CURRENT TOPICS BSC JULY 2019

Current topics of BSC Magazine July 2019

RBI draft of Fintech regulatory sandbox: Many govts around the world have already started understanding the importance of financial technologies (fintech) and have implemented programmes and regulations that help fintech companies in coming forward. One of the major setbacks faced by fintechs around the world is that the financial regulatory norms that come in the financial sector generally tend to hinder their rate of growth and progress. This is where the RBI's draft of 'Enabling Framework for Regulatory Sandbox' is expected to play a big role. The proposed sandbox will likely allow fintech companies to test their product and services in the market freely without the interference of many regulations to them. The ability to test products and services in a controlled manner will help them not only check product viability but also identify flaws early on and fine-tune their offerings. Many fintechs in India believe that the regulatory sandbox is a step in the right direction and an excellent opportunity for the fintech community who can think of product or services for the future and visualise business models that can transform the financial services industry. The draft guidelines on a 'regulatory sandbox' has the potential to usher in disruptions in sectors such as "challenger banks' and 'open banking', and promote innovation within the industry. A 'sandbox' environment allows disruptive technology to be used within a specified protected data set, where multiple innovations can be tested and failures analysed without causing any form of systemic risk. Financial services companies hope to use this opportunity to test their products and scale up in a limited environment within the compliance framework set up by the RBI. Being a regulated space, start-ups are often at the mercy of financial institutions to understand compliance issues, which slows down the pace of innovation. A sandbox feature from the regulator could help smoothen the process. Many aspects of the fintech industry have been covered under the new guidelines, but crypto currency, initial coin offerings, credit registry and other related sectors have been kept out of the proposed sandbox. This could be a cause of heartburn for multiple entrepreneurs as 'distributed ledger', the technology on which crypto currency and block chain is based, is considered the future of finance. Across all stakeholders, the RBI embracing a regulatory sandbox system is seen as a welcome move. Particularly, the acceptance of innovations using block chain technologies is well received.

IIP shrinks in Mar 2019: India's factory output entered negative territory in Mar 2019 after a gap of 21 months, contracting 0.1 percent to signal a slowdown in consumption as well as investment. In Feb, the index of industrial production (IIP) was almost flat, growing at 0.1 percent. Twelve out of the 23 industry groups in the manufacturing sector were in the red in Mar. India's industrial output expanded at its slowest in five months in Mar, pulled down by slow growth in mining and contraction in the production of key items such as hand tools, gold jewellery, paper and readymade garments. Both consumer durables (-5.1 per cent) and non-durables (0.3 per cent) showed lacklustre performance. The only segment that continued to fare well was consumer electronics, growing at 10.6 per cent.  The IIP print surprised analysts because data released on 30 Mar showed the eight infrastructure sectors, which constitute 40.3 per cent of the IIP, had recovered to post 4.7 per cent growth in Mar--a five-month high, as production of steel and cement grew at a robust pace. During the entire 2018-19 fiscal, industrial output witnessed a 3.6 per cent growth as against 4.4 per cent in the previous fiscal. Monthly industrial growth has contracted for the first time after Jun 2017, when it contracted by 0.3 per cent, while yearly growth has recorded the lowest number in three years. This may translate into greater pressure on the Monetary Policy Committee (MPC) to cut rates for the third time this year, when it meets in June. Also, the RBI is expected to nudge the commercial banks to transmit its policy rate cuts. In the last two reviews, the rates were Towered by 50 basis points, but the banks lowered their lending rates by just 10-20 basis points the benefit thus not being passed on Data released by the Central Statistics Office (CSO) pointed to negative growth in the manufacturing sector, affecting overall industrial production. The manufacturing sector is key to job creation and a contraction there is the evidence of poor status of job creation. On a sequential basis, only the electricity sector grew faster in Mar 2019 (2.2 per cent, against 1.3 per cent in Febr). IIP growth slowed to 3.6 percent in FY19, against 4.4 per cent in FY18 and 4.6 per cent in FY17, its trajectory mirroring that of GDP growth. FY19 IIP growth was supported by infrastructure/construction goods and consumer durables. However, on a quarterly basis, both these sectors also witnessed a growth slowdown; consumer durables even contracted in the fourth quarter of FY19. Capital goods contracted consecutively for three months in Jan-Mar 2019, repeating a trend seen in May-Jul 2017. On a quarterly basis, IIP growth has been the lowest in the new 2011-12 series, and the same is true for the manufacturing and electricity sectors.

