tag:blogger.com,1999:blog-37349867368841429282024-03-19T16:26:07.180+05:30Indian WesterliesTrade, economics, public policy and some such thoughts. Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.comBlogger162125tag:blogger.com,1999:blog-3734986736884142928.post-90287028031287306032024-03-16T12:18:00.001+05:302024-03-16T12:18:06.540+05:30E-Commerce exports from India: The engine for USD 1 trillion goods exports by 2030 – Part 1<div><span style="font-family: inherit;"><i><span lang="EN-US">This is the first part in the two part series where we shall look at the e-commerce exports from India. The first part sets the context, and the second part delves into the policy and regulatory aspects. The post was first published at Swarajya magazine at: </span></i></span><a href="https://swarajyamag.com/economy/this-category-in-e-commerce-can-fuel-indias-journey-to-1-trillion-in-exports-by-2030">https://swarajyamag.com/economy/this-category-in-e-commerce-can-fuel-indias-journey-to-1-trillion-in-exports-by-2030</a></div><div><span style="font-family: inherit;"><i><span lang="EN-US"><br /></span></i><span lang="EN-US">India has set a goal of reaching USD 2 trillion in exports by 2030 - 1 trillion of this amount from exporting goods/merchandise and 1 trillion from services exports. This target was announced on the back of a record 776 billion USD of total exports achieved during FY23 – out of which USD 451 billion came through export of goods and USD 325 billion through services.</span><span lang="EN-US"> This financial year (FY24), though, because of global challenges, the combined exports in goods and services during April-Jan 2024 have remained stagnant at around USD 640 Billion, and it’s expected that the total exports would remain in the same ballpark. The target for 2030 therefore has become stiffer.</span></span></div><div><span style="font-family: inherit;"><span lang="EN-US"><br /><o:p></o:p></span><span lang="EN-US">How would India achieve USD 1 trillion in goods exports? One part of the solution is to strengthen the manufacturing ecosystem, which is happening because of the phenomenon we termed ‘Akamaization’ (https://swarajyamag.com/business/its-not-deglobalisation-but-akamaisationwhen-firms-go-local-to-stay-global ) – shifting of global value chains into India due to geopolitical compulsions and stricter domestic quality requirements, supply chain optimization, and opportunities provided by India – but the more profound and pertinent solution towards 1 trillion USD of goods exports by 2030 will be based on what Hon’ble Prime Minister stated during his 2019 Independence day speech: </span></span></div><div><span style="font-family: inherit;"><span lang="EN-US"><br /></span><i><span lang="EN-US">“Each district of our country has a potential equal to that of one country, each of our districts has the capacity equal to a small country in the world. Why should each district not think of becoming an export hub? Each of our districts has a diverse identity and potential for global market.”</span></i></span></div><div><span style="font-family: inherit;"><i><span lang="EN-US"><br /></span></i><span lang="EN-US">To appreciate the profound significance of the statement, it's essential to delve into specific data points. The first data point of interest focuses on the cumulative value of exports from the districts.</span></span></div><div><span style="font-family: inherit;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7pVD12eU6KHwzrsmq0Sq6yFJX0I1adkUGsZins5uLA3jKNaxfDPOdtQTa_pHEpVVuGt2BU-YgxPJD7tCSBuAZuQBRY076_FsOG4IjTo1EkRocARiEh4Md1rQjJ6QTqppKezT4IzfeTl4rxvxn4gA7oy1V_fa9sRFOxXV5RRamoLZMEzsrPC8UL2Gq3C01/s3492/swarajya_Image_1_Districts.png" style="margin-left: auto; margin-right: auto;"><img alt="Exports from Districts of India" border="0" data-original-height="2108" data-original-width="3492" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7pVD12eU6KHwzrsmq0Sq6yFJX0I1adkUGsZins5uLA3jKNaxfDPOdtQTa_pHEpVVuGt2BU-YgxPJD7tCSBuAZuQBRY076_FsOG4IjTo1EkRocARiEh4Md1rQjJ6QTqppKezT4IzfeTl4rxvxn4gA7oy1V_fa9sRFOxXV5RRamoLZMEzsrPC8UL2Gq3C01/s16000/swarajya_Image_1_Districts.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Fig: Lion's share of exports from handful of districts</td></tr></tbody></table><br /><span lang="EN-US"><br /></span><span lang="EN-US">According to the data for FY April’22-March’23, 10% of our districts account for over 80% of our exports. There are around 100 districts that do not export. Even among those that do, there are over 350 districts that together make up less than 1% of total exports.</span><span lang="EN-US"> This is where the importance of Prime Minister’s statement comes into picture. Unless most districts perform, we will not be able to ramp up exports meaningfully and inclusively. And not all these districts can become an automobile hub or host an electronics hardware park. Therefore, one needs to look beyond the traditional export products, and stretch the existing export ecosystem framework to include products that are not exported in the current ecosystem. This has started happening through cross-border E commerce exports where goods are being sold online, using digital medium, directly to consumers and businesses abroad. </span></span></div><div><span style="font-family: inherit;"><span lang="EN-US"><br /><o:p></o:p></span>Central to our discussion is what we may term the "Box of Opportunity"—a domain ripe for the growth of MSMEs, skilled artisans, and the vibrant sectors of handicrafts and handlooms, particularly within rural India. This realm stands to gain immensely from the global export market, provided the right catalysts are in place. E-commerce exports represent one such pivotal catalyst, but which sectors stand to benefit most from this digital gateway, and to what extent? </span></div><div><span style="font-family: inherit;"><br />To answer this, we need to delve into the Harmonized System (HS) of trade classification, which categorizes goods into 99 chapters at the 2-digit level. The initial chapters, 01 to 24, encompass primary agricultural products and their processed derivatives. In contrast, chapters towards later parts from 80 onwards cater to fields like engineering, automobiles, and electronics—sectors traditionally linked with significant capital investment and global value chains, including mobile phones, electronics, automobiles, and aircraft.</span></div><div><span style="font-family: inherit;"><br />Among the chapters, we can broadly identify sectors inherently suitable for MSMEs—such as toys, textiles, leather, food products, wood and glassware, brass and metal ware, handicrafts, and handlooms, ayurvedic medicines and preparation, among others. These areas, characterized by their potential for artisanal and small-scale production, are particularly poised for leveraging e-commerce for global outreach, when compared against heavy industries (petroleum, chemicals or steel) or sectors falling under global value chains (electronics, large consumer appliances). This brings us to the second data point.<br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVb-3SvFdl7LJS53k3jagtA-sQHEA610rOQGqfhLsUtpTxVdi1vSyffjO_3_8PqsFgUqyoEBJQMoVJlf2QmOxJIxGe3qa2YLUhQ3wVC1WOanMGf_9iA37aZKwXYcYprFjZUSIaKhAL41qhJh4_uzIxkOclPQktcLoahly1Np3df3o3NI5_6GccNqKiZkb4/s2660/swarajya_Image_2_overall_sectors.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1706" data-original-width="2660" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVb-3SvFdl7LJS53k3jagtA-sQHEA610rOQGqfhLsUtpTxVdi1vSyffjO_3_8PqsFgUqyoEBJQMoVJlf2QmOxJIxGe3qa2YLUhQ3wVC1WOanMGf_9iA37aZKwXYcYprFjZUSIaKhAL41qhJh4_uzIxkOclPQktcLoahly1Np3df3o3NI5_6GccNqKiZkb4/s16000/swarajya_Image_2_overall_sectors.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Fig: Overall sector and the box of opportunities</td></tr></tbody></table><br /><span lang="EN-US"><br /></span><span lang="EN-US">In the visual depicted above, the most extensively traded commodities are positioned towards the right, with the bubble's size reflecting the export value of each item from India during FY23. One may notice the era's defining globalization trend, where most of these globally traded goods, with share of over 5% in global trade, are those that are integrated into supply chains overseen by multinational corporations. These high volume items, and petroleum products, contribute almost three fourths of the total global trade. Currently, India's contribution to the trade of these high-volume items remains modest at 1.4% (CY22). Strategic initiatives focused on bolstering the manufacturing sector—underscored by policies like the Production Linked Incentive (PLI) scheme, PM-MITRA, and significant infrastructure enhancements—are in motion to alter this dynamic. However, the area of interest for E-Commerce growth are the commodities highlighted within the rectangular box of opportunities, revealing insights into potential areas for growth and increased participation in the global trade ecosystem. If we zoom into the box, we see the visual below. <br /></span><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhza21LqMuLDvokXfhPsgCK4AucCWzL3_NKBcLvuA7Zk-hn2Wb5kfwdLzTPUHmLhnPHIg6Rlg8qwMs7YLzEmz326PKLp0KQJF5c9nBLfZigym7ygVVKA1iSnjZihhTps61Ale3oaWv91hY7J6EDHKi9omM08cEG5hK73DJ1ktYaBEfUyH9MUQTB99xMzW6Z/s2642/swarajya_image_3_box_of_opportunities.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1786" data-original-width="2642" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhza21LqMuLDvokXfhPsgCK4AucCWzL3_NKBcLvuA7Zk-hn2Wb5kfwdLzTPUHmLhnPHIg6Rlg8qwMs7YLzEmz326PKLp0KQJF5c9nBLfZigym7ygVVKA1iSnjZihhTps61Ale3oaWv91hY7J6EDHKi9omM08cEG5hK73DJ1ktYaBEfUyH9MUQTB99xMzW6Z/s16000/swarajya_image_3_box_of_opportunities.