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  • 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 & 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
     

  • UAE-Israel Deal: An Analysis of its Regional Impact

    UAE-Israel Deal: An Analysis of its Regional Impact

    Introduction

    The recently brokered Abraham Accords Peace Agreement between the United Arab Emirates and Israel marks the beginning of the potential shift in West Asia’s existing power relations. Driven by their security interests, and in an attempt to amplify their power projections in the region, the two countries have come together, in what is being seen, as an opposition to the Iranian axis of influence. Although the normalization of relations with Israel marks a huge setback for the possibility of a Palestinian Statehood, several Arab countries are expected to jump on the bandwagon, with Bahrain having already concluded a treaty after UAE. This article highlights the eclectic mix of reactions from various players in West Asia and the potential opportunities and setbacks it brings with itself.

    Palestine

     Several countries held strongly pro-Palestine policies during the Cold War and decolonization period. However, in the last few decades, many have established ties with Israel; Egypt in 1979, and Jordan in1994 and now UAE and Bahrain in 2020. That being said, majority of the Arab and Gulf countries still officially do not recognize Israel. The United Arab Emirates announced its decision to normalize relations with Israel on 12th August 2020. There are many reasons why UAE and Bahrain decided to establish diplomatic relations with Israel; according to some analysts it is to counter Iran’s influence in the region, but for some it is also to establish trade and business contacts.

    However, do these developments indicate that countries in the Arab world are moving gradually into accepting Israel’s occupation of Palestinian lands as ‘fait accompli’? A significant development that needs to be recognised is the fact that many West Asian countries no longer demand the return of Palestinian lands as a precondition to normalizing ties with Israel.

    The Palestinians in the West Bank and Gaza have strongly criticised the deal and see it as betrayal of their rights and cause by the international community.

    It is long-known that Israel will not return to pre-1967 boundaries; in May 2020 Benjamin Netanyahu explicitly stated his plan to annex the West Bank. He has, however, postponed the implementation of his decision, probably indefinitely, in the interests of the deal that is likely to benefit Israel greatly.

    The Palestinians in the West Bank and Gaza have strongly criticised the deal and see it as betrayal of their rights and cause by the international community.  Banners  displaying “Treason” and “No to normalization with the occupier’ have come up across the region.  The Palestinian Authority, in very obvious response, have rejected the deals. These accords, as they rightly fear, affect the future of Palestinian sovereignty and legitimize Israel’s occupation.

    Turkey  

     President Recep Tayyip Erdogan sees himself as the champion of Muslims ever since he came to power in 2002. Under Erdogan, Turkey has pursued a clear pro-Palestinian stance. Turkey has indeed provided aid to Palestine at various times, including during COVID-19. It has criticized Trump’s peace plan for the Israel-Palestine conflict, for ignoring Palestinians’ legitimate rights. Not surprisingly, Turkey is clearly unhappy with UAE’s and Bahrain’s steps to normalize ties with Israel. Turkey has threatened with the option of halting diplomatic relations with UAE over the deal.

    However, for Palestinians Turkey’s statements ring hypocritical and hallow. Turkey was one of the earliest and the first Muslim majority state to recognize Israel in 1949. Turkey and Israel have a long history of intelligence cooperation. Even in the current situation, Turkey is focused more on dealing with the UAE on this issue, rather than Israel. Nevertheless, speaking for Palestinian rights in the international forum is equally important. In that respect, Turkey’s voice in support of the Palestinian cause is an important one.

    Saudi Arabia

     Saudi Arabia, long seen as the champion of Islamic nations, particularly in view of the fact that it is home to the two holiest shrines of Islam. Therefore, this peace agreement is a shock to the conservatives who form the majority in the Kingdom. This move by the UAE is seen as going along with the Jewish regime that denies the rights of the Palestinian Muslims. However, the Foreign Minister, Faisal bin Farhan Al Saud said the deal could be seen as positive, but his country will not normalize relations until peace is signed with the Palestinians,  within the framework of the Arab Peace Initiative.  Saudi Arabia’s track record of its unwavering support to the Palestinian cause from the days of the Yom Kippur war, also known as Ramadan War, makes the nation’s stance on the ‘Abraham Accords’ more influential than any other Gulf country. The advocacy for Palestinian state runs deep in the Saudi people. As a result, Saudi leadership’s slightest inclination towards the agreement could spark unrest among its citizens.

    The current regime under the Crown Prince of Saudi Arabia, Mohammed bin Salman (MBS), who is a very capable leader compared to his predecessors because of his broader outlook to mend diplomatic ties with the regional enemies, yields an element of uncertainty as he may be inclined towards the accord. The political and ideological differences between the people of Saudi and their leader might spark cynicism towards the government; hence, support for the accord is implausible in the short term.

    Israel, which shares the Red Sea coastline with the country and is a major player in technology innovations in the region, makes it an ideal ally for the Kingdom.

    The idea, however, is not wholly inconceivable because of MBS’s Vision 2030. Upon ascending the throne, the Crown Prince has constructed an elaborate plan to detach the Kingdom’s dependence on its natural resources and focus on bringing in diverse investments into the country. One of the main plans is to develop the Red Sea Coastline by exploiting its tourism prospects by building a smart city. Israel, which shares the Red Sea coastline with the country and is a major player in technology innovations in the region, makes it an ideal ally for the Kingdom. One of the other factors that could generate a coalition between Saudi Arabia and Israel is their common enemy, Iran.

    If MBS does accept the accord, it may not come as a surprise, but that does not warrant the fact that there is a high possibility of the decision shocking many conservative and religious establishments.  In retrospect, that could give birth to the “new” Saudi Arabia that the crown prince has promised to build.

    Qatar

    Qatar, which is considered the most developed state in the Gulf region, is in the middle of a diplomatic standoff with the regional players. Its dispute with the two major states, Saudi Arabia and UAE, has made the state go out of its way to establish diplomatic ties with parties that are not particularly approved by the GCC. The state has not given any official statement on the accord, but it’s closeness with Iran may be taken as an unofficial veto to the accord in itself. Qatar’s close relationship with the US and Iran has been a subject of debate ever since the Gulf crisis, but the state has somehow managed not to let the relationship cut across each other. This particular agreement with Israel orchestrated by the Trump government could pressure Qatar to push and resolve its issues with the UAE.

    Like any other Arab country, Qatar has advocated for the Palestinian state. It took it a little further by investing in the Gaza Strip, funding welfare payments to the coastal territory. One can suspect that the Emirati’s decision to form a coalition with the Israeli state will only deepen the ties between Qatar and Palestine.

    Though the Qatar government has been silent about the accord, Doha based news media, Al Jazeera has not shied away from raising concerns regarding the agreement. It even went to the extent of calling the accord ‘PR stunt’ initiated by the UAE. It’s support to Palestine and capitalisation of the hashtag ‘normalization as betrayal’ have received a lot of criticism from those countries that support the agreement. Qatar has always been hostile to Israel’s treatment towards the Palestinian state but has managed to have practical relations with Israel.

    Iran  

    As the world witnesses the coming together of the United Arab Emirates and Israel, two of the former adversaries, it comes as no surprise that Iran has been aggressively lashing out against the deal. With Iran still reeling under the economic pressure of the US sanctions, President Rouhani has called the deal a ‘betrayal’, aimed at satisfying the United States at a time when President Trump prepares himself to run in the national election in November. The leader of Iran-backed Hezbollah has also condemned the deal on similar grounds. Iran’s disapproval stems from two main factors – first, from its support for the Palestinian statehood; and second, more realistically, due to the increasing influence of Israel-United States nexus in the region and consequently its declining axis of influence. Iran’s insecurity is speculated to have stemmed from the confluence of actors that oppose the Islamic Republic’s attempts to establish its hegemony in the region. The confluence opens up the possibility of shifting the regional balance of power in favour of Israel, and Saudi Arabia, under the shadow of the United States. While Saudi Arabia and Israel do not yet have an official diplomatic relationship, various reports suggesting backdoor diplomacy between the two countries have surfaced over the years. The common factor bringing the two countries together has most often been assumed as the perceived threat from Iran.

    Iran and UAE, on the other hand, while maintaining a meaningful trade relationship, continue to have persistent sources of bilateral tension.

    On the other hand, while Iran and Israel have often been engaged in rhetoric of bellicose jingoism towards one another, it is essential to note that both the countries maintained a friendly relationship before the Iranian revolution of 1979, with Iran being the second Muslim country recognizing the state of Israel.

    Iran and UAE, on the other hand, while maintaining a meaningful trade relationship, continue to have persistent sources of bilateral tension, one of which is the unresolved territorial dispute over the islands of Greater Tunb, Lesser Tunb, and Abu Musa, which lie near the critical Strait of Hormuz, providing access to key shipping lanes. Despite UAE’s historical claims over their sovereignty, the islands that were forcefully occupied by Iran continue to be a strain in the relationship between the two countries. A second irritant is a growing relationship between UAE and the United States, with the former becoming one of the largest importers of US weapons and providing the US with military bases and intelligence on Iran. Worried about the growing Iranian aggression, the country has maintained a strong security relationship with the United States and has often supported the UNSC resolutions to bar sensitive materials and technology to Iran.

    Yemen

    The conflict in Yemen that began to unravel with the spread of Arab Spring in 2011 has resulted in an unprecedented loss of civilian lives across the country, making Yemen one of the world’s worst humanitarian crises. The Israel-UAE deal, which reflects the beginning of normalization of ties between Arab countries and Israel, cannot be seen in isolation from the region’s larger volatile landscape. The Peace Treaty, as it is being termed, brings with itself a plethora of threats that seek to shift the existing power relations, without aiming at the cessation of violence. UAE’s increasing outreach must be looked at in the context of its increasingly interventionist policies, especially in Yemen. The deal may ultimately lead to more interference and militarization in Yemen, prolonging the prospects for conflict resolution, and sustaining hostile conditions.

    Varied responses to the deal can be seen with the Yemeni government, and the Houthis, an armed group championing Yemen’s Zaidi Shia Muslim minority, coming out in opposition to the deal in a bid to continue their support for Palestine. On the other hand, it comes as no surprise that members of the Southern Transitional Council (southern separatists), which gets its support from the UAE, have applauded the treaty to build cooperation between UAE and Israel.

    Interest and interference in Yemen are of tremendous strategic significance to both Israel and UAE.

    Interest and interference in Yemen are of tremendous strategic significance to both Israel and UAE. In a show of its strengthening military projection, UAE seized control of the Yemeni island of Socotra, located in the Indian Ocean,allegedly allowing Israel to establish its presence in the region. The archipelago sits at a crucial strategic position en-route to Bab el-Mandeb, providing access to key shipping lanes.

