Digital Assets and National Security

 Currency by definition is a medium of exchange which provides a universally accepted value in the market place of a region. The value depends on users’ trust. A national government taxes by debiting currency and spends by expending it. It controls the supply of the currency through its monetary policy. The crux of this policy is the ability of a nation-state to control its money supply aimed at curbing inflation and maintaining price stability; alternatively, it may be used to expand the supply for boosting growth and employment. Monetary sovereignty is thus an essential component of national sovereignty.

Decentralised finance is a system by which financial products become available on a public decentralised blockchain network as digital assets, making them available for anyone to use. For the purpose of this article, only digital assets independent of the Government are being considered and include any digital assets which may be exchanged as a symbol of value like crypto currencies and Non-Fungible Tokens (NFTs) etc. Such assets can cause disruption in a nations financial system and adversely impact national security.

Digital Assets and Blockchain

Most discussions on digital assets invariably extol the virtues of blockchain and how it can potentially revolutionise innumerable aspects of governance. However, digital assets and blockchain are different. Blockchain is essentially an enabling technology for record-keeping systems. Post its appearance in 2008, the technology has evolved and has become the foundational core of systems where data integrity is key. Many large companies have already adopted the technology, while national governments and/or their departments have been experimenting with it. Recent advances in (what is claimed as virtually unbreakable) encryption technology further boosts digital data storage. Within India, Niti Aayog, in a pilot project, optimised the fertiliser subsidy supply chain using blockchain and has recommended its use for other sectors where data integrity of immutable records are essential such as land records, organic farming, etc.[1]

Digital assets are essentially powered by blockchain and are independent of the state. The independence is maintained by encryption and removing government’s control over creation and circulation quantum. The latter has the potential to jeopardise a nation’s monetary policy while the former promotes anonymity.

Impact on Security

The inbuilt anonymity of digital assets makes them ideal for moving value incognito across borders, defeating national constraints on them. Increasingly, such assets will be made use of by terrorists, smugglers of banned and illicit goods, money launderers, those attempting to buy influence etc. Reportedly. some terrorist organisations like al-Qassam Brigade (Hamas’s military wing), al-Qaeda, and Islamic State of Iraq and the Levant (ISIL)[2] are using cryptocurrencies to raise funds. While some accounts have been seized, it is suspected that many more are still operating. With India’s adversaries increasingly attempting to use money power to subvert society[3] and paralyse politics, digital assets will provide them with a novel method to do so with increased anonymity.

Debt diplomacy is today accepted as a tool of our adversary at the international level. At the micro level, cases of corporate debt hostage are also known. While the former aims to entrap nations, the latter lays a debt trap for corporates and individuals who are then used for technology transfer, influence buying as also using the local system against the state. Many justify this as permitting small business access to international finance. However, it defeats the national capital controls imposed and thereby aids in subversion of the national economy. This can be done by transferring excess liquidity created outside the nation or infusing excess liquidity when aim is to contract the money supply. This can hamper both employment generation and inflation control. The experiment of Auroracoin[4] of Iceland is one such example.

Ransomware attacks have been on the rise in the world, with ransom being demanded in digital assets. Its anonymity aids the attackers in concealing their identity. Infrastructure used for digital assets is based on blockchain and encryption technology. Widespread availability of digital assets would lead to unregulated availability of such infrastructure, which could be used for storing data and plans by groups inimical to the state. This would render the security effort much more difficult. Reportedly AQAP and ISIL have been distributing their English language magazine Inspire and Dabiq respectively, using blockchain. Both have been on the forefront of radicalisation and spread of the terror ideology.

Such infrastructure can also be used to launch attacks into other networks with which it is connected. The anonymity such infrastructure provides makes detection of the attacker’s identity almost impossible. In addition, the computerised pool used for mining cryptocurrencies are ideal architecture to support a cyber-attack. Trading digital assets require that the system is linked to the banks, which in turn have access to most of the national cyber infrastructure. The arrangement thus renders the national cyber infrastructure at a much higher risk.

Separatist movements historically have asserted their political and economic control by issuing alternate currency in the areas they control. While non-state actors are as of now, not using cryptocurrencies, this could change in the near future. Scottish separatists are already experimenting with the Scotcoin – a cryptocurrency.[5] Other experiments towards this include Pesetacoin, Spaincoin, Greeccoin etc. Not only can the separatist’s movement issue their own but also mandate use of an existing cryptocurrency to erode trust in the national currency. While, the trend is on the rise, the world’s richest, most powerful and industrialised countries, have largely managed to keep their population shielded and have amongst the least users worldwide[6].

Various attempts are also being made by corporates towards this end – the most famous being Elon Musk announcing that payment for Tesla would be accepted in Bitcoins[7] as also Amazon too planning on the same[8]. Potentially, it can permit them to hide transactions, evade taxes and also deal in illegal products. This would further be accentuated by emerging decentralized exchanges.[9] Such exchanges would increase the anonymity by countervailing the “know your customer” guidelines of the Government.

Need for Regulation

The regulators seemingly are conscience of the dangers. In April 2018, RBI had banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. However, the Supreme Court struck down the ban in March 2020. Among the reasons cited was that cryptocurrencies were not illegal though unregulated in India[10]. Hence, legislation for regulation of these are essential and urgent.

