All Newspaper editorials in one place – January 18, 2024



January 18, 2024

Regional turmoil

West Asia needs a security equilibrium with the Palestine issue at centre


The war on Gaza is no longer about Israel and Hamas. Israel has carried out targeted strikes in Lebanon and Syria, killing Hezbollah, Hamas and Iranian commanders. From southern Lebanon, Hezbollah is exchanging fire with Israeli troops. Iran-backed militias in Syria and Iraq have attacked U.S. forces in Syria and Iraq. The Houthis, the Iran-backed rebels of Yemen, have turned the Red Sea into a battlefield. The U.S.’s air strikes in Iraq, Syria and Yemen, seek to retaliate against Shia militias. As chaos and instability spread, Sunni Islamist militants attacked Iran, killing at least 100 people. In the latest escalation, Iran claims to have destroyed an Israeli intelligence outpost in Iraq’s Kurdistan and training camps of Sunni Islamists in Syria and Pakistan, in air strikes. This is now a classic case of regional anarchy where countries are taking unilateral military measures to address their perceived security challenges, throwing international laws and the idea of sovereignty, the bedrock of the international system, to the wind, thereby risking a wider all-out war.


Just weeks before the October 7 attack, Jake Sullivan, the U.S. National Security Adviser, had said “the Middle East is quieter today than it has been in two decades”. The Abraham Accords were on a strong footing, and Saudi Arabia and Israel were moving closer towards normalisation. Iraq had become quieter; Gulf Arabs and Iran had reached a rapprochement; and a ceasefire was holding in Yemen. Most of these changes, however, ignored the oldest crisis in the region — Israel’s continuing occupation of the Palestinian territories. The October 7 Hamas attack and Israel’s subsequent vengeful offensive in Gaza have not only brought Palestine back to the centre of West Asia but also lit fires, triggering perhaps the deepest security crisis in the region since 1967. The involvement of non-state actors and the absence of an off ramp complicate matters. After 100 days of war with Hamas, Israel has achieved little in Gaza. The Houthis, a militia that survived seven years of Saudi bombing, are unlikely to be deterred by America’s strikes. Even though Iran wants to showcase strength and boldness, it cannot mask its inherent weakness, which also makes it unpredictable. The old order, anchored by America’s domineering regional presence, is in tatters. What West Asia needs is a new security equilibrium. There has to be an immediate ceasefire in Gaza, and peace between Israel and Palestinians could be used as a springboard for further talks aimed at regional security between the main stakeholders — Israel, Arab nations, Iran, the U.S. and their respective allies and proxies.





January 18, 2024

Early lead

Trump seems the favourite to win the Republican nomination


Former U.S. President Donald Trump has established a significant lead over other Republican Party candidates in the first formal event of the election season, the Iowa caucuses. This puts him in pole position to be the Republican nominee for the November 2024 presidential election House, even though the nomination process through state-level primaries and caucuses is usually hard-fought and can produce surprise outcomes. While the 45th President scooped up 20 delegates in Iowa, far ahead of the nine delegates of Florida Governor Ron DeSantis and eight delegates of former South Carolina Governor Nikki Haley, in order to win the Party’s nomination a candidate would require a total of 1,215 delegates. Meanwhile, the next Republican presidential debate was cancelled after Ms. Haley declined to appear on stage unless Mr. Trump participates too, something he has refused to do so far. Indeed, it is Ms. Haley who perhaps represents the greatest possibility of posing a challenge to Mr. Trump, and the next Republican contest in New Hampshire, a swing state, will be her best opportunity to dent his momentum. The state has a more white and rural population and nearly 40% of its electorate is comprised of independent voters who may prefer a more moderate candidate than Mr. Trump.


