The Peninsula Foundation

Category: Democracy & Governance

  • Sedition Law: Sensitivity and trepidations of the State

    Sedition Law: Sensitivity and trepidations of the State

    This article was published earlier in moneycontrol.com

    A few activists and intellectuals, some of them octogenarians, are in jail for varied periods having been arrested for sedition. A question being asked since then is: can intellectuals and activists who fight for the rights of the deprived, underprivileged and downtrodden be seditious and subversive? The law of sedition is a remnant from the days of colonial rule in India.

    Should the State feel helpless and orphaned if the law of sedition is to be repealed? The fact that for seven decades and more the State has staunchly held on to this law suggests so

    The (British) colonial administration was constantly apprehensive and on tenterhooks that the ‘natives’ (the dominated subjects) would rebel against it in conduct, speech, or action. Hence, the sedition law was introduced through Clause 113 of the Draft Indian Penal Code in 1837 by Thomas Macaulay.

    The colonialists wanted to guard themselves against any kind of protest. Any activity that was unpalatable to the colonialists was conceived of as ‘treason’ and ‘subversion’. In order to maintain an untrammeled stronghold on the populace, the colonial administration thought it essential to promulgate a sedition law; an overarching law to protect what it thought was its sovereignty and suzerainty.

    Interestingly, in the 1860 Indian Penal Code (IPC) the law of sedition was not included. However, due to an ‘increase’ in ‘revolutionary’ activities and ‘unrest’ on the part of the Indian ‘rebels’, in 1870, the British inserted Section 124A and amended the IPC to include the law.

    Suppression and subjugation through draconian measures were resorted to by the foreign power for its political and economic gains and ends, in a system that was tyrannical, authoritarian, and dictatorial, and ran through its course till 1947

    Though the Constitution of India (with its oft-quoted Preamble) was to come a bit later, India did become a sovereign, socialist, democratic republic when it got rid of the colonial yoke. So, how come the Law of Sedition got carried over into a republic that became a free country and a democratic political entity?

    On the one hand, why the need for a law of sedition in a free, sovereign country. On the other hand, a look at the way sedition is being interpreted currently.

    In 1929, Mahatma Gandhi called sedition a “rape of the word law” and asked the people to go in for a countrywide agitation to demand the repeal of Section 124A. He said, “In my humble opinion, every man has a right to hold any opinion he chooses, and to give effect to it also, so long as, in doing so, he does not use physical violence against anybody.”

    Subsequently, after Independence, during the debate on the first amendment to the Indian Constitution in 1951, then Prime Minister Jawaharlal Nehru, called the law of sedition fundamentally unconstitutional and declared “now so far as I am concerned [Section 124A] is highly objectionable and obnoxious and it should have no place both for practical and historical reasons. The sooner we get rid of it the better.”

    Intriguingly, the Law of Sedition was not repealed, as it should have been, ideally, during the first Parliament session itself; and has been retained during Nehru’s government and subsequent governments too.

    Should the State feel helpless and orphaned if the law of sedition is to be repealed? The fact that for seven decades and more the State has staunchly held on to this law suggests so; more so today as during the last nearly seven years the number of times that the State has resorted to the use of this law is disturbing, to say the least. Besides, the State is arming itself with yet another draconian handle in promulgating the Unlawful Activities (Prevention) Amendment Act (UAPA).

    Was there ever such a low in independent India in terms of lack of tolerance on the part of the State? Any sort of criticism against the government seems to automatically get interpreted as anti-national. This manufactured binary — anti-government equals anti-national — has been the dominant credo ever since the Bharatiya Janata Party (BJP) came to power in 2014.

    In a recent article, Amartya Sen says, ‘The confusion between “anti-government” and “anti-national” is typical of autocratic governance’.

    Intellectuals, opposition leaders, activists in different realms, are all swept into the hold-all like sedition law. Also, international voluntary organisations, as also Indian NGOs, have been targeted and attempts are made to stifle them whenever there has been any criticism of the government, however, legitimate or valid the censure be.

    The government’s actions have prompted UN Human Rights Chief Michelle Bachelet to raise issues of a crackdown on CAA protesters, UAPA, Hathras case, and marching orders given to Amnesty International. New Delhi’s response in its lame defence to the criticism has been: ‘The framing of laws is obviously a sovereign prerogative. Violations of law, however, cannot be condoned under the pretext of human rights.’

     

  • Revamping PSUs in India – is Disinvestment the only way forward?

    Revamping PSUs in India – is Disinvestment the only way forward?

    Back in 1948 when India’s first Public Sector Unit (Indian Telephone Industries) was established, India was a newly independent agrarian economy with a weak industrial base. It was clear that the country needed to embark on a path of rapid industrialization if it was to improve the economic status and standards of living. The need was felt for large scale investment from the public sector that private players could not provide. It was in this backdrop that PSUs were first established in the country. It was envisioned that these state-run entities would jumpstart industrialization and spearhead development.

    Today, almost 70 years later, the country itself has come a long way. Once seen as the knights in shining armour come to rescue India’s economy, the same PSUs have come under fire for squandering crores of taxpayer money today. Far removed from their past glories, PSUs today are a cesspool of unproductivity where taxpayer money dies a slow painful death. The sorry state of PSUs in India has even warranted nicknames in the likes of ‘Zombie Companies’ and ‘Zombieland of Taxpayer Money’. While these nomenclatures may seem extreme, they are not without merit.

    The combined loss of these PSU’s amounts to over Rs. 31,635 crores in taxpayer money [1]. What’s more, this number is not inclusive of the losses reported by the dozen public sector banks, which would only add to the already huge mountain of debt.

    Current State of PSU’s in India

    Back in 1951, there were only 5 public sector enterprises in existence. Since then the government has gone on a spending spree, entering more and more businesses over the years. Today the government runs more than 300 PSUs across a plethora of industries ranging from hotels & watches to telecom and steel. It doesn’t come as a surprise that over 70 of these entities are running a net loss. The combined loss of these PSU’s amounts to over Rs. 31,635 crores in taxpayer money [1]. What’s more, this number is not inclusive of the losses reported by the dozen public sector banks, which would only add to the already huge mountain of debt. If the central public sector enterprises have fared poorly, the state-level public enterprises (SLPE) paint a bleaker picture. Barring certain states, the SLPEs of almost all the states in India report a net loss. The losses reported by these SLPEs are almost 3 times greater than the amount reported by their central counterparts.

    The PSUs which have not reported a net loss has not escaped public scrutiny either, with almost all of them losing value over the last decade. While some do report profits, their returns have been dwindling, save a few. The rate of return on capital employed (ROCE), widely used as a measure of profitability and efficiency, has been on a downward trend for PSUs. It has been reported that PSU efficiency has fallen by over 50% in the last decade [2]. In the last six years alone the total market cap of all public sector firms and banks fell by 36% even as the market cap of all BSE and NSE listed companies have almost doubled in the same period [3]. 

    The bad news is that this dismal performance of PSUs is only going to get worse, especially given the current economic climate. Despite years of turnaround efforts and crores of bailout money, these state-run entities have shown no signs of recovery, save a few. In this light, much of the discourse around PSUs has been focused on disinvestment. The government too seems to echo this sentiment as it has chosen to embark upon a long-drawn journey of divesting its holdings. Several sectors in India are already heading towards 100% privatization. With the sale of Air India, the civil aviation industry will become fully private. In the power sector, there has been a growing emphasis on private generation, with the centre reducing its stake in NTPC and BHEL. Sooner or later this sector is also headed for 100% privatization. In other sectors like telecom and health, the government has just a token presence, with much of the market being dominated by private players.

    Push for Privatization

    This push for privatization is welcome and much needed in sectors like civil aviation which lack strategic importance. The sorry state of Air India has made clear that the government simply cannot compete with private players in a highly commercialised industry like aviation. Air India in particular has been languishing for years and has eroded crores of taxpayer money in the process. This has been the case not just for India but for other developing economies like Brazil and Malaysia as well. Malaysia has been trying to turn around Malaysia Airlines for decades altogether with no end in sight. After years of struggle, it seems the government has finally decided to change tracks as it is now looking to give up its majority stake in the airline to private investors. The case with Brazil is no different – the failing national aerospace conglomerate Embraer was revived just in time with a dose of privatization.

    The Embraer turnaround model in particular offers some interesting lessons for India. What started off as a government entity in 1969 was privatised in 1994 in order to avoid bankruptcy [4]. Embraer then went from near bankruptcy to becoming the third-largest aircraft manufacturer in the world. What’s striking here is that the Brazilian government played its cards to near perfection – while it completely privatized the airline, the Brazilian government still holds a ‘golden share’ in Embraer giving it veto power over strategic decisions involving military programs and any change in its controlling interest. This model ensured a win-win situation for the Brazilian government and the rest, of course, is history. 

    Instead of divesting its bleeding PSU’s, the government is currently in the process of selling its 100% stake in 3 large profitable companies (BPCL, CCI, and the Shipping Corporation). While it’s tempting to believe this is a part of an extensive government masterplan, the stark reality is that the government has let fiscal pressures dictate its divestment strategy.

    The problem with the centre’s current disinvestment strategy, however, is that it is focused merely on balancing government books and lacks a long-term strategic vision. Instead of divesting its bleeding PSU’s, the government is currently in the process of selling its 100% stake in 3 large profitable companies (BPCL, CCI, and the Shipping Corporation). While it’s tempting to believe this is a part of an extensive government masterplan, the stark reality is that the government has let fiscal pressures dictate its divestment strategy. It appears the government is simply selling its stake in PSUs to make quick money and ease the fiscal books. There are also concerns that 100% privatization of entities like BPCL and HPCL will feed private monopoly and leave India’s energy security purely in the hands of private players. Even in the sale of loss-making entities the government has lacked a systematic plan, with divestment being carried out in penny packets. This sort of disinvestment just to stop the bleeding is a short term stop-gap measure and will surely have long term repercussions. 

    The case for Public Sector Presence

    While privatization plays are much needed in sectors like civil aviation, the same cannot be said for strategic sectors such as power, pharma, and health. A diluted public sector presence in strategic industries may not bode well for the economy, especially for a developing country like India. As the COVID-19 pandemic has shown, strong public systems are essential to absorbing global shocks. While proponents of disinvestment seek to cut the economic costs of bleeding PSUs, they often ignore the social costs involved in the process and the impact it will have on a developing economy like ours.

    In light of the current global economic climate, as more and more countries turn inward, the role of state-run entities has become all the more important. The experiences of other Asian economies like China and Singapore have shown that state-run units could be tools of economic growth if utilised effectively. Most of China’s industrial push, including the recent ‘Made in China 2025’ plan has been heralded by State-Owned Enterprises (SOE’s). Among the 124 Chinese companies in the Fortune Global 500 list, more than half were SOE’s [5]. Out of these, 3 of the Chinese SOE’s feature in the top 5 globally, speaking volumes of the role they have played in the growth of the country. China has effectively put SOE’s at the core of its vision to combat the challenges it currently faces, including the escalating trade war with the USA. China’s model is also noteworthy given the level of collaborative investments between SOE’s and private players. India can take a leaf or two out of China’s book on the successful use of SOE’s to drive its growth story.

    Turning around existing PSU’s – success stories 

    It is clear that the government simply cannot take the easy way out of simply divesting and washing its hands off the bleeding PSUs. In certain critical sectors (that first need to be recognized in line with the long-term strategy) the government still needs to work on repairing the damage and turning around its existing underperformers. While the task seems impossible given the current state of affairs, policymakers can take heart from the fact that it has been done before both in India and globally.

    One such global success story is that of the Kiwi national carrier Air New Zealand. In a world of post-privatization success stories, Air NZ stands out as one of the few lone dissenters to buck this trend. The NZ based company, privatised by the government in 1989, had to be re-nationalised again in 2001 after it ran into financial troubles. The fortunes of the New Zealand economy have been closely tied to that of Air NZ, with the country being heavily dependent on local and international tourism. Within just two years of nationalisation Air NZ was able to fashion a comeback from near ruin, and today is one of the biggest revenue earners for the NZ government. That a company that failed in private hands was able to be revived by the government offers a beacon of hope for struggling public enterprises worldwide.

    Back home in India as well such success stories do exist, albeit in a bygone era. Aptly recognised as one of the greatest public sector managers of India, Dr. V. Krishnamurthy is the mastermind behind these success stories. His unparalleled contributions to the public sector have earned him several monikers such as ‘the helmsman’ and ‘the man with the golden touch’. He has been largely credited with successfully turning around public sector giants like BHEL, SAIL, GAIL, and Maruti. At a time when public sector turnarounds were unheard of in India, Dr. Krishnamurthy managed to increase profits of BHEL from 17 crore rupees to 57 crores during his five-year tenure [6]. He also came to be widely regarded as the ‘Steel Man of India’ after his successful turnaround of SAIL in the late 1980s. 

    At Maruti he decided to take a different approach, inviting private sector participation through a JV. While many skeptics were against this move initially, the helmsman had the last laugh as Maruti went on to dominate the automobile market in India for decades. Maruti’s turnaround story is also a shining example of the merits of public-private collaboration – something which today’s policymakers have chosen to largely overlook. Maruti today is a 100% private company and is widely credited with creating the automobile industry revolution in India. 