    On the other hand, while there exists no diplomatic relationship between Yemen and Israel, the latter has often been seen intervening in the ongoing conflict in Yemen, “under the pretext of defending its interests in the Red Sea and the Strait of Bab-El-Mandeb”. With a military base already constructed at Emba Soira in Eritrea, Israel continues to increase its strategic presence across the Strait. Further, as speculations about the possible Houthi-Iran cooperation spread across the region, Israel’s surveillance centres continue to monitor the armed group’s actions and other actors in Yemen.

    Conclusion

    Palestine is a very sensitive and rousing issue for most of the citizens in West Asia. It is a shared memory of betrayal and expulsion; indeed, many politicians in West Asia use Palestine as an element in their speech and citizens also use it during slogans referring to Palestine protests.

    That being said, these deals are coming at a time when Israel is increasing its hawkish behaviour towards the Palestinians. Once the annexation happens, one cannot help but wonder how it could change the landscape of West Asia. Thus far, the progress made is the mild indication of some major players in the region favouring the accord.  Analysts suspect that the support for the accord will gain momentum in the long-term side-tracking religious, cultural and social identities to maintain diplomatic relations for economic growth.  If all countries, therefore, become friendly with Israel, will the annexation only receive loud threats with no actions?

    This study is put together by Dharika Athray, Rupal Anand, and Vrinda Aiyaswamy. All of them are Research Interns at TPF.

  • Chinese Economic Sops over the South China Sea: A Mixed Bag of Successes

    Chinese Economic Sops over the South China Sea: A Mixed Bag of Successes

    The South China Sea is a resource-rich sea space and its net worth is estimated to be US$ 2.5 trillion.[i]  The proven oil reserves are around 7.7 billion barrels and natural gas reserves could be around 266 trillion cubic feet.[ii] The Chinese strategy in the South China Sea against other claimant States is a mix of aggressive posturing including the threat of use of force as also offering economic incentives and sops such as ‘joint development of resources’ in the contested waters.

    Deng preferred a “moderate approach” i.e. “sovereignty remains ours; shelve disputes; pursue joint development.

    The idea of joint development can be attributed to Deng Xiaoping, the Chinese leader and author of market-economy reforms in the 1980s that earned him the title of ‘Architect of Modern China’. Deng preferred a “moderate approach” i.e. “sovereignty remains ours; shelve disputes; pursue joint development.”[iii]

     

    Map Credit: The Australian Naval Institute

    China’s current thinking on joint development of resources in South China is built around at least seven policy choices i.e. (a) promote good faith in the South China Sea; (b) limit unilateral activities in disputed areas; (c) focus on less-sensitive areas of the South China Sea; (d) reach joint development arrangements by establishing relevant working mechanism; (e) begin the process in areas where there are only two claimants; (f) define sea areas for the joint development by seeking consensus, and (g) discuss the feasibility of setting up a Spratly Resource Management Authority (SRMA) with supranational character.[iv] Further, it has been argued that the ASEAN-China Single Draft Negotiating Text of the Code of Conduct (COC) is “conducive to creating benign bilateral relations, which serves as a prerequisite to joint development”.[v]

    The general belief among the claimants is that China thinks ‘what is mine [Chinese] is of course mine, but what is your [claimants] is also mine’

    However, the above policy choices for joint development and intention are flawed and dismissed by the aggrieved claimants of the South China Sea. The general belief among the claimants is that China thinks ‘what is mine [Chinese] is of course mine, but what is your [claimants] is also mine’; i.e.  Chinese joint development initiatives are based on the wrong assumption that what belongs to China is for China only to develop, and what belongs to other claimants is for development.

    In 2018, China and the Philippines signed a Memorandum of Understanding on Cooperation on Oil and Gas Development. President Xi Jinping urged President Philippine President Rodrigo Duterte to “set aside disputes, eliminate external interference, and concentrate on conducting cooperation, making pragmatic efforts and seeking development”; furthermore, “both sides can take a ‘bigger step’ in the joint development of offshore oil and gas”.[vi] The Philippines proposed a “60-40 sharing arrangement in its favour” and both sides could then develop the “Reed Bank, the main site of the oil and gas reserves, despite the arbitration award declaring that Manila had sovereign rights to exploit them”.[vii]

    Similarly, Brunei has an ongoing arrangement with China on bilateral joint development/cooperation in the South China Sea. Economic and strategic considerations are Brunei’s twin drivers; it has been “pushing hard to diversify its economy away from the oil and gas industry” for a long time and the “unstable oil market, a slow foreign investment growth (especially in non-oil and gas sector) and a contracting national GDP” has acted as a catalyst to diversify and “joint development” is an integral part of Brunei’s wider economic diversification strategy. [viii]

    Unlike the Philippines and Brunei, Malaysia and Vietnam have shied away from joint development of resources with China in the South China Sea.

    Unlike the Philippines and Brunei, Malaysia and Vietnam have shied away from joint development of resources with China in the South China Sea. This is despite the March 2005 China, the Philippines and Vietnam Tripartite Agreement for Joint Marine Scientific Research in Certain Areas in the South China Sea by respective national oil companies.

    Malaysia is not averse to joint development with other claimants except China and at least four such projects were undertaken i.e. (a) Malaysia-Thai Joint Development Authority in the Gulf of Thailand based on the 1979 MOU; (b) 1992 MOU which designates overlapping continental shelf claims (about 2000km square) in the Gulf of Thailand as Commercial Arrangement Area (CAA); (c) the 2009 CAA between Brunei and Malaysia; and (d) Fisheries MOU between Malaysia and Indonesia, quasi-joint exploitation of fisheries resources, in overlapping claim area of about 14,300 square kilometres in the Straits of Malacca.[ix]

    Vietnam’s boundary and territorial disputes with China in the South China Sea including clashes over the Parcels have resulted in mistrust and preclude joint development with China. In essence, Vietnam does not accept joint development in areas that belong to Vietnam according to the UNCLOS 1982.

    Vietnam promotes international cooperation on resource development and has a rich body of laws to support such initiatives such as the 1982 United Nations Law of the Sea, the Petroleum Law (Article 3, No. 12), the Navigation Law, Fisheries Law, the Law on Natural Resources and Environment of Sea and Islands (Article 4, No. 5), the Tourism Law, and the Mineral Law. However, its boundary and territorial disputes with China in the South China Sea including clashes over the Parcels have resulted in mistrust and preclude joint development with China. In essence, Vietnam does not accept joint development in areas that belong to Vietnam according to the UNCLOS 1982.

    The US rejects Chinese maritime claim in the South China Sea and proclaimed “any PRC action to harass other states’ fishing or hydrocarbon development in these waters – or to carry out such activities unilaterally – is unlawful.”[x]Furthermore, while extending help to Vietnam on the matter, US Secretary of State Michael Pompeo announced that “America stands with our South-East Asian allies and partners in protecting their sovereign rights to offshore resources, consistent with their rights and obligations under international law.”

     
     
    Notes

    [i]China Escalates Coercion against Vietnam’s Longstanding Oil and Gas Activity in the South China Sea”, https://china.usembassy-china.org.cn/china-escalates-coercion-against-vietnams-longstanding-oil-and-gas-activity-in-the-south-china-sea/  (accessed 15 September 2020).

    [ii] “South China Sea: Beijing has a major natural advantage in the geopolitical power game”, https://economictimes.indiatimes.com/news/defence/south-china-sea-beijing-has-a-major-natural-advantage-in-the-geopolitical-power-game/articleshow/76423659.cms (accessed 15 September 2020).
    [iii] “Xi Jinping and China’s Maritime Disputes”, https://taylorfravel.com/2013/08/xi-jinping-and-chinas-maritime-disputes/  (accessed 15 September 2020).
    [iv] “Joint development in the South China Sea: China’s incentives and policy choices”,https://www.tandfonline.com/doi/full/10.1080/24761028.2019.1685427  (accessed 15 September 2020).
    [v] Ibid.
    [vi] “China Focus: Xi, Duterte meet on pushing forward ties”, http://www.xinhuanet.com/english/2019-08/30/c_138350348.htm  (accessed 15 September 2020).
    [vii] “China’s Xi sees bigger role for joint energy exploration with Philippines”, https://www.reuters.com/article/us-china-philippines/chinas-xi-sees-bigger-role-for-joint-development-of-offshore-oil-gas-with-philippines-idUSKCN1VK00M  (accessed 15 September 2020).
    [viii] “Cooperative Research Report on Joint Development in the South China Sea: Incentives, Policies & Ways Forward”, http://www.iis.fudan.edu.cn/_upload/article/files/9f/21/992faf20465fae26c23ccce1ecc6/f003a68f-eb6a-4b09-a506-3c00897b0862.pdf  (accessed 15 September 2020).
    [ix] “Cooperative Research Report on Joint Development in the South China Sea: Incentives, Policies & Ways Forward”, http://www.iis.fudan.edu.cn/_upload/article/files/9f/21/992faf20465fae26c23ccce1ecc6/f003a68f-eb6a-4b09-a506-3c00897b0862.pdf  (accessed 15 September 2020).
    [x] “China pressurizes Vietnam to cancel, compensate offshore firms operating in South China Sea”, https://energy.economictimes.indiatimes.com/news/oil-and-gas/china-pressurises-vietnam-to-cancel-compensate-offshore-firms-operating-in-south-china-sea/77189060  (accessed 15 September 2020).
     
    Image Credit: nbcnews.com

  • Poor Economics: Rethinking Poverty & The Ways To End It

    Poor Economics: Rethinking Poverty & The Ways To End It

    I finished Poor Economics: Rethinking Poverty & the Ways to End it, by Nobel laureates Abhijit Banerjee and Esther Duflo, this past week. Before getting on with the review, it must be said that this is an old book written almost a decade ago. A few suggestions made in the book are now being implemented as government schemes and others by private enterprises. Nevertheless, the book stands the test of time because of its focus on the fundamental approach on how to think about poverty and the factors that help sustain it.

    While the extremes are always loud, the truth mostly lies somewhere in between or somewhere that is unrelated to the needless binary. The authors understand this and try to stay away from the one-size-fits-all arguments to bring people out of poverty. Instead, they try to find solutions on a case by case basis, researching the problem on the ground and coming up with specialized and localized solutions. This problem solving is achieved with the help of the numerous Randomized Control Trials (RCTs) that have been done in eighteen countries of the developing world including India, Indonesia and countries in Sub-Saharan Africa.

    The book contains ten chapters divided into two sections, namely Private Lives and Institutions. In private lives, the authors dwell on the private problems of poor people including immunization, nutrition, education and so on. And in Institutions, they deal with social institutions of credit facilities, entrepreneurship and the politics of policymaking, which the authors feel, has a tremendous impact on the private lives of the poor.


