Configuring India's Digital Ecosystem

Policies must favour consortiums of local players - for operators with a government stake, and for manufacturers/system integrators with market access conforming to WTO rules.

Shyam Ponappa    |   August 6, 2020 

Two developments highlight the need for government to sponsor consortiums to build India’s digital ecosystem:

• Facebook’s announcement in April to invest $5.7 billion in Reliance Jio was momentous. In a slowing economy, Reliance Industries raised an incredible $20 billion with a cascade of foreign investments combined with a rights issue. This “consortium” makes Reliance debt-free, besides providing the capital and capacity to dominate communications in India.
• India’s digital ecosystem’s dependence on China and on increasing imports underlines the imperative for corporate India to come together in a national endeavour that must succeed.

The Jio factor

Overwhelming dominance rarely benefits the public interest, even if the pricing starts incredibly low. Developed markets frown on monopolistic dominance, despite there being giants such as Microsoft, Google, Apple, Amazon, and Facebook.1

Discounting tall talk, India’s communications sector now has these upbeat expectations, along with a slew of old negatives, particularly the debt- and tax-burdened, fragmented other operators together with recalcitrant policies. Government-imposed charges and tax battles burden our operators, rendering them unable to compete.

How have Jio’s moves affected the public interest? With both benefits and detriments. The negative fallout from sectoral debt from auctions and crippling government levies, and a price war, has been unsustainably low tariffs. A positive effect is that data traffic increased greatly because of the low tariffs. Yet, the results are damaging: For service providers because of insufficient profits, for the market because it constrains quality and growth, and, therefore, for consumers in the short and long run. Service levels are compromised by resource constraints (dropped calls, slow speeds), and because of under-served customers — both in existing and the unserved markets in India. Data traffic may have increased simply because more people watch more rubbish in video form, whereas service providers need the wherewithal to invest, to improve and extend coverage, as well as to design constructive educational, skill-building, medical services, and other enhanced interactive services for users’ genuine benefit. In that sense, traffic as a measure of user benefits can cut both ways.

Apart from data, two other aspects merit consideration: Operator revenues, and government collections (licence fees, auction charges, and taxes). Operator revenues grew strongly from mid-2003 through FY2012, flattened for five years (FY2013-17), then declined after FY2017 (see Chart 1).

Barring additional charges, government revenues reflect this decline, leaving these lingering questions:

• Does the declining trend serve the public interest?
• What is the opportunity cost of disruption and deprivation of services?

A third issue requires action: How do we improve our digital prospects? Note that government collections from licence fees and spectrum charges rose steadily from FY2004, so that cumulative revenues far exceeded auction fees foregone (Chart 2). Corporate taxes were in addition to this.

Thereafter, government collections flattened, then declined (barring retrospective charges), as did taxes. This calls for policy intervention to enhance services, thereby increasing revenues and government collections. Straightforward adoption of global norms for wireless in 60GHz, 70-80GHz (V-band and E-band) and unused UHF (500-700MHz) restricted to operator use will help.2 So will giving up the farce of reviving BSNL/MTNL, including the hopelessly snaggled VRS, and the botched tenders (‘Most of it to Huawei?’ ‘No, Ericsson and Nokia.’ ‘Alright, 10 per cent to domestic suppliers.’ ‘No, all of it to domestic suppliers…’).

Competition for Services

A way to nurture balanced competition in services is for the government to create a consortium with a minority anchor, bringing financial, technological, and delivery capability to compete with Jio’s dominant platform.

Reliance Industries Chairman Mukesh Ambani calls for doing away with 2G; Airtel Chairman Sunil Mittal calls for supportive policies, and repudiating old battles such as contention over the adjusted gross revenue (a 15-year battle won in lower courts, lost in the Supreme Court), and reducing exorbitant charges. The government can change policies to achieve these. It can stop predatory practices, and facilitate this consortium. BSNL/MTNL can be genuinely supported to be the government anchor in the consortium with a minority stake, with golden-share national security, public- and minority-interest responsibilities through appropriate legislation. Airtel could be the lead, with others participating, including foreign players.

Equipment Consortium

Fragmented suppliers and system integrators also need a consortium for collaboration. While multinational vendors dominate, dependence on imports and China is untenable for our increasing and strategic requirements. Absent enabling policies, Indian manufacturers have to succeed offshore to sell within the country. Why do such things happen? Many reasons, starting with the holdover of colonial mindsets even of those who want to rewrite history, which treat the government — whoever is in power — as the colonial/feudal overlord, and the people as serfs with a vote, whose weaknesses can be pandered to for electoral victory. This imposes a zero-sum framework—the government versus the rest (Us versus Them).