    Way Forward – a two-pronged approach to fix PSU’s

    While such success stories may be scant and the field is mired with accounts of public failure, it is evident that such turnarounds are not impossible. As we have seen from the examples in India and elsewhere, with the right leadership any enterprise can be pulled out of the mud. What is clear is that there is no simple one size fits all answer to the woes of PSU’s in India. Several countries have taken different approaches to tackle this issue. While China has followed a model of strong public presence in several industries, countries like the USA hardly have a public sector presence. The United States government rather exercises its presence by closely regulating and monitoring the industry through effective policy mechanisms.  Other countries like Singapore have chosen to manage PSUs through sovereign funds and holding companies. Singapore plays in the public sector via its two sovereign funds, Temasek and GIC. The companies owned by these funds operate as commercial entities and are no different from private players. Such a model has ensured that the companies get the best of both worlds – public ownership but with private, commercial management.

    countries like Singapore have chosen to manage PSUs through sovereign funds and holding companies. Singapore plays in the public sector via its two sovereign funds, Temasek and GIC.

    While there are many such different models that India can take inspiration from, the verdict is clear that the government must stop the bleeding in the public sector quickly or face the wrath of taxpayers. Going forward, the government must adopt a two-pronged approach to fix PSUs – some need to be killed, while others deserve a chance at resurrection.

    Firstly, the government needs to shut down bleeding enterprises in sectors that have no strategic relevance. The government is present in sectors like biofuel, airlines, hotels, and watches despite making heavy losses every year. Public entities simply cannot compete in these industries nor is there any strategic need to do so. The logical step for the government would be to send these entities to the graveyard and stop the bleeding.

    The top 10 loss making PSU’s account for over 94% of the overall losses reported by all PSU’s together.

    Secondly, efforts must be made to turnaround/transform remaining entities in strategic sectors. The top 10 loss making PSU’s account for over 94% of the overall losses reported by all PSUs together. These large offenders would be the best places to start – the government would do well to either transform these entities in-house through fresh leadership or by inviting private partnerships.

    The above tasks are easier said than done and may take years of policy reform to become a reality. While the problem does seem formidable, it is not unique to India alone. Several economies around the world, developing and developed alike, are grappling with the issue of falling public sector productivity and the need to stay relevant. Indian policymakers and public sector managers have a long road ahead of them, especially given the current global socio-economic scenario. But they can definitely take inspiration (and some valuable lessons) from the several public sector turnaround stories globally and from India’s great helmsman himself.

     

    References

    [1] Department of Public Enterprises. (2019). Public Enterprises Survey 2018-19 (Volume 1, Statement 1). Retrieved from https://dpe.gov.in/public-enterprises-survey-2018-19

    [2] Rai, D. (2019, September 11). PSU returns fell 50% in the past decade; 44 new entities created. Business Today. https://www.businesstoday.in/current/corporate/in-depth-government-companies-almost-lost-half-of-their-efficiency-in-last-10-years/story/378508.html

    [3] How PSU’s market cap fell by 36% in 6 years under Modi govt, while stock market doubled theirs. (2020, October 30). The Print. https://theprint.in/opinion/how-psus-market-cap-fell-by-36-in-6-years-under-modi-govt-while-stock-market-doubled-theirs/533743/

    [4] Haynes, B & Boadle, A. Boeing willing to preserve Brazil’s ‘golden share’ in Embraer deal. (2018, January 19). Reuters. https://www.reuters.com/article/us-embraer-m-a-boeing-idUSKBN1F72XB

    [5] Fortune. (2020). Fortune Global 500 2020. Retrieved from https://fortune.com/global500/

    [6] Nayar, L. V. Krishnamurthy, SAIL, BHEL, Maruti. (20187, March 23). Outlook India. https://magazine.outlookindia.com/story/v-krishnamurthy-sail-bhel-maruti/298634

     

  • Contract Farming in India: A long-pending Reform but not a Panacea for all Agri-issues

    Contract Farming in India: A long-pending Reform but not a Panacea for all Agri-issues

    India’s agricultural sector has for long been mired in issues of low productivity, land fragmentation, poor infrastructure, and inadequate delivery mechanisms among others that have often rendered farmers, victims of a system, without proper regulatory mechanisms. The requirement for better infrastructure, technology, and quality-produce has been at the forefront while pushing for more private investment into the sector. However, real gains in agriculture can only be seen when all farmers gain equal access to this investment and receive fair benefits.

    Around 126 million farmers in the country, as of today, are small and marginal farmers with an average holding size of 0.6 hectares.  It means they cannot produce a surplus and can barely sustain their families, a leading factor in the agrarian crisis that has befallen India.

    India’s agrarian crisis: A quick snapshot

    In India, small and marginal farmers makeup 86.2% of all farmers in India but own only 47.3% of crop area. Around 126 million farmers in the country, as of today, are small and marginal farmers with an average holding size of 0.6 hectares.  It means they cannot produce a surplus and can barely sustain their families, a leading factor in the agrarian crisis that has befallen India. Fragmentation of holdings also hinders access to government-offered new technology and farm support schemes fundamental to making the sector profitable. Experts believe that the only way out is to provide farmers with access to better technology and markets and to make small farms more economically viable through diversification into high-value crops and massive capital investments in value chains.

    To address these issues, the government recently passed three agricultural reform bills–The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020; The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020; and The Essential Commodities (Amendment) Bill, 2020. Essentially, the bills break the monopolistic powers of the Agriculture Produce Management Committee (APMC) markets, allow contract farming, and remove stocking limits on traders for many commodities, with some caveats still in place.

    Among the concerns raised, many believe that enabling contract farming will leave small farmers vulnerable and at the mercy of private players, leaving them worse off than before.

    The bills, in the views of many, are inherently anti-farmer in nature, triggering farmer protests across the country and the Union Minister for Food Processing Harsimrat Kaur Badal resigning in protest. Among the concerns raised, many believe that enabling contract farming will leave small farmers vulnerable and at the mercy of private players, leaving them worse off than before.

    Reforms and changes to liberalize the Indian Agri-market was long due, with bills of similar nature pursued both at the Union and State level.

    Liberalization of Indian agriculture through the years

    In fact, the first attempt at the reforms in agricultural markets was made by the union government in 2003 with the model Agricultural Produce Marketing Committee (APMC) Act,  which made new market channels, such as direct purchase, private wholesale markets, and contract farming (CF), legal for farmers and buyers alike. Set against the backdrop of poorly functioning APMC markets (regulated and unregulated), that even today cannot deliver MSPs to the farmers, the bill pushed States to amend their own APMC Acts.  Today, in all major agricultural States, there are many cases of contract farming and direct purchase by various groups of traders dealing with farm produce. Yet contract farming faced setbacks, as it was still within the APMC domain and hence saw a conflict of interest with even traders and commission agents strongly opposing it.

    In order to resolve this deadlock, a new and improvised Agricultural Produce, and Livestock Marketing (Promotion and Facilitation) Act, 2017 (APLMA, 2017) was passed by the government in order to take contract farming out of the APMC domain. This led to the birth of a separate model act on Agricultural Produce and Livestock Contract Farming and Services 2018 (Promotion and Facilitation – APLCFS2018). Among other major provisions, the act mandated the removal of market fees and commission charges to buyers resulting in a saving of 5%–10% of transaction cost, thus making the market more conducive to private players. However, all said and done, contrary to popular belief, the Indian experience with contract farming (CF) is not new.

    The first widely acknowledged incident of contract farming in the Indian context was the entrance of Pepsi Foods Ltd. into Punjab in 1989. The company intended to specifically focus on exports of value-added processed foods. This led to the birth of PepsiCo’s backward linkage with farmers of Punjab. The PepsiCo model of contract farming opened up new options for farmers, led to productivity increase, and introduced modern technology for the tomato crop. Following the Pepsico example, local firms such as Nijjar in Punjab and Bhilai Engineering in Madhya Pradesh also took up a tomato contract cultivation.

    The Indian experience with Contract Farming: Are farmers really benefitting?

    Studies of the CF system in India have tried to establish whether crops under the contract system have better outcomes than those under non-contracts/traditional systems. Findings show that contract production gave much higher gross and net returns compared with that from the traditional crops of wheat, paddy, and potato, those under non-contract situations. This was because of the higher yield and assured price under contracts and better-quality inputs.

    The Punjab and Haryana CF experience has been far from satisfactory with studies revealing that contract growers faced many problems like the undue quality cut on produce by firms, delayed deliveries at the factory, delayed payments, low price, and pest attack on the contract crop which raised the cost of production. The firms also manipulated provisions of the contracts in practice and also delayed payments up to 60 days. But it locked growers into these contracts because of the firm-specific fixed investments they had made.

    It is clear then that CF often protected company interest at the expense of the farmer and did not cover farmer’s production risk e.g. crop failure, and kept the right of the company to change price, and offered prices based on open market prices.

    It is clear then that CF often protected company interest at the expense of the farmer and did not cover farmer’s production risk e.g. crop failure, and kept the right of the company to change price, and offered prices based on open market prices. This is a serious issue as market prices are volatile and even premiums may not help a farmer if market prices go down significantly, which is not uncommon in India. (MSPs which benefit only 6% of Indian farmers have also been historically low in recent times)

    Contract farming in India was also mainly carried out with only large and medium farmers.  This bias in favour of large/medium farmers perpetuated the practice of reverse tenancy in regions like Punjab where contract farmers leased inland from marginal and small farmers for contract production, creating even larger issues of land control versus ownership.

    Given the big farmer preference and the pernicious harms that CF brings with it, the heralding of a new era of Agri reforms thus rightfully raises the question of what the road ahead looks like for small farmers in India.

    The road ahead: Viable modes of contract farming for Indian farmers

    The only way that small farmers can realistically realize returns and stand their ground is through organizing themselves in the form of Farmer- producer organizations, bargaining cooperatives, and group contracts. Producer organizations are beneficial as they amplify the political voice of smallholder producers, create opportunities for producers to get more involved in value-adding activities such as input supply, credit, processing, marketing, and distribution. They also lower the transaction costs for the processing/marketing agencies working with growers and negotiate fair contracts for buyers and growers.  The legal system in India has made available the organizational option of the Producer Companies (co-operative companies) under the Companies Act, in which farmers in many states have gone ahead with various existing and new projects.

    Another form of organization that can be explored is that of New Generation Co-operatives (NGCs) which are voluntary, more market-oriented, member responsive, self-governed, and avoid free-riding and horizon problems as they have contractual equity-based transactions with grower members and limited membership.

    Collective action through cooperatives or associations is important not only to reduce the information asymmetry between the growers and the firm, but also to help small farmers adapt to new patterns and greater levels of competition.

    Collective action through cooperatives or associations is important not only to reduce the information asymmetry between the growers and the firm, but also to help small farmers adapt to new patterns and greater levels of competition. Thus, there is a need to promote/encourage farmer groups for CF as in Thailand where besides contract grower groups, the potato growers co-operative also dealt with a multinational contracting company on behalf of its members.

    On legal grounds, there needs to be a serious consideration of protection accorded to contract growers as a group. In Japan, subcontracting agencies have seen legal protection given to them in their relations with large firms. These laws specify the duties and forbidden acts for the large parent firm such as defaulting on payments and are monitored and kept in check by the Fair Trade Commission. Necessary safeguards and flexible systems need to come in the legal sphere to protect small farmer interests. The new 2020 Agri bills largely leave regulation out of the purview of government responsibility and have no mention of how contracts are to be regulated.

    State support to CF arrangements needs to account for the size of holdings else it will not be beneficial to small farmers at all.  In Thailand, the state not only provided coordination and support of local authorities but also initially provided interest compensation to farmers to encourage participation and lower costs. Subsequently, the practice was replaced by low-interest loans. They gave training in CF to farmers and state intervention helped the farm sector by promoting competition.

    Policy design should focus on small farmers

    The glaring problem that burdens small farmers is that they are simply not assured of a strong support mechanism from private players to protect their interests in aspects like delayed payments and deliveries, contract cancellation damages, inducement/force/intimidation to enter a contract, disclosure of material risks, competitive performance-based payments, and sharing of production risks. Only when they can be guaranteed that they will not be exploited on such grounds can the benefits of CF arrangements materialize.

    Thus policies concerning the design of contract agreements need to be fair and should ensure clauses on increased competition for procurement instead of monopsony, a guaranteed market for farmer produce, effective repayment mechanism, market information for farmers to effectively bargain with companies, a commitment to fair sharing of risk and innovating pricing mechanisms( bonus, fixed price, share in equity, and quality-based pricing).

    The 2020 Agri bills may have been too ambitious in opening up markets to private players without locking-in adequate safeguards for farmers.

    Contract farming is not a panacea to the issues that plague the agricultural sector in India. It is not an end but a welcome step towards agricultural development. The 2020 Agri bills may have been too ambitious in opening up markets to private players without locking-in adequate safeguards for farmers. If contract farming needs to see returns in the Indian context, it cannot do so until it recognizes that the twin planks of efficiency and inclusivity need to go hand in hand.

    Image: Rice fields by Nandlal Sarkar from Pixabay

  • Is MGNREGA a Sustainable Employment Option for Migrants?

    Is MGNREGA a Sustainable Employment Option for Migrants?