     

    Early on, they introduce two graphs namely the ‘S-shaped’ graph and the ‘inverted L-shaped’ graph. The S-shaped graph represents a world with a poverty trap which the poor will not be able to get out of unless there is an intervention, through government or foreign aid.

    On the other hand, the inverted L-shaped graph represents the worldview which does not believe such a poverty trap exists. This graph posits that there is potential for growth if liberty and markets are allowed to flourish. And that foreign aid will only act as an incentive for the corrupt governments of poor countries to not provide free markets for their people.

    Although the book goes on to deal with other problems dealing with poverty, the running theme of the book is the examination of these two graphs with real-life problems faced by the poor. The readers might find themselves marking ‘S’ or ‘L’ on their book at various places (unless you’re a puritan who does not mark their book, in that case, at least you would think of ‘S’ or ‘L’). The authors argue that while there are problems where a poverty trap is obvious, there are also areas where there is no trap per se and therefore even well-intentioned interventions can prove to be counterproductive. They substantiate their claims with an eighteen-country data set which they have collected over the years through field research.

    To really answer the question of whether there are poverty traps, we need to know whether the real world is better represented by one graph, or by the other. And we need to make this assessment case by case

    The authors tell us stories of Pak Sudarno’s big family of nine children, Ibu Tina’s woes due to a robbery, Jennifer Auma’s saving method and so on. These identified lives help the reader understand the decision-making process of the poor; for example, why a poor family spends money on ‘rich food’ rather than spending money on nutrient-rich food even though their children are malnourished, or why a fruit vendor drinks an extra tea even when he is aware that saving money would mean less high- interest debt. The book goes on to provide insights on various problems including the lack of self-control, poor’s relationship with risk-taking, the present bias leading to undesirable future repercussions and so on.

    Although there is no one silver bullet to rid the poor of all their problems, the authors argue that they ‘do know a number of things about how to improve the lives of the poor’. They give us five key lessons to understand the poor better. One, they believe there is a market failure of asymmetric information wherein the poor ‘often lack critical pieces of information’. Two, the poor are responsible for too many aspects of their life; for example, think of drinking water- a poor person has to decide if he has to use chlorine in water as opposed to a richer person for whom clean water is made available by other people, therefore less decision making. Psychological researches say that the quality of the decision erodes if we have to decide so many things (thus successful geniuses and trademark attire).

    Three, there are ‘good reasons that some markets are missing for the poor or that they face unfavourable prices’, for example, the poor pay higher rates on their loans. Four, the failures in a poor country have less to do with ‘some grand conspiracy of the elites’ to maintain the status quo and more to do with avoidable flaws in the designing of public policies. And finally, five, a vicious circle of low expectations and low growth.

    To make use of these lessons, there has to be dynamic politics willing to get rid of the societal sin of absolute poverty. But the authors argue that politics and governments are, unfortunately, infested with what they call ‘three Is’- Ideology, Ignorance and Inertia. Nevertheless, the authors believe that good policies will help realise good politics. Although one could understand the pragmatism and the optimistic hue of such an argument, bad politics should not be underestimated. Bad politics could stagnate even good policies and create even further problems.

    The authors understand the complex issues of poverty and know that there is ‘no lever guaranteed’ to eradicate it. Therefore, they bank on small changes to bring about big effects, for example, one additional year of deworming for kids in Kenya brought about a 20 per cent increase in income when they became adults. In a sense, the book works itself through small steps to bring an understanding of the poor into mainstream policymaking. But as the authors acknowledge, fighting poverty is not a sprint, it is a marathon, one that is worth running. They are willing to commit to the marathon, but will governments of the developing world show such commitment? Such suspicion should last until absolute poverty is completely eradicated.

  • US-China Tensions Could Spill Into Lancang-Mekong River Basin

    US-China Tensions Could Spill Into Lancang-Mekong River Basin

     The Lancang-Mekong River is the 12th longest river and runs through six countries i.e. China (upper riparian), Myanmar, Thailand, Laos, Cambodia and Vietnam (the lower riparian)and finally discharges into South China.

    A recent US government-funded study has noted that in 2019 China held back large amounts of water upstream in dams on the Mekong River which caused a  severe drought in the downstream countries,[1] prompting a US ambassador in the region accusing China of “hoarding” water and “harming the livelihoods of millions of people in downstream countries”.[2] Likewise, another report by Stimson Centre, a Washington-based think tank, has corroborated the above and pointed that in 2019 “upstream dams at Nuozhadu and Xiaowan had restricted around 20 billion cubic meters of water between July and November” and that current “satellite images show those dams are once again poised to restrict a similar amount of water from July 2020 through the end of this year … Portions of the Mekong mainstream are once again dropping to historically low levels,”[3]

    China has dismissed the reports and the Global Times in an article cited a report by the Tsinghua University and clarified that the “river dams in China [instead] helped alleviate drought along Lancang-Mekong”; furthermore, in November 2019, the Mekong River Commission (MRC) had concluded that “the drought was caused by insufficient rainfall during the wet season with a delayed arrival and earlier departure of the monsoon rain and an El Niño event that led to abnormally high temperatures and high evapotranspiration”.[4]

    At the heart of this problem is that China has built as many as 11 dams on the 4,800 kilometres long Lancang-Mekong River that originates in the Tibetan Plateau.

    At the heart of this problem is that China has built as many as 11 dams on the 4,800 kilometres long Lancang-Mekong River that originates in the Tibetan Plateau.  The Lancang-Mekong River is the 12th longest river and runs through six countries i.e. China (upper riparian), Myanmar, Thailand, Laos, Cambodia and Vietnam (the lower riparian)and finally discharges into South China.

    China has been reluctant to share hydrological data particularly during the dry seasons and releases water during rainy seasons causing flooding in lower riparian countries. This is despite the 2002 MoU under which China had agreed to provide daily river flow and rainfall data from two monitoring stations in Yunnan Province during the wet season, and the periodic MRC Heads of Government meeting over a Summit which is held every four years.

    Earlier this year, the Chinese State Councilor and Foreign Minister Wang Yi had assured that his country would “give positive consideration to share the full-year hydrological information with Mekong countries and enhance cooperation under the Lancang-Mekong Cooperation (LMC) framework to ensure reasonable and sustainable use of water resources”.[5]

    Perhaps a recent statement by the MRC may temporarily obviate suspicions over China not sharing hydrological information on the Lancang-Mekong River which notes that it welcomes China’s sharing of data “ throughout the year” as also for the “ establishment of an information-sharing platform for water resources cooperation led by China and Myanmar”.[6] Also, during the 3rd Mekong-Lancang Cooperation (MLC) Leaders’ Meeting, the Global Center for Mekong Studies (GCMS) has been tasked to study the potential benefits from “aligning and synergizing the MLC and the New International Land-Sea Trade Corridor with a vast market”.[7]

    It has been observed that although the 1995 Agreement on the Cooperation for the Sustainable Development of the Mekong River Basin is legally binding, it “does not have a compliance mechanism such as punitive measures on the party that violates the spirit and principles of the Agreement.

    In 1995, the upper and lower riparian countries had adopted Agreement on the Cooperation for the Sustainable Development of the Mekong River Basin which lays out “principles and norms of regional cooperation in managing the river basin”. A formal dialogue process under the MRC was instituted to address issues relating to Mekong River and the Member States agreed to “promote common procedures and practices throughout the region for data collection, storage and analysis to support data sharing and integration of existing data management systems based on the voluntary participation of countries and institutions.”[8] In 2001, they adopted the “Procedures for Data and Information Exchange and Sharing,” or PDIES to enable the Member States to share data ‘to provide real-time water level information and more accurate flood forecasting.

    It has been observed that although the 1995 Agreement on the Cooperation for the Sustainable Development of the Mekong River Basin is legally binding, it “does not have a compliance mechanism such as punitive measures on the party that violates the spirit and principles of the Agreement. The conflict resolution mechanism is also not clearly stipulated”.[9] This is one of the many reasons for discord among the Parties which needs to be addressed by the MRC whose mandate includes dispute resolution.

    Be that as it may, the lower Mekong countries have set up the Mekong Water Data Initiative, and at the 10th Ministerial Meeting of the Lower Mekong Initiative (LMI) in 2017 to ‘create a robust, integrated, and transparent platform for collecting, sharing, and managing data on the Mekong River system.’[10]

    there are fears that the Lancang-Mekong River issue is slowly shaping into a major ASEAN-China bilateral issue similar to the contestation in the South China Sea.

    At another level, there are fears that the Lancang-Mekong River issue is slowly shaping into a major ASEAN-China bilateral issue similar to the contestation in the South China Sea; and the current situation is being described as “becoming a geopolitical issue, much like the South China Sea, between the United States and China,”[11] Perhaps the biggest worry is that the Lancang-Mekong River should not attract contestation between the US and China which surely is going to make the region more turbulent. It would thus be prudent that ASEAN and China work on a Code of Conduct to manage the river affairs or add more robustness in the existing dialogue mechanism over the Lancang-Mekong River.

     
    End Notes
    [1] “China could have choked off the Mekong and aggravated a drought, threatening the lifeline of millions in Asia”, https://www.cnbc.com/2020/04/28/china-choked-off-the-mekong-which-worsened-southeast-asia-drought-study.html  (accessed 12 September 2020).
    [2] “Water wars: Mekong River another front in U.S.-China rivalry”, https://www.japantimes.co.jp/news/2020/07/25/asia-pacific/mekong-river-us-china/  (accessed 12 September 2020).
    [3] “The next US-China battleground: Chinese dams on the Mekong River?”,https://www.scmp.com/week-asia/politics/article/3095581/next-us-china-battleground-chinese-dams-mekong-river  (accessed 12 September 2020).
    [4] “River dams in China helped alleviate drought along Lancang-Mekong, research finds”, https://www.globaltimes.cn/content/1194654.shtml  (accessed 10 September 2020).
    [5] “River dams in China helped alleviate drought along Lancang-Mekong, research finds”, https://www.globaltimes.cn/content/1194654.shtml  (accessed 10 September 2020).
    [6] “Lancang-Mekong cooperation provide stronger impetus for regional development and prosperity”, http://www.lmcchina.org/eng/hzdt_1/t1812281.htm  (accessed 12 September 2020)
    [7] “Full text of Co-chairs’ Statement on Cooperation of Synergizing the MLC and the New International Land-Sea Trade Corridor of the Third MLC Leaders’ Meeting”, http://www.lmcchina.org/eng/zyxw_5/t1808947.htm  (accessed 12 September 2020).
    [8] “Joint Statement To Strengthen Water Data Management and Information Sharing in The Lower Mekong”,
    https://www.lowermekong.org/news/joint-statement-strengthen-water-data-management-and-information-sharing-lower-mekong (accessed 14 April 219)
    [9] “Code of Conduct for the Mekong”,https://vannarithchheang.com/2018/04/04/code-of-conduct-for-the-mekong/  (accessed 12 September 2020).
    [10] “Mekong River Commission keen to improve data sharing and management in the Lower Mekong Basin”, https://mrcmekong.org/news-and-events/news/mrc-keen-data-management-in-mekong-basin/  (accessed 12 September 2020.
    [11] “Water wars: Mekong River another front in U.S.-China rivalry”, https://www.japantimes.co.jp/news/2020/07/25/asia-pacific/mekong-river-us-china/  (accessed 12 September 2020).
     