In reality, the situation need not be zero-sum, as evidenced by past service growth and government collections through revenue sharing, compared with what might have been if auction fees were enforced: Bankruptcies and no services.

The prerequisites are (a) policies framed to provide access to local manufacturers and service providers conforming to WTO requirements; (b) their market access through continuing orders; (c) their collaboration to supply, install, and facilitate operations and maintenance of requisite equipment.

If these were made possible, domestic suppliers could meet a significant share of India’s communications needs. This requires emulating the Huawei model — easier said than done!3

The Union and state governments need to understand these components, and execute them from a national perspective, without bombastic rhetoric, politicking, fund-raising for elections, and so on. Policies must incentivise coordinated action; orders have to be winnable by including criteria for development of domestic capacity to conform to the World Trade Organization rules; and execution has to be first rate (on time, high quality). Digital communications will drive many aspects of all sectors. Our policy-makers must stop dithering and help us prepare effectively.

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Shyam (no space) Ponappa at gmail dot com

1. For issues about competition laws in India, see: Amber Sinha & Arindrajit Basu, April 30, 2020:
"Analysis: Reliance Jio-Facebook deal highlights India’s need to revisit competition regulations"

https://scroll.in/article/960676/analysis-reliance-jio-facebook-deal-highlights-indias-need-to-revisit-competition-regulations

2. https://organizing-india.blogspot.com/2020/03/indias-self-goal-in-telecom.html

3. http://organizing-india.blogspot.com/2018/05/the-huawei-­­pointer.html

Democracy, Digital India and Networks

Digitisation and democracy are ruled by the ineluctable dynamics of networks.

Shyam Ponappa   |   May 2, 2019 

There’s no escaping the blessing or the curse of the Digital Age in India, any more than the benefits and challenges of democracy. The headlong rush into digitised networks provides incredible benefits of reach and efficiency in many different ways, at the individual and many collective levels — of family, friends, community, nation, polity, work, domain, and so on. It also lends itself to the dark side, plumbing the depths of social, religious, or political factions and tribalism, bigotry, autocracy and fascism, anarchy, social dysfunction, and the rest. Yet, there’s no denying that for India, with all its needs, talents, foibles, and contradictions, digitisation is a great enabler.

Likewise democracy.  Romanticised notions of it are pure fluff, epitomised by selfies at the Parthenon, conjectures about Vaishali, or the spectacle and pageantry of electioneering. The reality was, and is, much harsher, whether then or now. Then, it was the practice of a pri­vileged elite. Now, the reality of de­m­ocracy in India with universal franchise and an insufficiently prepared polity is a space captured by politicians, many of them fractious opportunists, not really prepared or equipped for the complex analysis and decision-making that governance requires. Mo­st citizens, however, have an illusory freedom of choice, despite the choice being restricted to accepting or rejecting incumbents, or choosing repla­cements from among th­e­se very politicians. This is where digitisation has a direct role and enormous impact through media in all its forms, in­cluding the nexus between money and politics as in the Cambridge Analytica episode.

According to McKinsey’s ‘Digital India’ report of 2019, the benefits of digitising India are impressive, although only 40 per cent of the population has internet access, and there is uneven adoption in businesses, leaving considerable room for improvement. Yet, newly digitising sectors have experienced tremendous gains. For example, in logistics, fleet turnaround time has been reduced by 50 to 70 per cent, and digitised supply chains helped companies reduce inventory by 20 per cent. The question is whether and how this can be managed to yield more benefits than detriments, while preserving privacy, social convergence, and harmony, while avoiding divergence, repression, and instability through disharmony.

The Imperative for Conscious Regulation

Network science tells us that real-world networks share two characteristics. The first is growth with time, and the second is that new nodes link more often to more connected nodes, or hubs. Growth and preferential attachment result in the emergence of a few, highly connected, dominant hubs in all networks, whether the networks are of the cells in our bodies, computer chips, transport networks for airlines, social networks connecting people, or the World Wide Web. These characteristics are common across networks of any size and are scale-free.  