    Covid-19 certainly has kindled a renewed focus on healthcare systems, sanitation, and most importantly, employment in the rural areas of the country. The pandemic has thrown light on the huge inadequacies and challenges of our healthcare structure that the government and the citizens had not foreseen. Millions of skilled and unskilled migrants moved across the country in droves to their hometowns in the absence of income and work and means to sustain their life. Around 30 Million (3 Crore) or 15-20% of the total urban workforce left for their hometowns, accounting for the largest ever reverse migration trend in the country, exclusive of intra-state migration. The World Bank in its report mentioned that a whopping number of 40 million internal migrants were harshly affected by the lockdown. Now that the country is just a few steps from opening up in full, concerns about workers moving back in search of work remain in the air. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which has a mixed track record in sustaining the livelihood of people in distress by providing guaranteed employment and considerate wages might be the only way out for the worst of the worst-affected. But, will the scheme be a viable and sustainable employment option for the days and years to come? This article aims to answer the question of efficiency, significance, and sustainability of MGNREGA in rural employment in the country.

    What is MGNREGA?

    MGNREGA, the world’s largest guarantee work programme, is the legitimised pioneer of the fundamental ‘Right to Work’. The scheme does that by providing a time-bound guarantee of work for 100 days a year, with considerate fixed wages. Workers under the scheme are assigned to agriculture and related capacity building projects thus ensuring sustainable development for all, as advocated by Gandhi. The scheme has reasonable success stories to its credit, all across the country. A study by Parida (2016) at Odisha proves that MGNREGA has played an important role in the agricultural off-season by providing work to the needy, the poor, and the socially marginalised communities. In various villages in Sikkim, families under MGNREGA were more self-reliant and less dependent on government programmes for a livelihood, according to the results of an evaluation conducted by the Tata Institute of Social Sciences (2017).

    The Ministry of Finance announced Rs. 40,000 crore fund allocation to MGNREGA on the onset of the fourth phase of lockdown in May, while under the Atmanirbhar Bharat Abhiyan, the government plans in creating jobs for 300 Crore persons, and the national average wages of workers also saw an increase from Rs. 182 per day per person to Rs. 202, with effect from April 1st, 2020. All of these might come off as a huge sigh of relief to the worst affected, but in many states, the scheme wage rates are lower than the minimum wages in the respective states. So, this increase in wages does not hold huge significance in reality.

    Unemployment and Work Allocation Concerns

    Reverse Migration Trends and Unemployment:      Unemployment has always been a perennial problem for a developing country like India, especially in times of crisis. The unemployment rate of the country reached an all-time high of close to 24% in April, while the rate of unemployment is expected to reach 8-8.5% in 2020-21, which may increase owing to the reverse migration trends. According to the Former Chief Statistician of India, rural unemployment is now a double-edged sword, given the impact of different migration trends. The reverse migration trends have altered the demand-supply dynamics in rural India significantly. Areas that previously had negative net migration rates are now expected to experience labour surplus, while the locations that may need workers might lack supply. The trends in reverse migration and its impact on local employment in states are visible, with Uttarakhand topping the charts in both the number of reverse migrants and the unemployment rate at around 22.3% as of September. The state is followed by Tripura at 17.4% and Bihar at 11.9%. Thus a strong correlation can be inferred between the amount of reverse migration and the unemployment rate in a given state.

    Putting together numbers of short-term and long-term vulnerable workers gives us a total of about 13 Crore (130 million) workers, who are deeply affected by the Covid-19 crisis.

    Another trend that is recognisable from literature is that migration is no longer a one-way street. Seasonal and circular migration continues to grow and take various forms (Conell et.al., 1976). Amongst these, vulnerable circular migrants are termed as the most distressed section of migrants, which include both Short-term seasonal and long-term occupationally vulnerable workers. Srivastava (2020) has estimated the number of 5.9 crore short-duration circular migrant workers in the year 2017-18. In the same study, vulnerable long-term circular migrants have been identified at 6.9 crores in the same period. Putting together numbers of short-term and long-term vulnerable workers gives us a total of about 13 Crore (130 million) workers, who are deeply affected by the Covid-19 crisis.

    Work Allocation Concerns:     Besides, The Taskforce for Eliminating Poverty constituted by Niti Aayog in the year 2015 (Occasional Paper,2016) has noted that most beneficiaries under the MGNREGS have been on an average get only 50 days of work. This shows that the scheme requires a better mechanism that recommends better targeting of the poorest of the poor and gets them guaranteed work for 100 days. Additionally, if 50-60% of the migrant workers in urban India (2018 above) return to their home destinations, then the scheme has to accommodate between 5.5 – 6.6 crore new workers, which will add 50 – 60% weight on people to be accommodated under the scheme. This exerts additional pressure on the already drying up state funds, which means catering to the huge number of migrants might not be economically sustainable for a long period.

    Wages and Work Efficiency under MGNREGA

    The wage rate in MGNREGA has been a huge concern for policymakers across India. While the recent increase in wages seemed quite positive at the onset, the wage hike is lesser than the minimum wage rate in certain states. Wage rates in the year 2019 seemed to be on the same trajectory, with the MGNREGA wage hike being lesser than the minimum wages in 33 states. Long payment delays also with meager wages add to the burden on workers under the scheme. Another important loophole in the scheme is the availability of work for such a huge number of workers seeking work under the scheme. In most cases, work is inadequate for such a huge number of workers. The standing committee report on rural development for the year 2012-13 also mentioned a significant decline in annual work completion rates (%). According to the report, work completion rates have taken a deep plunge consecutively in the years after 2011, with work completion rates of 20.25% for the year 2012, and 15.02% for the year ending 2013. Such dismal performances also throw light on the lack of productive allocation of work under the scheme. All of these certainly are results of the weakening of the act.

     CONCLUSION

     While MGNREGA fails in addressing a lot of important issues, COVID-19 certainly allows it to fit the dynamic changes in employment and work conditions. Making amendments to the act can be the only way out if the act needs to be sustainable in the long term. MGNREGA gives a rights-based framework to migrants seeking skilled and unskilled labour opportunities but lacks in giving enough benefits to the workers. Work under the scheme should be allocated efficiently, as per the project needs. While COVID-19 put a halt to a lot of existing projects, a lot of new projects are on the anvil. Catering to the needs arising on account of the pandemic including sanitation infrastructure building projects and infrastructure and rehabilitation projects can help the scheme diversify its project base, thus increasing employment opportunities to the migrants. Agriculture, the only positive contributor to the GDP of the country should be taken advantage of in the situation. A strong work evaluation setup should be made sure of, that would efficiently track work completion records thus giving opportunities for workers to complete the incomplete projects. This will yield benefits in both completion of a project and increased workdays and consequently increased wages for a worker.

    Cash-based transactions can be a game-changer in this scenario. Instead of reliance on Aadhar, the unbanked should be remunerated regularly by the means of cash.

    Need for Cash-Based Wage Transfer:      While cash crunch and plunging aggregate demand are looming over the country’s economy, MGNREGA can be used as a tool to put money in the hands of the needy. The propensity to consume of a rural worker is way higher than that of an urban employee. Cash-based transactions can be a game-changer in this scenario. Instead of reliance on Aadhar, the unbanked should be remunerated regularly by the means of cash. Bank and Post office ways of remunerating workers surely did have an impact on corruption, but irregular payments and lack of access to formal banking systems are a common testimony among the migrants. Reverse migration is also the beginning of people bringing themselves into the formal cycle of work, with their enrolment under MGNREGA. Tapping the untapped potential and better engagement and benefits to workers under the scheme will largely increase its base and efficiency. If states learn from their past mistakes and amend the working system of the act, then surely it may do wonders in rural employment in the country.

    Image Credit; The Quint

  • Comparing School Education in India and Singapore

    Comparing School Education in India and Singapore

    Introduction

    The United Nations has recognised the right to education as a basic human right, and in most countries, education is compulsory up to a certain age. In India education is primarily provides education in India by private schools, which run independently of the government, and public schools administered and funded by the government at three levels; central, state and local. Under the Indian Constitution, education is a fundamental right to children aged 6 to 14, however, there is no law in place that makes education compulsory. India has a literacy rate of 74.04%, and according to the world bank, Indian schools face challenges in primary enrollment, quality of teachers and application-based learning. Comparatively, Singapore has a literacy rate of 98.3% where education is primarily in the public sector and is fully controlled by the government. Under the Laws of Singapore, every child needs to complete at least 6 years of education, not doing so is a punishable offence. Though the education system in Singapore can be competitive, it ensures every child is well rounded and balanced and can apply their learnings critically. Through this paper, I will explore the fundamental difference between the education system in India and Singapore.

    Singapore has evolved from a third world into a first world country within 10 years, and one of the main attributes to this rapid growth has been education. The Singapore education system is one of the most advanced systems in the world.

    Importance of Education in Development

    Singapore has evolved from a third world into a first world country within 10 years, and one of the main attributes to this rapid growth has been education. The Singapore education system is one of the most advanced systems in the world. The country consistently ranks at the top of the OECD’s Programme for International Student Assessment (PISA), a triennial test of 15-year-olds in dozens of countries, in the main three categories of maths, reading and science. Singapore also has very strict penalties for breaking the law. According to the Compulsory Education Act of 2000, all Singaporean students must attend 6 years of compulsory education, and it imposes a $5000 fine per year for failure to do so. According to the law, all local Singaporean students must attend schools run by the government to maintain equal education opportunities for all. Private schools in Singapore are predominantly for foreign students, while government schools are for the citizens, this incentivises the government to invest in public schools, which improves the overall quality of education.

    According to the Compulsory Education Act of 2000, all Singaporean students must attend 6 years of compulsory education, and it imposes a $5000 fine per year for failure to do so.

    India has a child labour rate of 3.9%, and yet there is no law in place that makes education compulsory. The Indian parliament passed the Right of Children to Free and Compulsory Education Act in 2009 (9 years after Singapore), wherein it’s a constitutional right for all children to attend school from ages 6 to 14, however, is not a law with penalties if not complied to. The lack of enforcement of education is one of the principal reasons India’s literacy rate, especially among women (65.5%), is so low. Local students can attend either public or private schools, however, government schools are usually considered predominantly for marginalized sections of the community. Hence, there is a lack of funding for public schools, which lacks in both quantity and quality. In 2018/19 India spent roughly 2% of its total GDP on education, which was US $72 billion, from a GDP of US $2.7 trillion, additionally one must take into consideration the high levels of corruption experienced in India. Comparatively, Singapore spent US $13 billion, which was 3.2% of its total GDP of US $372 billion, mostly spent on infrastructure development and updating the curriculum.

     

    Teachers: Quality, Training, Accountability, and Creativity

    The process of hiring teachers varies drastically in the two countries. Singapore has many regulations to hire teachers, for example, to become a primary school teacher one needs to be a graduate, with additional special teaching training given by the government. Subsequently, the government monitors their performances closely and continuously. The government also ensures that the teacher-student ratio is better than 1:20, to provide customised care and attention to each student. Teachers have strict rules on behaviour and etiquette, from the language they use to the style of teaching they adopt, the government monitors all teacher-student interactions. It also provides regular training to ensure they learn new skills to share with their students. A study by the Singapore Management University claims that the quality of teaching and teacher’s pay has a direct correlation. Thus, school teachers in Singapore are well paid where the average annual salary of a teacher is anywhere between US $31,539  to US $56,543. According to Imperial college, paying teachers more means more educated and talented people would want to become teachers, which improves the quality of education.

    According to the Indian NGO, Child’s Rights and You (CRY), the checks and surveys by the government to monitor the quality of education are very irregular, and teachers rarely face any consequences.

     India has no special requirements for becoming a government school teacher apart from having a graduate degree. The average teacher to student ratio in Indian government schools is 1:40, which is significantly higher than the recommended ratio suggested by the UN. According to the UN, the maximum teacher to pupil ratio should be around 1:30, to give each child the care and attention they need. According to the Indian NGO, Child’s Rights and You (CRY), the checks and surveys by the government to monitor the quality of education are very irregular, and teachers rarely face any consequences. The cases of child abuse by teachers i.e. hitting or sexual assault are reducing but the numbers are still quite high, because of lack of teacher accountability. This proves to be a major setback for government schools, since one of the principal reasons families do not send their kids to public schools is the fear of child abuse. Last, the average yearly salary of a teacher is anywhere between US $5,400 to US $7440, which is considerably low and can lead to teachers being frustrated and uninterested in the job. According to ‘The Hindu’, teachers being underpaid is one of the leading factors to the lack of quality in public education in India. Through this, it is clear why Singapore has a more advanced education system, not only is it well funded but also well monitored, the government ensures quality education for each child by investing in good teachers.