Regardless of what twists of fate might lie ahead for the three candidates in the Republican primaries, it is clear from the Iowa results that Mr. Trump has bounced back from what some consider the political embarrassment and legal quagmires of the four indictments that he has been slapped with for alleged improprieties of conduct during his time in office. The latest voting suggests that his popularity among conservatives has not dwindled much; contrarily, he appears to be their candidate of choice more than in previous elections. The Iowa caucuses surveys suggest that nearly 50% of Republican considered themselves to be members of Mr. Trump’s “Make America Great Again” movement, and the breadth of his victory included older and younger age cohorts, men and women, and far-right and evangelical caucus-goers. Reports from Iowa indicate that nearly 90% among this group believed the Trump campaign falsehoods that the 2020 election was “stolen” and thus tend to overlook federal and state charges that he faces relating to the January 6, 2021 attack on the U.S. Capitol and election interference in Georgia. An early assessment of Mr. Trump’s overall position suggests that he would be well placed to win his party’s nomination and perhaps successfully challenge his Democratic rival, incumbent Joe Biden, in November. Whether this will be a positive development favouring the U.S.’s long-term national interest is an entirely different question.





January 18, 2024


Latest ASER report has significant pointers on how country could use education to leverage its demographic dividend


The latest Annual Status of Education Report (ASER) focuses on an age group that is critical to India unlocking its demographic dividend — 14- 18-year-olds in rural areas. It confirms the heartening trend of more students transiting to secondary education. Apprehensions that the pandemic-induced economic distress would result in older children dropping out of school have been belied. Education’s well-established links with people’s aspirations seem to have trumped economic exigencies. ASER 2023 notes that “today more children in India have more years of schooling than ever before”. But like ASER’s previous editions, the latest report doesn’t see enrollment as an end in itself. It lists failings and challenges, and charts opportunities. The more sobering findings relate to foundational skills — about a fourth of those surveyed find it difficult to read a Grade 2 level text in the local language and more than half struggle with arithmetic skills they should have been proficient in by Grade 5. This is a serious deficit that has a bearing on the quality of the country’s labour force — no skilling programme, however ambitious and well-designed, can succeed when its targeted beneficiaries have problems with elementary reading and basic arithmetic.


The report engages with one of the most difficult education-related predicaments of recent times — the increasing pressure on young students amidst acute academic competition. The problem, as ASER 2023 reveals, is not confined to urban areas. The difficulties of a section of learners get compounded because they have to juggle academic requirements with responsibilities like working in family farms. ASER suggests reforming pedagogic processes to reduce pressures on such students. The increasing use of smartphones in rural areas — about 95 per cent surveyed households had these devices and nearly 95 per cent men and 90 per cent women could use them — is an opportunity to extend education, and design classrooms that are flexible with time and schedules. Planners will, however, have to find ways to nudge students and their parents to use digital technologies for learning. The use of smartphones for education today is way less than that for entertainment. NEP 2020 envisions embedding digital technologies in the educational landscape. It also talks of pivoting from a curriculum-centred approach to one focused on the individual learner. The snapshots of the digital — and other educational — capabilities of youngsters in ASER 2023 could provide cues to policymakers in implementing NEP’s visions. At the same time, they should also remain alert against lapsing into technological fundamentalism.


China has been able to realise its demographic dividend to a large extent by prudent reforms in its technical and vocational education and training systems. The ASER report shows that India has a long way to go in this respect. Vocational skilling is not the first choice for youth. Only 6 per cent of the surveyed are currently doing vocational courses. This should be a wake-up call for policymakers to re-imagine vocational education — as NEP envisages — and make it truly aspirational.




January 18, 2024


Goods exports pick up marginally in December. But, Houthi attacks in the Red Sea may have clouded the outlook


After falling in November last year, India’s merchandise exports picked up marginally in December. As per data released by the Ministry of Commerce and Industry this week, goods exports stood at $38.45 billion in December 2023, up 1 per cent over the same period the year before. Stripping away petroleum exports, core non-oil exports grew at a higher 6 per cent. Alongside, the country’s imports continue to fall, declining by 4.9 per cent in December. This combination of a mildly positive export growth and falling imports has led to the merchandise trade deficit narrowing to $19.8 billion in December, down from $20.6 billion in November. As a consequence, analysts at Nomura expect the current account deficit to touch around 1.6 per cent of GDP in the quarter.

