Regulation) Rules, fixed the minimum and maximum prices that can be changed for cinema hall tickets. The fixed prices range from ₹4 for Non-AC cinema halls in municipalities and village panchayats to ₹120 in the AC multiplexes that are contained within shopping malls.

The implementation has helped keep the prices of cinema tickets quite low in the state – ticket prices at multiplexes in comparable metropolis such as Kochi and Bangalore range from ₹300 to ₹500. It is interesting to note that another state which has a strong connect between politics and the film industry, Andhra Pradesh, also have similar laws capping the price of cinema tickets.

But this has come with long term unintended consequences.

Cinema, by its inherent nature, is a very risky industry. Notwithstanding the risks of a movie being completed from the point of inception, there are huge risks on the success of the films that are released (people’s taste, popularity of the stars, novelty of the theme, etc). In such an industry, the model will be to capture increased profits in cases of increased demand (a “Hit” movie) – what finance terms as a “higher-risk-higher-reward” mechanism. The price cap prevents the industry from capturing a higher amount of reward except by way of having cinema on the halls for a longer duration. But video piracy has led to the reduction in the “shelf life” of a new movie.

Investments in developing new and upgrading existing cinema halls have fallen due to high costs of setup and the low returns therein. Moreover, the opportunity cost of land for smaller theatres have increased – due to the increase in land value and stagnation in ticket revenue. Theatres in small towns have put the land for other use – malls, apartments and such.

Most cinemas have looked for alternate sources of revenue – snack and parking fees in multiplexes cost more than the ticket prices themselves! While the cinema tickets themselves are cheap, the cost of the “transaction” of watching a movie is high.

No allowances for inflation-based increases were made in the regulation. While the labour and utility costs have increased with time, the price ceiling have remained constant even after 10 years. The cap has led to continued use of the practice of selling tickets in “black”.

In a separate but related move the government, to boost Tamil language, decided to waive off the entertainment tax for tamil movies with tamil titles. This has led to a situation where the government doesn’t have an interest in increasing the ticket price – as there will be minimal corresponding increase in the tax collection. This tax break and the price cap has meant that the exhibitors of other language movies make lesser revenue per ticket than their Tamil counterparts.

Contrast this with the neighboring state of Kerala. The state laws there do not provide the government with the ability to set prices – only decide on the taxation that can be applied. An open market – same entertainment tax rates regardless of language and content and the ability for the cinemas to be flexible on pricing – has enabled the cinema exhibition industry to grow. The number of screens in the state has increased from 408 in 2014 to 516 by late 2016.

The regulation from the state of Tamil Nadu has helped keep the prices low – much lower than what the consumers were willing to pay (if compared with similar consumers in other states). While consumers have been happy, in the long term this has squeezed the profitability of the cinema exhibition industry. The Madras High Court has recently directed the state government to take a “realistic and rational decision” on ticket pricing.

Is it time for the government to withdraw itself from regulating this industry to its peril?

Natarajan is a alumnus of the Takshashila GCPP, an engineer by education, manager by profession and an aspiring policy analyst out of curiosity (@natrajdr)

[This blogpost is part of an assignment of the Economic Reasoning coursework. For the assignments, students were asked to submit essays on identifying instances of price controls across the world; who the intended beneficiaries were; and what were the unintended consequences of the price control.]

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A power-centric timeline of Pakistan

by Pranay Kotasthane (@pranaykotas)

There have been some excellent books on various aspects of the Pakistan state in the last couple of years. However, I found one feature missing these books: a power-centric timeline of Pakistan.

By this, I mean listing all major events since Pakistan’s independence in conjunction with the occupants of the most important positions of power. Such a database can become a ready reckoner for researchers working on Pakistan. Further, it might help derive further insights about Pakistan. Since I didn’t come across such a timeline before, I decided to make my own. With the help of my colleague Puru Naidu, we have created this timeline which is open for access [access the google sheet here].

Essentially, we have created a timeline for Pakistan starting 1947 with a quarter-year as the unit of resolution. Then we’ve listed the occupants of four most important political positions in Pakistan throughout this time period. These positions are: the President, the Prime Minister, the Chief of Army Staff, and the Director-General of ISI. We chose these positions based on their historical and current relevance. Moreover, our contention is that the overly centralised power structure in Pakistan allows for reducing Pakistan’s political structure to these four positions. Finally, we are listing all major political events of international importance in independent Pakistan’s history through the time period.