    Curriculum and Pedagogy

    According to Child physiology research by the University of California, which is more important than the curriculum itself, is the methods of teaching and the spirit in which the teaching is given. Singapore has moulded its curriculum to allow students to explore their interests through research-based projects and activities, rather than a strict textbook method of teaching. According to the Psychology department in UCL, project and research-based learning stimulates cognitive skills and boosts creativity and the ability for children to innovate, which is a much more effective way of education rather than traditional textbook-based learning. The government invests largely in labs and other technology to enable application-based learning to develop analytical skills in students, which is then paired with classroom theory-based learning. Singapore achieves application-based learning firstly through a flexible yet focused curriculum, wherein students may choose matters that interest them and are given a range of options on how they want to be tested. Second, through Pedagogy, which is most commonly understood as the approach to teaching, and to the theory and practice of learning, and how this process influences, and is influenced by the social, political and psychological development of learners. Examples would be where students and teachers produce work and learning together. The teacher becomes more of a mentor or coach helping students achieve the learning goal. Students also work together and use each other’s skills and expertise to accomplish a set of learning tasks. This enables students to feel like they are more involved in their education, which makes them more interested and invested in what they are learning and hence is one of the most effective methods of education. Lastly, by prioritising quality over quantity, which means that education is pedagogically and developmentally sound and educates the student in becoming an active and productive member of society. Quality education is not one that is measured purely by a test score or by how many words per minute a 5-year-old can read, but rather how many words it can understand. It involves critical thinking, learning to work with others independently and learning to face the realities of life applying the knowledge learnt in their academic life. Singapore does not require its students to take many subjects and activities, but rather focuses on a high standard of teaching and engagement, thus creating a more productive society.

    The fundamental difference between the Singaporean and Indian education system is creativity, while the creativity of children is barely given any importance in the Indian education system, Singapore cultivates the creative ability of its students.

    However, India has a system more focused on theory-based learning, rather than using the practical application. According to the Center for Child Research Singapore, the education system in India does not prepare most young adults for employability because of the lack of ability to critically think and solve unfamiliar problems. The system gives a disproportionate amount of importance to rote learning rather than creativity. The Indian education system hasn’t been updated in several years and thus seems extremely backward. The fundamental difference between the Singaporean and Indian education system is creativity, while the creativity of children is barely given any importance in the Indian education system, Singapore cultivates the creative ability of its students. According to former Singaporean Prime minister, Mr Lee Kuan Yew, Singapore could transition from the third world to a first world country within 10 years because of creativity. This creativity shows in new businesses, in groundbreaking policies, and even in city planning. Singapore is constantly innovating and adapting to better their standards of living, and research-based learning is extremely essential to produce an innovative community. The Indian system does not pay adequate attention to pedagogy, since there is a very rigid curriculum set in place with little room for students to mould according to their interests. Lastly, there is a lack of investment for technology-based learning which can help improve application and research-based teaching. For example, Singapore ensures laptops are available in all classrooms for research, they also use a cloud computing system with all the assignments and textbooks available for students to access even if they are unable to attend school.

    Education for Children with Special Needs

    Singapore has also invested in a speech to text option for blind students and ones who have any learning disabilities such as ADHD. Through these investments, every student has an equal opportunity to learn.

    Students with special needs often need more care and attention than the average student. Singapore ensures every school has a set of teachers specially trained to assist children with learning disabilities. However, Singapore still does not have enough public schools specialised for special needs students. According to the World Bank, 71% of children with autism still attend mainstream schools. Research has shown that mainstream schools are frequently neither fully educated nor equipped to deal with the needs of an autistic child and give them the support. There are over 2,500 schools for children with special needs in India some are run or supported by the government, while many are run by registered NGOs or private institutions. However, there are only 20 special needs schools in Singapore which offer different programmes that cater to distinct disability groups of children. However, Singapore has increased investment in building more schools and opportunities in the workplace for people with special needs or any learning disabilities.

    Conclusion

    In conclusion, one can argue that it is unfair to compare a city (Singapore) to a country like India, since Singapore is way smaller and has a higher GDP per capita. However, the comparison is mainly based on the methods of education. Through this paper, we understood the difference in teaching methods, which India could easily adopt by updating the curriculum. By updating the Indian system to enable kids to be more creative and research-oriented, India will produce generations of critical thinking and productive workforce that would eventually boost the Indian economy and the nation.

    Feature Image Credit: akshayapatrafoundation from pixabay
    Image Credit: A Singapore classroom  www.todayonline.com

  • Nationalism Today: A Threat to Democracy and Multilateralism?

    Nationalism Today: A Threat to Democracy and Multilateralism?

    The idea of ‘nationalism’ and a sense of cohesive national identity has existed perhaps longer than the system of modern nation-states came to be. Except for a few, every empire, kingdom, and the territorial state tried to legitimise and conceptualise its authority in the minds of its citizens through ideology. A phenomenon that recurs throughout history, nationalism has only recently taken on the connotations it holds today: a malignant force that separates and divides rather than unites and deteriorates rather than improves.

    A phenomenon that recurs throughout history, nationalism has only recently taken on the connotations it holds today: a malignant force that separates and divides rather than unites and deteriorates rather than improves.

    In the contemporary context, this phenomenon presents across the world and appears to be accelerated by the current global pandemic. If one begins their survey at the Westernmost end, it is easy to witness this wave all over: in the United States, ahead of the elections, with Trump’s white supremacist, protectionist agenda underlined by anti-immigration measures; further in Europe, the rise of nationalist parties in Italy and Spain; Russia’s stifling of dissent and opposition under the mandate of national security, Viktor Orban’s rule by decree-law in Hungary to take over complete control in the Covid-19 backdrop- and further east, India’s and China’s majoritarian movements reflecting minority suppression and territorial aggression respectively.

    Considering these developments, the looming health crisis appears to be the catalyst for the rise of this aggressive, exclusionary brand of nationalism, or as observers have called it, hyper-nationalism. But looking beyond the surface one can discern the vast backdrop of a competitive international system that allowed these movements to become the popular political tool of the time.

    The past decades were characterised by some major changes in the international order; most importantly, the transition from a unipolar world under American hegemony to an emerging multipolar polar one with the rise of Asian powers and a Russia hoping to regain its superpower status. Economic ebbs and falls, the climate crisis, and a shift from multilateralism and globalism was the backdrop against which China grew as a rule-maker in the international system. China’s rapid rise as a global power gives the spectre of a possible bipolar world.

    Akin to the Cold War, wherein ideological systems competed, this decade in the post-COVID-19 world is also marked by alliances, power clusters, challenges to the globalised economy, and the visible fragility of the liberal democracy. While nations like the US prompt the liberal world to identify China as the face of the abstract systemic threat to the framework of democracy, liberalism and multilateral cooperation, the real danger may lie elsewhere. Besides coronavirus and the human tragedy, it evoked, the endemic threat to the norms and values of the democratic order is most likely internal and to be found in the political weaponry of modern democracy.

    What does nationalism mean as a value? To a nation-state, creating a sense of allegiance to the nation-state is extremely important and vital to its survival. Nationalism may be a force of resistance against oppressive authorities, or toward self-determination. The Irish and Indian national movements against colonisation, for instance, were nationalistic struggles that established self-governance in these countries and were spearheaded by the people themselves. However, nationalism may also manifest as state-led, systemic, and top-down approach under the authority of a populist leader who commands the support of many. An example is Mussolini’s fascist movement in Italy, prompted by the poverty and economic downfall of the interwar period.

    Triggered (although not caused) by extreme crises like the pandemic, this kind of nationalism uses a nationwide problem to appropriate control and stir political unrest.

    What we see in the world today is ostensibly the latter: aggressive, top-down nationalism where individuals and groups have little organic agency or innovation. Triggered (although not caused) by extreme crises like the pandemic, this kind of nationalism uses a nationwide problem to appropriate control and stir political unrest. These forms of control may involve excessive use of the police apparatus to restrict movement, a suspension of electoral or democratic processes and accountability mechanisms, or the use of the pandemic to enforce identity politics against minorities. In India, the police crackdown on the Shaheen Bagh riots in January 2020, a series of protests against the discriminatory Citizenship Amendment Act, is an example along with the United States’ successive episodes of racially motivated police brutality against African Americans. In Hungary, Orban has been pushing towards a regionalist, Christian, Central European community at the expense of minorities and immigrants (while heavily militarising Budapest in the wake of the coronavirus pandemic).

    This causality, somewhere in the 21st century, seems to have weathered down and given way to   monolithic ideas of territoriality, authority, centralisation, and capitalism, propelled especially by the role of contemporary social media.

    Nationalism has historically been espoused with democratic revolution and civil rights movements. In the French Revolution, the Irish Independence movements, and the colonial liberation movements of many other colonies, nationalist movements allowed a people to unite for a secular, democratic cause: self-determination. Even as of the late 20th century, nationalism served to demolish imperialism, colonialism, and dictatorships giving rise to civil rights, suffrage, labour rights, and even the welfare states. This causality, somewhere in the 21st century, seems to have weathered down and given way to   monolithic ideas of territoriality, authority, centralisation, and capitalism, propelled especially by the role of contemporary social media. The question that we must ask is this: Is the current flavour of nationalism serving any advantage to strengthening the democratic apparatus? Does it help make our leaders accountable, our parties representative, and our economies more resilient to face unexpected crises?

     
    Image credit: vocal.media

  • Forecasting Unemployment Rate during the Pandemic

    Forecasting Unemployment Rate during the Pandemic

    Forecasting
    Forecasting, in simpler terms, is a process of predicting future values of a variable based on past data and other variables that are related to the variable being forecasted. For example, values of future demand for tickets for a particular airline company depend on past sales and the price of its tickets.
    Time-series data is used for forecasting purposes. According to Wikipedia ‘A time series is a series of data points indexed in time order. Most commonly, a time series is a sequence taken at successive equally spaced points in time. Thus, it is a sequence of discrete-time data.’ An example of time series data for monthly airline passengers is given below:

    Figure 1


    More technically, it is modelled through a stochastic process, Y(t). In a time series data, we are interested in estimating values for Y(t+h) using the information available at time t.  
    Unemployment rate
    Unemployment is the proportion of people in the labour force who are willing and able to work but are unable to find work. It is an indicator of the health of the economy because it provides a timely measure of the state of labour market and hence, overall economic activities. In wake of the impact of Covid-19 on economic activities throughout the world, unemployment rate analysis and forecasts have become paramount in assessing economic conditions.
    In India, unemployment rates have been on the higher end in recent times. According to data released by Statistics Ministry, unemployment rate for FY18 was 6.1%, the highest in 45 years. It is no co-incidence that GDP rates have also been declining successively for the past few years. The shock that Covid-19 has given to the economy has only worsened our situation. The unemployment rate rose to 27.1% as a whopping 121.5 million were forced out of work.
     

    Figure 2


    Source: CMIE
    Methodology
    The data used to forecast unemployment rates was sourced from CMIE website, which surveys over 43,000 households to generate monthly estimates since January 2016. The data has 56 monthly observations ranging from January 2016 to August 2020, data before 2016 was not available.
    Four popular econometric forecasting models (ARIMA, Naïve, Exponential Smoothing, Holt’s winter method) were used and the best performing model was chosen to forecast unemployment till December 2020.
    The forecasting models were programmed in R. The relevant codes are available upon request with the author. The Dicky-Fuller test and the Chow test for structural breaks were conducted using STATA, results of which are presented further in the article.
    Before beginning the analysis, I believe that the limitations of the analysis should be mentioned:

    • The sample size of 56 observations is not sufficient for a thorough analysis, ideally the sample size should have been 2-3 times larger than the available data. Smaller sample sizes lead to skewed forecasting results which are prone to errors.
    • The unemployment data from CMIE is an estimate and is a secondary source. In India, primary data is only collected once in 3-4 years, thus the forecasting results are only as good as the source of the data.
    • This is a univariate analysis, an Okun’s law based analysis of Unemployment rate as a function of GDP (output) and past trends would have been more suitable. However, since GDP data is only available quarterly and there are only 56 monthly observations available, it would have rendered the analysis insignificant with only 19 quarterly observations.
    • Forecasting being based on past trends, is prone to errors. The negative shock provided by Covid-19 to the economies worldwide has made it all the more difficult to forecast. A Bloomberg study analysed over 3,200 forecasts by IMF since 1999 and found that over 93% of the forecasts underestimated or overestimated the results with a mean error of 2 percentage points.

     
    Checking the stationarity of data
    In order to model build a model, we need to make sure that the series is stationary. For intuitively checking the stationarity, I plotted the data over time as indicated in Figure 2 above. I also plotted the correlograms (autocorrelations versus time lags) as shown in Figure 8 and 9 in appendix. The plot of data over time indicate varying mean, variance and covariance. The ACF and PACF plot show that autocorrelations function are persistent indefinitely.
    We perform the Augmented Dickey Fuller test at 2 lags. Result of the ADF test is shown in Table 1 below. The test statistic is insignificant at 5 per cent and the p-value is 0.1709, which is more than the accepted benchmark of 0.05. We fail to reject the null hypothesis of non-stationarity. We conclude that our series is non-stationary.

    Dicky-Fuller test on raw data

    Table 1

    		 —– Interpolated Dickey-Fuller —–
    Test statistic 1% critical value 5% critical value 10%critical value
    Z(t) -2.303 -3.576 -2.928 -2.599

     
     
     
     
     

    MacKinnon approximate p-value for Z(t) = 0.1709

    Converting the non-stationary series into stationary

    In order to transform the non-stationary series into stationary, we use differencing method (computing difference between consecutive observations).
    We plot the data over time, ACF and PACF again as shown in Figure 5 below and figure 10 and 11 in appendix, respectively. From the figures, we can intuitively say that the transformed series is stationary. Further, we used Augmented Dickey-Fuller tests to ascertain the stationary of our series. Table 2 shows the result of the ADF test. The test statistic is significant at 1,5 and 10 per cent levels and the p-value is less than 0.05. We reject the null hypothesis of non-stationarity of our series. The tests confirm that the series is stationary.
     