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Fig: The box of opportunities that can be leveraged in e-commerce</td></tr></tbody></table><br /><span lang="EN-US"><br /></span><span lang="EN-US">In this 'box of opportunities', we can identify many sectors ripe for MSME engagement yet markedly underrepresented in global trade. As previously discussed, the x-axis represents the share of the item in world trade as a percentage, while the y-axis denotes India's share in world exports as a percentage. This zoomed-in view focuses on the 'Box of Opportunities' where sectors inherently suitable for MSMEs are represented. These sectors, with a share in the global market below 1%, and India's share in global trade of these items under 5%, represent areas of untapped potential. Easily identifiable among them are the wood and handicrafts, toys and sports goods, ceramics, apparel and textile, leather products, footwear, miscellaneous metal and non-metal manufactured items etc. E-commerce emerges as a crucial enabler for such sectors, providing MSMEs with a viable entry point to compete on the international stage. Though these commodities individually account for a modest portion of global trade, collectively, they represent a market size exceeding USD 6 trillion per annum (CY2022), which is a quarter of the total global trade. India has a share of 1.4% in the global trade for the items which are within the box of opportunities. This points to a great scope for improvement. To contrast, China’s exports of these items constitute around 16% of the global market. Capturing an additional 10% of this market through supportive measures for MSMEs in the coming years could yield an incremental export of USD 600 billion from India. A significant portion of that can come through e-commerce. A good example of this possibility are Coir products (chapter 53) and Carpet industry (Chapter 57) in which India has a share of around 10% in the world market and we can no longer see them in the box. </span></span></div><div><span style="font-family: inherit;"><span lang="EN-US"><br /></span>As we explore the growth potential of e-commerce exports from India, it's important to note that we are focusing on a specific subset of cross-border e-commerce exports where goods are digitally ordered, paid for, and physically delivered across borders. This subset presents ample opportunities to diversify and make trade more inclusive.</span></div><div><span style="font-family: inherit;"><br />Quantifying the exact volume of goods exported from India through e-commerce channels is challenging due to limitations in data collection mechanisms. Despite this, estimates suggest that India's e-commerce exports ranged between USD 2 to 5 billion during the fiscal year 2022-23, highlighting the need for more sophisticated tracking and reporting mechanisms. China, the current world leader in cross-border e-commerce, exported USD 230 billion in 2022 (<a href="https://www.wto.org/english/res_e/booksp_e/digital_trade_23_ch6_e.pdf" style="color: #954f72;">WTO estimate</a>).</span></div><div><span style="font-family: inherit;"><br />The global market for e-commerce exports is poised for exponential growth, with projections indicating a potential surge from USD 800 billion in 2022 to USD 8 trillion by 2030 (<a href="https://gtri.co.in/gtriRep8.pdf" style="color: #954f72;">GTRI</a>). India is well-positioned to capitalize on this trend, underscoring the importance of strategic initiatives and policies to enhance its competitiveness.</span></div><div><span style="font-family: inherit;"><br />The Prime Minister's vision of districts becoming export hubs emphasizes the importance of leveraging e-commerce exports to tap into the local potential and diversity of each district, enabling MSMEs, artisans, and craftsmen to access international markets without heavy investments or intermediaries. E-commerce exports can help overcome traditional barriers faced by Indian exporters, serving as a key driver for achieving the goal of USD 1 trillion in goods exports by 2030.</span></div><div><span style="font-family: inherit;"><br /><i>In the next part, we will discuss the regulatory and policy reforms needed to achieve this vision and the paradigm-shifting changes happening in this sector that may affect the future of international trade.<br /></i><span lang="EN-US"> <br /></span><span lang="EN-US"> <br /></span><span lang="EN-US" style="color: #242424; line-height: 14.98px;"> </span></span></div><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 15.693334px; margin: 0cm 0cm 8pt;"><o:p></o:p></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-88566295231127157122024-01-26T16:40:00.003+05:302024-01-26T17:43:39.376+05:30Trade Remedies Unveiled: A Comprehensive Visual AnalysisIn an era marked by the intricate complexities of global trade, grasping the subtleties of trade remedy measures becomes not just interesting, but essential for policymakers, businesses, and scholars. The <a href="https://tmdb.wto.org/en/">World Trade Organization's trade monitoring database</a>, captures data on these meaures and acts as a window into these evolving dynamics. This post aims to unearth the layers of these trends for last 10 years, bringing into focus the countries at the forefront of these measures during this period, with a special emphasis on India’s position. <br /><br />Countries facing negative impacts from international trade have two primary defense mechanisms: remedial measures and restrictive measures. Remedial measures include Anti-Dumping Duties (ADD), Countervailing Duties (CVD), and Safeguard Measures (SG). They're effective for ensuring fair competition but require a detailed investigative process, which takes time. <br /><br />Restrictive measures, in contrast, can be enacted more quickly. These might include tariffs that raise the cost of imported/exported goods or archaic regulations like port restrictions, which can impede trade flow. The choice of measure depends on a country's goals: remedial actions are typically used to address unfair trade practices in a manner that complies with WTO regulations, while restrictive actions can be applied more rapidly to immediately limit imports or exports, and their compliance with WTO standards can vary.<br /><br />Let's first delve into the remedial measures countries adopt to shield their industries from unfair trade practices. Over the last decade, the cumulative impact of these protective trade remedies has been significant. Given below is a figure summarizing the number of remedial actions taken globally:<br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlGXXc6W7YVLjtkmPlygOqeVi_pi0TAF8IAbhyphenhyphenVN-kswA22YBnAJPyilH8vCpnbYK0cKK_XRX1zm7LWH5qxMYGg0NOdgtsd8nPibvUxoKPEgXRcyp-i9RmCVNVufKR-8Eb92bZgFIU9GE1TAAfpkeKuZu_y74qUT1brasTJbs0kfW-7j6vz1BRLTlHUNMu/s1957/Total_measures.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlGXXc6W7YVLjtkmPlygOqeVi_pi0TAF8IAbhyphenhyphenVN-kswA22YBnAJPyilH8vCpnbYK0cKK_XRX1zm7LWH5qxMYGg0NOdgtsd8nPibvUxoKPEgXRcyp-i9RmCVNVufKR-8Eb92bZgFIU9GE1TAAfpkeKuZu_y74qUT1brasTJbs0kfW-7j6vz1BRLTlHUNMu/s16000/Total_measures.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 1: Sum of trade remedial measures taken by all countries in last 10 years</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />Moving on to the restrictive measures, we can see that they come in various types. Below, I dissect the major types of restrictive measures used in the last 10 years, providing the numbers and a brief explanation for each type. <br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjn6r9sq1a7RrjYLyp8doldU2PW86R9evTnjqOQYS8HqQ3NBngx0ZEJTgqQGxBaFJzo83qRYYk1D0G4O9N1f8-qEdFmfb6CcbrGWpOs3W4dejhaojtfEPJ-8ic5xg3LAyE4T1PvslNdckuLhw8_tjXeiAVy040RYEjG5TB-aTJ1SkP8228xOv1bXS55TdwG/s982/Screenshot%202024-01-22%20at%201.35.06%E2%80%AFPM.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjn6r9sq1a7RrjYLyp8doldU2PW86R9evTnjqOQYS8HqQ3NBngx0ZEJTgqQGxBaFJzo83qRYYk1D0G4O9N1f8-qEdFmfb6CcbrGWpOs3W4dejhaojtfEPJ-8ic5xg3LAyE4T1PvslNdckuLhw8_tjXeiAVy040RYEjG5TB-aTJ1SkP8228xOv1bXS55TdwG/s16000/Screenshot%202024-01-22%20at%201.35.06%E2%80%AFPM.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i style="text-align: start;">Table 1: Types of non-remedial restrictive measures, the numbers, and explanation</i></td></tr></tbody></table><br />Now, let's track the evolution of these trade measures over time. <br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnzq1EJEIUHdn_clcyQey9oLYyquJob-TPVBjIgndkDO2RlCRraagto-CTPN_gVSszVCJ_YqSyOP2PUym34pX-3KMpSlWR5igktlgN6lVn_5Aos0r1pt_gRAK1l5PvNhEF8LWjot3dKN8T18ddE_pOO2rGQI2hlo6VyWuA2DPBJvq19qhMTtozyz9TiTAi/s3520/remedies_over_years.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnzq1EJEIUHdn_clcyQey9oLYyquJob-TPVBjIgndkDO2RlCRraagto-CTPN_gVSszVCJ_YqSyOP2PUym34pX-3KMpSlWR5igktlgN6lVn_5Aos0r1pt_gRAK1l5PvNhEF8LWjot3dKN8T18ddE_pOO2rGQI2hlo6VyWuA2DPBJvq19qhMTtozyz9TiTAi/s16000/remedies_over_years.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 2: Sum of remedial and restrictive measures taken by countries over the years</span><br style="text-align: start;" /></i></td></tr></tbody></table><br /><div>The graph above indicates a clear shift towards more restrictive trade measures in the wake of the COVID-19 pandemic. Some of these measures were aimed at controlling the export of crucial healthcare products during COVID. This move towards swift and decisive trade actions also aligns with concerns over food security and the fallout from recent global conflicts. Despite the complexity of their implementation, remedial measures have maintained a consistent presence. However, the increase in restrictive measures from 2020 shows how quickly countries can adjust their policies in response to pressing domestic needs and international crises.<br /><br />At this point, it's logical to wonder which countries are most responsible for these numbers. The next section presents visuals to shed light on the countries behind these trends.