Pepsi vs Farmers in Gujarat: A legal battle over the right to grow the humble potato has caught global attention after US snack and beverage giant PepsiCo sued a handful of farmers in Gujarat for cultivating a variety of potato that the multinational claims as its own. The American major uses the particular tuber in question for making Lay's brand of chips. PepsiCo, the $64bn US global food, snack and beverage, is battling four farmers of Sabarkantha in North East Gujarat for allegedly growing the FL 2027 variety of potatoes, for which it has claimed Plant Variety Protection rights. The fight has all the elements of a classic David-vs-Goliath battle. Pitted against the American behemoth are four small potato growers with minuscule farms. PepsiCo has taken the farmers to court for infringing on its intellectual property right (IPR) by cultivating FL 2027, one of two potato varieties registered by the company in 2016, although it has been in commercial use since 2009. Registration confers an exclusive right on the breeder to produce, sell, market, distribute, import and export the said variety The pertinent question is who can grow what crops, as IPR has been invoked for the first time under a law governing the rights of breeders and farmers in India. The law is the Protection of Plant Varieties and Farmers' Rights Act, 2001 (PPV&FRA), a sui generis system enacted to meet the World Trade Organization’s demand for legislation to protect breeders' interests. With PepsiCo expressing its willingness to settle the case out of court, and petitioners seeking time till the next hearing date of Jun 12 to decide upon the matter, one can only profess the outcome without any certainty. What is already happening is a firming up on opposition against PepsiCo and contract cultivation from various segments of Indian activist groups. PepsiCo's Indian subsidiary, PepsiCo India Holdings (PIH), has been prosecuting farmers and cold storage units in Gujarat, one of the top potato growing states in India, since 2018. However, it was only in Apr this year that the issue was blown out of proportion when details of the huge compensation sought by PIH from the four farmers caught the attention of farmers' groups and non-profits working in the agriculture sector. There are said to be nine cases in total against farmers and cold storage owners. PIH has sought high compensation worth 1.05cr from each of the four farmers for infringing on its IPR. Legal experts and farmer support groups are emphatic that the law gives a clear edge to the farmers as per Section 39(1)(iv) of the Act, which overrides other provisions to guarantee the right of farmers to use seeds as they wish. Shalini Bhutani, an independent legal researcher and policy analyst on IPR issues, points out the crucial phrase of this section.

CJI gets a clean chit in sexual harassment case: The Justice SA Bobde in-house committee has found "no substance" in the sexual harassment allegations levelled by a former Supreme Court staff member against Chief Justice of India (CJI) Ranjan Gogoi. Justice NV Rarana, the third senior most judge, was not handed the report as he had recused himself from the committee following allegations raised by the woman about his proximity to Chief Justice Gogoi. The woman claimed that as she was once posted in the CJI's residence office, she knew that "Justice Ramana is a close friend of the CJI and is like a family member to him." The clean chit given by the Supreme Court in-house panel to the CII has attracted a lot of criticism from several persons in the legal fraternity. The Supreme Court statement said the report filed by the panel would not be made public. There would be no Full Court meeting on the contents of the "informal proceedings. The inquiry was by nature purely preliminary, ad hoc and only for the purpose of getting information. The report was "wholly confidential" and existed "only for the purpose of satisfaction that such a report has been made”. The three-member committee, which completed its task in 14 days, proceeded ex parte as the woman had opted out of the inquiry on 30 Apr after participating for three days. In a letter to Justice Bobde, the woman has alleged lack of transparency in the functioning of the inquiry panel and said that now, not providing her a copy of the order “would be a violation of the principles of natural justice and a complete travesty of justice". This is travesty of justice for the complainant and certainly it'll set a bad precedent. First of all, let's be very clear that it is undeniable that the CJI deserves utmost respect for his stature. But at the same time we must not forget that this precedent shakes our confidence in the institution and will deter other women who may be victims of harassment within the lopsided power structures that exist in society from seeking relief. It takes a great deal of courage for anybody to speak against the powerful and mighty. The allegation, even if false, must at least be fairly investigated and the victim must be fairly represented. The limited participation of the complainant and the complainant not being allowed a lawyer are blatant violations of basic natural justice principles and denial of the fundamental rights of the victim. However, the Supreme Court has a duty to inform the complainant and the people in general what process was adopted, which law was followed, whether principles of natural justice were adhered to, whether there is any provision for complainant to file appeal or seek review of this report, if so where and how, whether she will get opportunity to cross-examine the witnesses of respondent, whether witnesses who are subordinate staff members of apex court have deposed, if so, what have they deposed, etc.