    Dicky-Fuller test on first difference data

    Table 2

    —– Interpolated Dickey-Fuller —–
    Test statistic 1% critical value 5% critical value 10%critical value
    Z(t) -5.035 -3.576 -2.928 -2.599

    MacKinnon approximate p-value for Z(t) = 0.0000
     
     

    Figure 3


     
    Naïve model
    Naïve models are the simplest of forecasting models and provide a benchmark against which other more sophisticated models can be compared. Thus, a Naïve model serves as an ideal model to start any comparative analysis with. In a naive model, the forecasted values are simply the values of the last observation. It is given by
    y^t+h|t=yt.
    Forecast results from Naïve method are presented below in figure 4 and table1.
     

    Figure 4

     

     

    Table 1

     
         		 Point forecast Lo 80 High 80 Low 95 High 95
    Sept 8.35 4.861900 11.83810 3.0154109 13.68459
    Oct 8.35 3.417081 13.28292 0.8057517 15.89425
    Nov 8.35 2.308433 14.39157 -0.8897794 17.58978
    Dec 8.35 1.373799 15.32620 -2.3191783 19.01918

     
    Box-Jenkins Approach
     

    1. Identification of ARIMA (p, d, q) model

     
    The data was split into training and testing dataset in 80:20 ratio. The training data was used for estimating the model, while the model was tested on the remaining 20 percent data. This is done in order to forecast the future values of the time series data.
    p, d and q in (p, d, q) stand for number of lags, difference and moving average respectively.
    The model best fitting the data was (0,1,3) as its Akaike Information Criterion (AIC) was the lowest amongst all the possible combinations of the order of the ARIMA model.
    The residuals from Arima model were found to be normally distributed, with a mean of 0.09 and zero correlation. This causes a bias in the estimates. To solve the problem of bias, we will add 0.09 to all forecasts. The ACF and line graph of residuals is attached in the appendix.
    After identification and estimation, several diagnostic tests were conducted to check if there were any uncaptured information in the model. Results of the diagnostics tests have been omitted from the article in interest of length.
     

    1. Forecasting

     
    The model that has been constructed was used to forecast unemployment rates for the next four months. The results are presented below in figure 5 and table 2.
     

    Figure 5

     

     
    Table 2

     
         		 Point forecast Lo 80 High 80 Low 95 High 95
    Sept 9.04 5.978858 11.93987 4.401073 13.51765
    Oct 9.77 5.183039 14.1951 2.797671 16.58054
    Nov 10.3 5.364191 15.06267 2.797157 17.62971
    Dec 10.3 5.280182 15.14668   2.668678   17.75819

     
    Exponential Smoothing method
    It is one of the most popular classic forecasting models. It gives more weight to recent values and works best for short term forecasts when there is no trend or seasonality in dataset. The model is given by:
    Ŷ(t+h|t) = ⍺y(t) + ⍺(1-⍺)y(t-1) + ⍺(1-⍺)²y(t-2) + …
    with 0<⍺<1
    As observed in the model, recent time periods have more weightage in the model and the weightage keeps decreasing exponentially as we go further back in time.
    The ⍺  is the smoothing factor here whose value was chosen to be 0.9 since it had the lowest RMSE among all other values.
    The forecast results are presented below:
     

    Figure 6


    Table 3

     
         		 Point forecast Lo 80 High 80 Low 95 High 95
    Sept 8.30 4.739288 11.87260 2.8512134 13.76068
    Oct 8.30 3.507498 13.10439 0.9673541 15.64454
    Nov 8.30 2.532806 14.07908 -0.5233096 17.13520
    Dec 8.30 1.700403 14.91149 -1.7963595   18.40825

     
    Holt Winters’ method
    The simple exponential function cannot be used effectively for data with trends. Holt-Winters’ exponential smoothing method is a better suited model for data with trends. This model contains a forecast equation and two smoothing equations. The linear model is given by:
    yt+h = lt + hbt
    lt  = αyt + (1-α)lt-1
    bt = β(lt-lt-1)+ (1-β)bt-1
    where, lt is the level (smoothed value).
    h is the number of steps ahead.
    bt is the weighted average of the trend.
    Just like the simple exponential smoothing method, lt shows that it is a weighted average of yt
    The α  is the smoothing factor here whose value was chosen to be 0.99 and  the β  value 0.0025 since they had the lowest RMSE among all other values.
    The forecast results are presented below:
     

    Figure 7


     
    Table 4

     
         		 Point forecast Lo 80 High 80 Low 95 High 95
    Sept 8.34 4.749288 11.9326 2.84121 13.84
    Oct 8.33 3.24 13.4243 0.54541 16.11977
    Nov 8.32 2.0800 14.5678 -1.2253 17.87316
    Dec 8.31 1.0963 15.53419 -2.725103   19.35565

     
    Evaluation
    To compare the models the two parameters chosen are:

    • Root mean square error (RMSE)
    • Mean absolute error (MAE)

    MAE is a measure of mean error in a set of observations/predictions. RMSE is the square root of the mean of squared differences between prediction and actual observation. RMSE is more useful when large errors are not desirable and MAE is useful otherwise.
    RMSE and MAE statistics for all the models are presented below:

    Naive ARIMA Exp Smoothing Holt Winters’
    RMSE 2.72 2.24 2.73 2.7
    MAE 1.05 1.034 1.06 1.05

     
    From the table it is clear that ARIMA/Box Jenkins method has both the lowest RMSE and MAE among the models under consideration while Exponential smoothing method has the highest MAE and RMSE among all.
    Therefore, the unemployment rate forecasts as per the Box Jenkins method for the next four months are:
     

    Sept 9.04
    Oct 9.77
    Nov 10.3
    Dec 10.3

     
    The way ahead?

    • The unemployment rate is expected to rise in the coming months. This is a bad sign for an economy that is already suffering.
    • With GDP forecasts getting lower and lower for the current financial year, the govt needs to act quick to mitigate the potential damage.
    • It is impossible to correctly ascertain the total impact of covid-19 on the economy and the range of the impact, but it is safe to say that we will be seeing the effects for a long time to come in some form or other.
    • We might see more and more people slip into poverty, depression, increased domestic violence and with potentially long term impact on human development parameters like child mal-nutrition, enrolment rates etc among other things.

    Some possible solutions

    1. Expansionary monetary policy: It is a common tool of dealing with high unemployment rate in the short term. Under expansionary monetary policy, the central bank reduces the rate of interest on which it lends money to the banks, subsequently the banks lower their rates which leads to a higher amount of loans being taken by business owners. This extra capital helps businesses to hire more workers and expand production, which in turn reduces unemployment rate.
    2. Expansionary fiscal policy: Under expansionary fiscal policy the government increases its spending, particularly in the infra-structure sector. It spends more money to build dams, roads, bridges, highways etc. This increased spending leads to an increase in employment as these projects require labour.
    3. Expand the scope of NREGS to urban areas permanently and a higher minimum wage for all : NREGS has proved to be really effective in alleviating poverty, improving quality of life and decreasing unemployment rate in rural areas. Given the unprecedented circumstances, the govt can consider expanding its scope to urban areas, so that it could provide employment to the millions of unemployed workers there. This increase in expenditure could also help the govt revive consumer demand, which is essential if we want to help the GDP get back on track.
    4. A stimulus package aimed at putting money into the hands of the poor :

    The govt should also consider providing at least a one-time transfer of funds to people just like the US govt did. Such a transfer of putting money directly into the hands of the poor is the most effective way of reviving consumer demand in the economy and many economists around the world have been calling for such a plan to be implemented. There is no better way of increasing consumer expenditure other than putting money into the hands of cash-starved people.
     
    Appendix:
     

    Figure 8


     

    Figure 9

     

    Figure 10

     

    Figure 11

     

    Figure 12

     

    Figure 13

     
     

  • InsurTech In India

    InsurTech In India

    It is not an unknown to anyone that the third, or Digital, Revolution, and the Fourth- The Technological Revolution has transformed the world order and the way daily activities are conducted. From a linear to an exponential growth rate of the revolutions, all the sectors- minor and major have seen unprecedented changes. The financial sector, though slow and cautious, is not an exception to these transformations.

    FinTech, or Financial Technology is the integration of technology into the offering of financial service to improve and automate their delivery and usage. Regular activities like online transfer of money to purchase of equity through an online platform come under the umbrella of Fintech. The Global Fintech Market has been valued at $127.66 bn by 2018 and was estimated (before COVID) to grow at 24.7% per annum. India is the 3rd largest fintech centre with FinTech investments of nearly $3.7 bn.

    Financial systems globally have incorporated certain level of digitalization and have experienced growth. One of the major markets that were perceived to have huge potential for Fintech investments is Insurance. Reducing vulnerability to financial loss, mobilization of funds and capital formation, and funding of infrastructural (or long term) projects had made the Insurance sector attractive for both demand-side and supply side parties for centuries, essentially making it a necessary financial instrument. Given this, the insurance penetration in the world is still quite low, and this industry is perceived as ripe for disruption and innovation by the FinTech Start-Ups.

    Insurtech, coined in 2010, is a combination of insurance and Fintech i.e. exploiting the wave of the digital revolution to improve insurance provision, innovation, and cost reduction. Insurtech employs artificial intelligence for customization of insurance products, simplification of pricing and underwriting for the products, cost reduction through disintermediation and automation, easy and quick settlement of claims and provide a platform for innovation. For example, claim settlement in motor insurance could be automized and made digital intensive, by uploading photographs of the accident and relevant documents to verify the claim, and online processing and approval of the claim. Blockchain technology would be of critical here for collaboration and common sharing of data and transactions with other insurance players, to avoid fraud by customer( for example, repetitive claims). Use of technology would also enable extending of services to those previously left out of the system.

    Why InsurTech?

    Say for example, in health insurance, an insurer would obtain only point-in-time data (through medical tests) about the policyholder which is not completely sufficient to make accurate risk assessment and underwriting. Once the customer is on-boarded, there is no effective way an insurer could know or keep track of the risk entailed in activities of the agent. That is the problem of moral hazard[1] which is a most relevant in case of motor insurance (at the individual level) or marine insurance (at the institutional level). InsurTech extract information from repositories like Big Data, BlockChain[2][3] or information records of Technology-driven devices (IoT devices like wearables and trackers) to maintain a regular stream of data that enables them to price the risk better and provide appropriate incentives to customers’ to reduce their risk exposure.

    For example, Pedometers to count steps walked in a day, fitness devices that capture heartbeat, oxygen intake, blood pressure etc, or even information recorded by smartphones (sometimes linked to the wearables) is used as input data that helps insurers to gain better insights(to a limited extent)  into the behavioural pattern of the policyholder. This is additional information available to the tech-driven InsurTechs that gives them an edge over the conventional insurance companies in assessing the risk more accurately. The analysis could be utilized to motivate customers to maintain good health by providing incentives like health-score based reduction in premium or other tangible benefits like discounts on health products, free subscriptions etc.

    There are several types of innovations[4] that fall within the scope of InsurTech—Digital platforms, Internet of Things (IoT), Big Data Comparators, Robo Adviser, Machine Learning, Artificial Intelligence, Blockchain, P2P (peer to peer), Usage-based and so on. India, being one of the largest smartphone users could take advantage of the Existing mobile and digital penetration to extend the outreach of insurance products (life, health, pension schemes) into untapped segments in the country- like youth and low-income customers.

    Risk assessment, underwriting and Fraud detection is done by the analysis of the accumulated data using Artificial intelligence and Machine Learning techniques. Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. Machine Learning (ML), [5]a subset of Artificial Intelligence, is the science and engineering of making machines ‘learn’ by finding patterns in data in an automated manner, using sophisticated methods and algorithms.

    So how does Insurtech aspire to be the face of the insurance market?

    With the digital revolution and rapid increase in the use of mobile phones, insurtech sees an opportunity to reach out to its customers in a fast and convenient way. Data resources like Big data and SaaS, about the customers collected from multiple sources could be employed to draw better inference from raw data and target the pool of potential customers. Unlike traditional insurance, Artificial Intelligence (AI) and Machine Learning(ML) could be used to develop chat bots and multiply interaction between agent and customer for assessing and customize the products in line with their needs. New Technologies (like Robotic process automation) could be used to reduce human intervention and automate the mundane activities like underwriting the contracts, claim settlement and also reducing operational costs. Moreover, AI and ML enable fraud detection from the pattern of activities of the customer. Unlike established insurers, insurtech have the flexibility to steer clear of legacy products and provide tailor-made products for the customers according to their needs and demand.

    Incumbents, or the established insurers, are viewing this as an opportunity and catalyst of innovation rather than a threat to their market penetration and customer acquisition. Collaboration of incumbents with the nascent start ups is a win-win situation, with the integration of best of both the worlds- the established infrastructure and market share of incumbents and innovative products, niche targeting and better pricing by employing AI and ML algorithms of the Insurtech.