<br /><br />The bar chart below breaks down the total count of trade remedy cases initiated over the past decade, segmented into anti-dumping duties (ADD), countervailing duties (CVD), and safeguard measures (SGD) across different countries. <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV27zOzomRZmJ28PSHylmdqjwjqSVe_YDk4e4-_WT-QOH6BmCozDPuAbOm8aB75QNSK-rY_hREYFVZYpBSvAl2dKLX-rsszif_D2B8g22EMSAxfnI3T1mSkkyU_vC8KuMkgbFRrNOpN5BvgYPRXCHv-sJkRhGuLzjf33KzdHeSV8S_W94HUclG82P45qJh/s1260/Screenshot%202024-01-22%20at%2011.37.35%E2%80%AFPM.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV27zOzomRZmJ28PSHylmdqjwjqSVe_YDk4e4-_WT-QOH6BmCozDPuAbOm8aB75QNSK-rY_hREYFVZYpBSvAl2dKLX-rsszif_D2B8g22EMSAxfnI3T1mSkkyU_vC8KuMkgbFRrNOpN5BvgYPRXCHv-sJkRhGuLzjf33KzdHeSV8S_W94HUclG82P45qJh/s16000/Screenshot%202024-01-22%20at%2011.37.35%E2%80%AFPM.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 3: Trade remedial measures in the last decade - country wise</span><br style="text-align: start;" /></i></td></tr></tbody></table><br /></div><div>India emerges as the most prolific in employing remedial measures, followed closely by the United States and the European Union. Notably, anti-dumping duties are the predominant tool utilized accounting for a major chunk (78%) of all restrictive measures. When it comes to safeguard measures, India (17 cases), Türkiye (12 cases), and Ukraine (13 cases) have been particularly active in invoking them. The extensive use of CVD by the United States (121 cases), the European Union (22 cases), and Canada (21 cases) underscores their institutional capacity to conduct comprehensive anti-subsidy investigations, reflecting a tactical approach tailored to counteract foreign subsidies. <br /><br />Yet, focusing solely on the aggregate number of ADD cases by country may conceal the full truth. Notably, countries like the USA and India often pursue ADD against multiple nations simultaneously under one single case. This tactic considerably extends the influence and impact of their measures. The following depiction illustrates the one-on-one ADD imposed by each country or region over the last decade. One may see that while ADD cases filed by USA and India were 178 and 271 respectively, when we take a one-to-one count, it balloons to 433 and 575 respectively:<br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVmoOMK5vCPhboPny3x2RmLug2oLi0ab8JTpinkdv3Rgx3oLQGcRXdfKELKbbL59azCVj4ahGQBcFXnP3ActgWwT7_ld_NRf735d76IwC1-9m-QLBvC4stZZkRUmuL3QF1RDjmrkYYy9yzWTU6lo7H7Ik_sk34w2ytat359xvO4o4H-p1kZLkw26L0MmfQ/s3547/world_map_anti-dumping.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVmoOMK5vCPhboPny3x2RmLug2oLi0ab8JTpinkdv3Rgx3oLQGcRXdfKELKbbL59azCVj4ahGQBcFXnP3ActgWwT7_ld_NRf735d76IwC1-9m-QLBvC4stZZkRUmuL3QF1RDjmrkYYy9yzWTU6lo7H7Ik_sk34w2ytat359xvO4o4H-p1kZLkw26L0MmfQ/s16000/world_map_anti-dumping.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 4: ADD used - country/region wise when taken one-on-one rather than number of reported cases</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />The bar chart below showcases the frequency of trade restrictive measures (beyond trade remedies) employed by various countries over the last decade. <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrU8NrCBiuzS-jFChtOX47Wkc2ZDLKkA3uF-AzuglVD_x6cin1o1PAEErVvWkHPaFio2sbSDx8cWNtWqvgk9dpCMHKB9caNhS5_tAknjty8ktNo0lGOkhcwztVWkob2yP8VNzLs5rY6FQ6zoJPUHILCxuZaR7QWykL1eEtDGDBaGswL79FZ631H1fPFKtf/s2635/restrictive_countrywise.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrU8NrCBiuzS-jFChtOX47Wkc2ZDLKkA3uF-AzuglVD_x6cin1o1PAEErVvWkHPaFio2sbSDx8cWNtWqvgk9dpCMHKB9caNhS5_tAknjty8ktNo0lGOkhcwztVWkob2yP8VNzLs5rY6FQ6zoJPUHILCxuZaR7QWykL1eEtDGDBaGswL79FZ631H1fPFKtf/s16000/restrictive_countrywise.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 5: Restrictive measures over last decade - country/region wise</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />In analyzing trade restrictive measures data, a stacked bar representation of the different types of restrictions (as was done in remedial measures case) is not practical due to the diversity of measures. Instead, we may concentrate on the top three countries: India, Argentina, and Türkiye, which stand out for their active use of these measures. <br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6cLxaEUGI8RohDfe63oqEA_WuvzB5tJ1k5MBE67ART_tcM0skQVpMDjHnF0Wk8rHATb3spKGccAdoS4WG8g7vbhubDd1SRvfhl_K_pf5j5KIY0cBOZFgBJh89Kzh0aJpdnW4K7KLs4wwcO9VvlTb6IGCR5AaS18tK6zfEOd2ksPfRD6n63PwAlXdpATeo/s782/Screenshot%202024-01-23%20at%208.48.19%E2%80%AFAM.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6cLxaEUGI8RohDfe63oqEA_WuvzB5tJ1k5MBE67ART_tcM0skQVpMDjHnF0Wk8rHATb3spKGccAdoS4WG8g7vbhubDd1SRvfhl_K_pf5j5KIY0cBOZFgBJh89Kzh0aJpdnW4K7KLs4wwcO9VvlTb6IGCR5AaS18tK6zfEOd2ksPfRD6n63PwAlXdpATeo/s16000/Screenshot%202024-01-23%20at%208.48.19%E2%80%AFAM.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Table 2: Leading countries using restrictive measures - disaggregation</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />Based on the above, the 'Tariff King' moniker attributed to India by former (and perhaps, future too) President Trump underscores the country's strategic application of tariffs, which is clearly evidenced by the data. With 66 instances of imposing import tariffs in the last decade — the highest among its global peers — India has used tariffs as a tool to shield its emerging industries, maintain economic balance, and to pursue certain industrial policy goals. <br /><br />A question naturally emerges from this analysis: which countries find themselves on the receiving end of these measures? To whom are these cases targeted at? Let's start with Anti-Dumping Duties. The plot below shows the number of times the countries faced ADD measures by their trading partners in the last 10 years. Each ADD measure may pertain to multiple items/HS chapters as pointed out above. <br /><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_Aq-F7_dWYanQwYNG5KKFMXYEIrU5Nk0kfaMBqXAP-rPXYm5MGln6G4OrPEtAmPp6YjkURzsA0AB7A3JAkCGC1eakEhxTwa7CincQb_rAPcFrHK-D7CjazkeqynsitwJ1W9HjoiQkcYHHpdN4NX_cb27ThVDEj_e9TGIdRvIQPorkBWX5UCadfR1DI_YZ/s3547/world_map_anti-dumping_against_trading_partners.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_Aq-F7_dWYanQwYNG5KKFMXYEIrU5Nk0kfaMBqXAP-rPXYm5MGln6G4OrPEtAmPp6YjkURzsA0AB7A3JAkCGC1eakEhxTwa7CincQb_rAPcFrHK-D7CjazkeqynsitwJ1W9HjoiQkcYHHpdN4NX_cb27ThVDEj_e9TGIdRvIQPorkBWX5UCadfR1DI_YZ/s16000/world_map_anti-dumping_against_trading_partners.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 6: Number of ADD cases suffered - country wise</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />The plot above shows that China is the clear outlier, targeted by a staggering 546 ADD cases—testament to its expansive and often contentious role in global trade, frequently associated with subsidies that distort market competition. India, while a distant second with 47 instances, and Brazil with 32, are also significant targets but pale in comparison to China’s figures. <br /><br />What about CVD? Here are the targets: <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8fZX60RvzU2NFX95OXF9aa-3N2lJYY2rlcMnep6Zsn87Qm27PMv9N-mnRQlmctWDSPjPck4hBzVf0tQa5KpD_5G8tOIR4CYCAOswEsiVtb1o645-HGRLEjKIdvKec0fBcq3HX7kyPsr1hPK4ZYgPvXofyWhPNdGfhsiMhYXrZjc5DRmVQaREcmoWCrAvK/s3547/world_map_countervailing_against_trading_partners.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8fZX60RvzU2NFX95OXF9aa-3N2lJYY2rlcMnep6Zsn87Qm27PMv9N-mnRQlmctWDSPjPck4hBzVf0tQa5KpD_5G8tOIR4CYCAOswEsiVtb1o645-HGRLEjKIdvKec0fBcq3HX7kyPsr1hPK4ZYgPvXofyWhPNdGfhsiMhYXrZjc5DRmVQaREcmoWCrAvK/s16000/world_map_countervailing_against_trading_partners.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 7: Number of CVD cases suffered - country wise</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />The above plot for CVD is not very different from the ADD one earlier. China is the prime target and India is a distant second. <br /><br />Yet, there's a striking disparity when we scrutinize the number of cases against advanced economies. The USA and EU, while frequently instigators of ADD and CVD measures, rarely face the same level of pushback from developing nations. This discrepancy isn't just a matter of trade volume or market power, or that these countries don't resort to protectionism or subsidy; it signals a deeper strategic maneuvering. Advanced economies are deftly redefining the rules of international trade to align with 21st-century concerns—climate change, sustainability, labor practices—often championed by them. This strategic shift, while under the guise of progressive policy, could be perceived as a sophisticated form of protectionism, subtly reworking the very trade rules they helped establish in the previous century, and which they claim to follow. For developing countries, this is a call to elevate their grasp of the new trade playbook. It's essential to not only build robust negotiating teams and investigative frameworks to respond to these measures but also to discern and navigate the nuanced policy landscape that now includes environmental and social governance factors as pivotal elements of trade competitiveness.<br /><br />Next, let's expore the common items against which ADD and CVD actions are taken. <div><br /></div><div>A quick look at items that commonly face ADD is shown in the figure below: <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8Tp6QB4zPIdtSX7XKmO8q0R0-H3-B5KmQ3vLVumzgi_Jg1o6F0uPn1vruA8RYjSTYWIZKxYYmCbQIISqvS88h6k5C_2_aSGZcC9v9lTfU2ZvnowsdtjbRH5CjEcDpRzgcWE1E8IzYnga5CgVzm0XC9GeHuVPlHPhDPiwU5_NK2TLp2OpycOex-EtnUVqX/s3377/chapter_wise_ADD.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8Tp6QB4zPIdtSX7XKmO8q0R0-H3-B5KmQ3vLVumzgi_Jg1o6F0uPn1vruA8RYjSTYWIZKxYYmCbQIISqvS88h6k5C_2_aSGZcC9v9lTfU2ZvnowsdtjbRH5CjEcDpRzgcWE1E8IzYnga5CgVzm0XC9GeHuVPlHPhDPiwU5_NK2TLp2OpycOex-EtnUVqX/s16000/chapter_wise_ADD.