In December, of the 30 key merchandise sectors, 17 showed positive export growth. Exports of electronic goods grew at a healthy 14.4 per cent, engineering goods by 10.2 per cent, and gems and jewellery by 14 per cent. For the year so far (April-December), while aggregate exports are almost 6 per cent lower than over the same period last year, 14 sectors have shown positive growth, with sectors like electronic goods and drugs and pharmaceuticals showing healthy performance. The former has grown by 22 per cent, while the latter has registered a growth of 8.2 per cent. On the other hand, even as imports on aggregate have declined by almost 8 per cent in the year so far (April-December), they remain healthy in segments such as iron and steel, non-ferrous metals, machinery and machine tools, electronic goods and gold.


Global trade is facing tremendous uncertainty due to the Houthi attacks in the Red Sea. The consequent increases in transportation costs, insurance premiums and the time involved — as per reports a substantial number of vessels are now being rerouted through the Cape of Good Hope — are likely to adversely impact India’s exports, especially to Europe which accounts for around 15 per cent of the country’s merchandise exports. As per the commerce ministry, around 80 per cent of the outbound shipping to Europe takes place through the Red Sea region. The full impact of these attacks in the Red Sea will only be visible in weeks and months ahead. However, if India’s exports are sharply impacted, the merchandise trade deficit could widen more than currently expected in the last quarter of the financial year.





January 18, 2024


A man in Punjab tried to take an exam in his girlfriend’s garb. His cross-dressing may have failed, but his commitment did not


In 1746, an Englishman, Charles Hamilton, married Mary Price. Hamilton was born a woman and had been living as a man since the age of 14. Upon discovery, Hamilton was sentenced to hard labour and public whippings. British novelist Henry Fielding coined the term the “female husband” in a fictionalised and sensationalised account of the incident. There are numerous accounts of lesbian lovers (and transgender men, possibly like Hamilton) in literature who would don male attire and present themselves as men to be able to live with the one they loved. Shakespearean plays such as The Twelfth Night and The Merchant of Venice have both men and women cross-dressing for a variety of purposes.


He might not yet be immortalised in literature but the latest addition to this esteemed list of cross-dressers is one Angrez Singh. Hailing from Punjab’s Fazilka, Singh impersonated his girlfriend so he could take the multi-purpose health workers exam held by the Baba Farid University of Health Sciences on her behalf. He walked into the examination hall in a salwar-kameez and was quickly caught and handed to the police. For the examination, Singh had even got a fake Aadhaar card, voter card and I card made in the name of Paramjeet Kaur (his girlfriend). Since the incident came to light on January 7, the internet has offered overwhelming support and admiration to Singh.  Comments like “This or nothing”, “Relationship goals”, “#Truelove” are all over the internet.


In a society that remains biased against cross-dressers and effeminate expressions in men, Angrez Singh is a refreshing deviant. To willingly put oneself on the wrong side of the law just to make sure that one’s girlfriend passes an exam is the epitome of loyalty, albeit a slightly warped idea of it. Singh may have failed to help Kaur pass her exam, but he passed the lover’s test with flying colours.





January 18, 2024

Shades Of Grey

China’s 2nd straight year of population fall highlights emerging demographic challenge world will face


China in 2023 recorded a decline in its population for the second straight year. The country had used a draconian approach to control its population through a one-child policy. It was abandoned in 2016 and replaced with incentives to increase fertility. But it failed as once fertility decline accelerates, no country has been able to reverse the process.


Aging world | UN projects that the number of countries experiencing a decline in population will increase from 41 in 2022 to 88 in 2050. Within this overarching trend, the most serious challenge is that fertility rates are falling faster in today’s lower-middle income countries than they did in nations that are rich.


Productivity and wealth | India took just about 50 years to lower its total fertility rate from 5 to 2, which is just below the replacement rate. UK, in contrast, took 130 years to do that. Premature greying of the workforce has a negative effect on productivity, which is the most important influence on long-term economic growth. For India, it means that the window of opportunity to maximise its demographic potential is relatively smaller.


Census, the snapshot | GOI told Parliament that work on the belated census will begin after Lok Sabha elections. It will test the validity of UN’s projection, which said that India surpassed China to become the world’s most populous nation in 2023. In addition, the census will provide granular details on other aspects of the population. These details are essential inputs to craft sound policies.