    Image: Mekong Riverside, Phnom Penh-Cambodia

  • Good Economics For Hard Times

    Good Economics For Hard Times

    Title : Good Economics for Hard Times

    By Esther Duflo and Abhijit Bannerjee

    Published by Public Affairs, Hachette Book Group, New York

    Year :  November 2019

    Honesty is a quality seldom found among economists. More often than not, economists refuse to acknowledge the limitations of economic models that rely on, at times, completely unrealistic assumptions. That is, fortunately, not the case with this book. This book does not over-simplify economic issues and makes a compelling argument against making sweeping generalizations in a profession that relies on studying human behaviour.

    One of the best things about this book is its accessibility, it is as accessible to a layman as it is to a seasoned economist. This book, in a significant departure from their first book Poor Economics, focuses on the burning issues of wealthy countries instead. The writing is witty and succinct, full of interesting personal anecdotes.

    They start with the politically sensitive issue of immigration and show why conventional models of supply and demand don’t work for labour markets. Conventional theory, and critics of immigration, would have us believe that an influx of immigrants would drive down wages in the area and result in job losses for the natives. But Banerjee and Duflo show that the immigrants don’t just increase the labour force, they’re also consumers. Thus, they increase demand and by extension, employment and GDP in the area. They also point out that there is no strong evidence that even large influxes impact wages severely.

    However, when it comes to growth they’re not as clear as they are about the impact of immigration. They make a case as to why nobody really knows what drives growth in the long term and why prominent growth economists (Sollow, Romer etc) were all right as well as wrong at the same time. According to them, both the optimists and pessimists make sound arguments and it is impossible to predict if growth will continue or perish given the humongous number of variables involved and the sheer unpredictability of technology.

    Their support for free trade, unsurprisingly, is not unconditional. They don’t think it is the panacea that the neo-liberal discourse makes it out to be. Expansion of trade, they believe, is the driver of despair globally because of its random behaviour as they write, “Trade has created a more volatile world where jobs suddenly vanish only to turn up a thousand miles away.” They also present evidence showing that, at times, free trade has done more harm than good and argue that the state must provide proper support to the losers from trade if they want to mitigate the damage.

    Cutting tax rates for the rich has long been argued as a certain method to improve growth by many economists. Banerjee and Duflo, however, disagree. They write “In a policy world that has mostly abandoned reason … let’s be clear: Tax cuts for the wealthy do not produce economic growth.” They argue that even the (in)famous Reagan-Thatcher era tax cuts did little to revive growth. Instead, those tax cuts, accompanied by cuts in welfare spending contributed immensely to income inequality. Advocates of tax cuts often argue that raising taxes stifle innovation, but that is clearly false as Bill Gates himself argues here.

    Where a lot of economists fail and they excel, is bringing the social science aspect into economics. They don’t see people just as means to an end (growth) and emphasize on prioritising non-economic goals that don’t necessarily result into higher growth but instead improve overall happiness, dignity, self-respect and give people a sense of purpose. According to them, in this growing environment of despair, it is important to provide people with a sense of purpose.

    They argue, quite successfully, that we should change our policy response to poverty and stop letting only poverty define poor people. They recommend that poor people be seen just like normal people who have dreams and desires and policymakers need to stop believing that they know better about what poor people need than the people themselves.

    Lastly, they say that the message of policy interventions should not be ‘you are being rescued by the state’ and instead ‘this is the state’s support to ensure you have the basic rights you deserve.’ It is vital that they’re given the respect they deserve if we want them to lead dignified lives and not make them feel like they’re living on handouts from the state as even the needy hate being dependent on others. Restoring the dignity of the poor is an important step in eradicating poverty, they say.

    This book’s brilliance, in my opinion, is evident from the fact that economists across the ideological spectrum, from Sollow to Piketty, are all in awe of this work of art. To be honest, I have learnt more about economics and policymaking from this book than I did as an economics graduate.

    The arguments put forth in this book were, to an extent, eye-opening for me. I found them compelling and I believe you will too.

    Mohit Verma is a Research Intern in TPF. He is pursuing his Masters at the Madras School of Economics (MSE), Chennai.

  • 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

  • What Triggered Recent Chinese Naval Exercises in the South China Sea?

    What Triggered Recent Chinese Naval Exercises in the South China Sea?

    During the last few months, the PLA Navy along with the PLA Air Force conducted several exercises in the South China Sea. China used these maneuvers to deter Taiwan against its growing relationships with the US, and as a tool of “strategic communication” to signal to the US of its military capabilities to project power and defend its national interests. There are at least five important reasons that could have triggered such aggressive posturing by China.

    First is COVID-19. After Wuhan was designated as the source-destination of COVID-19 in January this year and over 80,000 of its residents were reported to have been infected by the virus, the Chinese leadership sought to boost its image among its people who had been struggling by lockdowns.[i] In the first half of February, China chose to divert international attention away from the pandemic by deploying fighter jets and bombers to intimidate Taiwan which had been critical of China over its handling of the virus. This prompted Taipei to advise authorities in Beijing to “focus on preventing the spread of the epidemic” and admonished it for “inciting nationalism at home to shift public focus away from challenges at hand” and labelled it as a “game not worth the candle”.[ii]

    the PLA Navy, led by the aircraft carrier Liaoning, conducted naval exercises and the taskforce sailed through the Miyako Strait, Bashi Channel and the South China Seaostensibly to display its military readiness during the pandemic. 

    Also, while the global community struggled to combat the pandemic and at least three US Navy carriers afflicted by COVID-19 virus, the PLA Navy, led by the aircraft carrier Liaoning, conducted naval exercises and the taskforce sailed through the Miyako Strait, Bashi Channel and the South China Sea[iii] ostensibly to display its military readiness during the pandemic. The PLA Air Force too showcased it combat readiness and fighter jets intruded into Taiwan’s air space. However, the US responded by three-carrier deployment including dual-carrier operations; B-52 Stratofortress bombers operated from Guam and the nuclear submarines were forward-deployed to conduct “contingency response operations.”[iv]

    Second, China was rattled after the US turned the Taiwan Allies International Protection and Enhancement Initiative (TAIPEI) Act into law to show that “it has the support of both branches of government, which is required for a strong and effective U.S. foreign policy”.[v] Similarly, it also introduced a new Bill ‘Taiwan Defence Act’ in the US Congress[vi] which requires the Department of Defense to provide weapons to Taipei. The Trump administration also announced a military package worth US$ 180 million to improve Taiwan’s capability against “regional threats and to strengthen homeland defense,” [vii]

    Third, is about the Pacific Deterrence Initiative (PDI) which entails fiscal support for military activities and associated infrastructure investment plans[viii] in the Pacific Ocean. The PDI is similar to the 2014 European Deterrence Initiative (targeted against Russia) and is meant to advance US priorities in the Indo-Pacific region. It aims to “focus resources on key capability gaps to ensure U.S. forces have everything they need to compete, fight, and win in the Indo-Pacific” is conspicuously targeted against China.

    India, in response to Chinese posturing in the Himalayas, deployed its naval ship in the South China Sea. This unexpected Indian posturing challenging China in its own backyard and operating in close cooperation with the US Navy, has caused alarm bells in Beijing.

    Fourth, China is concerned about the Quadrilateral Security Dialogue (QSD), a grouping of Australia, India, Japan and the US, which China believes is meant to contain it. Since 2018, India has been hosting the Malabar series of naval exercises which include Japan and the US; but this is being expanded to include Australia. The geographic focus of the Malabar exercises had so far remained in the Bay of Bengal or the Pacific Ocean (around Guam and Japanese waters), could now shift to the South China Sea. India, in response to Chinese posturing in the Himalayas, deployed its naval ship in the South China Sea. This unexpected Indian posturing challenging China in its own backyard and operating in close cooperation with the US Navy, has caused alarm bells in Beijing.

    Chinese worries about the Quad are further aggravated after Taiwanese President Tsai Ing-wen, amid rising tensions between Taiwan and China around the South China Sea region, has called for a joint alliance of democratic nations to uphold “a strategic order that encourages cooperation, transparency and problem-solving through dialogue, not threats of war”.[ix]

    Fifth, is related to Code of Conduct (CoC) for South China Sea between China and the ASEAN. The Chairman’s Statement of the 36th ASEAN Summit has “emphasised the need to maintain and promote an environment conducive to the COC negotiations”[x] and Prime Minister Nguyen Xuan Phuc has urged China to accelerate talks on an effective and efficient COC in line with international law, including the 1982 UNCLOS.[xi] China has in the past disregarded the urgency over the finalization of the CoC and has dragged the issue far too long, but now appears to have realized that there is high degree of unity among the Member States over the South China Sea issue and attempted to reassure ASEAN of its intentions to pursue the issue hopefully in right earnest.

    Among other political, diplomatic and economic toolkits to appease the ASEAN Member States, it also chose to conduct military exercises to intimidate Malaysia, Philippines and Vietnam.

    Among other political, diplomatic and economic toolkits to appease the ASEAN Member States, it also chose to conduct military exercises to intimidate Malaysia, Philippines and Vietnam. It relented only after Philippines Foreign Secretary Teodoro Locsin Jr denounced as ‘illegal provocations’ Chinese air patrols over the South China Sea and threatened if “something happens that is beyond incursion but is in fact an attack on say a Filipino naval vessel … [that] means then I call up Washington DC,”

    China’s attempts to dominate the regional security affairs, non-adherence to the 1982 United Nations Law of the Sea, coercion of other claimants to the disputed features in South China Sea and its intimidation of Taiwan has not gone well among the ASEAN Member States. ASEAN sees US’ formidable capabilities and above all its commitment to keep the Indo-Pacific ‘free and open’ against any attempts by China, as reassuring.