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 8: ADD cases in last 10 years - HS Chapter wise distribution</span><br style="text-align: start;" /></i></td></tr></tbody></table><br />And the common items that face CVD are shown below: <br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguNUio5mvSwBtMNGItxLITIGWmN1RRr-YOrjvpYyBVmw_kXRq1uMs5Pvy0KB3R1tKf7_Lu9vajQMb0rnguF5RtZM3utUvakK2VS6fGH1gJ9eveZV7Eyp3Kk4X3R-gt6iS-y2xvcgbeusAybzju4XK4f9W7I1vkLIt-LuEcTAptVmKhk_3mCgm-iWXXRRwi/s3377/chapter_wise_CVD.png" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguNUio5mvSwBtMNGItxLITIGWmN1RRr-YOrjvpYyBVmw_kXRq1uMs5Pvy0KB3R1tKf7_Lu9vajQMb0rnguF5RtZM3utUvakK2VS6fGH1gJ9eveZV7Eyp3Kk4X3R-gt6iS-y2xvcgbeusAybzju4XK4f9W7I1vkLIt-LuEcTAptVmKhk_3mCgm-iWXXRRwi/s16000/chapter_wise_CVD.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><span style="text-align: start;">Fig 9: CVD cases in last 10 years - HS Chapter wise distribution </span><br style="text-align: start;" /></i></td></tr></tbody></table><br />It is noticed from the above plots that Chapter 72, covering Iron and Steel, is a frequent target perhaps due to its vital role in national infrastructure and security, and often subject to dumping due to global overproduction. Chapter 73, encompassing a range of Articles of Iron or Steel, also attracts attention for its wide utility in key industries, making it a common target for protective measures. Additionally, Chapter 29, which deals with Organic Chemicals essential for pharmaceuticals and manufacturing, is commonly involved in trade disputes due to its strategic importance and high research and development costs. A non-protection from unfair international trade in these industries may lead to destruction of manufacturing capability of a nation. In the coming years, we may see more action in chapter 85, which may have several important parts for the Electric Vehicles and components. <br /><br />Let's move now to country based analysis focusing on India first. <br /><br /></div><div>The figure below shows the country/region-wise distribution of remedial measures taken against India's exports, based on the number of trade remedy cases (ADD, CVD, SGD) filed in the last 10 years. </div><div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhELC6MJAaSxBg7IkWBk17uWcfq9AeMtO9CtFL0jmCwRE-BQ0O21R1Dubg8E7AfKS9JHA9-c2AKKBUeTypXw1KTahNF7vGY2xh7ENqybkr95823uMLSjZr2icP1w6c8imVfmRcun35n42s0xZByDRbP8s9juY2d1BtwO7vJkZ2wgRps8XHf_CyIKcUwvEsr/s2204/treemap_remedies_against_india.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1460" data-original-width="2204" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhELC6MJAaSxBg7IkWBk17uWcfq9AeMtO9CtFL0jmCwRE-BQ0O21R1Dubg8E7AfKS9JHA9-c2AKKBUeTypXw1KTahNF7vGY2xh7ENqybkr95823uMLSjZr2icP1w6c8imVfmRcun35n42s0xZByDRbP8s9juY2d1BtwO7vJkZ2wgRps8XHf_CyIKcUwvEsr/s16000/treemap_remedies_against_india.jpg" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><a href="https://public.tableau.com/views/sankey_trade_remedial_measures/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link" target="_blank">Fig 10</a>: Treemap of remedies cases filed against India - country/region-wise</i></td></tr></tbody></table><br /><div>On can readily see that it's the USA that has filed most of the cases against us. Also you will see countries like Argentina, Mexico and regions like GCC and SACU filing cases against us. </div><div><br /></div><div>Coming to India's turn, the distribution of trade remedy cases filed by India against others over the last 10 years is shown below. This is a static image - the interactive version of it can be seen at this Tableau <a href="https://public.tableau.com/views/TradeRemedycasesfiledbyIndiasince2014/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link" target="_blank">link</a> if one is interested. Most of our cases are against China and ASEAN - prime region from where we import goods. </div><div><br /></div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjXxIEBs0wKPy_hGJd_4zYq-JSpnDLkxZK-BE8Ax6Wp_mmR645_jUySr8iyYPg9YT0YsJltVoBFiIPqUOYU7gcR1LOoP4NnMGSiOqkiT94VMr6sq4EObcQ7m07kRqhyZV2yZaB54cj5WvmfA1a14MJioXOuZC8C7n8TyP6YHYGhULEd-gXNF_kyQDsvVKf/s2894/Sheet%201-5.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1766" data-original-width="2894" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjXxIEBs0wKPy_hGJd_4zYq-JSpnDLkxZK-BE8Ax6Wp_mmR645_jUySr8iyYPg9YT0YsJltVoBFiIPqUOYU7gcR1LOoP4NnMGSiOqkiT94VMr6sq4EObcQ7m07kRqhyZV2yZaB54cj5WvmfA1a14MJioXOuZC8C7n8TyP6YHYGhULEd-gXNF_kyQDsvVKf/s16000/Sheet%201-5.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><a href="https://public.tableau.com/views/TradeRemedycasesfiledbyIndiasince2014/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link" target="_blank">Fig 11: </a>Distribution of cases filed by India - country/region-wise<br /></i><br /></td></tr></tbody></table></div><div>Overall, the above behaviour of India is not an anamoly. One may say that the target of most such trade remedy cases across the world is China - a habitual rule breaker who has gamed the merchandise trade system. To prove my point, I will end this long blog post with two visuals of distribution of trade remedy cases filed in the last 10 years by the USA and the EU. </div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMgHUbcSVwaaqW7LA27QARmclrko5fMh71LuiOIPz-_MuZt8gWPpLnFCc1aBp4KMwV2AcjhgPzazJb-qm8fSNf_tsrjxFnxfQC5iC8p8wHnkqxN9rkMcHu_Du6YNniSzbT4_4QMAKfdlTe72OO_hqUmh9Myc5SD6J6rICIp6e1CFn6OSfAYq9di2nO4U2-/s2950/Sheet%202-2.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1452" data-original-width="2950" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMgHUbcSVwaaqW7LA27QARmclrko5fMh71LuiOIPz-_MuZt8gWPpLnFCc1aBp4KMwV2AcjhgPzazJb-qm8fSNf_tsrjxFnxfQC5iC8p8wHnkqxN9rkMcHu_Du6YNniSzbT4_4QMAKfdlTe72OO_hqUmh9Myc5SD6J6rICIp6e1CFn6OSfAYq9di2nO4U2-/s16000/Sheet%202-2.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><a href="https://public.tableau.com/views/TradeRemedycasessince2014/Sheet2?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link" target="_blank">Fig 12: </a>Trade remedy cases filed by the USA over last 10 years - country/region-wise</i></td></tr></tbody></table><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5kqpr_qiM5wyojfIv0qlC0ExiOtH0Vcw02HPvNlWjiGcLTd7_B9aBWJ_mp_6dLkSqqwRLYWM6DM__UYsf0z-G0MPA-cbB5Xtl9lwXTBkvNNIxLbS76DopQWqf1M8mSOQ6vLhEDTiTnwtzKTMresYiGhYx618ahcruOqrXe95euHZvcX9j-_nt8qra1tkM/s2950/Sheet%203.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1452" data-original-width="2950" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5kqpr_qiM5wyojfIv0qlC0ExiOtH0Vcw02HPvNlWjiGcLTd7_B9aBWJ_mp_6dLkSqqwRLYWM6DM__UYsf0z-G0MPA-cbB5Xtl9lwXTBkvNNIxLbS76DopQWqf1M8mSOQ6vLhEDTiTnwtzKTMresYiGhYx618ahcruOqrXe95euHZvcX9j-_nt8qra1tkM/s16000/Sheet%203.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i><a href="https://public.tableau.com/views/TradeRemedycasessince2014-EU/Sheet3?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link" target="_blank">Fig 13:</a> Trade remedy cases filed by the EU over last 10 years - country/region-wise</i></td></tr></tbody></table><br /><div><br /></div><div><i style="font-weight: bold; text-decoration: underline;">Source and code: </i></div><div><b><u><i><br /></i></u></b></div><div><i>1. Data was downloaded from WTO's trade monitoring database (TMD) as mentioned for the period 01-01-2014 to 01-01-2024 from this <a href="https://www.blogger.com/blog/post/edit/3734986736884142928/8856629523112715712#" target="_blank">link</a>. </i></div><div><i><br /></i></div><div><i>2. For generating Figures 4, 6, and 9 - the world maps of ADD/CVD cases used and suffered - I have coded the same using Python with Geopandas. The code for the same is kept at GitHub repository at this <a href="https://github.com/Tiru-Kaggundi/ADD_CVD_analysis/tree/528b97e91a1abceea9a598d66f3ef795f8dae7cc" target="_blank">link</a>. The github repo also contains the excel sheets that I have downloaded from TMD alongwith some of the visuals created in the excel sheets. </i></div><div><i><br /></i></div><div><i>3. Figures 10 to 13 are generated in Tableau Public and the links to the individual figures are given below: </i></div><div><i><br /></i></div><div><p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: inherit;"><i>Fig 10: Remedial cases against India link: <a href="https://public.tableau.com/views/sankey_trade_remedial_measures/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link">https://public.tableau.com/views/sankey_trade_remedial_measures/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link</a></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 15px;"><span style="font-family: inherit;"><i><br /></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: inherit;"><i>Fig 11: Remedial cases filed by India: <a href="https://public.tableau.com/views/TradeRemedycasesfiledbyIndiasince2014/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link">https://public.tableau.com/views/TradeRemedycasesfiledbyIndiasince2014/Sheet1?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link</a></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 15px;"><span style="font-family: inherit;"><i><br /></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: inherit;"><i>Fig 12: Remedial cases filed by USA: <a href="https://public.tableau.com/views/TradeRemedycasessince2014/Sheet2?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link">https://public.tableau.com/views/TradeRemedycasessince2014/Sheet2?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link</a></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 15px;"><span style="font-family: inherit;"><i><br /></i></span></p>