Two-pronged approach | India’s main challenge right now is to accelerate the pace of economic growth. In 31 of the 36 states and UTs, the fertility rate is at replacement level or lower. NFHS data showed that the desired fertility rate among families is below 2. In fact, it’s 1.6, the level in Germany today. This gives India just a couple of decades before the full impact of collapsing fertility rates show up in the age structure of the workforce. Today, growth should be the policy priority.


Concurrently, policy-makers need to work on improving the pension system. Even in a relatively tight knit society such as Japan, pension burden sometimes leads to intergenerational friction. Governments need to avoid reckless pension promises for favoured groups. Instead, there needs to be a more even-handed approach to cope with the long-term demographic transition.





January 18, 2024

Parivar Patterns

Political families & biz families share a key trait: managing risk by putting family members in different ops


In India, ‘political is personal’ shades into ‘political is family’. A lot of family. Family members as political rivals from opposing camps is not uncommon – the Scindia exit, NCP split, Raj Thackeray’s MNS, SP’s Shivpal’s march to BJP, the list is endless.


Sis-bro contest | Even so, the appointment of a CM’s sister to head an opposition party’s state unit has a masala twist all its own. Andhra CM YS Jagan Reddy’s sister YS Sharmila is now Congress’s state unit chief. Andhra’s assembly election is held simultaneously with Lok Sabha’s. Karnataka and Telangana in its kitty, Congress is clearly bullish here.


Real successor, who? | Congress hopes Sharmila might revive party’s fortunes basis popular legacy of her late father, ex-Congress CM YS Rajasekhara Reddy in undivided Andhra. Jagan, YSR’s son, vaulted into CM position after exiting Congress claiming this very legacy. As in family businesses, succession can be a risky game – the only difference being politicians are themselves the ‘business’. Sharmila is widely credited with her brother’s meteoric rise. This year then will see brother-sister fight over this legacy.


Turf matters | Family feuds aside, most political families in India are often ranged against each other from opposing parties in electoral contests. Even in December’s assembly polls, several contests had uncle against nieces (Nagaur, Khetri), spouse fighting spouse (Danta Ramgarh), so on and so forth – the endgame is that the constituency, or “home turf”, stays with the family. And a foothold in state machinery keeps political family wheels well-oiled.


Sound business | This is sound business practice – spreading risk, and diversifying portfolios is the trick to survival. Conglomerate families do it all the time – putting children in different businesses, sending at least one son (daughters, not so much) abroad. Business and politics both face uncertainty. Little wonder careers of children in both kinds of families are demonstrations of risk management.





January 18, 2024

Thrill Before Trills Come Marching In

Tech, not natural resources, incubating trillionaires


The world’s first business trillionaire — if you don’t count the ‘L’État, c’est moi’ sultans and emirs of some Gulf countries whose personal wealth is their country’s GDP — is likely to emerge from the technology industry. And, according to billionaires-unfriendly Oxfam, it’s not going to take much longer. Five of the top six richest persons are tech czars, with Elon Musk’s current net worth a quarter of the $1 trillion mark. Seven of the eight companies that have market capitalisation above $1 trillion have something to do with software. The eighth is Saudi Aramco. Given the nature of its ownership, it could well create the next sovereign trillionaire. But technology is galloping ahead. Apple took 40 years to reach its $1 trillion valuation, less than four years to add $2 trillion more. Meta went from $100 billion at listing to $1 trillion in nine years.


It is no coincidence that wealth creation is speeding up as the means to generate it is decoupling from natural resources. Apple added its last trillion amid a global fouling up of manufacturing supply chains. AI, which is the main driver of technology valuations, is premised on replacing a large chunk of human resource that brought software to its current state of evolution. A further weakening of the link with natural intelligence will accelerate wealth creation. The process is an improvement over the traditional method of gaining control of the drinking well.