March of technology cannot be stopped and hence digital assets will remain a reality; banning them will only shift them underground. Hence, it’s important that they be regulated and their linkages be adequately controlled. This should include:

• Proscribe the use of non-government digital assets as a symbol of value, thereby any sale using the same be considered illegal.
• All digital assets should be held electronically but exchanges or intermediaries should not be permitted to hold the same.
• Gifting or receipt of digital assets be proscribed. This would ensure that all asset purchased are either held or a sold through a money trail which in turn can be tracked in the event of illegal activities.
• Digital assets have no intrinsic value hence, gains from the same be taxed at par with gambling gains.
• Crypto Exchanges should be registered as corporates and pay taxes on transactions at par with others. Those crypto exchanges dedicated to a single digital asset should be banned as in the quest for additional customers, these may resort to illegal operations.
• Crypto exchanges should have limited registered intermediaries only who should be able to place own/customers’ orders. In turn, the exchanges must have full knowledge of the intermediaries and maintain records of their transactions, for scrutiny if required. Intermediaries in turn should have full knowledge of their customers and be responsible for any illegal activity using their accounts.

Conclusion

Digital finance is a developing area at the intersection of blockchain, encryption, digital assets, and financial services. Its unregulated availability in society has the potential to undermine and destabilise the nation. Adequate legislation to channelise it into an asset class is therefore urgently warranted. Any delay would only auger poorly for national sovereignty and governance.

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[1] “Blockchain The Indian Strategy Part 1” available on https://niti.gov.in/sites/default/files/2020-01/Blockchain_The_India_Strategy_Part_I.pdf accessed on 10 Jan 2021.

[2] ‘Global Disruption of Three Terror Finance Cyber-Enabled Campaigns’ The United States Department of Justice available on https://www.justice.gov/opa/pr/global-disruption-three-terror-finance-cyber-enabled-campaigns

[3] ‘ED probes media portal’s funding from businessman ‘linked’ to China regime’ Times of India 18 July 2021 available on https://timesofindia.indiatimes.com/india/ed-probes-media-portals-funding-from-businessman-linked-to-china-regime/articleshow/84514212.cms

[4] ‘Auroracoin’ Investopedia available on https://www.investopedia.com/terms/a/auroracoin.asp

[5] ‘Can Virtual Currencies Increase Political Power?’ JSTOR available on https://www.jstor.org/stable/10.7249/j.ctt19rmd78.9?seq=2#metadata_info_tab_contents

[6] ‘Which Countries Are Using Cryptocurrency the Most?’ Yahoo Finance available on https://finance.yahoo.com/news/countries-using-cryptocurrency-most-210011742.html

[7] Jon Porter (2021) “You can now buy a Tesla with bitcoin in the US’ The Verge 24 March 2021 available on https://www.theverge.com/2021/3/24/22347905/tesla-bitcoin-payment-us-cryptocurrency-elon-musk

[8] See Business Standard 26 July 2021 “E-com giant Amazon may soon allow digital currency as payment mode” available on https://www.business-standard.com/article/companies/e-com-giant-amazon-may-soon-allow-digital-currency-as-payment-mode-121072500226_1.html accessed on 28 July 2021

[9] See “The Economic Times” 28 July 2021 “WazirX to launch decentralised exchange next month” available at https://economictimes.indiatimes.com/tech/technology/wazirx-to-launch-decentralised-exchange-next-month/articleshow/84806149.cms accessed on 28 July 2021.

[10] Sandeep Soni (2021) ‘RBI: Banks can’t cite 2018 crypto-ban order quashed by SC to caution customers against virtual currencies’ Financial Express 31 May 2021 available on https://www.financialexpress.com/market/rbi-banks-cant-cite-2018-crypto-ban-order-quashed-by-sc-to-caution-customers-against-virtual-currencies/2262513/

https://chintan.indiafoundation.in/articles/digital-assets-and-national-security/   

 

Commentary: China’s Quest for Global Primacy by Timothy R. Heath, Derek Grossman, Asha Clark (Rand Publication)

 By Col Akshaya HandaJuly 1, 2021

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All the three authors of the paper are senior defence analysts with RAND Corporation and have extensive experience in studying and analysing China. Prior to joining RAND Timothy Heath served as the senior analyst for the US Pacific Command’s China Strategic Focus Group. Derek Grossman served over a decade as the daily intelligence briefer to the director of the Defence Intelligence Agency, and to the assistant secretary of defence for Asian & Pacific Security Affairs. Asha Clark is an experienced Defence Analyst and has worked with various think tanks and also with the US Government.

Conflict and/or Competition

Deng Xiaoping had emphasised, “Hide your strength, bide your time” as the guiding philosophy of Chinese Foreign Policy. However, even before Xi Jinping came to power, calls for a reinterpretation of the quote had started rising[1]. In less than half a decade, post the ascendance of Xi Jinping, most observers agree that Deng Xiaoping’s policy has been irrevocably abandoned[2].

US and China are today the two premier powers in the world, with the gap between their comprehensive national power (CNP) diminishing rapidly. This has often raised concerns of as to whether the two powers are likely to fall into the Thucydides trap.[3] The postulation has been further reinforced by Xi’s pledge that by 2049, China will have achieved the “great rejuvenation of the Chinese nation” – a term that encapsulates both economic and territorial significance[4]. However, the Chinese author’s assert that “it is true that the United States has come to regard China as its most important competitor, but that does not mean that China and the United States will eventually engage in war or other forms of all-out conflict and confrontation”[5]. Albeit, simultaneously they blame the US and the west for competition and likely conflict.[6]

Vision and Path to Global Leadership

China’s ‘Vision of Global Leadership’ – as per the authors – is to be the “first among equals permitting it to set norms, rules and values for the world”. It aims to achieve this vision by establishing a network of client states and, employ its CNP to wrest control of global/multilateral institutions and also renovate them to uphold Chinese norms, values and preferences especially in the management of space, cyber, law and maritime domains. On its periphery it aims to become the predominant economic, political and security power, and use its BRI to incorporate the developing world as part of its political and security constituency.