<p style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-stretch: normal; font-variant-alternates: normal; font-variant-caps: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: inherit;"><i>Fig 13: Remedial cases filed by the EU: <a href="https://public.tableau.com/views/TradeRemedycasessince2014-EU/Sheet3?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link">https://public.tableau.com/views/TradeRemedycasessince2014-EU/Sheet3?:language=en-US&publish=yes&:display_count=n&:origin=viz_share_link</a></i></span></p></div><div><br /></div></div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0New Delhi, Delhi, India28.6139391 77.2090212-1.7524244594813005 42.052771199999967 58.980302659481296 112.36527120000002tag:blogger.com,1999:blog-3734986736884142928.post-14009899550202190592023-12-16T00:05:00.004+05:302023-12-16T00:05:56.162+05:30Unveiling Prosperity: How State-Level Exports Shape India's Economic Landscape<p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">Exports vary widely across Indian states. This disparity offers rich insights, crucial for those shaping India's trade policies. Below, I present a clear-eyed look at the export performance from different states of India, drawing on official data from the Directorate General of Commercial Intelligence and Statistics (DGCIS) for the financial year 2023. The figure below shows the numbers (USD millions), disaggregated at the state-level. </span></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPXZdFxgB5_5GfnNjYotE5bf8GLlbI9WOXhT5JpDmyPaRJCLMNbjEqtmFtYrdEFsHdxfj9emIEzmplX4hnWdRTSImvGF5510f0Gx_nekFpXZwCIlWxrcex_dSP-RjNLG4XkFzSYglMmMuDaww7sNFZmEZyVDOKCKHsMPK7vLs2SitSyY48yrZLyp14Eu99/s1888/States_AM23.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="844" data-original-width="1888" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPXZdFxgB5_5GfnNjYotE5bf8GLlbI9WOXhT5JpDmyPaRJCLMNbjEqtmFtYrdEFsHdxfj9emIEzmplX4hnWdRTSImvGF5510f0Gx_nekFpXZwCIlWxrcex_dSP-RjNLG4XkFzSYglMmMuDaww7sNFZmEZyVDOKCKHsMPK7vLs2SitSyY48yrZLyp14Eu99/s16000/States_AM23.png" /></a></div><br /><p><span style="font-family: inherit; font-size: large;">Let's move over quickly to something that I find more interesting. See the figure below which captures GDP/capita Vs Exports/capita for the states: </span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcF-W1RfRaj3Vk1VQ94TFt408touV1JLeM66Xy67omk9-K3oy7Qzh-AiwZDs-StxgUPiWTOekBFot6KtEswRNUH1fKUAPZdnv-4PpqWe7aPvTeT1N0P1jeELqBsjGXMMVTnAoGtRs7SVVpOLf5ts7gI9dVGLEFKSMjuijXDf6v0TyOM8Sz3VJ7lnYLE9Fh/s2570/bubble_states_Corr_1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1584" data-original-width="2570" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcF-W1RfRaj3Vk1VQ94TFt408touV1JLeM66Xy67omk9-K3oy7Qzh-AiwZDs-StxgUPiWTOekBFot6KtEswRNUH1fKUAPZdnv-4PpqWe7aPvTeT1N0P1jeELqBsjGXMMVTnAoGtRs7SVVpOLf5ts7gI9dVGLEFKSMjuijXDf6v0TyOM8Sz3VJ7lnYLE9Fh/s16000/bubble_states_Corr_1.jpg" /></a></div><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">GDP and exports per head walk together, the figure tells us that much. States with bigger exports per person often show fatter wallets per capita. Exports drive not just the big national machine but also the local carts and wagons. Good roads, wise policies, and new ideas—these are the seeds for export growth in our backyards. But let's not get ahead of ourselves; a dance together isn’t always a tango of cause and effect. Still, you can't ignore the tune. Exports could lift states, polish shoes, and put more dinners on the table. Let's remember that next time we’re drawing up the blueprints.</span></span><div><span style="font-size: medium;"><span style="caret-color: rgb(55, 65, 81); white-space-collapse: preserve;"><br /></span></span><div><span style="font-size: medium;"><span style="caret-color: rgb(55, 65, 81); white-space-collapse: preserve;">Going further, the next plot is interesting too. <br /></span></span><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-tvR6HUrsg2BjIb44l3GD0LRNM3aDPAh8TSTiYvfGogsvdfHJUij545JboKy5Ja-zCyisQSBZF_Z2oBZzTMIiz-LbCfjA89r_4pMaPqEa05FoZnzmiDKzgSYmZb1BRs74Krtp-nL6XAPB-qtAKc5sQ73g985KNeU5HhPSei68pZN6pQEDTscn2kkSKl87/s2284/bubble_states_rail_updated.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1434" data-original-width="2284" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-tvR6HUrsg2BjIb44l3GD0LRNM3aDPAh8TSTiYvfGogsvdfHJUij545JboKy5Ja-zCyisQSBZF_Z2oBZzTMIiz-LbCfjA89r_4pMaPqEa05FoZnzmiDKzgSYmZb1BRs74Krtp-nL6XAPB-qtAKc5sQ73g985KNeU5HhPSei68pZN6pQEDTscn2kkSKl87/s16000/bubble_states_rail_updated.png" /></a></div><p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">Tracks and trade go hand in hand. Ask the Yankees. The above plot shows that states with sprawling railroads often send more goods out into the world. It's a nod to the mighty role of iron paths in trade's blood flow. Yet, let's not be railroaded into thinking tracks are the whole journey. Take Uttar Pradesh—tracks for miles, but the exports don't quite catch up, a gentle nudge that it takes more than steel rails to race ahead in exports. It's a bigger game. Good tracks must shake hands with sharp policies and open gates. The track is laid; with Yogi ji paving the way for the goods laden trains to roll. </span></span></p><p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">Finally, I come to the index developed by NITI Aayog - <a href="https://pib.gov.in/PressReleasePage.aspx?PRID=1940295" target="_blank">The Export Performance Index (EPI)</a>. </span></span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjh-yuLlinq7t9UtF2Hs354ijB-yIYaiyaEQxPN6cweTI34baCM0DboahLKwPV5ab1_IQuZFU4N3vZGM9p_ml51Z55LwdE4Zr6m4UiRMdTIyV7NQjns3I5nBOKphqeVMUkCs_-EeU92XoEB1BOTRzkCKzRqALqcbVQhQIWf-TL3VU4fXP7nIZmo0rPrRnN4/s2324/bubble_EPI_updated.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1492" data-original-width="2324" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjh-yuLlinq7t9UtF2Hs354ijB-yIYaiyaEQxPN6cweTI34baCM0DboahLKwPV5ab1_IQuZFU4N3vZGM9p_ml51Z55LwdE4Zr6m4UiRMdTIyV7NQjns3I5nBOKphqeVMUkCs_-EeU92XoEB1BOTRzkCKzRqALqcbVQhQIWf-TL3VU4fXP7nIZmo0rPrRnN4/s16000/bubble_EPI_updated.png" /></a></div><p></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 0px 0px 1.25em; white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">The EPI 2022 tells it straight: States with sharp policies and strong infrastructures lead in exports. The figure doesn't lie; these states aren't just lucky. They've worked for it, setting up the right conditions for trade to thrive.</span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px; white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">Coastal states like Tamil Nadu, Maharashtra, Karnataka, and Gujarat have the edge of the sea, but they didn't just sit back and enjoy the view. They used it, crafting policies and building ports that turned their shores into gateways of global trade. This isn't about geography; it's about using what you have to the fullest.</span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;">For India to keep rising, every state has to pull its weight, adding their strength to the country's export engine. Exports aren't just a piece of the economy; they're the heart of our economic future. And there's a lot to learn from those states that do well. </span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 1.25em 0px 0px;"><span style="font-size: medium;"><span style="caret-color: rgb(55, 65, 81); white-space-collapse: preserve;"><i>References: </i></span></span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 1.25em 0px 0px;"><span style="font-size: medium;"><span style="caret-color: rgb(55, 65, 81);"><i>1. Figures: Python/Plotly. See my <a href=" https://github.com/Tiru-Kaggundi/Trade_Stuff/blob/973ac2be5f3a1bba79e8a3728d06f0ee98b4d61c/bubble.py" target="_blank">github page</a> to reproduce. </i></span></span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 1.25em 0px 0px;"><span style="font-size: medium;"><span style="caret-color: rgb(55, 65, 81);"><i>2. Data: a) Trade data from <a href="https://www.dgciskol.gov.in" target="_blank">DGCIS</a> - Their amazing UI inspires you to work long/hard. I have <a href="https://github.com/Tiru-Kaggundi/Trade_Stuff/blob/126430280c3de60458ecf26abf9b010171040062/Exports_States_AM23.xlsx">kept the excel sheet on the git</a> if you want a shortcut to the data used. b) SGDP data from RBI c) Population data (projected one for 2023) from RGI</i></span></span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="font-family: inherit; font-size: medium;"><br /></span></p></div></div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-68086687446705169572023-09-14T23:37:00.005+05:302023-09-15T08:36:23.551+05:30Export trend analysis for Indian exports - Sept 2023<p><span style="font-family: inherit;">Monthly aggregate merchandise exports provide a snapshot of India's economic health and the global market. While it's tempting to draw conclusions from this data, I'd caution against it unless we're observing broad patterns. For impactful policy decisions, a deeper dive is essential, albeit with some delay due to data lag. </span></p><p><span style="font-family: inherit;">Now, let's venture into this intriguing data analysis.