A power-centric timeline of Pakistan

A power-centric timeline of Pakistan

 

Some points to be noted:

  1. This is a work in progress. Listing of historical events is an ongoing work.
  2. A reductionist exercise is a simplification, and might miss out some important details. For example, the DG-ISI position wasn’t an important one until the 1990s. In fact, as Hein Kiessling notes in his new book, the ISI was not even considered as the best intelligence unit within Pakistan for the first two decades after independence.

Comments and suggestions on this exercise are most welcome. Should we include any other political positions? Are we missing an important historical event? Let us know and we will make the additions. Hope this small exercise will help the growing literature on Pakistan.

[access the timeline google sheet here]

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

 

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On India—Portugal relations

by Pranay Kotasthane (@pranaykotas)

Bárbara Reis, Editor-in-chief of the Portuguese magazine Publico asked me to comment on Portugal PM António Costa’s ongoing trip to India. Here are the questions and answers. [The full interview on the Public website is here]

Q: How would you describe India-Portugal bilateral relation, in particular compared with other European countries?

I’d put Portugal as the fourth most important country in Europe for India along with Netherlands. The first spot goes to Britain because of historical links and strong contemporary economic ties. Moreover, like other Asian members of the commonwealth, India too sees Europe through Britain. Germany and France are the other two European nations with which India has strategic partnerships. Then comes India’s partnerships with Netherlands and Portugal, both of which have substantially large Indian communities.

Q: Is Costa’s visit relevant for India? In what way? 

Costa’s visit is very significant for three reasons:

One, it comes at a time when India’s traditional connect in the European Union — Britain, is on its way out. Thus, India needs other partnerships to help navigate the complex mechanisms of the EU. As it stands, the EU is not looked upon as a credible strategic actor internationally. Apart from matters of trade and investment, emerging Asian countries like India prefer to interact directly with the member-states of the EU and vice-versa. This is where India-Portugal relations in general and this visit in particular become significant.

Two, India needs to partner with Portugal not just to access the EU, but also to link it with other Lusophone countries in Africa, Asia, and South America. Costa’s visit can give impetus to these partnerships as well.

Three, Costa will be visiting Gujarat, Goa, and Karnataka. It is not very common for the leader of another country to go out of the capital New Delhi. This visit can hence be utilised to establish links directly with these states, all three of which are amongst the economically better performing regions of India.

Q: PM António Costa’s father was an Indian from Goa. How does that fact play in Indian internal and external politics?

Not directly. But Mr Costa’s visit can be used to give impetus to Goa as a foreign policy actor, not only with respect to Portugal but also to other Lusophone nations. Traditionally, foreign policy has been seen to be the sole responsibility of the union government. But over the last decade, many states have started engaging with other countries directly, mostly for economic diplomacy. In this context, Goa is an important state because it is the richest state in India in per capita terms and also because a sizeable number of Goans reside outside India. Thus, riding on Costa’s Goan connections, the Goa—Portugal partnership can be made the first success story for this new paradigm of foreign policy in India.

Q: What could Portugal do to improve and strengthen the bilateral relation with India?

Portugal can help in three ways:

One, open up its doors to Indians for education. India has a shortage of world-class universities. Portugal can provide scholarships, especially in the social sciences stream.

Two, to establish stronger cultural links, Portugal can start short-term fellowship programmes for Indians on the lines of the US State department’s fellowships. This can involve not just Goa, but other Lusophone nations of the world.

Three, the Portuguese language in Goa has declined steadily over the years. It would help if Portugal could boost the Centro de Língua Portuguesa in Goa and tie-up with other schools and colleges for this purpose.

Q: Do you agree that Goa is being underestimated by both countries? Meaning, could Goa be the center of a new triangular type of diplomatic relations? Triangles like India-Mozambique-Portugal? Or India-Portugal and any of the other Portuguese speaking countries?

Definitely. The idea that states are important partners in India’s foreign policy is gaining ground now. States too see themselves as important players and are ready to engage other countries for establishing mutually beneficial economic relations. Many state departments now have NRI departments that interact with nations having large diasporas from their state. Goa can become the crucial link between India and all Lusophone nations. Goa should consider having a permanent trade representation in all Lusophone nations to accelerate the bidirectional flow of investments.

Also read: My colleague Anupam Manur’s article in Mint on the investment opportunities for India in Portugal.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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Data story: Lines of Credit supported by India

A brief overview of India’s lines of Credit to other nation-states

by Pranay Kotasthane (@pranaykotas)

India’s relationship with Mongolia has been in the news recently. After the Dalai Lama visited the Buddhist country, China suspended ongoing talks to grant a $4.2 billion loan and made Mongolia’s Foreign Minister apologise for permitting the visit. When Mongolia’s ambassador urged India to raise it’s voice against the Chinese overreaction, India’s response was as follows:

We are closely working with the Mongolian government to implement the credit line in a manner that is deemed beneficial to the friendly people of Mongolia by its leadership. We are aware of the difficult budgetary situation that Mongolia is facing due to various factors including high cost of servicing of debt raised by them in the past.