Wealth generated through IP is, in itself, more egalitarian, because innovation can be trained to address inequity. It can bypass Robin Hood governments that have a patchy record of taking from the rich and giving to the poor. Human productivity gains can override physical resource constraints. The capability to prospect the solar system opens up new dimensions in mankind’s development. Those capabilities have the best chance of being delivered by the trillionaires that are coming into view on the shimmering horizon. The thing now not to do would be to weigh down technology through misguided regulation.





January 18, 2024

ASER, Faster, Higher, Full STEAM Ahead


For its globally recognised prowess in IT to be upgraded to becoming a 21st-century AI, digital humanities (‘knowledging’ through collaborative, trans-disciplinary and computationally engaged research), LLM, ML, AV/VR-powered powerhouse, India requires people with technical, creative and innovative skills the humanities provide so as to collect, disseminate and utilise knowledge across fields and sectors. AI development, for instance, relies on maths, engineering and science. But creating an AI application product or service requires heuristic (where rules are only loosely defined, such as in frontier technologies), not just deductive, thinking.


In the ongoing ‘tech-tonic’ shift, India must realise this sci-humanities edifice can’t be built without a robust primary and tertiary education structure. The 2023 Annual Status of Education Report (ASER) released on Wednesday gives a reality check. It focuses on the 14-18 age group of students in rural India and explores domains beyond foundational skills. While 86.8% are enrolled in school or college, the enrolment percentage drops with age. Even if youngsters remain in school longer, there’s not much change in their foundational literacy and numeracy skills. 90% have a smartphone, but primarily use it for entertainment.


The landscape doesn’t look too promising. But there is a silver lining: the level of digital access. India must build on this to get its learning mix right. Non-English Indian languages digitisation, which Bhashini aims to do, can help. It should ensure humanities is on a par with technical training, a women-focused learning with the right balance of soft and hard skills, and that digital proficiency goes beyond rote skills, which will soon become vulnerable to machines.




January 18, 2024

Rising returns

Healthy direct tax growth, good news for the fisc


The buoyancy in direct tax collections in the first nine months of this fiscal, led by robust personal income tax collections, is probably a signal that the recent drive to increase the tax base is beginning to show dividends. The estimated growth for gross tax collections in the Budget for 2023-24 was quite conservative at 10.5 per cent, taking into account the possible decline in inflation and moderation in growth. But the 16.77 per cent growth in the April-December 2023 period has helped collect ₹17.18-lakh crore of tax, which is almost 81 per cent of the Budget estimate. This can prove quite helpful in achieving the fiscal deficit target for this fiscal year.


The growth in corporate tax collections has been muted in the first nine months of this fiscal year, at 8.32 per cent. This is not surprising given the challenges being faced by companies due to tepid global demand, rising interest burden and lower revenue growth, resulting in lower profitability. Personal income tax collections have, however, surprised pleasantly, with strong growth of 26.11 per cent. This growth is accompanied by a 9 per cent increase in number of income tax returns filed for the accounting year 2023-24, reaching a record high of 8.18 crore. The increase in tax base could be partly due to the increasing formalisation of the economy and a younger workforce joining the services sector where the pay packages are higher. Reforms in personal income tax rules could also be contributing to the increase.


Among these is the new tax regime, where the taxpayer enjoys a lower tax rate while foregoing all exemptions and deductions. This could be resonating with new taxpayers due to its simplicity, increasing compliance. Two, the practice of pre-filing the returns with data including salary, interest, dividend, brought forward losses and MAT credit is also making the process easier. Three, the information on financial transactions of taxpayers given in the annual information statement and taxpayer information summary helps in capturing all the income of the taxpayer, which can be inadvertently omitted, thus increasing the tax revenue. Four, expansion of the number of transactions subject to tax collection at source is also perhaps proving to be a good idea, bringing high income earners who have been evading paying tax, into the tax net. The Centre must continue this drive to plug the loopholes and simplify tax structure and process in order to expand the income tax payer base.


With the first advance estimate pegging the nominal GDP growth for FY24 at 8.9 per cent, the fiscal deficit could be under pressure. Decline in central excise duty collection from fuel, shortfall in disinvestment programme and higher outgo on food and fertilizer subsidy will also expand the fisc for FY24. Higher direct tax collections along with robust dividends from public sector enterprises and the Reserve Bank of India will prove handy in achieving the fiscal deficit target of 5.9 per cent of GDP budgeted for FY24.