    Insurtech in the World

                US homes nearly half of the InsurTech start-ups, followed by UK and India, and is an avenue for 63% of the insurtech investments.

     

     

    Source: InsurTech 2020 , Research Insights by Imaginea

     

                Some of the innovative on-demand insurance products launched by Insurtech around the world include-

    • MANGO: a Mexican- retirement and life insurance intermediary, for obtaining life insurance in minutes without excessive paperwork and confusing coverages.
    • Go Girl: women-only drivers insurance. It involves lower premiums for good drivers, free courtesy car repairs and an inbuilt accident and theft insurance. Complete transaction is conducted online.
    • VisitorCoverage: a travel medical insurance for only non-US citizens. It also provides insurance for public emergency health screening including Covid-19 and other tests.
    • Fizzy: an mobile insurance for delays in flights for 2hours or more
    • Dapp: Etherisc, a Munich Based insurance platform , offers a crop insurance, providing an instant payout of insurance in case of flood or drought.
    • AgUnity and Etherisc, a austalian start up to provide insurance covers directly to farmers to reduce the last mile challenges in providing insurance to customers who need it.

    InsurTech in India

    Currently, there are 24 life insurance and 39 non- life insurance companies in India (incumbents). In spite of that, India with a population of 121 billion has less that 4% (3.7% to GDP) of insurance penetration and a lapsation rate (unpaid premium for >6 months) as high as 20% compared to 15-20% in other Asian countries. As of 2017, at least 75% or 988 million Indians do not have life cover and 56% of population do not have any significant health coverage (out of 44%, 26% are covered by Rashtriya Swasthya Bima Yojana and only 8% by insurers).

    Incidentally, Indian insurance industry for a long time has relied on one-size-fits-all insurance products in the market, but now the dynamics of the insurance market are changing. Innovative products like usage-based insurance, micro insurance and on-demand insurance are flooding the Indian market. The large section of uninsured population is a candy store of opportunities for competent start ups that are in search of potential markets.

    • Usage based insurance: insurance products with low premium, paid periodically based on usage like pay-per-mile auto insurance; individual habits-based life insurance.
    • Need – based insurance: based on specific needs of the customer like theft insurance when away from home, theft insurance for valuables in the rented house. IRCTC travel insurance – in collaboration with ICICI Lombard, Royal Sundaram and Shriram general. Paytm launches a e-wallet insurance, refunding money stolen or accessed unauthorized.
    • Sachet-size insurance: provision of products like insurance against dengue (dengue insurance) to accident and life insurance, at a low premium rates is the agenda of this insurance.  Toffee Insurance – gurgoan based insurance start up, offers insurance against cycle theft and mosquito related diseases for a premium starting from Rs 20.

    [innovative ideas like Tinder-Date-Gone-Bad insurance to cover for restaurant bills and gift expenses are all our millennials and Gen X need to mobilize some cash for insurance].

    These are the some of the innovative products tailor-made for its customers according to their needs and economy. The primary incentive behind these innovations is to create an environment where customers are introduced to the benefits of insurance, who would ultimately vouch for the long-term insurances.

    Paytm which has users mostly in Tier II and Tier III cities has partnered with insurers to provide insurance services like premium payment and policy renewal and has  launched PayTm Insurance in early 2020, tying up with leading insurance firms in india. Amazon and Flipkart have collaborated with ACKO and AEGON LIFE respectively to provide Point-of-Sale insurance(for example, insurance on electronics). Ola provides commutation insurance for the rides at Rs 1. IRDA and the incumbents have viewed this disruption as an opportunity to improve penetration and provision of service. Collaboration with incumbents would also reduce barriers to trade for the emerging start ups and would provide financial support for more innovations. IRDA granted licenses to AKCO, DIGIT INSURANCE, COCO by DHFL and reliance health insurance to work as “neo-insurers”; a sandbox was established for the initial testing of new innovations before launching them into the market; guidelines and regulations were laid down for the functioning of insurtech, under the supervision of IRDA.

    Though at nascent stage, Insurtech has already attracted $3 billion investments worldwide. India has attracted nearly $183 million investments, as of 2019.

     
     

    Source: Predictions, BusinessToday.in 

     

    Source: Predictions

    IRDAI on Insurtech

                IRDA is the Insurance Regulatory and Development Authority of India. The demand for linking wearables to product designing by the insurers prompted the setting up of a working group to look into the new innovations and wearables. The main purpose/aim of working committee was to make recommendations for supervisory and regulatory frameworks for InsurTech.

    “What should be the Regulator’s role in encouraging innovation”[6]       

    IRDA working committee has recognized that customers’ needs have evolved over time which cannot be fulfilled by traditional insurance alone. IRDA subsequently acknowledged that use of technology will, not only aid in new innovations and better service provision, but also helps insurers assess risk better, develop new business models, processes and products, through the use of data collected through various devices (for example: IoT[7] devices in the automobile to assess policyholders’ driving behaviour, which are recorded as data points). Insurers are embracing innovations with focus on data analytics, and sophisticated data models that help the identify, understand and quantify risk.
    Nevertheless, IRDA also acknowledged that this data capture poses several threats and challenges to the insurer and the customer. IRDA recognized the need for a regulator to understand the fast moving innovations in the sector, and develop proper knowledge and skills that foster Insurtech, simultaneously protecting the customers’ interests. In its report, it has made some recommendations regarding supervisory and regulatory framework with respect to InsurTech – Risk assessment, risk Improvement, product design and product pricing.

    For a better insight into the status quo of InsurTech worldwide, IRDA working committee looked into the variety of measures insurance regulatory bodies in other countries have observed.

    • Financial Conduct Authority (UK): FCA has taken initiative to look out for upcoming start ups and understand their potential problems, alongside with providing direct support (advisory support and clearing regulatory ambiguities); it has established a sandbox for pilot testing of new products on live customers on a small scale.
    • BaFin, Germany: it has adopted a technologically neutral position, i.e no special treatment is accorded to InsurTech owing to their innovative nature. Regulations to the insurers are strictly based on the functions performed by them.
    • Mexico: Regulators felt it is too early for developing separate regulations for Insurtech and they would be supervised under the existing regulations.

    Notable observations

    “From purchasing a policy to raising a claim, the process is time consuming, resource driven, and paper intensive. Technology can address these concerns and make the customer experience very smooth and hassle free.”

    “Digital technology could extend the reach coverage into largely untapped areas such as lower income segments, by reducing costs and allowing businesses to engage with customers in more compelling and relevant ways”

    “The use of technology has an impact on product design and the efficiency of inclusive insurance delivery.”

    “The consent of the customer to share data is a must for participation in such products.”

    “Insurers may be allowed to capture data as per their product requirements, but within the scope of insurance and underwriting need.”

    “The provider shall capture and give the insurance companies only the specified information, and the privacy of data arrangement will be directly between the insured and the provider.”

    “Insurers shall develop robust internal monitoring mechanisms to ensure that data leakages do not take place as this data could be misused for monetary benefits (e.g., sending promotional offers to customer based on his location etc.).”

    “The products can evolve and be tested in a sandbox environment before fully going live and a transition strategy should be proposed for when the proposed product exits the sandbox environment.”

                 Working Committee insisted on maintaining transparency and follow protocol for data collection, data usage and data sharing with third parties. It suggested that there is a need for portability/ sharing of data between the insurers. They could employ block chain technology unto this purpose.

    IRDA permits the insurers to offer discounts or offers to the customer based on the data collected. Premium and other benefits like discounts or subsidized or free health services  could be determined by the performance, progress, and consistency in individual’s (say health) score arrived at by analysing data obtained from single or multiple sources.

    Data Mining and Security

    Data collection could be done through proprietary or third party services. However,

    • Consent and customer access: The insurer should provide the details of the data collected to the customer and he should have access to this data (on a portal etc). There should be complete transparency about the data collected (should be as per/after his consent) and the benefits bestowed.
    • Usage: The usage of data should be as per the notice given to the customers. Regulations have to provide appropriate safeguards against data misuse
    • Disclosure: Insurer should not share the data with any third party, except for analytical services, provided they(analytical firms) satisfy the framework laid down.
    • BlockChain: BlockChain is an effective way to ensure transparency and security (encrypted records-blocks which are resistant to modification of data) which makes them ideal for recording of events and transactions. This is an ideal platform to ensure security and sharing to data among insurers.

    Concerns

    • It is important to maintain a right balance between protection of policyholders’ interest and promoting innovation.
    • There is a chance that some segment of populated may be rendered commercially uninsurable. Risk granulation might worsen the affordability and exclusion of certain sections in the society.
    • Innovations might disrupt the traditional risk pooling mechanism of the incumbents
    • Technology might disrupt the conventional business models of the insurers. There is a possibility of minimized engagement (integration) between insurers and customers.
    • Data insecurity is a prominent challenge.
    • Overreliance on technology could be a threat.
    • Supervisors ought to develop adequate technical resources, knowledge and skills to make sure there are no lapses.

    Recommendations

    • Insurers should perform a cost-benefit analysis, because the cost is ultimately borne by policyholders
    • (As mentioned) Product pricing and premium reviews, incentives to customers can be based on data collected through devices.
    • Such products must be tested in the sandbox before launch in the market.
    • Provision for adding wearbles data pricing for existing products. Details of usage of wearble devices should be a part of product filing.

    Interview

                InsurTech is still newbie. I found it more appropriate to  interview  few analysts who have hands on experience in the insurance market and have worked, supervised or studied about InsurTech and InsurTech start ups.

    I have interviewed 4 analysts

    Dr Sahil: A medical graduate(Cancer Biology) who ventured into Insurance sector. He is a experienced professional with an in-depth knowledge of healthcare and Insurance industry. Had the opportunity to be a part of 4 startups Currently working as a Director in a new and upcoming zen space of Insurtech- Meta InsurTech.

    Aparajit Bhattacharya: Senior-level Insurance professional experienced as Business Head of public and private companies. He is also a seasoned executive with an in-depth understanding of emerging technologies and their commercial applications, also having international business expertise, having conducted business in South Asia, Nigeria. Motivated self-starter who earned multiple sales achievement awards during the early career, as well as sustained recognition for Co-Founded Start-Up- Insure First.

    Rahul Mathur: He has completed his Master’s degree from the University of Warwick. He worked as a  Insurance Product Manager at Laka Insurance focused on product development, strategy and research. Presently, he is based in London working as a consulting analyst for a Start-up lead at the London chapter of Accenture’s FinTech Innovation Lab. He is also an Ambassador for Asia Insurtech Podcast, Asia’s first podcast dedicated to InsurTech and innovation in insurance featuring entrepreneurs, thought leaders and investors.

    Neerav:  Senior-level insurance professional.

    1. Where does insurTech stand today in India?

    Dr.Sahil:  InsurTech is basically employing AI and ML methods, and other technological tools, that reduce human intervention and processing time and increases efficiency in the insurance sector processes. InsurTech can help in early and easy, simplified purchase, processing and settlement of claims. According to me, we haven’t really reached that stage yet. Currently, we are in a behavioural changing phase, through digitalization of insurance Claims processing is still paper intensive (physical documents). The farthest we have gone so far is the approval of sandbox for testing products. But we are still behind in R&D and new products are yet to come out.

    Aparajit: InsurTech is a mix of insurance and technology. Though AI seems like a catchy concept, it hasn’t entered insurance globally. Presently, InsurTech is majorly dominated by Cloud-Based API. In the coming decade, more insurtech start ups and intermediaries will subscribe to using blockchain to automate activities more than AI.

    Neerav: InsuTech is mainly AI driven ecosystem that aids in reducing human intervention, cost and time, and improves accuracy. It cannot be regarded as a separate field. It has touched all areas in insurance so far, from risk analysis to price determination. But we are certainly slower than some countries like Singapore which have been using more advanced technologies.

    Rahul: More incumbents are willing to engage with Start ups to do business for example- partnerships with Riskcovry for distribution via APIs. Situations have changed for the insurance industry. Digit has scaled to $313M GWP for FY20 via commercial lines business. Private players are laying an active role in insurance. InsurTech has penetrated almost all areas in insurance including risk analysis, and price determination.

    1. What has been the Biggest success of InsurTech so far? What more could be done?

     

    Dr.Sahil: Sandbox is a appaudable success. New products are entering markets right now. But country needs to be more adaptable. As a premium- driven economy, we are attracted to cheaper premium products, which defeats the purpose of insurance. Awareness is still a big challenges in India.

    Aparajit:  One of the major successes is digital customer onboarding ( and acquisition) . Social media and search engines are creating awareness. Specially after covid, awareness about insurance (mostly health) has increased. InsurTech also created a excellent API culture for customer acquisition.

    Secondly, Sandbox is a commendable breakthrough, indicating that regulator is working on creating a conducive environment for growth of insurtechs. IRDA is also promoting e-commerce sales in Insurance. In Additional, various business-to-business start ups that work on administration, customer onboarding have also developed. These are some appreciable successes so far.

    Neerav: Insurers in India have become more adaptive to change and are more open to suggestions, new technologies and actively building internal infrastructure. They are looking for ultimate outcome.