The credit line being referred to was the US $1 billion committed to Mongolia during PM Modi’s visit in May 2015. Meant to finance the ‘development of railways and related infrastructure projects’, this was the second-largest single line of credit by India since the programme started in 2003-04. This data point got me interested in this creature called Line of Credit. This post gives a basic overview of India’s Lines of Credit.

What is a Line of Credit?
A LOC is a ‘soft loan’ (not a grant) provided at concessional interest rates to developing countries and has to be repaid by the borrowing government. Besides serving the foreign policy aim of increasing India’s presence in critical geographies, LOCs are meant to promote exports of Indian goods and services — they come with a conditionality that a minimum of 75% of the contract value must be sourced from India.

One important factor to consider while looking at LOC figures is that the utilisation rates are typically low (the mean utilisation rate currently stands at 42%).  There are primarily two reasons: one, demand side issues such as inadequacies of recipient nation’s importers, insecure conditions, or lack of statutory clearances by the recipient government. Two, because of supply-side issues such as incompetence of Indian exporters, customs restrictions,  or lack of clearances from the Indian government.

Because a LOC is a soft loan (not a grant) and suffers from slow utilisation, regardless of the size of the amount approved as part of a LOC, it merely counts as an attempt to change the recipient country’s incentives at the margin. Which means, if a country is extremely critical to India’s national interest, it would require the government to do a lot more than announce billions of dollars worth of credit lines. Especially because China can match any LOC figure that the Indian government attempts — a direct outcome of continuous economic growth.

 

Nevertheless, how do India’s LOCs stack up? The summary is in the image below (click to expand the image). The data used to create these infographics can be downloaded from here.
locs

Also read: My colleague Pavan’s excellent Pragati Infographic: Foreign Aid going out of India.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

 

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Smart Watches and Privacy Concerns

By Ganesh Chakravarthi (@crg_takshashila)

A buzz on my wrist wakes me. I open my smartphone and see the status of my smart band synchronising my sleep schedule. My first cup of coffee and breakfast, the smart band takes readings. I go for a run, my smart band goes on overdrive. My ride to work takes me through peak hour traffic and my bike manoeuvres spike up my adrenalin.

Few weeks of the same routine and I observe subtle changes that my body has undergone. All these data points that allow me to alter my lifestyle are recorded on my watch – on the cloud, to be precise. My smart band’s readings give me a fairly good idea of where things stand. I can access this data whenever I want, monitor my eating and update the same data on my smartphone. The question arises, am I the only one seeing this data? Do I have a say if someone wants to pry or sell this data?

Wearable technology has altered the way we interface with the world. With increasing demand, it is important for consumers to be aware of potential security and privacy breaches. With vague regulations and lack of enforcement, data gathered by smart wearables can be used without the consumer’s knowledge, and it wouldn’t even be illegal.

The issue is considerably more serious since consumer-grade wearables currently possess little to no patching. The devices interface with smartphones however they come with their own operating system and applications. Although there are some smartphone antivirus programs that pair with a smartwatch, the lack of timely updates or indigenous security features increases vulnerability.

Poor data management can be exploited by third parties and sold to unscrupulous corporations for gross misuse. The lack of strong encryption with wearables and data in transit before synchronisation leaves it vulnerable to hacks. Additionally, companies would be willing to pay a fortune to get their hands on such personalised inputs.

There is also a big issue of continuity with a company that chooses to comply with privacy regulations. Say you choose to share your data with a manufacturer, there is no guarantee that the company will still be in existence a few years from now on. What happens to a company that goes bankrupt? What happens to all the data if the company is bought by a bigger corporation? The rules of the parent company could allow them to use this data at their own discretion. Additionally, there could be a new law which could allow access to data that you chose to share willingly.

As wearables are slowly entering corporate networks, they bring with them a slew of cybersecurity challenges. At a time where companies are auctioning collected data, how can anyone prevent companies from redistributing it? Will consumers retain any right to restrict access to their own private information?

Part of the problem can be attributed to the stiff competition in the wearables market. Everyone wants to roll their products out first causing manufacturers to cut back on data security in favour of faster roll out. The increased demand is prompting the creation of new editions almost every quarter, a process by which older devices are not getting any upgrades.