Vidyasagar statue demolished: The recent demolition of a bust of Ishwar Chandra Vidyasagar in the lobby of the Vidyasagar College building on Bidhan Sarani, Kolkata, provides a sad reminder of long-standing cultural ambivalence around Vidyasagar's legacy in Bengal, and India too. When his bust was destroyed on May 14 amid a sad and violent political fracas, the collective response highlighted the ongoing challenge of knowing who it is that had been honoured by that bust. Vidyasagar remains an object of veneration, if not a kind of profound nostalgia. He is an icon of an era when a handful of eminent Bengalis had the courage to confront all kinds of obstacles: religious obscurantism, gender inequity, colonial subjugation, and manifest disparities in terms of access to education, social benefits, and economic security. Needless to say, India continues to struggle with all these problems. It is hard not to look back in admiration at a figure who was both resolute and outspoken, and yet who is also said to have had the "heart of a Bengali mother", as his protégée Michael Madhusudan Dutt once remarked. All this notwithstanding, Vidyasagar also remains an object of confusion when he is not the subject of critical debate. He is missed today not only as someone who has been forgotten or rendered irrelevant but also as someone who is remembered in curious and conflicting ways. Part of this is understandable. After all, what are contemporary Indians to make of a Brahmin pundit who refused to give up his dhoti and chaddar, who looked to the shastras for solutions to social problems, and who never journeyed beyond the subcontinent? There may be universities and bridges that bear his name, but how many who cross over the second Hooghly bridge pause to consider the tribute it pays to a poor boy's journey from Rarh to Calcutta? The period that Vidyasagar belonged to, and his fellow reformers in what is known inchoately as the “Bengal Renaissance", brought to the fore, a dialogue between disparate cultures that were uneasy bedfellows to a large extent. In its present avatar that still continues, this time, not between two landmasses separated by the kaalapani, but within this subcontinent. Two cultures uneasily coexist side by side - the so-called "cosmopolitan” and the vernacular. Vidyasagar too was an iconoclast. He broke tradition, and so did his contemporaries in what Tagore later would describe as "the dreary desert sand of dead habit” in his famous poem “Where the Mind is Without Fear". But there are two kinds of iconoclasm: one that challenges the old and repressive ways with reason, logic and rationality in the intellectual space; the other, which failing to do so, expresses itself in the most pathetic and brutish way in the physical space, as it did that day.

Masood Azhar designated Terrorist: The designation of Jaish-e-Mohammad chief Masood Azhar as a global terrorist by the United Nations (UN) is a major diplomatic victory for India. For a few years now, India had been trying to get Azhar designated as a global terrorist under 1267 UN Sanctions Committee. The move was so far relentlessly quashed by China, which, for its own vested interests in the region -- particularly to barter security of the controversial China-Pakistan Economic Corridor (CPEC), its ambitious Belt and Road Initiative's flagship project - sought to put a 'technical hold' on the matter. The decision from UN Security Council's 1267 Al Qaeda Sanctions Committee came after China lifted its technical hold on a proposal made by the US, UK and France to this end. India and other nations had been holding continuous negotiations with China to clear the way for including Masood Azhar's name in the UN's sanctioned list of terrorists. However, China had planned to wait till Jun to lift its hold after the Lok Sabha election in India would be over. Things took a turn after the US warned China that it would take the matter to the UN Security Council. Escalating the matter from the 1267 Sanctions Committee, where one couldn't even speak on who was blocking the move, to the UNSC would have led to a public debate where Beijing would stand exposed for helping an internationally infamous terrorist. Thus, after almost a decade, China decided to withdraw its hold on listing proposal against Azhar. Following the decision, Beijing said that it withdrew its technical hold after it found no objection to the listing proposal by the US, the UK and France following a careful study of the revised materials. Analysts linked the climb down to Beijing's increasing concerns about being isolated diplomatically at a time of heightened global concern about terrorism, but some also argued that the shift was made possible by a change of wording that avoided angering China's long- standing ally Pakistan. The shift came after a decade of lobbying from India, during which time China raised several holds on proposals to blacklist Azhar due to technicalities - a move that prompted criticism that Beijing was shielding the terrorist at the behest of its "all-weather" ally Pakistan. Now, all member states are required to prevent the direct or indirect supply, sale and transfer from their territories or by their nationals outside their territories, or using their flag vessels or aircraft, of arms and related material of all types, spare parts, and technical advice,  assistance, or training related to military activities, to the designated individuals and entities. The Sanctions Committee also oversees the implementation of the sanctions measures and reports annually to the Security Council on the implementation of these measures. Azhar's designation as a global terrorist will force Pakistan to act against him and individuals and entities associated with him.