    Rahul: Biggest success of InsurTech so far is lowering operational cost resulting in lower premiums (e.g.how). Secondly, B2B2C (business to business to customer) distribution via new affinity channels like e-commerce and payments apps entering into insurance (Patym premium payment). Incumbents have realized the need for change and “innovation”. As more InsurTechs enter the space, incumbents are becoming increasingly comfortable working alongside Technology companies (they are starting to appoint “Heads of Innovation” and create standalone teams for new affinity)

    1. What do you think are the niche areas that InsurTech could cater to?

    Dr.Sahil: There are numerous opputunities for InsurTech. There are numerous pools of customers that need to be insured. So the questionhere shifs to what should be done by the insurtechs to tap into these pools. To achieve these oppurtunities, Increased interaction between insurers, early processing and common data repository are 3 component areas that needs work on initially. For example, in case of health insurance, digital recording of medical report results, prescriptions and OPD slips saves huge amount of processing time (even for third party administrator) for the customer. Moreover, creating a central repository of relevant data, accessible to all insurers, would avoid be beneficial.

    Aparajit: India is one of the fastest growing insurance markets in the world. Yet,it has less than 4% penetration. InsurTech is an necessary means of reaching out to less insured tier II and tier III cities, which entails high capital costs if done in the traditional way. Secondly, unorganized sector workers are more likely uninsured for most part. Insurtech could bridge this gap through digital customer onboarding, virtual distribution of policies, e- kyc etc Digital Customer acquisition, identity verification (through e- Aadhaar), quick accessing of product details as per customer needs etc could be done without the need for physical infrastructure. Thus, API driven InsurTech would be the key to solve the low penetration problem in India.

    Neerav : there are two  types of distributors-  retail and corporate. Corporate have broadly foussed on launching Apps say, a wellness app for pharmacy buying and telecalls. Gradually, it will be expanding to other customers (retails). The main focus would be on customers in tier II cities and rural areas, rather than in metrocities.

    Rahul: InsurTech has prospective future in Drone insurance. The upcoming use for electrical vehicles opens up doors for new product- electrical vehicles insurance. InsurTech also has huge scope in Micro insurance and insurance in sharing economy. 

    1. Personal Data Security is one of the biggest challenges India is facing. How are the new Start ups assuring the customer data safety?

    Dr.Sahil: InsurTech is all about data. And Tech doesn’t happen overnight. It has various layers that need to be designed before a robust technology takes form.

    1. Functionality or purpose of the innovation
    2. Independence in the working
    3. The Load taking capacity
    4. Security measures

    Younger population currently prefers hassle free processing through digital platform, hence data security is not the first thing on mind. This is surely a big challenge, but this is a task for a later stage. Moreover, In India, Most insurtechs are intermediaries and the essential processes like underwriting, policy issue, claim settlement are done at the insurers’ end. So in ideal situations, insurers should be responsible for Data security. Alternatively, Government, a more informed member, should take responsibility to ensure data security and measures in case of a data leak where parties involved are punished.

    Aparajit: InsurTechs abide by the data safety protocols, system audits reports and security protocols mandated by IRDA. Mostly all the Servers are located in india, which reduces risk to considerable extent. However, data threat is very much of a real problem and IRDA will come up with new measures in due course of time to tackle this effectively.

    Neerav : Big companies are mainly following European data security standards and

    Guidelines and hence are legally insulated. But in practical sense, there are still gaps. Risk prevails. Challenges are there but we will figure out more ways. Infact, this isone of the many reasons, incumbents are hesitant to invest in newbies.

    Rahul: Typically, start-ups are built on AWS[8] or MS Azure or GCP(cloud based platforms) which comes with in-built security features  that incumbents who use on-premise services would not have access to. Moreover, Incumbents tend to be more vulnerable since they are the targets of cyber criminals owing to the size of their operations. Typically, leading InsurTech companies with increasing investments (Series A/B) have a full-service cyber security team (but this varies by company).

    1. How can we increase the awareness about Insurance in India?

    Dr.Sahil: Agents, more often than not, focus on appraisal and incentives. Similarly, customers are concerned with cheaper premium with more benefits. Improving customer welfare is hardly talked about. This is a consequence of lack of awareness. Insurer should focus on post sales engagement. Inception of a chat bot or common call centre, agnostic touch point not represented by any one company could be a innovative start.

    Aparajit: Social media and search engines playing a major role in creating awareness- like  insurance specific pages on facebook, Linkedin. API culture of InsuTech also actively creates awareness. For the benefit of customers, simplification and bullet pointing the terms and conditions in policy underwriting is a suggestion.

    Neerav: Most effective way is ‘word of mouth’. Customers will do away with agents, only if they see a better alternative in new technology. Though Advertising is effective promotion, it has a limited impact. Lack of awareness has negatively impacted customers’ welfare for a long time.

    1. In my opinion, one of the implications of digital insurance is lesser personal contact and more digital interaction between the agents and the customers. Do you think this could transform into challenge in any context?

    Dr.Sahil: As mentioned before, Agent is certainly more concerned about his benefits. Post sale of product, subsequent contact with agent will be for claim processing and settlement or maturity. thus, evidently, it is more profitable to be more interactive with the insurer. Most queries by the clients are not complex or tech related (like clauses of a claim) and could be answered by Chatbots. Chatbots infact make his process more efficient- make it phygital- physical person plus digital model. Many Insurers like policy bazaar, HDFC have already employed this technology. Is time agents also adapt to this change.

    Aparajit: Unlike popular belief, digitalization can infact improve the productivity of Agent if taken advantage of. Typically, an Agent could contact 2-3 clients per day, given the distance and time factor. Digital arrangement is cost effective in the sense that it reduces transaction costs and travelling time, increases agent productivity and outreach.  Tier II and III cities are becoming with active on online platforms and are looking for online modes of communication. Voice and video could become the new mode of communication, the new normal.

    Neerav: Not really. This was a problem of past. On the contrary, InsurTech could make huge difference in Tier II and III cities which are highly dependent on agents. InsurTech would promote awareness, and provide more transparent information and advice unlike an agent. Agents could still be a source of contact forsecond opinion, but InsurTech could replace agents at primary level.

    Rahul: It is difficult to say certainly. For more established agents/brokers who own large books, they might just return to business as usual The younger generation of agents &amp; brokers might accept the support that digital platform provides (lower commissions but higher volume) since they are less embedded in the “old ways”. It is also important to consider that customers at different points in their life would want different levels of service ranging from digital to Face-to-Face.

    1. IRDA has been welcoming to the changes in the sector. Do you think there is more to be done?

    Dr.Sahil: IRDA has done a great job so far in welcoming InsurTech into the country and establishing the sandbox. But It has to move beyond the role of a regulator and expand its capabilities in technology and insurtech.

    Aparajit:  Yes, there is a lot of scope for IRDA as a regulator. But the pace has been set, which is a progressive step. Finance ministry and IRDA could promote digitalization and modrenization in LIC.

    Neerav: No. IRDA has been very supportive and cautious. As long as the product quality meets the standards, IRDA would approve and promote the product and the firm. Although, may be Public sector firms in the economy could be given a nudge by the government and IRDA.

    Rahul: Sandbox is a good starting point and  Standardization of clauses, exclusions and claim settlements in Health is a welcome move. However, there is a  Lack of clarity on policy wordings and interpretation which makes it harder for brokers/customers to compare products on features beyond price. In addition, there is a need for Centrally pooled underwriting capacity for innovation. This is a global problem where any start-up or platform which requires “product innovation” in insurance has to chase multiple carriers. Similar to how the IRDA used to operate the Third-Party motor pool, it should consider operating an innovation pool for capacity (application system like Sandbox)

    1. Covid 19 is the biggest pandemic any country has faced so far. Yet, it is believed that Covid could in fact accelerate digitalization. Do you believe that? Do you think this holds true for India? What will be its short term and long term impacts?

     Dr.Sahil: Covid has succeded in driving a behavioural change in the customers. People have become more adaptive to digitalization of processes. This could be a long lasting effect. Yet, this seems to a  very limited group, expansion of which depends on the InsurTechs now. However, In my opinion, InsurTech per se is covid independent.

    Aparajit:

    Traditionally, There are 4 distribition channels for insurance- bancassurance, agency, direct sales and brokers and corporate agents. Prior to Covid, agency and bancassurance owned  major market share and digital platforms have less than 5% contribution. But currently, with  bancassurance and agency which are not technologically prepared, are shut and digital platforms have taken their place. Policy bazaar’s business has increased by 30% due to their digital front which is certainly going to sustain even when bancasssurance and agents revive. Thus, in this way, InsurTech will be efficient, removing manual and menial (repetitive) works. Some jobs would become obsolete, and those employees could be used for other human intensive activities. Though motor and travel insurance companies have expected short term losses, these can be recovered as the industry revives.  Insurtech was initially met with scepticism. Adopting digitalization was considered “optional”. Covid has certain ways exposed the inefficiencies in the industry. It is now a question of how fast industry can adopt technology for the long term benefit.

    Neerav: Covid infact has a multifold effect on the industry. It could change the business is done by the insurers. Gradually, a virtual work culture may develop, where client meetings are held digitally. This is entail large cost benefits.  Smaller cities and towns are moving towards digital payments and service, which has become a necessity now. It also achieving a gradual behavioural change and adaptation to technology. Insurance industry will see a change

    Rahul: Some B2B InsurTechs (like policybazaar.com, Metamophsys) have seen several inquiries come in and sales cycles shorten. Executives understood the limitations of not having digital capabilities to administer policies, renewals and claims remotely, and incumbents are inclining rapidly towards digital operations. This effect is bound to remain for a long period. Moreover, Awareness of the importance of health insurance is likely to remain. Health Insurance was one of the few segments to maintain positive YoY growth in April and May 2020)

                Presently, nearly 60- 65%  of population in India is young. They would form a major share of insurance demand in the forthcoming years and InsurTech and incumbents should be prepared for this. Demand for Renters policies and gadget protection policies will increase rapidly. Health Insurance also holds more oppurtunities for innovation and disruption. A more customer centric approach will pave the way for InsurTech.

    Evidently, Insurtech needs to happen as it is an effective way to create awareness among customers, for them to look beyond return on investment or fear. Insurance is a precaution against an eventuality and should be considered a long term investment.

    Appendix

    List of InsurTechs in India

    India: InsureTech Acitivity (Sorted by Type and then Alphabetical Order)
    Name Type Description Founded in Location
    Konsult Enabler Mobile app offering health consultations with potential insurance leads 2015 Delhi
    SatSure Enabler Crop damage assessment service 2015 Bangalore
    Trak N Tell Enabler A leading telematics solution provider 2009 Delhi
    BharatSaves Enabler Online insurace shopping by Google N/A Bangalore
    Xceedance Enabler Insurance analytics and consulting to P&C carriers 2013 Bangalore
    Senseforth Enabler Conversational AI – has developed SPOK, an email bot HDFC Life Insurance 2012 Bangalore
    Ask Arvi Enabler Health Insurance Assistant / Conversational AI 2017 Mumbai
    Girnar Software Intermediary IT company offering mobile and web solutions. Operators of CarDekho.com car buying portal 2007 Jaipur
    Demyto Intermediary A portal for car services with the ability to request an insurance quote 2015 Pune
    EasyPolicy Intermediary Life and P&C insurance comparison site 2011 Noida
    Wishfin Intermediary Insurance and finance marketplace, formerly known as Deal4Loans 2015 Delhi
    Pickme India Intermediary Gadget insurance 2011 Mumbai
    YuMiGo Intermediary Travel insurance aggregator 2015 Delhi
    Turtlemint Intermediary Insurance aggregator with online quotes and form assist 2015 Mumbai
    RenewBuy Intermediary Car insurance aggreagtor 2015 Noida
    Coverfox Intermediary Insurance aggregator with online quotes and form assist 2013 Mumbai
    ETInsure Intermediary Insurance aggregator with online quotes and form assist 2016 Delhi
    121Policy Intermediary Insurance aggregator with online quotes and form assist 2016 Kolkata
    GIBL Intermediary Insurance aggregator with online quotes 2013 Kolkata
    GramCover Intermediary An insurance marketplace for the rural sector. 2016 Delhi
    PolicyMantra Intermediary Insurance aggregator with online quotes and form assist 2010 Mumbai
    PolicyBazaar Intermediary Insurance aggregator with online quotes and form assist 2008 Gurgaon
    CarDekho Intermediary Car search portal that also provides online car insurance quotes (Subsidiary of Girnar) 2016 Gurgaon
    PolicyBoss Intermediary Online insurance aggregator 2003 Mumbai
    Acko General Insurance Primary India’s first online insurance company 2017 Mumbai

     
    References

    [1] Moral Hazard is the case where the insured assumes more risk, since the burden of the loss is borne by someone else( insurer)

    [2] Blockchain or distributed registry technology is a digital ledger that stores active transaction data without intermediate control by using a consensus system to validate transactions. Blockchain operates on a principle of transparency for fixed record keeping.