The research concludes that the reduction in the gap of CNP between the US and China has emboldened the latter to seek Global Domination, by winning the inevitable competition while avoiding conflict with the US. It aims to achieve this by establishing primacy in the Indo-Pacific, hegemony centred on Eurasia, Middle East & Africa and Chinese leadership in the international order. For this, it will rely on its economic prowess and diplomatic manoeuvre i.e., by keeping the US and Europe divided; cooperating with Russia, with the latter being the junior partner; network of client states across the developing world in Eurasia, Africa, Middle East and Latin America and many such measures.

The employment of non-military domains to achieve geostrategic aims is not new to China. Therefore, it is not difficult to predict that in addition to diplomacy, China also defends its sovereignty and interests with ‘combination punches’ including administrative, economic and military measures, as well as a combination of official and non-governmental parties[7]. This has since been refined to what some believe to be “the three forms of warfare concept, vis public opinion warfare, psychological warfare and legal warfare, which are conducted to create internal contradictions”[8]. Hence, the conjectures of the authors are plausible as they are consistent with China’s international behaviour of claiming peaceful intent while systematically interfering in internal matters of other states with an aim to (at best) convert them into client states or (at worst) hinder their capability to take decisions inimical to Chinese interests. These are also supported by voices coming out of China who believe that before the Opium War, China was the centre and method of the world and that China is finally returning as both centre and method under Xi Jinping[9].

As per the authors, for success, China will have to avoid war with the US for achieving its goal although limited/proxy wars are possible; US power be degraded, to a level where it is limited to the American continent and globally it accepts China’s leadership while refraining from interfering with Chinese interests and; Chinese primacy over Eurasia, Middle East and Africa is established. Also, the US and China manage their differences as per norms upheld by China while cooperating on shared concerns defined by China. Since, Taiwan, South China Seas, US Military presence in Asia etc, may act as a deterrent to the Chinese plan therefore Chinese Defence Strategy will remain important to the overall scheme. It will aim to forestall US attempts from China building a superior military while preventing conflict with the US, managing crisis and engaging in a proxy or limited conflict, deterring the US from challenging China anywhere along its periphery and supporting grey zone and diplomatic activities as also discrediting or weakening US appeal.

While deterring war with a superior military power would certainly be aimed for – India is likely to be viewed differently. It’s a power, which can challenge China in critical domains vis periphery, developing world as well as multi-lateral forums. Hence, China is likely to use its full arsenal against India to protect its perceived interests. Apart from its grey zone tactics and deterrence, if need be, limited war or hostilities may be resorted to. In the US-China paradigm, deterrence would suffice but a perceived militarily weaker power, capable of challenging in multiple domains is unlikely to be accepted. In addition, it will have the advantage to discredit US as a dependable military partner. Hence, the regions of conflict are likely to be in areas inaccessible to the US military.

The authors have identified the main challenge to the Chinese plans as being domestic vis economic imbalance, corruption, regional unrest and the demographic challenge. The fact that PLA is an unattractive partner and lacking power projection capability also finds mention. Some other factors which may be included are the politics within the CCP leading to reports of conflict with[10],[11] and side-lining[12] of the premier, once likely considered to be the President; China turning away from foreign influences[13] and trying to control businesses which were the engine of its economic resurgence[14]. All this is likely to adversely affect its economy. The Anti-Sanctions Law passed in June 2021 permitting it to throw out foreign multinationals and confiscate their assets in response to sanctions imposed on Chinese officials would further disincentivise foreign investment[15].

Implications

As per the authors, the implications for the US are that it needs to strengthen its network of alliances and partnerships while considering Indo-Pacific as the critical domain and upholding US credibility as a global leader. For this, it needs to build short and long-term capabilities to deter China. This would involve sustained investment in future military capabilities, better protection of US interests in Indo-Pacific and cyber, greater importance to military diplomacy, continued provisioning of public goods like sea lanes of communications (SLOCs) and expansion of capabilities to areas not touched upon yet.

China’s aim to build the most powerful military in Asia has serious implications for India. Coupled with its endeavour of surrounding India with client states, attempts to reform global governance to confirm to it and the propensity of employing both grey-zone tactics and proxy war demands the highest level of vigil within India. Also – unlike the US-USSR competition – considering the proximity and direct nature of the threat, non-alignment is no longer a viable option. While the US-China competition is likely to last a decade-plus, it also offers India an opportunity to replace China as a manufacturing hub. However, moving up the technological ladder too would be critical.

Conclusion

Earlier a nation state’s survival depended upon military power and consequent territory & wealth it holds. However, today global primacy is more an issue of being able to hoist one’s values and preferences on the world – a game which China has planned for in detail. While the west prepares for and counters the same; nations on China’s periphery, perceived to be inconvenient and militarily weak may face conflict, especially in areas inaccessible to western militaries. It would have the added advantage of discrediting the west as a trustworthy partner. A strong and technologically advanced military force capable of deterring the PLA is therefore essential. Simultaneously, the competition between the West and China provides an opportunity for India to move up the technology ladder and emerge as the manufacturing hub of the future.

Endnotes:

[1]Huang Youyi  “Context, not history, matters for Deng’s famous phrase” Global Times 15 June 2011, Accessible on https://www.globaltimes.cn/content/661734.shtml. Accessed on 15 June 2021.

