Strategic Economics

[Pranav]

It is evident that the response to strategic scenario will have to have economic dimension.

The topics that can be discussed in this thread include:

1. How economic policy can be used to penalize terrorist states

2. How trade and investment policies can be used to provide incentives and dis-incentives to states which support terrorist states.

3. How to encourage development of strategic sectors of the economy - including semiconductor manufacturing, telecommunications equipment, aircraft industry, armaments etc.

4. How to protect economic sovereignty and welfare in a time of currency manipulation and trade wars.

[Pranav]

How to create Indian Huaweis & ZTEs
http://www.rediff.com/business/slide-sh ... 101117.htm

November 17, 2010 09:52 IST

Sanjeev Nayyar

Did you know that Indian operators import virtually all the telecom equipment needed for setting up a network?

These imports were Rs 46,158 crore (Rs 461.58 billion) in 2008-09 and account for about 13 per cent of India's current trade deficit.

Instead of knowing what India did not do, it would be useful to know what it can learn from China ...

It forced vendors like NSN and Ericsson to manufacture with 95 per cent local staff and 100 per cent local content ...

China delayed the 3G rollout until domestic manufacturing competence was in place. Tax breaks, research grants and cheap loans from state-owned banks helped reduce cost.

Third, the regulatory framework for manufacturing equipment needs to change. The company must be a joint venture between a foreign vendor and an Indian partner where the latter holds a favourable stake.

Transfer of technology and software codes must be mandatory. Also, the joint venture must start with 60 per cent indigenisation in year one, going up to 95 per cent in year three.

Between years one and three an offset policy should be in place that requires 20 per cent in the form of core Indian parts. Also, 95 per cent of the employees in the joint venture must be local.

Equipment sold by the joint venture to Indian operators should be given a price preference of, say, 20 per cent, like Bhel used to get in power equipment ...

Like the Indian software industry, telecom equipment joint ventures must be supported by incentives. Industry sources say just as the diamond industry is allowed to import raw stones for cutting and polishing, import of all base components (PCBs, chips) should be allowed duty-free subject to reasonable value-addition norms.

Allowing external commercial borrowing for working capital, equalising central sales tax and VAT on equipment sales at 2 per cent, allowing a 10-year tax holiday but exempting these joint ventures from Minimum Alternate Tax would also help.

The benefits of producing locally are manifold. One, the multiplier effect of approximately $100 billion worth of equipment bought would be 2.5-3 times. It would create at least 75,000 skilled jobs and 250,000 unskilled ones. It would help reduce India's current account deficit.

The indigenous manufacture of equipment would also make India less susceptible to threats by any country. During the recent stand-off between China and Japan, the Chinese retaliated by delayed export of rare earths to Japan.

[Pranav]

An old article -

Twelve steps to shock-and-awe Pakistan’s economy

Prof R Vaidyanathan / Tuesday, December 9, 2008 3:36 IST
Economic destabilisation of the Terror Central is imperative for rooting out terror.

I did not anticipate the huge response my inbox received for the article last week (December 2) slamming Pakistan. Many of those who wrote in have sought concrete steps to tackle the Terror Central. The terror attack on world citizens at Mumbai has created revulsion and outrage all over the world. It is imperative that India seize the opportunity provided to destabilise Pakistan.

A stable Pakistan is not in the interest of world peace, leave alone India. Army controls the country and owns its economy. A significant portion of its GDP is due to army-controlled entities (See Military Inc Inside Pakistan’s Military Economy by Ayesha Siddiqa; OUP; 2007). One can easily say that Pakistan Economy and its Army/ISI are synonymous.

Unless this elementary fact is internalised, we are not going anywhere. This implies we should stop talking of a stable Pakistan since a stable Pakistan means multiple attacks on many more cities of India by that rogue organisation ISI, which is the core of the Pakistan Army and the heart of Pakistan’s economy.