    In his recent remarks at the 10th East Asia Summit Foreign Ministers’ Meeting,[xii] Secretary of State Michael R. Pompeo assured his counterparts from 17 countries that the US shares and supports the “principles of openness, inclusiveness, transparency, and respect for international law contained in the US’ Indo-Pacific vision, ASEAN’s Outlook on the Indo Pacific, and the visions of many other EAS Member States”.

     
    Image Credit: The Globe and Mail and VoA
     
     
    References

    [i] “China Sends Ships, Planes over Disputed Seas to Show Strength after COVID-19 Outbreak”, https://www.voanews.com/east-asia-pacific/china-sends-ships-planes-over-disputed-seas-show-strength-after-covid-19-outbreak  (accessed 08 September 2020).

    [ii] “The ROC Firmly Defends its Sovereignty: The CCP Should Immediately Stop its Military Provocations and not Misjudge the Situation”, https://www.mac.gov.tw/en/News_Content.aspx?n=A921DFB2651FF92F&sms=37838322A6DA5E79&s=3AF953C12D84A525  (accessed 08 September 2020).
    [iii] “   Chinese aircraft carrier Liaoning conducts exercises in South China Sea: PLA Navy spokesperson”, https://www.globaltimes.cn/content/1185471.shtml  (accessed 08 September 2020).
    [iv] “Pacific Fleet Submarines: Lethal, Agile, Underway”, https://www.navy.mil/submit/display.asp?story_id=112909 (accessed 06 July 2020).
    [v] “Trump and the TAIPEI Act”, https://thediplomat.com/2020/04/trump-and-the-taipei-act/  (accessed 08 September 2020).
    [vi] Under the 1978 Taiwan relations Act the United States “will make available to Taiwan such defence articles and defence services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defence capabilities”;
    [vii] “Trump administration approves arms sale to Taiwan amid China tensions”, https://edition.cnn.com/2020/05/21/politics/us-taiwan-arms-sale/index.html (accessed 20 June 2020).
    [viii] “Investments in theater missile defense, expeditionary airfield and port infrastructure, fuel and munitions storage, and other areas will be key to America’s future force posture in the Indo-Pacific.” See “The Pacific Deterrence Initiative: Peace through Strength in the Indo-Pacific”, https://warontherocks.com/2020/05/the-pacific-deterrence-initiative-peace-through-strength-in-the-indo-pacific/ (accessed 20 June 2020).
    [ix] “Fed-Up of Chinese Threats, Taiwanese President Urges ‘Coalition of Democracies’ to Confront Beijing”, https://eurasiantimes.com/fed-up-of-chinese-threats-taiwanese-pm-urges-coalition-of-democracies-to-confront-beijing/ (accessed 09 September 2020).
    [x] “Chairman’s Statement of the 36th ASEAN Summit 26 June 2020” https://asean.org/storage/2020/06/Chairman-Statement-of-the-36th-ASEAN-Summit-FINAL.pdf (accessed 14 July 2020).
    [xi] “Pompeo: China cannot be allowed to treat the South China Sea as its maritime empire”, https://vietnamtimes.org.vn/pompeo-china-cannot-be-allowed-to-treat-the-south-china-sea-as-its-maritime-empire-21832.html (accessed 14 July 2020).
    [xii] “Secretary Pompeo’s Participation in the 10th East Asia Summit Virtual Foreign Ministers’ Meeting”, https://china.usembassy-china.org.cn/secretary-pompeos-participation-in-the-10th-east-asia-summit-virtual-foreign-ministers-meeting/  (accessed 10 September 2020).

  • Contemporary and Upcoming Issues In the Field of Intellectual Property Rights

    Contemporary and Upcoming Issues In the Field of Intellectual Property Rights

    1.1   Contemporary Issues: IP Awareness and Drug Price Caps

    1.1.1. Introduction

    The realm of intellectual property (IP) rights has been in existence and been a driving force for novelty and innovation for centuries and can be dated back to at least 500 BC when a state in Greece provided protection for 1 year to innovators of ‘a new refinement in luxury’, ensuring innovators can monopolize and reap benefits out of their innovations.[i] That being the case, the first international convention (known as the ‘Paris Convention’) was enforced much later in the year 1883, establishing a union for the protection of ‘industrial property’. Since then, we have seen rapid growth in the field of IP rights. It goes without saying that till the time entrepreneurs are incorporating companies, innovators are inventing technology or artists are creating their works of art and/or literature, the domain of IP will only progress further.

    Although the evolution of international IP regime has been rapid and the laws have become a lot more complicated than they initially were, it appears that we have only scratched the surface of the extent and reach of IP rights. It cannot be stressed enough that IP rights are crucial to every company, creator and inventor since it ensures that their rights and interests are protected and gives them the right to claim relief against any violation.

    Insofar as the Indian IP regime is concerned, we have seen a gradual but crucial development in our laws which has now motivated not only foreign corporations to seek IP protection in India but has also supported start-ups in seeking protection of their IP to the extent that these enterprises have the liberty to seek the protection of their IP at significantly reduced fees (barring copyright and geographical indications). The Indian Intellectual Property Office (IPO) has also taken measures to promote e-filing by reducing costs associated therewith and improving its e-filing system/mechanism. However, the issues arise when start-ups and small enterprises seek to register their IP and are unaware of these common, but cost-effective mechanisms in place.

    Besides, our intellectual property policies (especially patent policies) have been a subject matter of criticism for a long time at a global stage due to the government’s intervention in the enforcement of patent rights. One of the primary concerns for foreign corporations and organizations have been related to working of patented inventions in India and the issue of compulsory licensing.

    1.1.2. Lack of Awareness of Intellectual Property Rights

    Launched by the Government of India in 2014, the ‘Make in India’ project has motivated entrepreneurs to establish their business with the help of government funding and foreign direct investments (FDI) of up to 100%.[ii] This step has led to a boost in people exploiting their entrepreneurial skills to establish a successful business (in most cases). Although the Make in India project also focuses on the importance of IP rights by attempting to educate the entrepreneurial minds of the importance and benefits of their IP, it appears that small businesses are yet to benefit from the IP aspect of the project. These businesses/start-ups do not realize the importance of their IP and tend to often misuse violate another’s. This leads to the institution of a lawsuit seeking infringement (or passing off) against such businesses by big corporations and since defending such Suits is an expensive and time-consuming process, it becomes an uphill task for the entrepreneurs to defend the Suits and run their business effectively. Entrepreneurs are often misinformed and miseducated of the basics of IP by professionals who do not have an expertise in the area of IP law, which leads them to believe that their acts of adopting an identical or deceptively similar trademark would go unnoticed or would not constitute infringement or passing off. Due to their lack of knowledge in the domain of IP and lack of proper guidance by professionals, these entrepreneurs tend to believe that: –

    • Adopting an identical mark (intentionally) in a different class does not constitute infringement or passing off;
    • Adopting a similar mark in the same (or allied and cognate) class does not constitute infringement or passing off;
    • Even if the competing marks are identical or deceptively similar, filing a trademark application with a user claim would give them a defensible stand against the true proprietor’s claim.

    Needless to say, these are some of the common misconceptions which lead to a claim of infringement or passing off being raised by true proprietors of the marks. Also, the possibility of the Court of law imposing damages and/or costs on a defendant cannot be ruled out either. In such a scenario, due to the limited funding of these start-ups, they are often forced to reconsider their entire business strategy in-line with the pending lawsuit. This can, however, be avoided if the entrepreneurs are either well-educated in the field of IP law or take necessary steps to ensure that they receive proper guidance regarding risks involved in registration and use of their mark, from a professional with expertise in the field of IP laws. Instances of start-ups adopting a similar or identical mark of a big corporation/start-up are quite common nowadays with some of the known cases being instituted by ‘Bookmyshow’ against ‘Bookmyoffer’, ‘Shaadi.com’ seeking relief against use of ‘Secondshaadi.com’, ‘Naukri.com’ suing ‘naukrie.com’, etc.[iii]

    In instances involving the pharmaceutical industry, the issue becomes far severe since adopting a similar or identical mark can result not only in infringement of IP but can only be extremely harmful to the patients/consumers. Unlike any other consumable item, patients/consumers are at much greater risk if they consume wrong medication and such instances where corporations adopt a similar or identical mark for its pharmaceutical drug, the consequence can be fatal to the extent that it may even lead to death. In one such famous instance in India where the Defendant was a repeated/hardened infringer, the High Court of Bombay while imposing exemplary costs of INR 1.5 crores stated “Drugs are not sweets. Pharmaceutical companies which provide medicines for the health of the consumers have a special duty of care towards them. These companies have a greater responsibility towards the general public. However, nowadays, the corporate and financial goals of such companies cloud the decision of its executives whose decisions are incentivized by profits, more often than not, at the cost of public health. This case is a perfect example of just that”.

    Another issue these entrepreneurs/start-ups tend to face in the realm of IP law is vis-a-vis use of copyrighted material without knowledge/intention to infringe upon someone else’s IP rights. For instance, when start-ups launch their online portals, they tend to use images/GIFs or music for their videos which are copyrighted and use thereof without permission is illegal. On account of lack of knowledge of IP laws and consequences of such misuse, they often violate rights residing in the copyrighted work and are then subject to either a legal notice from the owner/proprietor of the copyrighted material or a lawsuit before the Court of law.

    The United States of America’s (USA) Chamber of Global Innovation Policy Center (GIPC) which promotes innovation and creativity through intellectual property standards, in its 2019 list of countries performing in the field of IP law, places India at a substantially low rank of 40 out of 53[iv] which indicates that USA considers India as a major threat when it comes to development and investment the field of IP rights in India (especially in the field of patents). Additionally, India also lacks in the number of patent applications filed before the Indian Patent Office, averaging at around 9,500 filings per year, compared to 2,69,000 filings in the USA.[v] One of the primary reason behind this difference might have something to do with India’s lack of support towards the encouragement of IP protection, especially for start-ups.

    1.1.3. Raising Awareness on Intellectual Property Laws for Entrepreneurs

    With almost 50% of litigations within the domain of IP pertaining to trademark infringement and passing off,[vi] entrepreneurs and small businesses must take the following necessary steps to ensure that their rights and interests in their business are protected: –

    • Entrepreneurs/Business owners must entrust lawyers/law firms specializing in the field of IP rights to advise and prosecute their trademark applications;
    • Understand or attempt to understand each and every step involved in prosecuting and registering a trademark application and participate in discussions leading to every step taken in the prosecution of their IP; and,
    • Approach IP lawyers/law firms to get a gist of importance of IP protection along-with freedom to use a mark either before registering it or using the said mark for goods in classes not forming part of the trademark registration.