[2]Kevin Rudd  “Emperor Xi’s China Is Done Biding Its Time” Bloomberg Opinion. Accessible on https://www.belfercenter.org/publication/emperor-xis-china-done-biding-its-time. Accessed on 15 June 2021.

[3] In 12 of 16 cases over the last 500 years, in which there was a rapid shift in the relative power of a rising nation that threatened to displace a ruling state, the result was war.  Graham Allison “The Thucydides Trap: Are the U.S. and China Headed for War?” The Atlantic, 24 September 2015. Accessible on https://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/. Accessed on 15 June 2021.

[4]Editorial Board, “China’s long march to national rejuvenation” Financial Times. Accessible on https://www.ft.com/content/d45119de-e11f-11e9-b112-9624ec9edc59. Accessed on 15 June 2021.

[5]Zuo Fengrong  “The Thucydides Trap and a New Type of Great Power Relationship: Discursive Competition in Sino-American Relations” Reading the China Dream. Accessible on https://www.readingthechinadream.com/zuo-fengrong-ldquothe-thucydides-trap.html. Accessed on 15 June 2021.

[6] “We might describe U.S. national identity as ‘democracy first, white people first, and America first,’ and another word for ‘America first’ is hegemony.  Whether it was Time magazine founder Henry Luce’s ‘American Century’ from 1941, or Secretary of State Hilary Clinton’s ‘American Pacific Century’ in 2011, or Joe Biden’s ‘Why America Should Lead the World Again’ from his presidential campaign, all reflect the hegemonic attitude that America is the only power. Xie Tao (2020) “2020:  Sino-American Relations and U.S. Politics in the Time of the Pandemic” Reading the China Dream, available on https://www.readingthechinadream.com/xie-tao-2020.html  accessed on 17 June 2021.

[7]People’s Daily Online  “China defends sovereignty by combination punches”. Accessible on http://en.people.cn/90883/7907944.html. Accessed on 16 June 2021.

[8]Wu Su-wei and Jonathan Chin “Measures against China’s ‘gray-zone’ tactics detailed” Taipei Times. Accessible on https://www.taipeitimes.com/News/taiwan/archives/2021/03/22/2003754269. Accessed on 16 June 2021.

[9]Zhang Cheng “China as Center and Method” Reading the China Dream. Accessible on https://www.readingthechinadream.com/zhang-cheng-china-as-center-and-method.html. Accessed on 17 June 2021.

[10]Lingling Wei and Jeremy Page  “Discord Between China’s Top Two Leaders Spills Into the Open” The Wall Street Journal. Accessible on https://www.wsj.com/articles/discord-between-chinas-top-two-leaders-spills-into-the-open-1469134110. Accessed on 16 June 2021.

[11]Kalpit A Mankikar  “Is China facing a Xi Jinping-Li Keqiang rivalry amidst a job crisis?” Money Control. Accessible on https://www.moneycontrol.com/news/opinion/china-facing-a-xi-jinping-li-keqiang-rivalry-stall-economy-job-crisis-5442631.html. Accessed on 16 June 2021.

[12]BBC  “Li Keqiang: China’s marginalised premier” BBC News. Accessible on https://www.bbc.com/news/world asia-china-19870221. Accessed on 16 June 2021.

[13]Vijay Gokhale “Cracks in Fortress Beijing: Insularity, inequality, conformity, discord with neighbors – these didn’t make America No 1” The Times of India 16 June 2021 page 10.

[14]In September 2020, an 18-year prison sentence was imposed, on a real-estate executive Ren Zhiqiang who’d criticized Xi in a private email. The following month, the world’s largest initial public offering, that of the financial firm Ant Group was axed. Beijing subsequently launched an antitrust investigation into Ma’s other creation, the e-commerce company Alibaba Group and later carved out the company into smaller companies. Then in April 2021, Ma was removed as president of Hupan University, the ultra-elite business school he founded and endowed in 2015. Finally in May 2021, regulators approved Jack Ma’s Ant Group to start running a new finance company. It will absorb the most profitable part of Ant — the consumer lending business. Ant will contribute its massive portfolio of $155 Bn in outstanding loans – in effect handing over the Finance Business to a State Owned Enterprise.  Simultaneously, in November 2020, a leading private businessman Sun Dawu who ran an agricultural conglomerate, was arrested because he had spoken in favor of political reform. Finally, until a recent low-key appearance, Jack Ma, the founder of both Ant Group and the e-commerce giant Alibaba, hadn’t been seen in public for months after he criticized the party’s handling of financial reform. See John Pomfret (2021) “China’s Leader Attacks His Greatest Threat” The Atlantic available on https://www.theatlantic.com/international/archive/2021/01/china-xi-jinping-business-entrepreneurs/617777/?utm_source=pocket&utm_medium=email&utm_campaign=pockethits accessed on 17 June 2021, Michael Schuman (2021) “The Undoing of China’s Economic Miracle” The Atlantic available on https://www.theatlantic.com/international/archive/2021/01/xi-jinping-china-economy-jack-ma/617552/ accessed on 17 Jun 2021 and George Calhoun (2021) “The Sad End Of Jack Ma Inc” Forbes available on https://www.forbes.com/sites/georgecalhoun/2021/06/07/the-sad-end-of-jack-ma-inc/amp/ accessed on 17 June 2021.