Let us not even assume that Zardari is in control. Poor man - he did not trust his own investigators to probe his wife’s assassination - he wanted Scotland Yard to do the job. Now he blabbers that if his investigators are satisfied, then he will initiate action against terrorists sitting inside Pakistan. Periodically, the Pakistan Army likes to present some useful idiots (as Lenin would have called them) as elected representatives and we swoon over such events.

India should take the following steps to destabilise the economy of Pakistan:

* Identify the major export items of Pakistan (like Basmati rice, carpets etc) and provide zero export tax or even subsidise them for export from India. Hurt Pakistan on the export front.

* Identify the major countries providing arms to Pakistan and arm twist them. Tell Brazil and Germany (currently planning to supply massive defense items to Pakistan) that it will impact their ability to invest in India. Tell Germany that retail license to Metro will be off and other existing projects will be in jeopardy.

Incidentally, after the arrival of Coke and Pepsi in China, the human rights violations of China are not talked about much by US government organs. Think it is a coincidence? Unless we use our markets to arm-twist arms exporters to Pakistan, we will not achieve our objectives.

* Tell American companies that for every 5% increase in FDI limit for them, their government needs to reduce equipping Pakistan by $5 billion. That is real politics, not whining. Let us remember that funds are in desperate search of emerging markets and not the other way about. Let us also remember that international economics is politics by another name.

* Create assets to print/distribute their currency widely inside their country. To some extent, Telgi types can be used to outsource this activity. Or just drop their notes in remote areas.

* Pressurise IMF to add additional conditionality to the loans given to them or at least do not vote for their loans.

* Create assets within Pakistan to destabilise Karachi Stock market - it is already in shambles.

* Cricket and Bollywood are the opium of the Indian middle classes. Both have been adequately manipulated/ controlled by the D-company since the eighties. Chase the D-company money in cricket/ Bollywood and punish by burning D-assets in India instead of trying to have them auctioned by the IT department when nobody comes to bid for it.

* Provide for capital punishment to those who fund terror and help in that. We have the division in the finance ministry to monitor money laundering, etc. It is important that terror financing is taken seriously and fully integrated into money laundering monitoring systems and this division is provided with much larger budget and human resources. And it should coordinate with RAW.

* Encourage and allow scientists/ academicians/ elites of Pakistan to opt for Indian passport and widely publicise that fact since it will hurt their self-respect and dignity. There will be a long queue to get Indian passports — many will jump to get our passport — since they will not be stopped at international airports. It is rumoured that Adnan Sami wants one. Do not give passports to all — make it a prized possession. Let it hurt the army and ISI controlled country. This one step will destroy their identity and self-confidence.

* Discourage companies from India from investing in Pakistan, particularly IT companies, till Pakistan stops exporting its own IT (international terrorism).

In all these, it is important that we do not bring in the domestic religious issues. The target is the terror central, namely Pakistan, and if there are elements helping them here then they also should be punished-irrespective of religious labels. If Pakistan is dismantled and the idea of Pakistan is gone, many of our domestic issues will also be sorted out.

Will the Indian elite go for the jugular or just light more candles and scream at the formless/ nameless political class before TV cameras? It is going to be a long haul and may be in a decade or so, we can find a solution to our existential crisis of being attacked by barbarians from the West. We need to combine strategy and patience and completely throw to the dustbin the ‘Gujral Doctrine’ by that mumbling Prime Minister about treating younger brothers with equanimity.

The doctrine essentially suggests that if we are slapped on both the cheeks we should feel bad that we do not have a third cheek to show. He, according to security experts, seems to have dismantled our human intelligent assets inside Pakistan, which has resulted in the gory death of thousands of Indian citizens in the last few years. Such is our strategic thinking in this complex world since our political class is not adequately briefed and the elite don’t think through issues. Better to be simple in our talks and vicious in our actions rather than the other way.

Hopefully, this November attack will create a new vibrant India capable of taking care of its own interests.

The writer is professor of finance and control, Indian Institute of Management - Bangalore, and can be reached at vaidya@iimb.ernet.in. Views are personal.