    It is also the duty of IP lawyers/law firms to promote IP protection for entrepreneurs and small businesses by organizing interactive sessions with new and/or domestic clients and providing competitive charges for prosecuting and enforcing IP rights of these entrepreneurs and businesses.

    Statistics reflect that majority of IP infringement cases in India involve a small enterprise being unaware of the basics of IP rights and therefore, using an IP that is either deceptively similar or virtually identical to a registered and/or well-known IP.[vii] Often businesses expanding their presence in the online portal (either through their website or a social media page) use copyrighted material without realizing that their use of the same would tantamount infringement.   Raising awareness of the importance of IP and consequences of infringement (and passing off) would ensure that start-ups avoid misusing an IP belonging to someone else.

    1.1.4. The imposition of Price Caps on pharmaceutical drugs in India and its work-around

    One of the primary reasons why the USA considers India’s IP regime a major threat has something to do with India’s patent laws, especially vis-à-vis the pharmaceutical industry. Albeit the US Trade Representative (USTR) last year stated that the USA is attempting to restrict patentability for new pharmaceutical drugs which are “essentially mere discoveries of a new form of a known substance which does not result in enhancement of the known efficacy of that substance ….. machine or apparatus” (which is identical to Section 3(d) of the Indian Patents Act, 1970),[viii] it still considers India as a threat to its IP regime, especially due of India’s patent laws.

    To better understand the problems faced in the Indian pharmaceutical industry, it would be prudent to point out that unlike developed nations, the Indian government (through its Patents Act and policies) keeps strict control over the drug pricing with an intention to make healthcare (specifically medication) accessible amongst all States and income groups. This can especially be observed in pharmaceutical drugs for cancer and diabetes medication. The Government of India has imposed strict price restrictions for its pharmaceutical drugs, thereby diluting IP rights and causing a severe impact on IP valuation of those pharmaceutical drugs.[ix]Although the impact might seem insignificant to consumers since they benefit from these price reductions, making cancer medicines 90% cheaper due to price control would not make IP holders happy or promote invention. Simply put, once the government slashes prices of pharmaceutical drugs intending to make them easily accessible to the majority of patients, it severely impacts the profit margin of the pharmaceutical industries, forcing them to invest more into the industry of generic drug manufacturers because of a bigger profit margin and lesser costs, rather than invest into inventing new drugs, which might although tackle a currently incurable disease (or a curable disease more effectively), but would at the same time, lead the corporation into losses. These price cuts would also force the pharmaceutical corporations to compromise on the quality of drugs which might, in a longer run, have a severe impact on healthcare.

    India’s investment in its healthcare sector has been a major concern since the Indian States ideally spend as low as 1.3% of their gross domestic product (GDP) on healthcare which results in a substantial increase in out-of-pocket expenses and placement of poor healthcare mechanisms.[x] India’s heavy reliance on generic drugs supporting the lesser privileged consumers has been expressed as a concern by the USTR[xi] and global pharmaceutical giants to the extent that investors and pharmaceutical corporations have restricted their investment into the Indian pharmaceutical industry since their price margin would result in government either forcing price caps on the drugs or implement compulsory licensing for the expensive and life-saving drugs.

    As stated above, this approach of placing price caps towards the Indian and global (vis-à-vis their sale of drugs in India) pharmaceutical industry has a major impact on India’s patent laws since it affects innovation, and since innovation is an essential part of the invention in the healthcare sector, pharmaceutical industries tend to focus more on generic drug production, profit from out-of-pocket expenses of consumers/patients, hospitalization costs, etc.[xii] The imposition of price caps has shown to have no significant improvement in accessibility of pharmaceutical drugs.

    Although the imposition of price caps is necessary for a developing nation, the same should be practiced to a limited extent. For instance, instead of capping the price of a pharmaceutical drug and dropping its price by 90%, the price caps should be dependent on the situation and need for the drug. For instance, cancer and diabetes medication are in high requirements in India[xiii] (and other nations) and therefore, the government can impose price caps and reduce the cost of the drugs by 50%. Insofar as other (less crucial/critical) pharmaceutical drugs are concerned, the government can either refrain from price caps or impose a price cap of a maximum of 20%. This would not only promote investment in innovating patented drugs but would also increase FDI in the Indian pharmaceutical sector, thereby permitting Indian pharmaceutical corporations to invent new and possibly better pharmaceutical drugs.

    At the same time, a concerned person always reserves their right under Section 84(1)[xiv] of the Indian Patents Act, 1970 to request for issuance of a compulsory license (after the expiry of three years from the date of grant of the patent) against the said pharmaceutical drug in case it does not comply with the guidelines issued under Section 83[xv]  of the afore-mentioned Act like in the case of Bayer Corporation v. Union of India.[xvi] In essence, the Indian government must invest more in its healthcare sector policies to reduce out-of-pocket expenses incurred by patients/consumers and reduce the price caps by a significant amount to promote innovation in the field of patent laws, especially in the pharmaceutical sector.

    1.2. A Global Upcoming Issue: Impact of Use/Commercialization of Artificial Intelligence on Intellectual Property Rights

    1.2.1. Introduction

    “Can machines think?” – Alan Turing, 1950

    A few years after Alan Mathiso Turing, a renowned English mathematician, cryptanalyst and computer scientist played a pivotal role in defeating Hitler’s Nazi Germany, he wrote a paper titled ‘Computing Machinery and Intelligence’ (1950) where he asked a simple, yet intriguing question: “Can machines think?”. His paper and subsequent research established the basis of what we refer to as ‘Artificial Intelligence’ (AI) or machine learning/intelligence. Fast forward to today, the concept of AI has become a lot more complex than what had been imagined by researchers around half a century ago. AI or a machine which reflects the ability to think and act in as close of a manner as a human mind is as of date, an exciting new development in the field of technology.

    From ‘The Turin Test’ in the year 1950 to creation of Sophia, a humanoid robot created by Hanson Robotics in the year 2016, technology, especially in the field of AI has progressed at a drastic rate, with some of the major developments being the creation of Google’s Home device (2016), Apple’s virtual assistant ‘Siri’ (2011), Microsoft’s virtual assistant ‘Cortana’ (2014), Amazon’s home assistant ‘Alexa’ (2014), etc. occurring in the past decade (2010 to 2019) itself. It is safe to say that with this progress, it is not far-fetched to assume that we may soon see the age of commercialization of much smarter versions of currently existing machine learning devices. The technology relating to AI has seen explosive growth in recent times with the number of patent applications for technologies relating to AI exceeding 1,00,000.[xvii]

    Today, AI can be dissected into two types of intelligence, namely:

    • Weak AI: This is a more common type of AI which is used amongst major corporations like Google, Apple, Microsoft, etc. and although it is being used widely, its abilities are limited to performing tasks that it has been trained to perform. Such AI can store data and present it to the consumer upon enquiry or on need-basis. However, the algorithms do not permit this AI to think and act in a manner a human mind would and therefore, this AI does not pose a threat within the domain of IP.
    • Strong AI: Unlike weak AI, this form of AI would perform more cognitive functions that imitate a human mind more closely as against weak AI. Even though weak AI is known to perform basic functions more efficiently (when compared to humans), the strong AI will not only perform those basic functions of a weak AI but also will also perform more complex tasks such as inventing or creating a new IP (like a new copyrightable sound or video or a unique design, etc.).

    To a certain extent, researchers worry about the consequences of AI in case its goals end up being misaligned to ours. But at this stage, AI seems to be more promising than dangerous, especially in the field of healthcare and agriculture which is a critical industry for India.

    Needless to say, corporations are investing a lot of resources to develop this field of technology which is said to have revolutionary impacts including prediction of epidemics, advanced disaster warnings and damage prevention methods, increased productivity in all industries, etc. The possibilities and benefits (and in many cases, risks) of AI are innumerable and at the current rate of its development, it will quite possibly be overwhelming. Regardless of its pros and cons, commercialization of AI is inevitable and therefore, this raises a material question: Do we have the appropriate laws in place to tackle issues arising out of commercialization (or use) of AI? The answer, unfortunately, is no.

    1.2.2. The Current Scenario

    Being an upcoming digital frontier, it is apparent that AI will have a huge impact on our current laws and practices. For instance, our current world IP regime only permits a ‘person’ to be a proprietor and/or owner of an IP (see Naruto v. Slater[xviii]) which implies that any form of IP that is generated/invented by an AI cannot be a subject matter of registration. However, a recent decision by the Chinese Court wherein a tech giant ‘Tencent’ claimed copyright infringement against a local financial news company overwork created by its Dreamwriter robot might reflect a contrary view. The Court in the said case held that an article generated by AI is protectable under Chinese copyright law.[xix] Holding a contrary view, the European Patent Office (EPO) in the case pertaining to patent applications filed by ‘DABUS’ an AI technology, gave a finding similar to the Naruto case wherein it held that application has to be filed by a human being.[xx] Professor Ryan Abbott along-with his multi-disciplinary team at the University of Surrey had filed (through their AI called DABUS) the first-ever patent application without a human inventor[xxi] indicating that the move towards AI-based IP filing is underway, however, given that the laws are currently not in place, the application was, unfortunately, refused.

    Although an old principle, the Courts around the world at times rely (either directly or indirectly) on the principle of “sweat of the brow”, which indicates the inventor’s effort and hard work invested in creating an IP. However, the application of the said principle becomes rather complicated when the issue of IP generated by AI comes into the picture. At the same time, the commercialization of AI might also lead to dilution of IP rights, given that the possibility of AI being better and quicker at generating IP than human beings cannot be ruled out. Undoubtedly, AI might eventually be considered as a ‘smarter’ variant of a human inventor since an AI would require a significantly less amount of time and effort to generate a registrable IP. Apart from the ones already mentioned above, several unknown issues are likely to arise upon commercialization of AI (to generate IP) and there is a dire need to highlight and resolve these issues at the earliest.

    The World Intellectual Property Organization (WIPO) has recently taken an initiative to invite public feedback on possible impacts of AI on the world IP regime[xxii] by conducting press conferences to tackle the impending issues vis-à-vis IP laws upon commercialization or use of AI. Although the topic of discussion during the previous conference was somewhat restricted to Patent laws and did not tackle IP laws holistically, the next round of sessions might emphasize on all IP laws and be more holistic towards progress. Needless to say, AI will impact our IP regime all the way from the creation of an IP to valuation, commercialization, transfer/assignment, etc. thereof, which would require a complete overhaul of our current laws in order to inculcate and appreciate the investment (in terms of time and costs) and labour involved in the creation of the AI, as well as use/transfer/assignment of an IP generated by that AI.