</span></p><p><span style="font-family: inherit;">Here's the latest monthly exports figures, in USD billion dollars, for merchandise exports from India: </span></p><table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; color: black; font-variant-caps: normal; width: 432px;"><colgroup><col span="6" style="width: 54pt;" width="72"></col></colgroup><tbody><tr height="68" style="height: 51pt;"><td class="xl64" height="68" style="border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; height: 51pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">Month </span></td><td class="xl64" style="border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">Trade Balance </span></td><td class="xl64" style="border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">Total Exports</span></td><td class="xl66" style="background-attachment: scroll; background-clip: border-box; background-image: none; background-origin: padding-box; background-position: 0% 0%; background-repeat: repeat; background-size: auto; border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">YoY growth</span></td><td class="xl64" style="border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">Exports minus POL</span></td><td class="xl66" style="background-attachment: scroll; background-clip: border-box; background-image: none; background-origin: padding-box; background-position: 0% 0%; background-repeat: repeat; background-size: auto; border-color: rgb(112, 173, 71); border-image: none; border-style: solid; border-width: 0.5pt 0.5pt 1pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; width: 54pt;" width="72"><span style="background-color: #fff2cc; font-family: inherit;">YoY growth</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Apr-22</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-18.4</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">39.7</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">29.1</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">31.8</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">17.4</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">May-22</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-22.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">39.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">20.8</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">30.5</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">13.1</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Jun-22</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-22.1</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">42.3</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">30.1</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">31.7</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">11.0</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Jul-22</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-25.4</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">38.3</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">8.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">30.2</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">1.7</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Aug-22</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-24.9</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">37.0</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">10.9</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">28.5</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-0.7</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Sep-22</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-28.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">35.4</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">4.7</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">28.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-1.7</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Oct-22</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-26.3</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">31.6</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-11.6</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">25.3</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-16.7</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Nov-22</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-22.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">34.9</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">9.7</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">26.8</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">1.9</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Dec-22</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-23.2</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">38.1</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-3.1</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">29.7</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-8.6</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Jan-23</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-16.4</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">35.8</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">1.6</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">28.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-8.4</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Feb-23</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-16.2</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">37.0</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-0.4</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">29.2</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-3.6</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Mar-23</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-18.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">41.9</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-6.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">33.6</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-3.4</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Apr-23</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-15.5</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">34.7</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-12.7</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">28.2</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-11.4</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">May-23</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-22.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">35.0</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-10.3</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">29.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-4.6</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Jun-23</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-18.8</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">34.4</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-18.8</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">27.6</span></td><td align="right" class="xl65" style="background: repeat rgb(226, 239, 218); border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-12.9</span></td></tr><tr height="21" style="height: 16pt;"><td align="right" class="xl63" height="21" style="border: 0.5pt solid rgb(112, 173, 71); height: 16pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">Jul-23</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-18.5</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">34.5</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="color: red; font-family: inherit;">-10.1</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">27.8</span></td><td align="right" class="xl65" style="border: 0.5pt solid rgb(112, 173, 71); padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;"><span style="font-family: inherit;">-8.0</span></td></tr></tbody></table><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;">The last few months decline in export growth is worrying. The graphic below captures the essence: </span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhc9r-SwlH1TB8Q2XLl8A9yuBsukUq-NupNqmam4-mtYQdoDcEfMvkdUnBU2re1u3TZNqGRY_zz2Z3o0d0u0CqRCPk9nTBX8pyA3G1aAcd8slblnNMf6ZRMGqGbnOBoqsiJFE5g1P9vJecEDB_BohsfWh7MvCwHeSMCiChj8IJIogufvgKdUO1DCCDy0krQ/s4500/exports_growth_trend.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" data-original-height="2400" data-original-width="4500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhc9r-SwlH1TB8Q2XLl8A9yuBsukUq-NupNqmam4-mtYQdoDcEfMvkdUnBU2re1u3TZNqGRY_zz2Z3o0d0u0CqRCPk9nTBX8pyA3G1aAcd8slblnNMf6ZRMGqGbnOBoqsiJFE5g1P9vJecEDB_BohsfWh7MvCwHeSMCiChj8IJIogufvgKdUO1DCCDy0krQ/s16000/exports_growth_trend.png" /></span></a></div><span style="font-family: inherit;"><br /></span><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><div>How does India's export decline stack up against the usual average, and against other global exporting powerhouses? The graph below juxtaposes India's monthly exports over the past year with those of Japan, China, Korea, and Germany. Dashed lines, color-coded for each nation, depict the three-year monthly average for exports. If a point lies above this line, it signifies that a country's exports exceed its typical monthly average. (While the COVID-19 pandemic was an anomaly, the post-pandemic surge likely offset the downturn, thus normalizing the average over these three years)</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYew9JPo4ljuXc70waP0IxZRVSdoSUPv85aKxuUf3IoF0EEvCRPiWTFeHPm4E9C8NMv3YwqlPQl_pcdaZieov5LasayRW59y3_GyRtCEIxN32oi_1mT3jSz9T3s33pkQFvfrFYMNUqOKXzMmSrCJZuCNII_2FxZJ3YskpFfNkTFcNoqjEFKg6cAgCX2mYl/s8400/monthly_exports_last_year_with_3_year_avg_line.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="4800" data-original-width="8400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYew9JPo4ljuXc70waP0IxZRVSdoSUPv85aKxuUf3IoF0EEvCRPiWTFeHPm4E9C8NMv3YwqlPQl_pcdaZieov5LasayRW59y3_GyRtCEIxN32oi_1mT3jSz9T3s33pkQFvfrFYMNUqOKXzMmSrCJZuCNII_2FxZJ3YskpFfNkTFcNoqjEFKg6cAgCX2mYl/s16000/monthly_exports_last_year_with_3_year_avg_line.png" /></a></div></span></div><div><div><span style="font-family: inherit;">Note: The Y-axis is bifurcated for clearer visualization, so interpret with care.</span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;">Observations: India's recent performance seems to be trailing its usual monthly average. Japan and Korea exhibit a similar trend, while Germany bucks it. China, on the other hand, holds steady, mirroring its average pace.