URL of the article: http://www.dnaindia.com/money/report_tw ... 212468-all

[Pranav]

As regards powers that support terrorist states -

An obvious measure is to make access to Indian markets contingent upon good behavior.

A second strategy is to encourage long-term investment by these powers in non-sensitive sectors of the Indian economy, with the deals being structured so that the return on investment is spread out over two or three decades. Further, the return should be dependent on the health of the Indian economy. Thus, if the Indian economy suffers, then they suffer.

For example, China may be interested in getting rid of its US Treasury bonds. It could be encouraged to invest in highway or urban metro projects in India.

[Pranav]

Here is the brochure for the what seems to be CDOT's most modern router: http://www.cdot.com/pdf/startdownload.a ... router.pdf

Can anybody opine on how up-to-date it is.

Also, what is CDOT's current market share?

IMHO, the metric for measuring the success of CDOT would be how many of its alumni go ahead and start successful companies of their own.

[amit]

Cross posting this post of mine in the Indian Econ Thread:

Unfortunate as it is, building a Huawei or ZTE in India is easier said than done. What one needs to remember is that these two companies as well as several others started off as low cost OEMs for the likes of Cisco and others.

The Western companies thought they had something good going with manufacturing costs going down as they shifted manufacturing to China, where they could turn a blind eye to labor practices which would have got them into trouble in their home countries.

This continued till such time that they discovered that the managements of these two (and other similar companies), probably in connivance with government, were stealing IP to bring out their own products. If memory serves me right, Cisco unsuccessfully took Huawei to court in China for theft of several million lines of code several years ago.

The moot point is in almost every sector, including telecom the Chinese manufacturers have graduated from being sweat shops to being serious competitors buy stealing IP and perfecting low cost manufacturing. Mind you I don't necessarily think, from a Chinese perspective, that it was a bad thing they did.

The next step they took was to use the huge Chinese market as a leverage to help these companies to scale up operations so that, with the local markets sewed up, they have sufficient scale to offer products which are at least 1/4 the cost of competing western products to third world and increasing to many developed, countries.

In a way it serves the Western companies right since they badly underestimated the the Chinese and put short term gain over long term protection of key IP.

For India, due to our stupid labour laws it's impossible to take the same route and also the Western companies are much more careful after having been bitten in China.

If we have to wait for local companies to build up competencies and technologies from scratch, we'd have a similar situation to that of the LCA, we'd have to wait for an inordinately long time. Now in the case of the LCA we could afford to wait. But can our telcos which operate in the second biggest market and the fastest growing market in the world wait till the (non-existent) telcom equipment manufacturers catch up?

To add to the problem technology in this sector is improving at a breadth taking space. Only around five or six years ago Edge (2.5G) with connection speeds between 28.5-51 kbps was state of the art. Then came 3G with around 300-350kps, then zoom it was 3.5G with more than a megabyte speed. Now already LTE (long term evolution) or 4G networks are being trailed in several place, mainly in Europe. That would give almost a gigabyte of wireless connectivity.

For a a newly developed Indian telecom manufacturing industry, where would they jump in? You can't say we jump in at a lower technology point because the beauty of these technology ramp ups is that the cost is progressively going down for the telco while the bandwidth available to consumers is going up (think in terms of having a bigger diameter water pipe coming into your home).

In short, it's going to be a big ask. That's the really sad story of the procrastination that we've seen (even on this thread) with liberalization in the Indian polity.

JMT

[Pranav]

This is of relevance in combating the menace of counterfeit currency -

Retail payment made easy through mobile service

Allows real-time fund transfer from one account to another
National Payments Corporation to act as settlement agency
The service comes free for the account holder with banks bearing the cost


HASSLE-FREE SHOPPING: Reserve Bank of India Deputy Governor Shyamala Gopinath with Nominee of RBI M. Balachandran at the launch of Inter-Bank Mobile Payment Service in Mumbai on Monday.