[15]South China Morning Post  “China’s anti-sanctions law: how companies can avoid picking a side” South China Morning Post. Accessible on https://www.msn.com/en-xl/news/other/china-s-anti-sanctions-law-how-companies-can-avoid-picking-a-side/ar-AAL76Kn. Accessed on 17 June 2021.

https://www.claws.in/commentary-chinas-quest-for-global-primacy-by-timothy-r-heath-derek-grossman-asha-clark-rand-publication/

WINNING HEARTS AND MIND (WHAM) IN KASHMIRUNDER CROSS BORDER INSURGENCY

Insurgency has been known since time immemorial. Kashmir has had to face this brunt for a long time. Many an empire was established post a successful insurgency by the founding rulers. As a form of battle, the advantages that it accrues to the weaker side makes it relevant and lucrative, irrespective of the technological advancements. While insurgencies have always been challenging to the state, cross border insurgencies make the task of the counter-insurgent all the more difficult.

Sustaining an insurgency requires safe havens to organise and train, equipment to execute plans and finances for procurement. Their availability across an international border, therefore, is a major impetus. Political support and international recognition are a bonus. During the course of history, there are many examples of insurgencies being conducted from safe havens in permissive areas of neighbouring states. Northern Ireland and the Irish Republican Army, Vietnam, the Algerian War of Independence, Oman in the 60s and 70s, Afghanistan in the 80s and presently, Balkans in the 1990s, Punjab and Kashmir are just a few examples of these.

A study of these and others shows that one of the key factors for the defeat of insurgencies is the withdrawal of external support. However, other factors, including an image of an honest government, effective last-mile delivery of government schemes, meeting population aspirations and perceived economic improvement are equally important. These reduce local support, bring to the fore, disenchantment against the insurgents and force the latter to turn to terrorism, which often is the last nail in the insurgents’ campaign.

A strategic approach encompassing all the instruments of national power is effective against external support, but other factors also need to be addressed to cut off the insurgent from his support base—the people. For a counterinsurgent, these are categorised as WHAM or Winning Hearts and Minds Operations. A comprehensive top-down strategy – encompassing the administration and the security forces – hence is essential for these.

Assessment of Kashmir

Some often cite demographic and ethnic differences between Kashmir and the rest of India as a cause of the insurgency. However, the differences – if any – are similar to those with non-Kashmiri Pakistan—an often glossed over fact.

The Kashmiri economy is founded on farming, rug making and handIcrafts, all trades in which the economic return is limited. Unemployment is an area of grave concern. Currently, accessible unemployment figures peg the same between 5% to 16.2%. However, these figures display only the number who registered themselves as unemployed. Since there are no significant gains in registering, the validity is doubtful. Significant industrial development is therefore essential to enable the younger population other options; apart from working elsewhere in India or becoming unemployed or joining the insurgents to try and change the situation.

In addition, there are significant problems in creating economic growth through government expenditure, as the UT already has amongst the highest revenue deficits in the country. Any increase is likely to lead to further deterioration of the infrastructure which is essential to attract private investment.

Cross border insurgency is neither a new phenomenon nor unique. It has been defeated earlier and can be defeated in the future too.

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Last-mile-delivery of governance in terms of quality education, healthcare, disaster relief etc is limited and is often cited as an example of corruption. Even when available, these are based on the security structure and are thus viewed suspiciously. Parents, especially in remote regions hence often prefer to send their wards to madrassas, rather than to other educational institutes as they believe that ‘the education may or may not give their children a future but the madrassa will make them a better human’.

Hence, the key ingredients of a WHAM strategy will have to encompass all arms of governance, include significant improvement of the standard of living while negating the image of corrupt outsiders’ government.

WHAM Strategy

Demography, ethnicity and religion have always been rallying points in any anti-establishment campaign. A concerted campaign is required to counter these. Human desire is not a linear process based on an individual’s desires, but rather is based on perceptions of others’ desires. The complete marketing industry is based on this. The assistance of marketing professionals therefore may be sought on not only the media but also of themes. Issues like demographic changes enforced in Pakistan occupied Kashmir and lack of development there need to be subtly put across.

The Islam which came to Kashmir was Sufism – a tolerant amalgamation of Islamic and Hindu beliefs. It has been replaced with radical Islam. Today, the Sufi shrines are neglected. Even candles are lighted on the peer baba shrines, only by the security forces. The pre 80s generation voice their concerns privately. They need a voice. Organisations like SPIC-MACAY need to be partnered to not only promote Kashmiri Sufi artists all over the country but also within Kashmir. Economic upliftment is another critical factor. It has to be based on short, medium and long term goals.

In the short term, Sadbhavana tours need to be refocused on promoting Kashmiri handicrafts. Every summer, most Indian cities witness Kashmiri artisans trying to sell these on rickshaws. Simultaneously, one can witness a confederation of various industries promoting handicrafts of other nations including those from South and South-East Asia. An Industry-Sadbhavana partnership can help Kashmiri artisans cut costs while simultaneously achieve the Sadbhavana aim of awareness. Best results would be achieved if artisans from remote Kashmir can be amalgamated.

Geographical indication of Kashmiri agricultural produce also needs to be done at the earliest. Products like sour apples and ‘Kadam Saag’ are unique, have more health benefits than other currently promoted products and yet unknown even in the rest of India. Promoting these would boost the income of remote Kashmiri agriculturists unable to benefit from traditional products.

Sports are a great melting pot and the success of sports teams gives a feeling of achievement to the whole community and not just to the players. Sports teams from the UT, are unable to practice due to lack of infrastructure in general and winters in particular. Various teams need to be suitably adopted and assisted for the same. Security forces infrastructure can be used for this.

In the medium and long term, skill-building and employment generation would be critical. Employable skill-building would be the ideal foil to lure the unemployed youth away from the insurgency. Albeit, the same would require extensive industry involvement. Measures beyond tax breaks need to be considered for implementation.