January 18, 2024

Improving competitiveness

The electronics sector would benefit from global integration


The government has pointed to recent increases in production and exports of electronics, particularly mobile phone handsets, as a sign that its attempts at industrial policy are working. Certainly, there have been some visible successes. For example, while only 15 per cent (in value terms) of India’s electronics production in 2021-22 was for export, it grew to 25 per cent the next financial year and may cross 30 per cent in 2023-24. The government’s target of $52-58 billion worth of exports by 2025-26 seems reachable under these circumstances. The total target of $126 billion worth of production might also be considered reasonable. But the Indian Cellular and Electronics Association (ICEA) has sounded the alarm on such optimism. In its recent studies, the trade body has predicted the rate of growth in domestic demand for mobile phones to slow from 21 per cent a year earlier to under 4 per cent. Further, exports, according to the ICEA, will be only about half of the official target.


This is not a poor performance by any means. However, when measured against the opportunities provided by a global rebalancing of supply chains, it can be seen as disappointing. Further, the reasons why the government’s targets may be missed are likely to be found in the design of its own industrial policy. It has used imperfect ideas generally inapplicable in the Indian context as a guide to policymaking. The basic concept used in its formulation of policy for this — and other similar sectors, such as electric vehicles — is to erect tariff barriers for imported components and final goods, to use high domestic demand growth as an initial draw to get large multinationals to make investments, and to sweeten the pot with production-linked incentives (PLIs).


This combination of policies is appealing to bureaucrats, as each step in the chain essentially means increasing controls and the discretion of decision-makers. But, put together, it is economically incoherent. The ICEA study has pointed out, for example, that high import tariffs on the components and sub-assemblies that go into mobile phone handset production may add 5-7 per cent to the cost of a locally manufactured device. This, in turn, simply wipes out the advantages that accrue from the PLI scheme for handsets, which the ICEA estimates at between 4 per cent and 6 per cent. If the PLI scheme has been rendered unremunerative by import tariffs, and domestic demand is also slowing, it is hard to see where future investment and growth in the sector will come from.


The government would be well advised to take into consideration these outcomes — not entirely unexpected — and make necessary adjustments to enable India’s entry into global value chains. The economies of the West might seek to erect tariff walls to reshore production, but that is because their tariffs are very low in comparison to India’s and their future growth is not necessarily dependent on finding new export markets. The case with a developing economy like India is different. Furthermore, value chains in the 21st century are so diffuse that the imposition of high tariffs adds both uncertainty and cascading costs. A stable and low-tariff regime across the board, along with a business-friendly environment, rather than production subsidies would lead to far greater success for India.





January 18, 2024

Donald Trump 2.0?

A second term might increase global risks


With Democratic incumbent Joe Biden, 81, polling historic-low approval ratings in the US despite a robust economy and falling unemployment, expectations of a second Donald Trump presidency in 2025 is gaining traction. Mr Trump’s decisive win in the Iowa caucus — taking 51 per cent of the votes, with challengers Ron DeSantis and Nikki Haley coming a distant second and third, respectively — has added momentum to that outcome. To be sure, Iowa, which kicks off the primary and caucus seasons for both parties, need not be considered a bellwether for the November 2024 polls. For one, the turnout dropped by 41 per cent owing to near-arctic temperatures — the reason why the Democrats are holding mail-in ballots in the state instead. For another, the Republican caucus represents a fraction of the state’s population. All the same, Mr Trump heads into the New Hampshire primary, scheduled for January 23, with a commanding lead. His absence from the five debates so far with his challengers appears to have worked to his advantage. Ms Haley, who presents herself as a liberal Republican, declined to appear at the ABC News debate if the former president did not participate, causing the event to be cancelled. Unless his legal cases under Supreme Court review keep him off the ballot in 2024, Mr Trump, 77, looks a shoo-in for the Republican nomination, and possibly a return to the White House.