Blasts in Sri Lanka: The deadly terror attacks on Easter Sunday in Sri Lanka left more than 250 dead, and close to 400 injured across the cities of Colombo, Negombo and Batticaloa. This is the bloodiest attack in Sri Lanka since the termination of the civil war, in 2009, between the Liberation Tigers of Tamil Eelam (LTTE) and the Govt of Sri Lanka. The terror attacks underline fault lines that are not ethnic but religious as they involve the island's two religious minorities - the Christians and the Muslims. Further, these fault lines draw attention to marks of violent extremism propagated by the Islamic State in Iraq and Syria (ISIS), with links to local organizations like the National Thawheedh Jamaath (NTJ) and Jammiyathul Millathu Ibrahim (JMI). The Easter attacks in Sri Lanka serve as a warning bell not just to the island nation, but to majoritarian states across South Asia, to recognise that populist rhetoric which caters to vote bank politics and targets minorities leads to de-humanisation and "othering" of minorities, and particularly impacts the social media-savvy youth. This lays fertile ground for transnational terror organizations like ISIS to further propaganda of war that breeds on anger, hatred, and perceived wrongs against the Muslims. Against the backdrop of the growing fault lines between the Sinhalese Buddhists and Muslims, the key question remains: why was the Christian community the target of the attacks? The answer to this needs to be situated both locally, and globally. Locally, it points to the fact that violent extremism has been spreading its tentacles, and has been breeding on existing sectarian fault lines, between the Sinhala Buddhists and the Muslims. However, the attacks were specifically mounted on Christians, to upscale the global visibility of this home-grown terror, and to specifically send across a message to the coalition of states involved with operations against the ISIS that military termination of ISIS in Syria does not mean the end of war. The challenge now is that it is difficult to calibrate the scale and territories from which fundamental threats to security will emanate. But what needs to be underlined is that complex internal conflicts are most susceptible to ceding ground to growing religious extremism, given the high-handedness with which majoritarian states in South Asia have dealt with internal conflicts. Therefore, South Asia particularly needs to take note of this development with caution. The threat of violent extremism is real, and cannot be countered merely at the level of individual states, as it has both regional and transnational ramifications. But what is also important to recognize is that the threat of violent extremism will be played out by the majoritarian state in the name of national security.

YC Deveshwar passes away: YC Deveshwar, chairman of the ITC group, passed away recently. He was 72. Deveshwar had acquired his stature through years of hard work, during which he set his sights on changing the course of ITC, till recently known only as a cigarette company. His vision extended beyond the corporate staple of toplines and bottomlines. He wanted ITC to be known as an entity that looked at creation of sustainable livelihoods and value-chains that would help society and enrich environment. ITC's non-cigarette businesses now constitutes nearly 59 per cent of total revenue, Deveshwar said, adding that over 80 per cent of the operating capital is now deployed in the non-cigarette segment. It is for this transformation, as also his thrust on sustainability, for which he will be best remembered. He was conferred the Padma Bhushan for his service to the nation in 2011, while his corporate vision led the Harvard Business School to rank him among the ten best performing CEOs globally. It was under his leadership that the company diversified from a cigarette major to other non-cigarette sectors that include FMCG, hotels, paperboards, agri and so on. His tenure saw over 50- fold rise in market capitalization of the company to nearly 3,00,000 cr. Hospitality was very close to Deveshwar's heart. During his two-decade-long stewardship, ITC's hotel network grew from merely 12 to over 100 properties, operated under four major brands - ITC, Welcom, Fortune and Welcom Heritage. He will fully relinquished his executive role as Chairman and CEO of the company after 21 years at the helm in February 2017. Subsequently, Sanjiv Puri was elevated as MD. Deveshwar operated as the non-executive Chairman. Deveshwar took charge at a time when ITC Ltd was going through one of its worst crises. The company was facing tax demands and a probe for alleged forex violations. Further worsening the situation was the fact that initial attempts at diversifying, before his tenure, had gone haywire and its key foreign shareholder British American Tobacco Plc (BAT) was pushing ahead for greater control. He steered ITC during the turbulent times of the mid-90s when a battle for control with its overseas shareholder amid reports of FERA violation engulfed the company. He steadied the company and worked to reposition it to withstand the increasing competition. An alumnus of IIT Delhi and Harvard Business School, Deveshwar had joined ITC in 1968. Between 1991 and 1994, he was invited by the govt to serve as the chairman and managing director of Air India, a period that is remembered for a turnaround in the national carrier. His stewardship over the last two decades has guided ITC to become India's foremost FMCG marketer, the country's largest paperboards and packaging company and a corporate enabler in farmer empowerment, through its wide- ranging agri-business.