One way to incentivise industry would be to give an option to spend CSR funds for skill building in the area and give credit in excess of funds actually spent. Industry seeking the benefit must assure direct employment for a certain minimum percentage of individuals trained by them. In turn, the state provides safety and insurance to the facilities and personnel so employed. Losses if any due to insurgent action, should be reimbursed in full to the industry.

By leveraging internet penetration, Blockchain & AI and ensuring transparency, it is possible to effectively fight the image of a corrupt government. It would need to be ensured that:

• No single contractor – directly or through intermediaries – is awarded more than a small fraction of the contracts.
• Complete information of the contract be proactively released immediately on completion of a job. This would permit the population at large to access information and raise objections – if any – on the quality of work.
• Technologies like telemedicine be introduced to ensure quality medical facilities even in the remote areas.

Conclusion

Cross border insurgency is neither a new phenomenon nor unique. It has been defeated earlier and can be defeated in the future too. A study of the successful campaigns shows that while comprehensive national power can be used to force at least temporary withdrawal of external support unless the hearts and minds of the population are won, the former is likely to be restored when circumstances change. The campaign for the same thus has strategic consequences and need to be planned and executed by all arms of the government. The plan has to encompass economic improvement, population aspirations and a sustained campaign to change perceptions.

The mechanics need to deliver on specific goals which deliver popular facilities at each step. Aim is to force the insurgents to turn against projects which are appreciated by the population. Such actions would alienate the insurgents even more from the population and help find long term solution to cross border insurgency. Based on personal experience and study of the existing socio-economic conditions, a strategy has been suggested for Kashmir. There could certainly be more components albeit, a top-down approach, involving all arms of governance are mandatory for success

https://salute.co.in/winning-hearts-and-mind-wham-in-kashmir/

OBOR AND CPEC MY PRESPECTIVE

 

OBOR AND CPEC MY PRESPECTIVE

1.                   Govts have and unwritten - what is known as a - "Social Contract" with the population, because of which the population pays its taxes (which pays for the govt) fulfils its duties and in return the Govt guarantees some rights and meets the aspirations of the  population. To take an example, the Mughals and the British ruled India by an understanding that internal strife would be minimised and conditions for free trade would be maintained. Its only when the British started imposing its own products and thereby interfering with the free trade that the freedom mov got its impetus. India of 47 however, expected freedom from internal strife and self reliance while since 80s and 90s growth and prosperity have been incl in our social contract providing an impetus for the govts at all  levels to strive for the same.

2.                   The Social Contract in China - betn the CCP and the population - imposes restns on many areas (which are normally accepted as rights elsewhere) like speech, religion, ownership etc for the population; while in turn the CCP assures a assured employment and continuous improvement of the std of living for the population. This implies that the govt (CCP) has  to keep creating addl jobs for

(a)                     All those entering the employment mkt fresh.

(b)                     All those who lose their jobs for some reason.

3.                   Various research suggests that for this to be maintained, China needs a growth rate in excess of 6 to 6.5%. Historically, failure to maint the social contract led to many a upheaval in the Chinese history. In the modern era, with citizens returning post western education and exposure over the internet, the consciousness of denial of rights is higher, hence, the criticality of maintaining the social contract is also higher.

4.                   Growth implies GDP growth, which is a sum of three maj factors export surplus / deficit, Govt Investment and Consumption and one minor factor i.e. remittances from overseas citizens. With remittances forming a very minor change it is essentially ignored in the calculations.

5.                   A bal economy is one in which all the three components – export surplus, consumption and investment – are equally balanced and displaying healthy growth. The Chinese economy however, has not been so.

(a)                     Till the first decade of the twentieth century, the focus was exclusively on export surplus. China in this period became the bulk of manufacturer of the world by producing very cheap. Production costs were kept down by: -

(i)    Keeping workers wages low.

(ii)  Cheap loans to factories (especially state run) which in turn implied very low interest rates on savings.

(iii) Non availability of indl investment options thereby ensuring large savings being avlb to banks despite low interest rates.

(b)                     This however, led to certain inefficiencies being built in the sys. The prominent ones being: -

(i)    Combination of low wages and lack of investments led to lack of surplus income for the population which in turn was detrimental to consumption by the public at large.

(ii)  As most of the preferential loans were given to ‘State Owned Enterprises’ (SOEs), they were allocated for reasons other than market efficiencies. This resulted in build up of a large No of Non Performing Assets (NPAs) in the Chinese banks.

(iii) To manage NPAs – an Asset Management Company (AMC) was formed in 1999 to which all the NPAs were transferred; the AMC was supposed to recover the loans and return the money in 10 years i.e. 1999. This managed to clear up the banks bal sheets however, when the money was to returned in 2009, it was found that the loan rec was less than 20%.

(c)                      This model suffered a setback, when the US and Europe went through a financial meltdown. Suddenly, the buyers were not able to purchase any longer. This necessitated a need for China to diversify its markets and its growth model. However, very few countries elsewhere had the buying power to absorb China’s production.

(d)                     Hence, GDP model was then adjusted to incl investments. This was done by fuelling large loans from banks to infrastructure companies. This loosening of the purse strings of the banks was done when

(i)    More NPAs between 1999 and 2008 had already built into the sys.

(ii)  The money due from AMCs was not being returned.

(e)                     To clear up the bal sheet of banks once more: -

(i)    The new NPAs were again transferred to the AMCs. This enabled the banks to clear their bal sheets, raise more funds and in turn fund the infrastructure investment drive.