MUMBAI: The mobile remittance service, which has done wonders in other emerging market economies such as Kenya and the Philippines, was launched for the first time in India on Monday that allowed seamless and real-time fund transfer from one person's bank account to another.

Launching the Interbank Mobile Payment Service (IMPS), which has now seven banks, including State Bank of India on board, Reserve Bank of India Deputy Governor Shyamala Gopinath said it had the potential to change the retail payment landscape that boasted 600 million mobile subscribers and 300 million bank accounts.

National Payments Corporation of India (NPCI), which has been promoted by ten banks, will act as the settlement agency between banks and deliver the back-end support for the system to be operational.

“This is the first-of-a-kind system in the country and the real power will be when it starts delivering in the rural areas,” NPCI Managing Director Chief Executive A. P. Hota, told reporters here.

A bank account holder will have to get his Mobile Money ID (MMID) from the bank which will be his ID for mobile-commerce transactions.

The bank installs a special application on his mobile phone from where the remitting will be done. Once the process is complete, the bank account holder can remit money to anyone, provided he has the receiver's MMID and mobile phone number. In case of a lower-end phone where the application cannot be installed money can be transferred through SMS.

To start with, the entire service comes free for the account holder with banks bearing the cost of 25 paise a transaction.

In case the SMS-based remittance is being done, the user is charged a fee of Rs.2 an SMS which NPCI is trying to get waived-off by talking to mobile phone operators, according to a senior NPCI official.

RBI regulations cap the maximum amount to be remitted at Rs.50,000 a day.

Speaking at the launch, Ms. Gopinath said the launch of such a service would help in financial inclusion because of the success of mobile telephony in the country.

She said stakeholders in the scheme — banks, merchants and mobile phone companies — should work together for greater integration which will help address the twin challenge of reducing the use of cash and encouraging the use of mobile wallets.

The RBI is encouraging the bank-led model for m-commerce which allows for the offering of the complete gamut of banking services such as deposits, withdrawals and remittances rather than the less secure non-bank-led model, Ms. Gopinath said. — PTI

http://www.hindu.com/2010/11/23/stories ... 791600.htm

The transaction cost should be pushed down from 25 paise. This will help reduce usage of currency notes of denominations Rs 100 and greater.

[Pranav]

Unfortunate as it is, building a Huawei or ZTE in India is easier said than done.

We cannot afford to take a laissez-faire approach, since this is a matter of national security. A special effort will have to be made with government backing. The same applies to semiconductor manufacturing.

[abhik]

I'm not a keen watcher or expert in this field but I remember some time ago the Canadian telecom infrastructure major Nortel filed for bankruptcy, and later parts of it were sold to companies like Ericsson(for not too large sums) and others were liquidated. The first thought I got was why couldn't any Indian company backed by the government or the government itself in the form of a sovereign wealth fund try to acquire it. This is probably the fastest way that we can acquire technology and start a local industry like the telecom infrastructure hardware where we have close to zero presence. The Indian government should definitely start a sovereign wealth fund whose aim should be to acquire or buy part stake in firms dealing with sectors that are critical and ones which we are weak or have little presence in like electronics(IC's etc.) , power and energy, aerospace and other high tech manufactured goods. These companies can then be somewhat "indianized" by start manufacturing plants and R&D centers etc. in India. Later they can be sold to Indian companies or listed in the Indian stock market (hopefully for a profit even if small).

[Rahul Mehta]

3. How to encourage development of strategic sectors of the economy - including semiconductor manufacturing, telecommunications equipment, aircraft industry etc.

A suggestion. Please reword it as
3. How to encourage development of strategic sectors of the economy - including weapons, nuclear weapons, semiconductor manufacturing, telecommunications equipment, aircraft industry etc..

===

admins,

Pls remove the post after 2 days, in case I forget.

[Pranav]

3. How to encourage development of strategic sectors of the economy - including semiconductor manufacturing, telecommunications equipment, aircraft industry etc.