What might this mean for the world? If his first term is an indication, global security, the climate change agenda and geopolitics could deteriorate, given the escalation of his Make America Great Again (Maga) campaign. Europe anticipates he will make good on his threat to pull out of the North Atlantic Treaty Organization (Nato), which would be a critical alteration to the post-war global security architecture. This might impact the trajectory of the Russia-Ukraine war, where Vladimir Putin appears to be gaining, with Congress Republicans declining to vote for more funds to underwrite Kyiv’s campaign. A deeper engagement with good friend, Israel Prime Minister Benjamin Netanyahu, could add to West Asia’s turmoil. The Trump administration’s official recognition in 2017 of Jerusalem as the capital of Israel — the US was the only country to do so — may well have played a contributory role in Hamas’ October 7 terrorist attack. Tensions with China, with which Mr Biden has begun an outreach, are unlikely to abate if Mr Trump sticks to his mega-Maga agenda.


India will have to face the fallout of a possible increase in global risks and threat to global cooperation in different areas. In terms of bilateral relations, the Indian policy establishment has dealt with the Trump administration in the past and a recalibration should not be difficult. Though Mr Trump revived the Quad, his administration also imposed higher tariffs and scrapped privileges on Indian imports under Generalised System of Preferences. Notably, Mr Biden added impetus to the security ties with some robust collaborations — but he has not reversed tariffs. Although India-US relations have strengthened significantly in recent years, partly because of the security situation in the region, the Indian policy establishment would have to be prepared to protect India’s interests in a world that could get more unpredictable.




January 18, 2024

An endless wait

The 3-month deadline for Sebi’s Adani probe is futile as establishing ultimate beneficial ownership of FPIs is tricky


THE SUPREME COURT’S deadline to the Securities and Exchange Board of India (Sebi) for completion of two pending investigations into the Adani-Hindenburg case ends in March. One of them relates to violation of minimum public shareholding, caused by beneficial owners of foreign portfolio investors (FPIs) in the Adani group being family members or close associates. It’s highly unlikely that the regulator would be able to meet the deadline. In an earlier hearing, Sebi had said prescribing time limits on such investigations may compromise the quality of investigation, create constraints and increase litigation. The apex court itself perhaps realises the difficulty and has used the word “preferably,” allowing Sebi flexibility in dealing with the issue. That’s understandable as establishing ultimate beneficial ownership of the FPIs in the group is a gigantic task.


For example, experts have pointed out that several jurisdictions allow omnibus structures where the end beneficiaries are not required to be captured or are based in some other geographies. This entails writing to different regulators, some of whom may not be entitled to share information due to different pacts. For that, the government needs to pursue information sharing agreements with low-tax jurisdictions favoured by Indian entities, to put an end to such practices. But that’s easier said than done; in any case, it’s a long and drawn-out exercise, making the three-month deadline completely irrelevant. Moreover, such a move has the potential to make FPIs nervous about investing in the Indian market, so it’s easy to understand the government’s likely reluctance to make any such move.


The other, perhaps more important issue, is that despite several regulatory changes over the years, the FPI rules still allow complex multi-layered opaque structures where the natural person who is the ultimate beneficiary or owner of the funds, can remain hidden. In any case, in a large number of cases, the FPIs are just the registered vehicles. Explaining the difficulty it is facing in identifying the owners of the FPIs, Sebi had told the Supreme Court that the ambiguity lies in beneficial ownership identification, which is based on control or ownership in some jurisdictions, potentially overlooking entities with economic interest but no apparent control. Consequently, investment managers or trustees, utilising arrangements like voting shares, may be recognised as beneficial owners, leading to a potential failure in identifying the actual investing entities with economic interest, especially when holdings are distributed across multiple FPIs.


Some of the regulator’s recent moves may, however, help in peeling off the layers of entities that companies might attempt in future to escape the rigours of law enforcement. For example, high-risk FPIs—those that hold over a fund size ceiling of Rs. 2.5 trillion worth of assets under management—would need to make additional disclosures of their ultimate beneficiaries, submit monthly consolidated reports of investments across securities and report changes in shareholding exceeding 10% within 15 days. This shifts the onus on the listed entities and the FPIs to maintain adequate records and notify the authorities in line with the continuous disclosure regime adopted by Sebi. It has also mandated granular reporting of data by entities with any ownership, economic interest, or control rights in high-risk FPIs. But all these rules are with prospective effect and will have no bearing on Sebi’s pending investigation in the Adani case on the ultimate beneficiary issue. The wait, therefore, is certain to be a long one.