(ii)  The tenure of the AMCs was again increased by another 10 yrs i.e. they now had to return the loans by 2019.

(f)                       Post 2009, suddenly there was news of large scale infrastructure constr in China – flyovers, bldgs, towns etc. However, this drive led to a lot of corruption. Under the Chinese governance sys, the provincial administrators are given tgts to meet but little resources. The latter have to be raised by them on their own. In this ph, they borrowed funds from the banks, acquired land cheap, built infrastructure and then sold them at much higher prices. Loss making SOEs also resorted to the same. Individuals and party officials too made use of the opportunity to make money for themselves. This worked perfectly till the property prices were rising, but post 2013 these also crashed. Stories of ghost towns of China – with apartments, rds, all facilities and no one to live in them – were in the media. This led to NPAs of the banks. The quality of these NPAs was even more worrying, as the provincial govts were also defaulters for large amounts.

(g)                     2013 also brought into focus another inefficiency built into their sys – Chinese exports till then comprised a large part of basic goods (like steel, cement etc) or low tech consumer products. Post 2008 meltdown, there was a surplus of infrastructure products. However, instead of reducing the surplus, the investment drive only built addl capacity into the same. Post 2013, this surplus had reached unmanageable levels. Simultaneously, post 2008, with an aim to shift from low tech products to high tech products, a large No of Chinese students were sent to the west to study science and maths. By 2013, they had started returning having firsthand experience of the liberties and freedom in the west.

(h)                     The third leg of the GDP – consumption – then came into focus. For the first time the Chinese officials started acknowledging the importance of the local population being able to absorb a large part of the production, to keep the economy healthy. But consumption can only come from a surplus income of the population – something which they can spare after meeting the essential reqmts. To give the population an income surplus, the options were: -

(i)    Raise wages, this however would have made Chinese exports less competitive at a time when the export surplus was already down.

(ii)  Raise savings interest rates, however, this would have made loans more expensive and with banks already struggling with NPAs it could have threatened the economic backbone.

(iii) Give the population alt investment opportunities – stock markets, debt markets, commodities trade etc.

(i)                       The last option was followed and sometime in end 2013 trading was liberalised in commodities especially precious metals and stock markets were established. However: -

(i)    The liberalised trade in precious metals was used by corrupt party officials and influential people to siphon their wealth abroad. At one point in 2016, China was losing close to 100 billion dollars daily – leading to restriction being imposed on it again.

(ii)  Stock markets to be successful had to attract more funds, which in turn would come only if they were attractive. In the absence of quality listings, once again funds were routed from the banks to the SOEs into the stock markets. This worked for a while as the rising Chinese stock markets attracted many an investor and trader. However, their quantities were never sufficient enough to overcome the Chinese bank / SOE funds. When the investors anticipated their reduction / withdrawal they withdrew their money leading to a major collapse in the Chinese Stock markets in 2015.

6.                   It is not that the Chinese Govt did not have the resources to meet the challenge. By this time it had the largest foreign exchange res in the world. However, the problem that it faced in this was: -

(a)                     Most of the res were in dollars while the debt and consumption boost was required in local currency. Conversion – either by selling foreign exchange or by printing more yuan – would only lead to more money following the same No of goods and in turn inflation.

(b)                     Most of the res were held in US bonds, whose interest rates post the 2008 meltdown were close to zero i.e. much less than the inflation. Hence, they too were losing  value.

7.                   Simultaneously, post the 2008 meltdown, China was working feverishly to diversify its trade and look for addl trade partners. In this quest, Africa, South America and Australia emerged as the maj sources of raw material, while SE Asia, Russia and Europe emerged as the possible markets. However, infrastructure issues hampered trade with all.

(a)                     Sea trade, was always under threat from the island chains on its east necessitating an aggressive effort to control the South and East China Seas.

(b)                     Bypassing the Malacca dilemma became an essential imperative both for seeking supplies from the Indian Ocean and to route exports to it.

(c)                      Lack of road connectivity through the Central Asian Region forced it to depend on the sea route resulting its exports to be subjected to: -

(i)    Two bottlenecks of Malacca and Suez Canal apart from traversing the troubled waters of SE Asia and Gulf of Aden.

(ii)  Multiple transhipments involving switch over to varied modes of tpt thereby increasing cost.

(d)                     Lack of access to inner Africa thereby hindering China’s ability to extract resources from there.

8.                   Hence, in 2015 the Chinese were faced with a sit wherein: -

(a)                     The GDP was falling and – unless the trend was reversed – was likely to reach a level where maint the social contract was looking difficult. For GDP growth – exports though still strong had weakened from earlier levels, investments had reached their limits and consumption had not picked up.

(b)                     A large surplus existed in the infrastructure industries (especially cement, steel and construction) which needed to be absorbed. The issue was not economic alone as shutting down excess capacity would lead to job losses and in turn threaten the social stability.

(c)                      A portion of the youth had returned having experienced the freedoms and liberties in the west.

(d)                     Debt levels were already high (some believed reaching unsustainable levels) and a large part was coming up for payment post 2019.

(e)                     Foreign reserves holdings were at record high however: -

(i)    Neither could they be paid to repay domestic debt nor for fusion of capital into the domestic industry.

(ii)  The value of holdings was reducing due to the abysmally low interest rates in the west.

(f)                       Lack of adequate infrastructure hampered its trade diversification efforts.

9.                   In face of the above, China initially announced support to a large No of Infrastructure projects especially in Africa. These included: -

(a)                     Central corridor connecting Dar es Salaam in Tanzania to through Kenya, Uganda, Rawanda and Burundi to the Great Lakes region of DR Congo.