    1.2.3. India’s Approach towards Artificial Intelligence

    India has seen rapid growth in its information technology (IT) sector which has further contributed to other primary sectors like agricultural sector, healthcare sector, etc. by developing various mechanisms such as a system for online trading or integrated crop management system (amongst other things). It is safe to say that technology has a big role to play in India’s growth. Apart from the agricultural industry, the software industry has played a pivotal role in India’s move towards becoming the fastest-growing trillion-dollar economy.[xxiii]

    Being amongst the most profitable investment jurisdictions, India has recently been a hub for tech-related start-ups. Understanding the importance of technology, Indian entrepreneurs, along-with government support, have started to invest heavily in the technology field and with the help of FDI, there has been a substantial boom in the field of technology. Since other fields such as agriculture, healthcare and education are all somewhat dependent on this field, the scope of AI transforming all the other sectors through the tech sector is clearly perceivable.

    As discussed earlier, India’s healthcare sector is in a dire need for investment and development and on account of lack of funding and need to make medication accessible, reliance on AI would drastically reduce costs incurred in labour, research and development, trials, etc., which would eventually reduce the costs of pharmaceutical drugs themselves, thereby impacting the final sale price of the drug. Reliance on AI (by developing the tech sector) would extinguish the need for State governments to invest heavily in their healthcare programmes. Although the current investment might not cut it, a substantial investment, in that case, would not be required. AI support in the development and marketing of pharmaceutical drugs, thereby reducing the overall costs and increasing production and sale would also invite more FDI in India’s healthcare sector. This will also eventually make healthcare more accessible in less developed regions in India. Statistics indicate that healthcare is majorly accessible/available in limited States/Cities like Bengaluru, Chennai, Gurugram, etc.[xxiv] while cities like Singrauli continue to suffer.[xxv] With the major impediment of drug pricing out of the way, access to healthcare will become more of a focus and would eventually thrive with AI support.

    Insofar as the agricultural sector is concerned, the same plays an essential role in our developing economy. According to a report issued by India Brand Equity Foundation (IBEF), around 58% of Indian population relies on India’s agricultural sector with a contribution of an estimated $265.51 billion (approximately INR 18.55 lakh crore) of gross value added to its economy (in Financial Year 2019).[xxvi] This implies that majority of the lesser developed States and Cities in India rely solely on production and sale of their agricultural produce.[xxvii] With an FDI inflow of up to 100% and an increasing reliance on technology, the sector keeps looking for methods to increase crop yields in a cost-effective manner. Having said that, the agricultural sector still faces some major issues like weather instability and fluctuations, condition of agricultural labourers, poor farming techniques, inadequate irrigation facilities, etc.[xxviii]  Unlike the healthcare sector, the agricultural sector is already witnessing the impact of AI from companies like Microsoft India and Intello Labs which have introduced mechanisms to maximize crop yield and reduce wastage/infestation. For instance, Microsoft India has introduced an AI-based sowing app which determines and informs the farmers of the best time to sow their crop based on analysis of climate data for the specific area and amount of rainfall and soil moisture the crops have received.[xxix]  Farmers can benefit from these AI-based apps without spending any additional costs on installing sensors.

    Indian (and foreign) tech industries have already played an important role in providing ease of business through reliance on weak AI and therefore, if India invests and conducts thorough research into strong AI, the implications of AI can be countless. However, since research and investment in the field of strong AI are extremely limited in India, commercialization thereof seems far-fetched as of date. Due to lack of expertise in the field of AI, it has been difficult to conduct research and yield any result. Colleges/Universities often refrain from investing in the field of AI research due to lack of participation and heavy research costs. Also, since the education system in the majority of institutions is somewhat traditional, graduates (or post-graduates) lack the required skill set to work in this technical field.[xxx]

    In contrast, however, the Chinese government is already taking steps to become a leader in the AI space by 2030s. It has adopted a three-step method which involves appreciating AI-based applications by the year 2020, making cutting edge breakthroughs in the said field by 2025 and leading in the industry by 2030. To support this process, a Chinese Court has already ruled in favour of AI-generated copyright work in its decision favouring Tencent,[xxxi] a tech company focusing on communication and social platforms. Since India (through its tech industry) has started taking steps to work towards its AI technology (albeit weak AI for now) and has also entrusted its think-tank ‘NITI (National Institution for Transforming India ) Aayog’ for assistance in such development through the National Program on AI,[xxxii] we hope to see India catch-up to tech giants like China, USA and Europe.

    1.2.4. Development of Intellectual Property Laws on Artificial Intelligence: An Indian Perspective

     Since WIPO has only recently started discussing the implications of AI on global IP laws, the member states of WIPO are yet to come out with laws pertaining to AI-based IP. While beginning its public consultation process on AI and IP policy, Director General of WIPO Mr Francis Gurry said: “Artificial intelligence is set to radically alter the way in which we work and live, with great potential to help us solve common global challenges, but it is also prompting policy questions and challenges,”.[xxxiii]  On December 13, 2019 WIPO also published ‘Draft Issues Paper on Intellectual Property Policy and Artificial Intelligence’ with an intent to invite feedback/opinion on the most pressing issues IP policymakers will face in the near future. One of the most crucial questions where jurisdictions conflict is whether AI can be an inventor/owner of an IP. While the EPO held that an AI cannot be the inventor of a patent application, the Chinese Court observed the contrary, holding that an AI can be an inventor of a copyrightable subject matter. Apart from the issues arising vis-à-vis prosecution of such applications (assuming an AI can be an inventor/originator of an IP), another important issue would pertain to enforcement by or against IP owned by an AI. For instance, if an AI generates a copyrightable subject matter which is deceptively similar or identical to a copyrighted matter, against whom will a Suit claiming infringement and damages lie? Further, in case of a finding against the AI wherein damages have been awarded, will the AI be expected to bear the damages or the owner of the AI? To answer these complex questions, WIPO has invited inputs from member States on issues (not exhaustive) published on December 13, 2019.[xxxiv]

    In view afore-mentioned development, India should establish a team of technical and legal (IP) experts to review the current laws and issues drafted by the WIPO Secretariat, draft possible answers to the issues and suggest required amendments to our current laws to inculcate rights of AI in the best way possible and then discuss the same at a larger stage, i.e., at the 25th Session of the WIPO Committee on Development and Intellectual Property (CDIP). Until now, India’s role/participation in WIPO’s sessions/meetings has been passive and considering how AI would impact its various sectors, especially the agricultural and healthcare sector (a sector which needs an improvement), India must play an active role in the development of IP laws to support AI. Given the fact that India is one of the fastest-growing economies and one of its cities is also considered as the ‘Silicon Valley’ of India,[xxxv] commercialization/use of AI would greatly benefit its economy to the extent that it would substantially reduce labour costs and at the same time, benefit a lot of entrepreneurs in the tech industry. Additionally, AI would also be crucial for government offices as it would greatly reduce delay in processing time and errors. For instance, the use of AI in Indian Intellectual Property Offices would enable machines to review applications for basic defects such as non-filing of an essential document or improper authentication, etc. In case strong AI is adopted by these departments, it would also enable machines to raise basic objections on applications and upon clearance thereof, advertise or register the same, thereby reducing significant costs and time.

    It goes without saying that AI is the next big thing in the field of technology and once it is commercialized at a large scale, it is going to have a huge impact on our laws (especially IP laws). Given India’s interests and possible benefits in the field of AI, its involvement in the development of our current IP regime is pivotal.

     

    Notes

    [i] Jeff Williams, The Evolution of Intellectual Property, Law Office of Jeff Williams PLLC; link: https://txpatentattorney.com/blog/the-history-of-intellectual-property(published on November 11, 2015).

    [ii] Foreign Direct Investment, published by Make in India; link: http://www.makeinindia.com/policy/foreign-direct-investment.

    [iii] Top 17 Startup Legal Disputes, published by Wazzeer; link: https://wazzeer.com/blog/top-17-startup-legal-disputes (published on May 02, 2017).

    [iv] GIPC IP Index 2020, published by Global Innovation Policy Center; link: https://www.theglobalipcenter.com/ipindex2020-details/?country=in.

    [v] Darrell M. West, India-U.S. relations: Intellectual property rights, Brookings India; link: https://www.brookings.edu/opinions/india-u-s-relations-intellectual-property-rights (published on June 04, 2016).

    [vi] Thehasin Nazia & Rajarshi Choudhuri, The Problem of IPR Infringement in India’s Burgeoning Startup Ecosystem, IPWatchdog; link: https://www.ipwatchdog.com/2019/11/16/problem-ipr-infringement-indias-burgeoning-startup-ecosystem/id=116019 (published on November 16, 2019).

    [vii] Press Trust of India, Absence of legal awareness root cause of rights’ deprivation, Business Standard, Nagpur; link: https://www.business-standard.com/article/pti-stories/absence-of-legal-awareness-root-cause-of-rights-deprivation-119081800664_1.html (published on August 18, 2019).

    [viii] Kristina M. L. Acri née Lybecker, India’s Patent Law is No Model for the United States: Say No to No Combination Drug Patents Act, IP Watch Dog; link: https://www.ipwatchdog.com/2019/06/26/indias-patent-law-no-model-united-states/id=110727 (published on June 26, 2019).

    [ix] Amir Ullah Khan, India’s drug price fix is hurting healthcare, Live Mint; link: https://www.livemint.com/politics/policy/india-s-drug-price-fix-is-hurting-healthcare-11572334594083.html (published on October 29, 2019).

    [x] Ibid.

    [xi] E Kumar Sharma, Hard bargaining ahead, Business Today; link: https://www.businesstoday.in/magazine/focus/us-to-pressure-india-change-intellectual-property-ipr-regime/story/214440.html (published on February 01, 2015).

    [xii] Amir, supra note 9 at __(page No.)__.

    [xiii] Key diabetes, anti-cancer drugs among 92 in price-ceiling list, published by ET Bureau, The Economic Times; link: https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/key-diabetes-anti-cancer-drugs-among-92-in-price-ceiling-list/articleshow/65433283.cms?from=mdr (published on August 17, 2018).

    [xiv] Section 84(1) of the Patents Act, 1970 :-

    Compulsory licenses –

    (1) At any time after the expiration of three years from the date of the 170 [grant] of a patent, any person interested may make an application to the Controller for grant of compulsory license on patent on any of the following grounds, namely:-

    (a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or

    (b) that the patented invention is not available to the public at a reasonably affordable price, or

    (c) that the patented invention is not worked in the territory of India.