Companies have a potential copout with data breach insurance however insurance companies have begun to resist this in recent times. Consider the case of Columbia Casualty, the first insurance company to challenge liability after its client, Cottage Health System, had a data breach which released confidential patient information on the internet. The company paid about $4 million to settle the client’s filing but has now filed to recoup the funds, citing misrepresentation of control.

Cases like these serve to prove that financial institutions are realising the problems of bad data management and shielding themselves from liabilities.

A significant part of the data security debate with wearables is whether manufacturers should regulate the flow of data themselves or whether there should be government intervention.

Consumers should be able to understand the risks they are exposed to for the mere benefit of wearing a trendy electronic cosmetic. For now, there haven’t been any major public data breaches, a fact that has resulted in very little public discussion. However, certain corporations will find that personal fitness and health data is much more valuable than credit cards and payment information.

Security solutions for wearables are still in their infancy. For now, most wearables are left to self-regulatory practices which conversely may ensure bare minimum of compliance with privacy regulations. There is a heightened need to put regulations in place either via private industry or government intervention, maybe a combination of the two. Until these are in place, privacy and data security will always remain an inherent risk.

Ganesh Chakravarthi is the Web Editor at Takshashila and tweets at (@crg_takshashila)

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Why States Need to be Involved in India’s Foreign Policy

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Image credit: The Aspirant Forum

By Ratish Srivastava (@socilia13)

The involvement of states in India’s foreign policy making could be vital in launching India onto the next phase of development. The centre holds executive power in all matters related to foreign policy as stipulated in Article 246a, 7th schedule. Indian states already have many responsibilities like improving infrastructure for public health services, agriculture, transportation, etc. However, there is a heightened need to improve their economic performance and generate enough revenue so as to not depend on the centre for funding and help improve foreign relations with other nation-states.

States can and have proven themselves to be important players in improving India’s ties with other countries and at the same time improve their economic performance. States like Gujarat and Maharashtra have shown great promise with exports, contributing as much as 46% of India’s exports. Combining the exports of Tamil Nadu, Andhra Pradesh and Karnataka with the exports of Gujrat and Maharashtra increases the figure to about 70% of the total exports of India.

These states have accessed global economic opportunities, and have witnessed tremendous growth. These states have struck deals with major players in the international market, like Maharashtra’s deal with Enron in 1996, although the deal ended with the Enron scandal, which rendered the Texas-based company bankrupt. It is still worth noting the role a state can play in striking deals with international companies. Another example would be Andhra Pradesh’s ability to negotiate a state-level World Bank development loan in 2002 under the leadership of Chandrababu Naidu, proving that states can meet their development goals without help from the central government.

States in India who lag behind in these areas need to come up with a stronger structure for engaging in exports. A major concern for states with no ports, or states who depend on other states for container facilities and ports is that their export figures are being undervalued. This is because the point of origin code is filled by clearing agents rather than the exporters themselves, as the agents see no significant importance of the point of origin.

States need to understand the importance of having a state export policy, like Gujarat, which has a five-year export policy. This policy will not only address the supply side of the problems but will also address the need for adequate infrastructure and appropriate labour laws to make the state a more attractive destination for trade.

Chief Ministers of state should travel abroad to negotiate with industrial houses (Maharashtra-Enron), international organisations (Andhra Pradesh-World Bank) and commercial wings of foreign governments with the aim of achieving investment deals for their own states and to be part of intergovernmental negotiations within the World Trade Organisation (WTO). To improve the infrastructure the state needs more FDI inflows and they need to increase taxes to generate the revenue necessary for making such changes.

Apart from the economic benefits a state could reap, there is motivation for states to be involved in neighbourhood policies. Matters such as illegal trade and immigration (border security) and improving relations with the Indian diaspora in the neighbouring countries with which they have socio-cultural ties also contribute to a state’s involvement in foreign policy. Improving trans-border regional links and trans-border neighbourly contacts through the involvement of states can have positive effects on India’s foreign policy.

State interference can also have adverse impact on foreign policy, for instance, the fiasco regarding the Teesta water treaty with Bangladesh in 2011 and pressure from DMK on the central government to vote against Sri Lanka in the United Nations Human Rights Council. in 2013.

On the other hand, the role that a state can play in improving relations with India’s neighbours is huge. Border states, with historical, cultural, linguistic, religious, and ethnic links can help provide a platform for the central government to build stronger ties and improve border security. They can help improve socio-cultural ties as well, case in point, the Chief Minister of Bihar Nitish Kumar and the Deputy Chief Minister of Punjab Sukhbir Singh travelling to Pakistan in 2012 to leverage socio-cultural ties.