</span></div></div><div><span style="font-family: inherit;"><br /></span></div><div><div><span style="font-family: inherit;">Taking a broader view from 2014 onward, only China appears to have substantially deviated from the norm, showcasing a notable surge in export numbers. Most other countries seem to orbit around their mid-2010s figures. Though visual scaling might influence the depiction, the marked uptick in China's exports post-2020 is undeniably eye-catching, as shown below. </span></div><span style="font-family: inherit;"><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9VWV7PKNJzO8I1iL2rPBvbO_FHTNj0aX8713wN4Wc--ur7T4I8DxIKboJ3lvBETAB6-Fm0OgcHUYlW2Wr0FAz0iwL7PKZyx2BFTmOFcQioRfLxTp6x88Mx6bsZwvnb5W5LS5eoFfsnMTJga-T1P0qKixlHKeD-4dSn1y-bg-c8TxjXd-krU4uCK8_qHRH/s8400/3_month_rolling_avg_exports_from_2014.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" data-original-height="4800" data-original-width="8400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9VWV7PKNJzO8I1iL2rPBvbO_FHTNj0aX8713wN4Wc--ur7T4I8DxIKboJ3lvBETAB6-Fm0OgcHUYlW2Wr0FAz0iwL7PKZyx2BFTmOFcQioRfLxTp6x88Mx6bsZwvnb5W5LS5eoFfsnMTJga-T1P0qKixlHKeD-4dSn1y-bg-c8TxjXd-krU4uCK8_qHRH/s16000/3_month_rolling_avg_exports_from_2014.png" /></span></a></div></div><div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: inherit;"><br /></span></div><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 0px 0px 1.25em; white-space: pre-wrap;"><span style="font-family: inherit;">Finally, upon examining India's export data over the past year, a few trends become evident. See the figure below. The bars are the monthly export figures in USD Billion (left side Y axis) and the line is the YoY growth (monthly - right side Y axis). I have covered total and total minus POL for each month. </span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 0px 0px 1.25em; white-space: pre-wrap;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLs8oZK6ZUqk9X9GQhobXb6_3aJqM-_UHPqz1H2VPnyZ_G5Kh9GBxyQvm4dN2fEtsqr_tDz05p2aQiUrKls_zFYx5DO1aXi4nAP-Hf7fsik7GcOAPk6SVElRTFBogeJXZ3il1DnwyEkw3Bq_fJXj0dLdytTj9fWSoEakI4ZRJrY_y27IgUs6wgTIfFNjSC/s9000/exports_growth_trend_billion.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="4800" data-original-width="9000" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLs8oZK6ZUqk9X9GQhobXb6_3aJqM-_UHPqz1H2VPnyZ_G5Kh9GBxyQvm4dN2fEtsqr_tDz05p2aQiUrKls_zFYx5DO1aXi4nAP-Hf7fsik7GcOAPk6SVElRTFBogeJXZ3il1DnwyEkw3Bq_fJXj0dLdytTj9fWSoEakI4ZRJrY_y27IgUs6wgTIfFNjSC/s16000/exports_growth_trend_billion.png" /></a></div><span style="font-family: inherit;">The most striking is the downturn in the Year-on-Year (YoY) growth rates observed in the recent months. This trend is influenced significantly by the base effect, a concept well-understood in economic analysis. Last year, India achieved record-breaking export figures. When this year's data is compared against such high benchmarks, the performance, although commendable, appears to be waning.</span><p></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px; white-space: pre-wrap;"><span style="font-family: inherit;">An interesting aspect of this trend emerges when we focus on 'Exports minus POL' — that is, exports excluding Petroleum, Oil, and Lubricants. The decline in the YoY growth rates for this metric is somewhat less pronounced than that of the total exports. This disparity suggests that external factors, such as recent fluctuations in petroleum prices, have played a role in shaping the overall export narrative.</span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px; white-space: pre-wrap;"><span style="font-family: inherit;">It's also worth noting that global economic dynamics, shifts in demand patterns, and supply chain disruptions can influence such trends. While the petroleum sector has shown volatility, other sectors too have had their share of challenges, which might be reflected in the data.</span></p><p style="border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); margin: 1.25em 0px; white-space: pre-wrap;"><span style="font-family: inherit;">In conclusion, interpreting such data requires a nuanced approach. It's imperative to consider the exceptional performance from the previous year and understand the external variables, like petroleum price dynamics, that could be influencing the current figures.</span></p><i><span style="font-family: inherit;">(The code to generate the above plots are kept at: </span><a href="https://github.com/Tiru-Kaggundi/Trade_Stuff/blob/main/base_effect_analaysis.py">base_effect_analaysis.py</a> and <a href="https://github.com/Tiru-Kaggundi/Trade_Stuff/blob/main/export_analysis_code.py">export_analysis_code.py</a> alongwith relevant excel sheets) </i><span style="font-family: inherit;"><br /></span></div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-51105000625345638152023-03-18T17:42:00.002+05:302023-03-18T17:42:38.394+05:30Trade Finance developments and India<p><span style="background-color: #f7f7f8; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; white-space: pre-wrap;">Trade finance is a vital aspect of international trade, enabling businesses to import and export goods and services across borders. In recent years, there have been several significant developments in trade finance, particularly in the area of digitalization.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">One of the most significant developments in trade finance has been the adoption of blockchain technology. Blockchain provides a secure, transparent, and tamper-proof platform for trade finance transactions, enabling faster, more efficient, and more secure processing of trade documents. We can expect many documents, including title documents such as the bill of lading to go blockchain based. </p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">Another development in trade finance is the growing use of digital platforms and tools for trade finance operations. These platforms allow businesses to manage their trade finance operations more efficiently, including the issuance and processing of trade finance documents, and enable faster and more secure payment processing. The Factoring Regulation (Amendment) Bill 2020 was introduced to the Lok Sabha in September 2020 to reform the factoring market in India. The bill sought to amend the Factoring Regulation Act, 2011, which governed the factoring industry in India. The proposed amendments aimed to enhance the availability and accessibility of factoring services in India, streamline the regulatory framework for factoring companies, and promote the growth of the factoring industry. The bill proposed to widen the scope of eligible factors and allowed non-banking finance companies (NBFCs) to participate in the factoring business. The amendments also sought to provide greater protection to assignees of receivables, introduce a mandatory registration process for factors, and establish a central registry of factoring transactions. Overall, the Factoring Regulation (Amendment) Bill 2020 represented an important step towards reforming the factoring market in India and promoting the growth of the factoring industry.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">In the Indian context, the government has been further taking steps to promote trade finance and support Indian businesses engaged in international trade. The Reserve Bank of India (RBI) has launched several initiatives aimed at enhancing the availability and accessibility of trade finance for Indian exporters and importers.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">One of the RBI's recent initiatives is the Trade Receivables Discounting System (TReDS), which is a digital platform that enables businesses to raise finance against their trade receivables. TReDS allows businesses to access funds more quickly and at a lower cost, thereby improving their cash flow and liquidity.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">In addition to TReDS, the government has also launched several other initiatives to support trade finance, including the Electronic Negotiable Instrument (e-NI) system, which enables the issuance and transfer of electronic negotiable instruments, and the Export Credit Guarantee Corporation (ECGC), which provides credit insurance and guarantees to Indian exporters.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">Despite these initiatives, there are still several challenges facing Indian businesses engaged in international trade. These include the lack of awareness and understanding of trade finance, complex and time-consuming procedures, and limited access to finance for small and medium-sized enterprises.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px; white-space: pre-wrap;">To address these challenges, it is essential to raise awareness and educate businesses about the benefits of trade finance and the various financing options available. It is also crucial to streamline and simplify trade finance procedures and make them more accessible to businesses of all sizes.</p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; background-color: #f7f7f8; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px 0px; white-space: pre-wrap;">In conclusion, trade finance is a critical enabler of international trade, and the latest developments in digitalization are making trade finance more efficient, secure, and accessible. In the Indian context, there is a growing focus on promoting trade finance and supporting Indian businesses engaged in international trade. By addressing the challenges facing businesses and adopting innovative solutions, India can further enhance its competitiveness in the global marketplace.