    [3] InsurTech -Working Group Findings & Recommendations (IRDA)

    [4] InsurTech -Working Group Findings & Recommendations (IRDA)

    [5] InsurTech -Working Group Findings & Recommendations (IRDA)

    [6] InsurTech -Working Group Findings & Recommendations (IRDA)

    [7] Internet of Things

    [8] Amazon Web Services

     
    This is a working paper. Comments are welcome and can be forwarded to aqf19surya@mse.ac.in
     

  • The DNA Bill And State Capacity

    The DNA Bill And State Capacity

    Aristotle suggested that transmission of heredity was essentially the transmission of information. And this information was used to build an organism from scratch inside the female womb. Although the science is primitive, he was right in how information is transmitted from parents to their offspring. Modern genetics is built on studying such information, which has been coded into each cell as DNA. Scientists can now sequence the DNA and extract valuable information about each individual and the human species. They have been able to use such information to understand humans better; for example, the identification of BRCA mutation responsible for cancer has nudged great strides in cancer biology. Another important application which has varied implications in society is the use of DNA in forensics. Although already in use since its discovery in 1995, the exponential rise in the significance of information extracted using DNA Profiling warrants regulation.

    All major nations which use DNA Profiling have legislation in place to regulate the use of the technology. However, in India, the technology is unregulated even though successive governments have worked on such legislation since 2003.

    DNA Technology Bill

    All major nations which use DNA Profiling have legislation in place to regulate the use of the technology. However, in India, the technology is unregulated even though successive governments have worked on such legislation since 2003. If global examples are not enough, the 2017 Puttaswamy judgement has made such legislation necessary. The judgement asserted that privacy is a fundamental right guaranteed by the Indian Constitution and that the right to privacy includes protection over the physical body. Therefore, for the State to collect or store DNA data, a legislative mechanism principled on necessity and proportionality is requisite.

    DNA testing is being done on a very limited scale in India. About 30-40 DNA experts are working in 15-18 laboratories. They can process only about 2-3% of the total need, and even such limited testing is unregulated and unmonitored. According to the NCRB data for 2018, although 85% of rape accused have been charge-sheeted, the conviction rate for rape is just 27.2%. This technology, however, has an excellent record of increasing conviction rates; for example, a 2006 UK parliamentary report suggested that detection of crime increased from a mere 26% to a healthy 40% after they loaded DNA samples into a national database. Apart from crime detection, the technology will also help in the identification of over six million missing persons in India. Thus, legislation facilitating DNA technology to help expedite justice is long overdue.

    The DNA Technology (Use and Application) Bill 2019 is the latest form of the DNA bill and is at the parliamentary committee stage for further deliberations. The bill talks of a national DNA data bank and a DNA regulatory board to store DNA data and regulate DNA technology used in criminal and civil cases. The bill in its current form has raised many concerns including privacy issues concerning the use of DNA data, the ‘perfunctory consent’ clause which makes it hard for an individual to deny permission to collect his/her data, ethical issues in collecting and storing DNA data in DNA banks, the fear of caste-based criminal profiling because of the endogamous nature of Indian society and so on. But the biggest concern is one of state capacity, which in a way umbrellas other concerns.

    The bill in its current form has raised many concerns including privacy issues concerning the use of DNA data, the ‘perfunctory consent’ clause which makes it hard for an individual to deny permission to collect his/her data, ethical issues in collecting and storing DNA data in DNA banks, the fear of caste-based criminal profiling because of the endogamous nature of Indian society and so on.

    Problems with State Capacity

    In young nations like India, the State, although large and bloated, is not highly efficient. This may cause even government interventions with noble intentions to backfire. Therefore, it is necessary to identify places where a lack of state capacity could cause worry for the legislation to work effectively.

    We could sum three basic concerns up from the DNA Technology bill concerning state capacity. First, the high cost of technology and the lack of basic technical training regarding data collection in a crime scene. Second, the backlog burden in the Justice system. And finally, the lack of clarity in the bill as to what is being collected and stored.

    The India Justice Report 2019 published by Tata Trusts reveal important information on the Justice system in India. Over the last five years, only 6.4% of the police force has been provided in-service training. For advanced technology like DNA fingerprinting, frontline police should have basic training and knowledge of the technology. It starts with how to read and deal with the crime scene. And without awareness, the technology cannot be exploited desirably. To go from training 6.4% to at least half the police force will be a herculean task which should be contemplated before implementing the legislation. The DNA bill gives the responsibility of developing training modules to the DNA Regulatory Board, which will be set up. But it does not provide a realistic road map to reach the desired level of training to better use the technology.

    The report also suggests that on average, per capita police spending in 2017 was Rs 820. No big or medium-sized state has spent more than Rupees 1160 per person, and Bihar has spent as low as Rupees 498. Only one state has made 100% use of the modernization funds allocated for capital expenditure and technology up-gradation. But DNA fingerprinting technology is a costly affair. Each test could cost as much as Rupees 10,000. Even if only high-profile cases use DNA tests, a robust database of DNA has to be present for effective identification from the three indices mentioned in the bill. And such collection and storage of DNA samples could become another strain in the public exchequer. The bill also mandates the use of DNA testing for criminal as well as civil cases, which could again flood the system.

    Second, DNA technology could increase the backlog burden of the already burdened system. In the US, with relatively strong state capacity, DNA backlogs are in the thousands. The National Institute of Justice (USA) reports that the current backlog of rape and homicide cases is 350,000. It also estimates that there are ‘between 500,000 to 1 million convicted offenders’ samples that are owed but not yet collected’. The FBI has a backlog of approximately 18,000 convicted offender samples. Therefore, in India with an already strained Justice system, DNA backlogs could cause worry. Also, because of the significance of DNA information, backlogs could also invoke privacy concerns.

    Finally, there is a lack of clarity. This concern, however, is not one of lack of state capacity but one of potential overreach by the State.

    The lack of strong data protection legislation in place couples such concern. As the parliamentary committee suggests, the bill can also be termed ‘premature’ regarding data protection.

    Non-coding DNA is used for identification. The bill, however, does not restrict DNA Profiling to only use non-coding DNA which cannot be used for determining personal and medical characteristics. Given that the bill mandates data from all criminal and civil cases to be stored in the National data bank, concerns of privacy impingement cannot be hushed away. The lack of strong data protection legislation in place couples such concern. As the parliamentary committee suggests, the bill can also be termed ‘premature’ regarding data protection.

    Although the bill is creating a strict code of ethics regarding collection, storage and accessibility of DNA information, it is ambiguous on the removal of data. Clause 31(3) says that DNA data will be removed if a person requested in writing to the DNA bank, given that such a person is ‘neither an offender nor a suspect or an under-trial’ and whose DNA information has entered the bank ‘through crime scene index or missing persons’ index’. But it is not clear on what will happen if they do not remove such data. It is important to answer these questions due to the significance of DNA information and the fact that the bill does not restrict banks to store only non-coding DNA. Also, these questions could raise concerns about state capacity in safeguarding important data of its citizens.

    Conclusion

    To address these concerns, building state capacity is the key. A staggered implementation of DNA technology could help in building capacity and credibility for the technology. For example, if the bill provides a roadmap of implementation- say, starting with addressing the identification of missing persons and further developing capacity for criminal and civil investigation, the allocation of resources could be streamlined. This limited implementation could also help in addressing additional issues that could arise during implementation. These details cannot be let out to be decided by a regulatory body because of the importance of DNA data and the breach of fundamental rights in collecting and storing it.

    It is said that one has to cross the river by feeling the stones. The stable rule of law and a robust data protection regime which will make sure the technology is used judicially are basic requisites for technology with societal implications. Even though DNA profiling has huge potential to expedite justice, implementation of such complex technology has to be step by step. The Parliamentary Committee on Science and Technology has been scrutinizing the bill rigorously, contemplating the varied problems that might befall the implementation of the bill. But it remains to be seen if the government will heed to such advice and not dismiss them altogether; that is if it will feel the stones or deep dive into the river without contemplating the consequences.

     
    Image Credit: DNA Helix Material – Gerd Altmann from Pixabay

  • Lebanon’s Food Security Crisis

    Lebanon’s Food Security Crisis

    Security has been a buzzword in the arena of International Politics since the Cold War, and this is widely recognized to be the subject’s genesis as articulated by Barry Buzan and Lene Hansen in their book, The Evolution of International Security Studies. The traditional view of security as largely related to military is the aspect that is given the most prominent focus in discourses on the subject. However, since the 1990s, “societal security” and concepts related to people are broader and sub-concepts such as food security have gained in importance. Food security looks at how much food is available, the access and affordability of food to all people in a country. Food security is also the ability of the country to keep sufficient food available during tough times, such as inflation, disasters, and other such hardships. The Food Climate Research Network speaks of the five factors of food security; availability of food, access to food, utilization of food, stability, and malnutrition. Perhaps food security is one of the most essential forms of security, as the lack of food leads to starvation. This is the reason one hears of bread riots and bread in many protest slogans; ‘bread’ symbolizes food security and represents people’s survival. The economic meltdown of Lebanon and the failure of governance has created a human catastrophe of instability and poverty. The recent Beirut explosion has highlighted not only the failure of the government but a complete breakdown of safety and social security for its common citizens. Under the current circumstances, Lebanon’s food security situation is a major cause for concern.

    Hikes in Food Prices

    Lebanon today is a country with massive debt, income inequality, with much of its revenue going towards servicing of national debts. In addition, Lebanon has been facing high inflation for the last few months, making it very difficult for families to access food. As a result, basic food items are overpriced and in short supply; for instance, a pat of butter costs 9.4 Euros.  Meat, fruits and other commodities have become luxuries for most Lebanese citizens. There are huge breadlines across Lebanon, and many grocery stores cannot afford to buy food to sell to consumers. The COVID-19 crisis has compounded the economic crisis. Prices of eight basic food items have increased by 56%. Lebanon’s food crisis is so grave that parents are bartering their children’s toys and furniture for food online.

     Economic collapse and Food Security

    The most circulated pictures over the last few weeks on media are of the explosion in Beirut and the spillage of grains. This blast occurred because of the unsafe storage of ammonium nitrate and has led to the death of over 200 people, with over 6,000 injured so far. There are many still missing. For Lebanon, this is a triple layer of burden, as the country is fighting a mismanaged economy, a pandemic, and now the horrific aftermath of the explosion. Post the explosion, many countries and global institutions have rushed emergency support by providing minimal aid and funding to facilitate fast recovery from this catastrophe.  While the world has come together to help Lebanon, the situation remains grim because of the shortage of various necessities like medicine and food. The second-largest port in Lebanon, Tripoli has some storage of flour; however, this suffices to cover just one month’s requirements. Beirut port, the largest in Lebanon, is virtually unusable because of the blast. The port infrastructure is severely damaged, thus hurting imports. Lebanon is a country that relies hugely on imports; it imports 85% of its food from outside, making this a major crisis . By one estimate the blast has destroyed 120,000 metric tons of grains, and this could affect food availability as well as sky-rocketing of food prices. The United Nations Food Program reiterated that Lebanon is in a grim situation regarding food security. The current assessment is that the grains can sustain them for less than a month.

    Grim Outlook and Tough Challenges

    The looming food security crisis is a direct fall-out of the economic collapse and multiple crises facing the country. Discontent with the government in Lebanon is not new, since the protests have been on since last October. The explosion and its resulting loss of life and property have triggered waves of protests again, forcing Hassan Diab, the Prime Minister of Lebanon, to step down from his office on 10th August. Decades of poor governance, entrenched kleptocracy, corrupt political class, criminal negligence, incompetence and economic mismanagement have led to the current catastrophe. The former economy minister, Nasser Saidi, says that ‘Lebanon is on the brink of the abyss of depression, with GDP declining by 25% this year, growing unemployment, hyperinflation, and humanitarian disaster with poverty exceeding half the population. The growing food crisis and poverty could lead to famine conditions’. The government will need to address income inequality, large-scale corruption, and the role of foreign players in contributing to the economic collapse.  Financial institutions and other creditors, more often foreign powers, need to suspend debt repayments and allow the Lebanese economy to recoup; since a considerable portion of the revenue goes into debt servicing, which is unsustainable for long.  International funding agencies, while sympathetic to the common peoples’ plight, are hesitant to go ahead with aid due to the poor governance track record of the political class. By some estimates, they put the immediate requirement for humanitarian aid and the cost of rebuilding essential infrastructure post the blast at USD 15 billion. This pales compared to the even bigger mess in the financial system. Ghazi Wazni, the country’s finance minister who quit with the rest of the government last week, has put the total losses in the banking system at $83 billion, and a black hole in the central banking system of $50 billion. The people are displaying discontent over the sectarian politics that have afflicted the country for decades and are the root cause of endemic corruption. Last year’s protests led to a new government in December, which was forced to resign post the explosion.

    Amidst the political crisis, food security is increasingly the major problem in Lebanon for months now. The blast has left 300,000 people homeless.  International Organizations and Civil Society Organizations, Ukraine, Russia, and the United States are enabling and mobilizing food supplies.

    Poverty is the immediate concern; there are already one million Lebanese in poverty, with the likelihood of more than half of the Lebanese population falling into poverty. Food shortages will most likely result in starvation, malnutrition, and death. Looking at the five tenets of food security mentioned above, Lebanon satisfies neither of the five criteria. Lebanon is an example of how decades of factional strife, warlordism, corruption, and power in the hands of the kleptocratic elite can push a country and its people into the abyss of poverty. While resolving Lebanon’s food security crisis is possible through immediate international aid and support, resolving the larger problem of its economic mess and humanitarian catastrophe will need international intervention.