(b)                     Northern Corridor connecting the Kenyan port of Mombansa to Ituri region of DR Congo through Uganda, Rawanda and Burundi.

(c)                      Ethiopian surface transport system.

(d)                     Pipeline Infrastructure in East Africa.

10.               Later, One Belt One Road (OBOR) initiative was announced. The same was later renamed as the Belt and Road Initiative (BRI). It basically comprised of the following: -

(a)                     Road Corridors

(i)    New Eurasian Land Bridge from Western China to Western Russia through Kazakhstan.

(ii)  China Mongolia Russia Corridor from North China to East and South China.

(iii) China West Asia Corridor from West China to Turkey and later to be extended to Western Europe.

(iv) China Indochina Peninsula Corridor from South China to Singapore.

(v)  China Myanmar Bangladesh India Corridor connecting Myanmar to South China and India.

(vi) China Pakistan Corridor from Western China to Pakistan coast.

(b)                     One maritime silk route from the Chinese Coast through Singapore to Mediterranean. The projects along this basically consisted of development of ports which can be used by large merchant fleets as refuelling stops. Their utility for Naval vessels is left unsaid.

11.               The focus of above shows that the areas selected were those which facilitated: -

(a)                     China direct access to the Indian Ocean Region thereby bypassing the Malacca Dilemma.

(b)                     Facilitate move of its production by road and railway till Western Europe, Russia and SE Asia.

(c)                      Provided port facilities to its Naval fleet and merchant shipping.

(d)                     Most of the areas were those: -

(i)    Who could not themselves invest in such massive infrastructure bt would benefit from it.

(ii)  For various Geo Political reasons international funding was not available to them.

(iii) Lacked the technical expertise to build the proposed infrastructure themselves.

12.               Later fine print and limited implementation experience showed that this was being implemented through: -

(a)                     Tied loans from China – in that while loans were provided by China the same could be used only to give contracts to Chinese companies, who in turn would employ only the Chinese workers. This is contrary to international funding norms wherein loans are given for a project and the nation receiving it is free to choose its implementation contractors.

(b)                     The loans were at rates in excess of 6 – 7%. This was far in excess of the international norms of 1 – 3% from other international bodies.

(c)                      In the event of the host country being unable to repay the loans, the loan amounts were to be converted into equity held by China.

13.               This therefore enabled China to: -

(a)                     Make use of its foreign exchange reserves and earn interest much higher than it was earning in US bonds.

(b)                     Manage ownership of critical assets through equity ownership, which can later be used both in peace for trade facilitation and for move and support of assets in war.

(c)                      Re-route funds to the loss making infrastructure companies thereby making them profitable and enable them to repay their NPAs.

(d)                     Absorb the surplus capacity of infrastructure industries.

(e)                     Create jobs for its population.

14.               CPEC is essentially a part of the above, just one of the six road projects. While details of its projects etc are available, certain aspects which both the Govts are not giving clarity on need to be highlighted. These include: -

(a)                     Its funding has been revised at least three to four times from 40 billion dollars to somewhere around 64 billion dollars now. The final amount is still not clear.

(b)                     How Pakistan is going to fund its part of the project is still not clear. Pakistan Govt is yet to make the details public.

(c)                      The interest rates on the loans given by China, for its part of the project are not known. Its affect on the budget of Pakistan in the subsequent years needs to be studied.

(d)                     Conditions to be met in the event of Pakistan failing to repay the loans are again not known.

(e)                     The subsequent profitability of the projects. It has been pointed out by many commentators how: -

(i)    The electricity produced would be nearly four times what is normally available in Pakistan (though largely unavailable due to shortages) and the inability of the common man to pay for it.

(ii)  The road and railway network would essentially bypass the existing industry of Pakistan.

(iii) Pakistan did not have the products to export from the ports.

(iv) The dams being built would inundate agricultural lands held by influential landowners, who are likely to resist it. This phase is likely to start from early 2020.

(f)                       All in all unless India joins the project and buys its products (from electricity to passage for exports and imports), the economic viability of CPEC is highly questionable.

15.               The major implications of the project for India include the following: -

(a)                     Overall the OBOR / BRI creates a diplomatic space. Unless an alternate is provided it would embolden the recipient countries to China, maybe even force them to hand over critical assets (e.g. Hambantota port) to China.

(b)                     Increased connectivity to Central and South Asian countries would be available for trade and access to resources there.

(c)                      CPEC runs through territory claimed by India and endorsing it may reduce / eliminate India’s claim on it.

(d)                     India does not gain economically from any of the projects which are part of BRI leave alone CPEC. Moreover other South Asian countries look towards guidance towards India on their own approach to the project.

(e)                     It would not only enable China a foothold in the Indian Ocean but also allow it to establish its hegemony in Pakistan. Some commentators are calling it the East China Company.

(f)                       It would facilitate move of military transport and personnel if China and Pakistan so desire, and would be detrimental to India.

(g)                     The ports being built, can be used to interfere with Indian trade in the event of a conflict.

(h)                     The mega dams being built in PoK can transform the hydro dynamics of the region.

(i)                       It will dwarf the Indian Chabhar initiative and make us dependent on Pakistan for trade with Afghanistan and Central Asian Region.

16.               The only good I see in the project that it will economically bankrupt Pakistan even more and to an extent where even China will not be able to fund it. Moreover the inundation of land in Pakistan may at some stage create a movement against the existing Pakistani establishment thereby changing their overall approach to India and other nations.