India can also improve border security if it allows the states who have borders with other countries to be involved in the process. It can help the centre make policies accordingly as states understand the ground realities better at the border which will help strangle illegal drug trade and immigration.

The benefits for state involvement in foreign policy has been underplayed, with much of the focus being put on the negative impact it can have. However, the positive impact could outweigh the negative as it allows states to have the power to improve its situation.

Ratish Srivastava (@socilia13) is a research intern at Takshashila Institution.

This post is the part of a series of blogposts on ‘States in Foreign Policy’.

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Controlling Healthcare Costs in Japan

The Japanese story of achieving low-cost healthcare through price controls

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Japanese Superambulance/Ypy31

By Aneesh Mugulur (@mugulur)

Between 1980 and 1992, Japan’s price controls in the healthcare sector led to the decline of physician fees by 19%. In 1991, Japan’s infant mortality rate was just 0.45% of live births in comparison to the United States of America’s figure of 0.91%, placing it in the top rank amongst industrialised countries. The same year, the average life expectancy at birth was 76.13 years for males and 82.22 years for females, more than the world average.

What was the reason for such impressive status of Japan’s health?

The Japanese government provided universal healthcare to all its citizens and regulated the prices of all care (and continues to do so). The aim of this price control was to provide affordable healthcare and insulate them against the high cost of living due to inflation. In this period, more than 80% of hospitals and clinics were privately owned. However, for-profit hospitals were banned.

How did the price control mechanism work?

Health insurance was mandatory for every citizen. There were three important types of insurance based on sectors; for employees, the self-employed, pensioners and the elderly. The government also fixed the co-payment rate. Claims were supposed to be filed with providers and services were provided in kind. The Ministry of Health, Labour and Welfare provided medical care under a nationally uniform fee schedule.  It is ‘uniform’ because the same fees are paid by all insurers to providers regardless of the experience of the doctor, or whether it is performed in a rural clinic or a multi-speciality hospital. The government strictly controlled the fees scheduled, and neither the insurers nor the providers had any say on it.

While there were marginal differences in rates amongst insurance plans, the physician fee was uniform. Charging more than the prescribed fees schedule had serious repercussions. Hence, there was no incentive for higher quality of service. As a result, doctors and medical practitioners focused more on quantity rather than quality.

Was the objective of low-cost met?

Nationally, uniform fee schedule played a vital role in maintaining equity. It also established both the scope and standard of services. There are further three structural factors that ensured low costs.

  1. The economic incentive embedded in the fee schedule was for testing pharmaceutical products and laboratories test which meant it was mainly for physicians in primary care who could conduct those tests.
  2. Clinics-based physicians did not have patient admitting privileges. Only hospitals could accept patients and their fees were regulated.
  3. Low administrative costs and secure claiming process

According to the Organization for Economic Cooperation and Development (OECD), among the major industrialised nations, Japan’s personal health expenditures were the lowest.

However, there were several unintended consequences which remain unresolved even to this day. Due to the universal fees schedule, a doctor who sees more patients makes more money than a physician who performs long hours of surgery. As the price for each consultation is fixed, doctors make sure they consult more patients to increase their income. In Japan, doctors worked an average of 70.6 hours per week, compared with 51 hours per week in the U.S. Patients have to wait for three hours but their consultation time is just three minutes.

Even though Japan’s healthcare was cheaper compared to most industrialised countries, its quality was dismal. The rigid control did meet the objective of providing affordable healthcare to citizens irrespective of their income. But its unintended consequences were more.

Since Japan’s system provides more incentives to primary care physicians and pays equally to specialists, it has led to an acute shortage of specialists in tertiary care such as surgery, paediatrics, and obstetrics. According to Japan times, the number of maternity wards declined from 4200 in the year 1993 to 3000 in 2005, resulting in longer commutes for pregnant women. Another significant consequence of this government control is the increasing corruption in the system.  In 2004, the chairman of Japan Dental Association was arrested for bribing the members of the government in charge of setting medical care fees.

Will the new ‘Abenomics,’ which is making news globally, revamp the healthcare system of Japan? The question remains unanswered.

Aneesh Mugulur is an alumnus of the Takshashila GCPP15 and tweets at (@mugulur)

[This blogpost is part of an assignment of the Economic Reasoning coursework. For the assignments, students were asked to submit essays on identifying instances of price controls across the world; who the intended beneficiaries were; and what were the unintended consequences of the price control.]

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