January 18, 2024

BP went for continuity. It needs a revolution


BY APPOINTING ITS former finance boss as its new chief executive officer, British oil giant BP Plc went for continuity — but it needs revolution. The board is turning to capable hands to run the company today. But what about the next five years, let alone the following decade?


Murray Auchincloss, a 53-year old Canadian, replaces Bernard Looney, who was dismissed last year for “serious misconduct”. Auchincloss was quick to emphasize constancy. “Our strategy – from international oil company to integrated energy company, or IOC to IEC – does not change,” he said in a statement following his promotion.


Along with many other companies, BP loves to reinvent its brand For a time, it marketed itself as Beyond Petroleum. Along the way, it switched from capital letters to lowercase because, company lore says, focus groups indicated that “bp is friendlier than the old imperialistic BP.” Now, it’s an IEC, whatever that’s supposed to signify. Surely, some branding consultant is making bank playing scrabble with the shareholders’ money. I wish BP would stick to what it knows — petroleum. It may not be politically correct, but it pays the dividends.


Which brings us back to the strategy. BP directors and senior executives insist the current business plan is right. I disagree; but that’s irrelevant. What’s crucial is that the market also disagrees. Minutes after BP announced the CEO appointment, its shares fell to the lowest since October 2022.True, oil and gas prices were down, so the fall was in line with the market. But there’s a much larger trend. Of the five top international oil and gas majors, BP is the only one whose shares are down from their early 2020 level, just before the pandemic hit.


From a shareholder point of view, the last five years had been largely a washout. Including re-invested dividends, BP has generated total returns (measured in sterling) of 14.95%             since Jan. 2019.Usingthe same metric over the same period, Exxon Mobil Corp. has delivered total returns of 81.76%; Chevron Corp. of 64.67%; Shell Plc of 30.89%; and Total Energies SE of 70.17%. Maybe BP directors know something the market doesn’t; or, perhaps, they’re just wrong.


Looking at the last five years may be unfair because BP has already tweaked its Looking at the last five years may be unfair because BP has already tweaked its strategy since, reducing the emphasis on reducing oil and gas production. But today’s financial indicators aren’t rosier, either. On a price-to-earnings basis, BP shares trade at a lowly 3.9 times ratio, compared with 7.1 times for Shell and 8.1 times for Total-Energies. Exxon and Chevron trade at 9 and 10 times, respectively.


Why are investors so down on the company? Look at the numbers underpinning its business plan. Even after re-adjusting its strategy a year ago, BP is spending generously on lower-return projects outside its core oil and gas businesses. Thus, it needs a rising oil price to sustain the payouts shareholders have become used to. Fortunately, Auchincloss did say on Wednesday that “focusing on returns” was a priority. Good. There’s hope.


As a former chief financial officer, Auchincloss will be attuned to balance sheet dangers that BP could face if oil and gas prices drop .Debt, already elevated by historical standards, would increase, pressuring its credit rating. Share buybacks would go; dividends would fall. The hope is that he quickly recasts the strategy, going beyond the changes that his predecessor Looney started in early2023.


Back in October, when Auchincloss was still interim CEO, he updated investors on how BP would spend its money, setting out a list of priorities. First, the dividend; second, maintaining an investment grade credit rating; third, investing in its so-called transition businesses; fourth came oil and gas; and fifth was share buybacks. I’d prefer that he merged three and four in one single bucket: investing in the company’s business, and selected where to put money solely based on risk-adjusted returns.


If not, BP faces another kind of danger. Its market value has already dropped below $100 billion, less than half the peak of $250 billion set in 2006. At its current valuation, BP is a clear target for an activist investor looking to shake up the board and change the company’s strategy. Alternatively, it could be prey for a mega takeover. Either alternative could offer a better future to shareholders than the current strategy.



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