Added later: June 7, 2019
[Re the scale-free aspect, for opposing views, see: liorpachter.wordpress.com/2014/02/10/the-network-nonsense-of-albert-laszlo-barabasi/]

Added later: June 15, 2019
[Scale-Free Networks Are Rare-Anna D. Broido and Aaron Clauset-arxiv.org
https://arxiv.org/pdf/1801.03400.pdf]

The dominance manifested by companies such as Facebook, Amazon, Netflix, and Google, combined with the attenuated influence of less connected nodes highlights the role of regulation and structure for equitable development and outcomes in networks. The same issues of dominance and the need for regulation arise in democracy.  In India, outrageous changes introduced recently with regard to election funding have increased opacity and the potential for abuse at the heart of democratic processes. Political parties can now receive foreign or do­me­stic funding from any source without constraint, and funds can be anonymous through ele­ctoral bonds. Introduced with retrospective effect, both the National Demo­cratic Alliance and the Congress benefitted, as previous adverse judgments were nullified. Therefore, one pointer is the need for regulation and appropriate controls applied in a host of areas including news and social media.

Evidence-Based Policies

An entirely constructive aspect of digitisation relates to the application of network science to issues by mapping the links between factors and actionable policies. Examples are the connection between genes and diseases for effective treatment,1 or the feasibility of upgrading products and exports for countries. An example of how proximate products and exports developed over 20 years is visualised in Chart 1, showing the Revealed Comparative Advantage (RCA) of Colombia (COL) and Malaysia (MYS) in production and exports from 1980 to 2000.

Chart 1: Revealed Comparative Advantage – Colombia and Malaysia

Source: Hidalgo et al: ‘The Product Space Conditions the Development of Nations – Science, 27 Jul 2007).  https://science.sciencemag.org/content/317/5837/482

https://www.researchgate.net/publication/6181618_The_Product_Space_Conditions_the_Development_of_Nations

The premise is that most upscale products are from a densely connected core, while lower order products are in a less connected periphery. Countries tend to move to products close to those for which they have specialised skills.

The lower chart is for Malaysia alone (it helps to view enlarged images in co­lour on a screen to trace the progression).

India’s manufacturing and export opportunities in its product space in 2017 are in Chart 2.

Chart 2: India - Export Opportunities Product Space - 2017  $292 billion

Hidalgo: https://atlas.media.mit.edu/en/visualize/network/hs92/export/ind/all/show/2017/

Such interactive charts are available and can help in planning for product areas such as automobile parts, chemicals, or electric motors.2

A great deal of appropriate regulation followed by planning and execution is needed, incorporating insights such as these in areas like governance, healthcare and industrial policy. Realpolitik and preoccupation with obscurantism, religiosity, and caste/tribe, require that changes be driven by unraveling the nexus between politics and funding, evolving a transparent, state-funded system. Is such a transformation possible? Recent developments that have overtaken earlier attempts at electoral reform such as the Goswami Committee (1990) and the Vohra Committee (1993) emphasise an urgent need. But can public opi­ni­on and opportunistic opposition interests converge to effect appropriate cha­nges in political funding? And elicit enlightened government action in public interest projects for health, manufacturing and export policies, agriculture, finance, construction, and so on? A tall order. Perhaps the best hope is that reactions to phenomena such as Brexit help create more equitable practices.

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Shyam dot Ponappa at gmail dot com

1. For connections between diseases and genes, see Alex J. Cornish et al: https://genomemedicine.biomedcentral.com/articles/10.1186/s13073-015-0212-9

2. https://atlas.media.mit.edu/en/
AJG Simoes, CA Hidalgo. The Economic Complexity Observatory 
'An Analytical Tool for Understanding the Dynamics of Economic Development.' Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011)

Matching Realities and Aspirations

Leaving aside fixing the 'mountains' such as land acquisition, NPAs, etc., here are some thoughts on systemic focus and action.

Shyam Ponappa    |   February 1, 2018

There’s an upbeat sense from the annual Economic Survey, and indicators such as soaring stocks and official statements.Yet, the ground realities don’t match because of gritty facts such as not being able to pay electronic tolls on a national highway near Delhi though the Bharatiya Janata Party (BJP) controls local administration1, Korean steel giant Posco abandoning a huge investment last year after struggling for over a decade, two public sector divestments, Bharat Aluminium Company and Hindustan Zinc, mired in difficulties2, or the hobbling state of services such as electricity and telecommunications despite short-term consumer benefits from lower prices, and so on. Another aspect is that so many college graduates, including engineers, law students and MBAs, compete for low-end government jobs such as peons in state governments. Clearly, something beyond talkfests and episodic discussions is needed. Leaving aside fixing the “mountains” — the land acquisition act, non-performing assets (NPAs), high component taxes — here are some thoughts on systemic focus and action.
Fix infrastructureWith rare exceptions, our governments do not appear to recognise a clear priority to fix infrastructural deficiencies. After national security and maintaining law and order, correcting critical deficiencies of infrastructure in all its forms needs to be an all-out priority. This is a basic requirement for citizens to function effectively and live well. Without infrastructure one cannot function anywhere near full capacity, because of having to spend time, energy and resources dealing with problems of living and hygiene arising from the non-availability of adequate water and sanitation, inefficient travel and logistics for employment, education or health care, communications, dysfunctional equipment because of power shortages, and so on.Instead, some misconceptions in policies and practices appear to be broadly accepted as driving factors not only in the government, but also to some extent in the public perception. One is that all foreign direct investment (FDI) is a panacea for our ills and aspirations. The second is the idea that for services such as water, electricity and communications, the public interest is best served by the lowest consumer prices for those who get such services, regardless of sustainability. Issues such as access to services for half the population living outside urban areas, high and consistent quality, sustainability, and minimising environmental impact appear to be less important criteria.