A suggestion. Please reword it as
3. How to encourage development of strategic sectors of the economy - including weapons, nuclear weapons, semiconductor manufacturing, telecommunications equipment, aircraft industry etc..

Yes, development of weaponry, including nuclear weaponry, is critical - but would that belong in an economics thread? There are other threads that do address those issues.

[Pranav]

I'm not a keen watcher or expert in this field but I remember some time ago the Canadian telecom infrastructure major Nortel filed for bankruptcy, and later parts of it were sold to companies like Ericsson(for not too large sums) and others were liquidated. The first thought I got was why couldn't any Indian company backed by the government or the government itself in the form of a sovereign wealth fund try to acquire it. This is probably the fastest way that we can acquire technology and start a local industry like the telecom infrastructure hardware where we have close to zero presence. The Indian government should definitely start a sovereign wealth fund whose aim should be to acquire or buy part stake in firms dealing with sectors that are critical and ones which we are weak or have little presence in like electronics(IC's etc.) , power and energy, aerospace and other high tech manufactured goods. These companies can then be somewhat "indianized" by start manufacturing plants and R&D centers etc. in India. Later they can be sold to Indian companies or listed in the Indian stock market (hopefully for a profit even if small).

That would be a good way to do it. Another approach is to hire top professionals (both NRIs and RIs, and maybe even some non-Indians), and give them the resources to set up companies.

Maybe a venture capital fund could be set up and proposals could be invited.

The ventures would probably need some support in terms of import duties on foreign competitors, assured customers etc, at least in the initial period.

[Pranav]

A suggestion. Please reword it as
3. How to encourage development of strategic sectors of the economy - including weapons, nuclear weapons, semiconductor manufacturing, telecommunications equipment, aircraft industry etc..

Yes, development of weaponry, including nuclear weaponry, is critical - but would that belong in an economics thread? There are other threads that do address those issues.

Hmm ... there does not seem to be any thread on Indian nuclear weaponry?

As regards other defense R&D, this is the thread: http://forums.bharat-rakshak.com/viewto ... f=3&t=3757

[Pranav]

^^^ What would be on-topic for this thread is what kind of policy framework there should be to encourage the development of the indigenous armament industry. The first post has been amended.

[Pratyush]

The policy frame work for indigineous industry has to be simple the Completed Item has to be done with Indian labour, rawmaterials and subcomponents.

Even the machinery needed to produce the equipment has to be manufactured in the same manner. This means open the manufacturing/ Industrial sector completely. The MNCbrings capital/ Know how. In turn it takes home Profits. India gets Employment and a higher technology base.

This has to the the policy of the GOI. In a way a return to indegnisation and import substution. The only object to be imported would be the capital and the know how / know why.

Can the GOI do this. The labour to do so exists. The Intelectual capability to run setups exist. What is missing is the manufacturing capital and possibility the machinery.

The up side is that India can become the manufacturing hub of the world. At the same time it will be generating a lot of jobs. The MNC is a profit seeking entity it will do every thing to seek profits. Just allow it to be done in a transperent manner. With the GOI getting the the TAX revenue. Instead of the current environment of loot and plunder and zero accountability.

JMT on this thread.

[Pranav]

The policy frame work for indigineous industry has to be simple the Completed Item has to be done with Indian labour, rawmaterials and subcomponents.

That is a goal, but will have to be achieved in stages ... for example, for semiconductors, first import machines and set up a foundry, which is itself a non-trivial step. Then one could think of manufacturing the machines themselves.

Clearly, the nascent industry will require some protection in the form of import duties. However, efficiency can be assured by getting several domestic companies to compete.

An ecosystem has to be created ... venture capital funds will have to be encouraged. Should draw upon scientists from Central Govt Institutions and NRIs. The story of KR Sridhar, founder of Bloom Energy, is a good case study: http://www.cbsnews.com/stories/2010/02/ ... 1135.shtml