Rise of Fantasy gaming in India: You might be thinking that Dream 11 is the torch-bearer of the now-bustling domain of fantasy gaming in India. Although Dream 11 made it immensely in India, fantasy gaming was introduced in the country by ESPN Super Selector in 2001. Co-created by Joy Bhattacharya and ESPN, it involved picking a team of 11 cricket players within a limited budget. Points were awarded to contestants based on on-field performances of selected players. Super Selector was so popular that during the 2003 Cricket World Cup, it attracted over 500,000 contestants. The immense popularity of the Selector inspired big media houses like BBC and Sky Television to launch their own fantasy sports clones. However, fantasy sports evolved over the next 17 years. From half a million, the domain reached a landmark figure of 20mn. If numbers in the report by the Indian Federation of Sports Gaming (IFSG) are to be believed, most of the growth in the domain has been seen in the last two years. In fact, of the 60 odd companies that are working in the space, 30 were launched in 2017- 18 alone. The concept of fantasy sports is pretty simple. You go online, choose your favourite sport, and create your own imaginary team based on the real players that would be featuring in upcoming matches or a tournament. The game is more realistic with the inclusion of practical rules like the salary cap, statistics, selection parameters including the exact number of foreign players in one squad. The contestants win or lose depending on the selected player's on-field performances. As a result of this, fantasy sports leads to an increase in fan engagement as contestants want to know how their selected players are performing on the field. This is a win-win situation for all the organisers, the broadcasters and the sports games providers. According to the Indian Federation of Sports Gaming (IFSG), India's projected user base of fantasy sports is on course to break the 100m barrier by 2020. What is astonishing is that it would still be only 30 per cent of online sports fans in India, indicating scope for further improvement. Over the last few years, fantasy sports have not been restricted in the domain of cricket only. The likes of Indian Super League and Pro Kabaddi League have also used it successfully. However, cricket remains the biggest draw and Dream11 is the market leader, with 90 per cent of the share. With rising disposable income and use of net banking, fantasy gaming is only going to touch new heights in the coming years. With the increasing consumption of sports and the numbers associated with it, fans are focusing deeper into statistics.  With a vast prospect yet unravelled, it can be safely said fantasy sports will be of great significance in moulding the next-generation fans of Indian sports.

Avengers: Endgame breaks records: The conflict is over, and the dust has settled. The current iteration of the Marvel Cinematic Universe has drawn to a close with Avengers: Endgame, and with it comes a new understanding of blockbuster capabilities. As that blockbuster annihilates our perception of what's financially possible for the film industry, we're left to ponder: What's next for Hollywood? How does a studio compete with franchise tales like this that span decades? Marvel ushered in the definitive era of the shared cinematic universe, and in the 11 years since Robert Downey Jr's Iron Man jump-started this journey, Hollywood has scrambled to keep up. Instead of single, standalone franchises such as Back to the Future or The Matrix, Marvel has popularized the idea of several connected franchises all feeding into one large nucleus. As expected, Avengers: Endgame shattered every opening week record in box-office history as the Marvel epic opened with $1.2bn worldwide and $350mn domestic, both new records. Endgame crushed the record established one year earlier by its predecessor Infinity War, which opened with $250mn domestically –surpassing Star Wars: The Force Awakens record of $248mn set in December 2015, and $630mn worldwide. Even after Infinity War's release, The Fate of the Furious, somehow, held onto its box office record for foreign opening weekend with $443mn; Endgame also demolished that record, bringing in $859mn overseas, including a mammoth $330mn opening weekend in China. Additionally, Endgame set the record for biggest domestic opening day ever with $156mn alone, breaking The Force Awakens '$129mn record. Avengers: Endgame is on track to register one of the biggest openings in Indian box-office history too. According to Box Office India, Endgame's occupancy is higher than Baahubali 2. In India, Book My Show said advance sales had exceeded 2.5mn, and some cinemas showed around-the-clock screenings. At its peak, approximately 18 tickets were sold every second. Experts predicted the well-reviewed Avengers finale --- featuring Robert Downey Jr, Scarlett Johansson and a raft of other stars - could make $200-260mn in its opening weekend in North America, and close to $1bn worldwide. Some multiplexes have shows at odd hours-1 am, 2 am, 5.30 am and 6.30 am --- with tickets for early morning shows reportedly going up to 2400. Though Endgame is far from an end for the Marvel Cinematic Universe, these first 22 films constitute a sprawling achievement, and this monumental success is a testament to the world they've envisioned, the talent involved, and their collective passion, matched by the irrepressible enthusiasm of fans around the world. The Avengers are based on the comic characters created by Stan Lee, a generational legend who died late last year.

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