    [xv] Section 83 of the Patents Act, 1970:-

    General principles applicable to working of patented inventions –

    Without prejudice to the other provisions contained in this Act, in exercising the powers conferred by this Chapter, regard shall be had to the following general considerations, namely;-

    (a) that patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;

    (b) that they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article;

    (c) that the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations;

    (d) that patents granted do not impede protection of public health and nutrition and should act as instrument to promote public interest specially in sectors of vital importance for socio-economic and technological development of India;

    (e) that patents granted do not in any way prohibit Central Government in taking measures to protect public health;

    (f) that the patent right is not abused by the patentee or person deriving title or interest on patent from the patentee, and the patentee or a person deriving title or interest on patent from the patentee does not resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology; and

    (g) that patents are granted to make the benefit of the patented invention available at reasonably affordable prices to the public.

    [xvi] Special Leave to Appeal (C) No(S). 30145 of 2014.

    [xvii] Ryan N. Phelan, Artificial Intelligence & the Intellectual Property Landscape, Marshall Gerstein & Borun LLP, published by Lexology; link: https://www.lexology.com/library/detail.aspx?g=8c2b5986-95bb-4e8e-9057-e4481bfaa471 (published on September 14, 2019).

    [xviii] No. 16-15469 (9th Cir. 2018).

    [xix] Stefano Zaccaria, AI-written articles are copyright-protected, rules Chinese court, World Intellectual Property Review (WIPR); published on January 10, 2020 (link:https://www.worldipreview.com/news/ai-written-articles-are-copyright-protected-rules-chinese-court-19102).

    [xx] EPO refuses DABUS patent applications designating a machine inventor, European Patent Office; link: https://www.epo.org/news-issues/news/2019/20191220.html(published on December 20, 2019).

    [xxi] Laura Butler, World first patent applications filed for inventions generated solely by artificial intelligence, University of Surrey; published on 01 August, 2019 (link: https://www.surrey.ac.uk/news/world-first-patent-applications-filed-inventions-generated-solely-artificial-intelligence).

    [xxii] WIPO Begins Public Consultation Process on Artificial Intelligence and Intellectual Property Policy, published by World Intellectual Property Organization (WIPO); PR/2019/843; published on December 13, 2019 (link: https://www.wipo.int/pressroom/en/articles/2019/article_0017.html).

    [xxiii] Caleb Silver, The Top 20 Economies in the World, Investopedia; link: https://www.investopedia.com/insights/worlds-top-economies/#5-india (published on November 19, 2019).

    [xxiv] Akriti Bajaj, Working towards building a healthier India, Invest India; link: https://www.investindia.gov.in/sector/healthcare (published on January 18, 2020).

    [xxv] Leroy Leo, Niti Aayog calls healthcare system a ‘sinking ship,’ urges private participation in Ayushman Bharat, Live Mint; link: https://www.livemint.com/news/india/niti-aayog-calls-healthcare-system-a-sinking-ship-urges-private-participation-in-ayushman-bharat-11574948865389.html (published on November 29, 2019).

    [xxvi] Agriculture in India: Information About Indian Agriculture & Its Importance, Indian Brand Equity Foundation (IBEF); link: https://www.ibef.org/industry/agriculture-india.aspx (published on November 2019).

    [xxvii] Ayushman Baruah, Artificial Intelligence in Indian Agriculture – An Industry and Startup Overview, Emerj; link: https://emerj.com/ai-sector-overviews/artificial-intelligence-in-indian-agriculture-an-industry-and-startup-overview (published on November 22, 2019).

    [xxviii] Vidya Sethy, Top 13 Problems Faced by Indian Agriculture, Your Article Library; link: http://www.yourarticlelibrary.com/agriculture/top-13-problems-faced-by-indian-agriculture/62852.

    [xxix] Ibid.

    [xxx] Neha Dewan, In the race for AI supremacy, has India missed the bus?, The Economic Times; link: https://economictimes.indiatimes.com/small-biz/startups/features/in-the-race-for-ai-supremacy-has-india-missed-the-bus/articleshow/69836362.cms (published on June 19, 2019).

    [xxxi] Rory O’Neill and Stefano Zaccaria,

    AI-written articles are copyright-protected, rules Chinese court, World Intellectual Property Review (WIPR); link: https://www.worldipreview.com/news/ai-written-articles-are-copyright-protected-rules-chinese-court-19102 (published on January 10, 2020).

    [xxxii] National Strategy On Artificial Intelligence, published by NITI Aayog; link: https://niti.gov.in/national-strategy-artificial-intelligence.

    [xxxiii] WIPO Begins Public Consultation Process on Artificial Intelligence and Intellectual Property Policy, PR/2019/843, World Intellectual Property Organization (WIPO), Geneva; link: https://www.wipo.int/pressroom/en/articles/2019/article_0017.html (published on December 13, 2019).

    [xxxiv] WIPO Secretariat, WIPO Conversation on Intellectual Property (IP) and Artificial Intelligence (AI), Second Session, WIPO/IP/AI/2/GE/20/1, World Intellectual Property Organization (WIPO); link: https://www.wipo.int/edocs/mdocs/mdocs/en/wipo_ip_ai_ge_20/wipo_ip_ai_2_ge_20_1.pdf (published on December 13, 2019).

    [xxxv] Bangalore, published by Wikipedia; link: https://en.wikipedia.org/wiki/Bangalore (last updated on February 07, 0220).

     

    Image Credit: WIPO

  • Poverty, Inequality, and Marginalisation as Forms of Structural Violence in Pre-Conflict Syria

    Poverty, Inequality, and Marginalisation as Forms of Structural Violence in Pre-Conflict Syria

    The injustice and inequality built into the structural institutions of the Syrian society can be referred to, what has been called as the ‘structural violence’, by the well-known Norwegian sociologist, Johan Galtung.  

    The ongoing civil war in Syria that has resulted in large-scale loss of lives, and forced displacement of millions across the region, is being seen as one of the bloodiest conflicts of this century. While countries continue to witness the horrors of visible atrocities and war crimes, the underlying layers of structural and cultural violence continue to buttress the egregious brutality which is often more direct, and physical.

     

    Although the war is often seen as a result of the outburst of pro-democracy protests in 2011, a close examination of the country’s socio-economic structures would enable one to get a detailed insight into the underlying layers of frustration caused due to large-scale poverty, inequality, and marginalisation. One would also find that the relatively peaceful structure, which existed before the protests of 2011, was held intact largely due to the existence of single-party dominance, where one actor (Hafez al-Assad, and later Bashar al-Assad) held all power and authority, while those existing in lower ranks of society continued to lack resources, as well as opportunities to challenge the dominant power.

    The Syrian economic crisis has existed long before the commencement of the civil war.

    The injustice and inequality built into the structural institutions of the Syrian society can be referred to, what has been called as the ‘structural violence’, by the well-known Norwegian sociologist, Johan Galtung.  The violence, here, is reflective of a position “higher up or lower down in a hierarchy of exploitation-repression-alienation”, where the parties involved are determined either to keep the hierarchy intact or to completely obliterate it. In the case of Syria, the deprivation of the most basic and non-negotiable needs, which threatened the citizens’ need for survival, has been the primary cause for aggression to come into existence. The factors that, thus, led to the conflict in Syria can be seen rooted in years of repression, poverty, and lack of representative institutions, which manifested in the form of protests, or the Arab Spring of 2011.

    The Syrian economic crisis has existed long before the commencement of the civil war. Since the beginning of the economic crisis, Syria’s institutional structures have failed to meet the rising needs and rights of its population. In the 1980s, the country was trapped in a downward spiral of a fiscal crisis, as a result of large-scale drought, and due to both, domestic and external factors. The crisis led to high food deficit, and an increase in the cost of living, leading to a rise in patronage networks which provided small circles of elites with profitable businesses. These networks became increasingly popular in real estate and land management, leaving out large sectors of Syria underdeveloped.

    While the country witnessed a decreasing overall debt and a noticeable rise in the GDP in the 2000s, large sections of the population were excluded from benefitting from these growth rates due to differences in wage rates and declining job opportunities. Increasing inequality was reflected in a paper published by the UNDP, which claimed that 65.6% of all labour in Syria belonged to the informal sector in 2010, with Aleppo and Idlib ranking first with over 75% of their workforce belonging to the informal sector. Further, the four years of drought between 2006 and 2011, and the consequent failed economic policies led to a significant decline in the agricultural sector’s output, forcing 2 million to 3 million Syrians into abject poverty.

    Additionally, the oil revenues fell from more than 14% of GDP in the early 2000s to about 4% in 2010 due to depleting reserves. According to a report, overall poverty in Syria in 2007 impacted 33.6% of the population, of which 12.3% were estimated to be living under extreme poverty. Noting the degree of inequality in Syria in 1997, the report found out that the lower 20% of the population had a share of only 8% in expenditure, while the richest 20% of the population share about 41% of the expenditure. The degree of inequality further decreased in 2004. Moreover, the widely disputed region of North-Eastern Syria witnessed highest levels of inequality in 2007, in addition to deprivation of living standards, and worst levels of illiteracy, and access to safe water, just four years before the outbreak of the civil war. The unequal access to resources was also starkly reflected in the housing situation of the country before the war, where over 40% of the population lived under informal housing conditions, – through squatting, or on lands obtained without legal contracts.

    In addition to the economic crisis, Syrians have been the victims of decades-long political repression, in the form of restrictions on freedom of expression, torture, and enforced disappearances. The political institutions have historically been unstable, with three military coups taking place in 1949 alone, followed by one more in 1954, in addition to the Ba’athist-led coups of 1963 and 1966. The Syrian security forces (Mukhabarat) are known to have detained citizens without proper warrants even before 2010, many of whom have reportedly been tortured in prisons. In their attempts to keep the hierarchy of power relations intact, the centralised institutions are known to clamp down on any public demonstrations, with frequent arrests and employment of state violence.

    The conflict which started with citizens demanding their basic needs and rights has been sustained over the years by the involvement of foreign states, and increased state brutality which has been responded to by an increasingly similar, if not equal, force by the rebellion groups.

    Years of conflict have exacerbated the economic crisis, pushing both the state and its citizens, into chaos, with more than 80 per cent of the Syrian population living below the poverty line, with an unemployment rate of at least 55 per cent in 2018. With most of the business networks now being controlled by the selected few elites, the population at large continues to suffer the brunt of both structural, and direct violence.

    The conflict which started with citizens demanding their basic needs and rights has been sustained over the years by the involvement of foreign states, and increased state brutality which has been responded to by an increasingly similar, if not equal, force by the rebellion groups. The country, now, witnesses itself entangled in a cycle of conflict, where the war has led to steep economic deterioration, political repression, and physical violence, which in turn has led to further widespread cataclysm.

    Image Credit: Photo – Aleppo-Syria destruction in 2019 and  Syria Map – Adobe Stock