The Panacea of FDI?There’s no question about the need for foreign investment, but uncontrolled FDI, particularly at our stage of development, is inadvisable. One wonders where these forms of the erstwhile East India Company and/or winner-take-all might lead. And does it matter, as long as consumers enjoy good living, defined as access to material comforts at low prices? To see why it does matter, consider these parodied scenarios, with apologies to Jonathan Swift’s satirical A Modest Proposal3.A Modest Proposal for 100% FDI — A ParodyImagine how well all consumers could do, this time without leaving the other half out, if we invite the likes of (indicative list, in alphabetic order) Amazon, Facebook, Google, and Microsoft (with guarantees of compensation if there are sudden policy reversals, which we are prone to) to use all unsold and unused spectrum to provide connectivity and digital services pronto. They could put in so much investment to get to year five on day one a couple of years or so out, even Reliance Jio might pale.Don’t want Americans? Why not invite the Chinese and Huawei? We might get even better deals in digital services from the world leader in 4G and beyond.

Not to mention the attendant benefits from associated companies to keep consumers happy with smartphones, air conditioners, refrigerators, air purifiers, TV sets, cars, two-wheelers, and so on. There will also be power plants, aircraft, and trains, fixing all three sectors with one swipe. Some impediments would have to be removed of course, such as allowing power plants to come up, electricity lines to be laid out, spectrum to be used, land acquired, changes in labour laws, and so on. As for employment, there could be plenty of local assembly, manufacturing and distribution from all of the above, provided we willingly submit to some regimentation in our lives.

Alternative: Fix The Basics & Do It Ourselves

We have to fix the basics to help ourselves and make FDI succeed in our interests. We need priorities in objectives, as everything cannot have the highest priority. Even more difficult is getting experts and practitioners to work out detailed process plans, evaluating alternatives with realistic simulations, and so on. It takes time, energy, understanding and competence, and patience, to get beyond seat-of-pants discussions. Apply all these from a systems perspective, map the distilled ideas to action plans for each set of interrelated processes, and the upshot could be those process plans. We may get end-to-end strategies leading to convergent results to improve our infrastructure, which will enable agricultural and manufacturing production, services, and trade, with resulting jobs, while limiting negative environmental impact.Goals such as increasing jobs and farm income are desirable. To get on a higher long-term growth trajectory beyond a cyclical recovery, in addition to skilling, there need to be initiatives and investments that fit with the circumstances. An excellent example is the Automotive Mission Plan 2006-2016, now in its second 10-year cycle, which resulted in India becoming a preferred automobile assembly location with 32 million jobs in FY16. Similar approaches could be worked out for connectivity, electricity, and the rest, that address the needs/opportunities/markets, the products/services, how delivery will be organised, what the resources are and where they will be sourced from, how they will be organised and when, i.e., the detailed strategy, process plans and flow charts.Also, effective corporate practices such as facilitation for catalysing group decisions could be used if they are not already, to help administrators, experts, and practitioners arrive at sound, practical decisions.4 Another area is simulation and modelling of alternatives and scenarios. A third is overall strategy.

These steps will help improve our ability to achieve our aspirations.

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Shyam (no space) Ponappa at gmail dot com

1. ‘India’s road to digital highway’, Nivedita Mookerji, Business Standard: http://www.business-standard.com/article/opinion/india-s-road-to-digital-highway-118012401544_1.html

2. ‘India as a ‘business partner’, Kanika Datta, Business Standard: http://www.business-standard.com/article/opinion/india-as-a-business-partner-118012401599_1.html

3. https://en.wikipedia.org/wiki/A_Modest_Proposal;https://andromeda.rutgers.edu/~jlynch/Texts/modest.html4. https://www.centreforfacilitation.co.uk/files/public/What%20is%20process%20facilitation.pdf