</p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-35487272758603862102023-02-26T23:04:00.005+05:302023-02-26T23:48:55.900+05:30India's Petroleum Trade: An overview and some analysis<p>I thought of creating one comprehensive diagram that could capture everything about India's Petroleum, Oil and Lubricants (POL) trade for the calendar year 2022. The result is a <a href="https://en.wikipedia.org/wiki/Sankey_diagram" target="_blank">Sankey diagram</a> you see below (you can zoom it as it's a high res image): </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWG6oNhUrozyG_HOR5YN-q_QRiEbanYu9K5nyiDWOlqVdspj6Nm1gfsiyga998okphsPsg0AxM8Jx9UYuAP7JxHqQaECMKL8DzkQhatx-KIvyPRAo2lbwu3J6Jl5Ncl649vY2WSdQe7XYGyQT49XDWy3w3sCT45Frm7qWBPJKDRtb7M-iV-Kku9SLztA/s8000/Sankey_27_revised_qty_2022-2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="4000" data-original-width="8000" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWG6oNhUrozyG_HOR5YN-q_QRiEbanYu9K5nyiDWOlqVdspj6Nm1gfsiyga998okphsPsg0AxM8Jx9UYuAP7JxHqQaECMKL8DzkQhatx-KIvyPRAo2lbwu3J6Jl5Ncl649vY2WSdQe7XYGyQT49XDWy3w3sCT45Frm7qWBPJKDRtb7M-iV-Kku9SLztA/s16000/Sankey_27_revised_qty_2022-2.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><span style="text-align: left;"><br /><div style="text-align: justify;">The domestic production mentioned on the left-hand side pertain to domestically drilled crude oil in India. The data for this is taken from MoPNG's website. The rest of the trade data is from DGCIS. India majorly imports crude and exports refined petroleum products. <a href="https://mopng.gov.in/files/TableManagements/IPNG-2021-22_L.pdf" target="_blank">India has 23 refineries with a total installed capacity of around 250 MT per annum</a>. These refineries process crude oil into various petroleum products that meet domestic as well as international standards and specifications. </div></span></div><p>A recent trend that has emerged in India's petroleum trade is the increase in crude oil imports from Russia. The main reason behind this surge in Russian crude oil imports is the geopolitical situation arising from the conflict between Russia and Ukraine. The US and its allies imposed sanctions on Russia's energy sector which affected its exports to Europe. As a result, Russia looked for alternative markets for its crude oil. India was one of the attractive destinations for Russian crude oil due to its large market size, strategic partnership with Russia and geographical proximity. In addition, Russia was ready to accept Indian Rupee in place of US Dollars for settling the trade through a special mechanism. </p><p>Some analysis about Russia's POL exports to India: </p><p><b>Q: Has the imports of POL from Russia gone up after the Russia-Ukraine war began in 2022? </b></p><p>Ans: Yes. Here are the figures: </p><p></p><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjQruGTckmlJEzCxs_mSjnshE4HSVjD1NmXhV2rm22QU8Nioa9BEJVMYJMfux7gNhYC4AckOZ3g4CW56BuGot_RDBcqqzgaAHtdcidWKR76vNLQjqPjBqQAqydsMpQf2H-DLY5wwIy8W52Lij43qj2cxZjr66F4g-zj6nHTDUogHFT_Min0ERT-50V6dA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="118" data-original-width="338" src="https://blogger.googleusercontent.com/img/a/AVvXsEjQruGTckmlJEzCxs_mSjnshE4HSVjD1NmXhV2rm22QU8Nioa9BEJVMYJMfux7gNhYC4AckOZ3g4CW56BuGot_RDBcqqzgaAHtdcidWKR76vNLQjqPjBqQAqydsMpQf2H-DLY5wwIy8W52Lij43qj2cxZjr66F4g-zj6nHTDUogHFT_Min0ERT-50V6dA=s16000" /></a></div><div class="separator" style="clear: both; text-align: left;"><br /></div><b>Q: Is Russian oil cheap when compared to other countries from whom India imports?</b><p></p><p>Ans: It's cheaper than what we get from West Asian countries like Saudi Arab, UAE, Qatar etc in dollar terms. Iraq's prices come close. I divided the value of imports by quantity of imports to get USD/MMT which I think is a good approximation for comparison. Below are the figures for leading countries from whom India imports. </p><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg18zNF_j_N3l-uOGIYhRo2W_GsaQWnepT6RD9morVDr9EvEukRcXMqU0gIKTFm2iUKt-tTVXcuIUBAy0XjPx5qCK9TE1qBfy7JnC1YHhSrvosoiDsnjkwp5V3kqpOYt4L2JKfmMPia8HTa5puTkvaKB7K25FzLTetEA55HeCRgdlI0cp5PNEdmbEAc0g" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="329" data-original-width="275" src="https://blogger.googleusercontent.com/img/a/AVvXsEg18zNF_j_N3l-uOGIYhRo2W_GsaQWnepT6RD9morVDr9EvEukRcXMqU0gIKTFm2iUKt-tTVXcuIUBAy0XjPx5qCK9TE1qBfy7JnC1YHhSrvosoiDsnjkwp5V3kqpOYt4L2JKfmMPia8HTa5puTkvaKB7K25FzLTetEA55HeCRgdlI0cp5PNEdmbEAc0g=s16000" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;"><b>Q: Did the price fall for Russian crude after the war started?</b> </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Ans: No. The data doesn't support that theory. Here are the numbers: </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhTcc0uUkcG2iFaM-BUBqxdIA4q0ffZ1ecAsBPxO4138Q3CtyZjeTwVd-18H6FPIPx9QGr8rAKh26PLtnDJo3UtEH2Nmv_t4RNuHmTgEUE1J3X5vXelq2y2BimDlse3mdOpu71RGCgfD6aNSiN3AtfumiOz1dinG2poFZ2inD-2nSSyDHOrKraK6a8gOA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="329" data-original-width="384" src="https://blogger.googleusercontent.com/img/a/AVvXsEhTcc0uUkcG2iFaM-BUBqxdIA4q0ffZ1ecAsBPxO4138Q3CtyZjeTwVd-18H6FPIPx9QGr8rAKh26PLtnDJo3UtEH2Nmv_t4RNuHmTgEUE1J3X5vXelq2y2BimDlse3mdOpu71RGCgfD6aNSiN3AtfumiOz1dinG2poFZ2inD-2nSSyDHOrKraK6a8gOA=s16000" /></a></div><br />The rise in Russian oil prices has kept in line with the average rise in prices of POL. It doesn't appear from the data that India has gained much in terms of price. One may perhaps say that India's ability to pay with INR in place of USD to Russia is a plus, despite the above figures. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><b>Q: Has India's exports in POL increased in recent times? </b></div><div class="separator" style="clear: both; text-align: left;"><b><br /></b></div><div class="separator" style="clear: both; text-align: left;">Ans: Yes, both in terms of value and quantity. Also, in terms of the ratio of exports to imports. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj6R-PywnJDPNynnxfRHZ-9AzQyTU17I_kw6-ud6fECAMAkG1149X1BzEnlH1LG2bibk7Pk5s2_CCaVxGfCSZieoFmg6cO2sRPjbpqZ361HSjRgLATzfaBmF0fFZxsjTJ6_nhbx6_oQgR_kCfRL7YxL1C3_3Deod0Nb4Vxl5NwCCfY1wbUo3_WbEegrnQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="217" data-original-width="617" src="https://blogger.googleusercontent.com/img/a/AVvXsEj6R-PywnJDPNynnxfRHZ-9AzQyTU17I_kw6-ud6fECAMAkG1149X1BzEnlH1LG2bibk7Pk5s2_CCaVxGfCSZieoFmg6cO2sRPjbpqZ361HSjRgLATzfaBmF0fFZxsjTJ6_nhbx6_oQgR_kCfRL7YxL1C3_3Deod0Nb4Vxl5NwCCfY1wbUo3_WbEegrnQ=s16000" /></a></div><br /><br /></div><div class="separator" style="clear: both; text-align: left;"><b>Q: How did I draw the Sankey diagram above?</b></div><div class="separator" style="clear: both; text-align: left;"><b><br /></b></div><div class="separator" style="clear: both; text-align: left;">Ans: Python + plotly. The code is kept at my github page. The link is in the figure. </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiv21vZg6KirsAvY9GaQrblrqkeB_3xO4Hsd6OKgo0rfns9fUrD6z0lZHJ5Z999klpDSeL7558uJCZMHEa3NMWBgLNNgz97QwFFBkg9OzConqNQBArSgCkZMjaoDT1C41PCBtkfI4CqNwRVHOQmwsJ-EuMYEsaWXVZueagZlhA-qwIkbXc7DIlxJx4FaQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="225" data-original-width="171" height="1" src="https://blogger.googleusercontent.com/img/a/AVvXsEiv21vZg6KirsAvY9GaQrblrqkeB_3xO4Hsd6OKgo0rfns9fUrD6z0lZHJ5Z999klpDSeL7558uJCZMHEa3NMWBgLNNgz97QwFFBkg9OzConqNQBArSgCkZMjaoDT1C41PCBtkfI4CqNwRVHOQmwsJ-EuMYEsaWXVZueagZlhA-qwIkbXc7DIlxJx4FaQ" width="1" /></a></div><p></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com1tag:blogger.com,1999:blog-3734986736884142928.post-81126948646972747702023-02-05T21:32:00.001+05:302023-02-05T21:34:57.068+05:30Akamaisation, friendshoring, nearshoring etc. <p><b style="caret-color: rgb(55, 65, 81); color: #374151; font-family: inherit; white-space: pre-wrap;">What's <a href="https://swarajyamag.com/business/its-not-deglobalisation-but-akamaisationwhen-firms-go-local-to-stay-global">Akamaisation</a>? </b></p><p><span style="background-color: white; caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;"><span style="font-family: inherit;">Akamaisation refers to the idea of companies going local in order to remain global. <a href="https://swarajyamag.com/business/its-not-deglobalisation-but-akamaisationwhen-firms-go-local-to-stay-global">I had proposed this term</a> as a parallel to the concept of deglobalisation. The concept of Akamaisation arises from the need for multinationals to adjust their international supply chains in response to changes in the globalisation landscape. Companies are leveraging Industry 4.0 advancements such as automated manufacturing, robotics, and IoT to create more agile and localized production processes in response to the developing geopolitical and economic competitions. </span></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">To provide a brief background, the good years of globalisation were marked by a concentration of production in labor-intensive countries, such as China and nearby countries like Taiwan, Korea, and ASEAN. This was due to factors like falling tariffs, technological advancements, and logistics optimisation. However, data suggests that this model peaked around 2012-13, a few years after the financial crisis. Both merchandise trade as a percentage of GDP and total merchandise trade measured in current US dollars has stagnated or declined after the recovery following the financial crisis.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">The decline in trade is due to various reasons, including the unsavoury side effects of globalisation that were finally acknowledged by developed countries. The concept of hyper-globalisation, where capital and value chains cut across borders, has not proven to be a sustainable proposition in the long run, as the free trade of this type creates a losing side. The backlash by the increasingly frustrated population, along with the emergence of protectionist political leaders, is partially responsible for the shift away from the hyper-globalisation model. This trend is accelerating due to the geo-political realignments after Russia-Ukraine war and US-China tensions. </span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj35v1TS5DyKUU5UnfrgtbVY7wq-5V6RaXDNM0t6jmecFvgi15esVV0vByPt4tRmzlu0qu63mXXdOZLbMhhQR_WpcHm9Tg9Gmw2C1_7KADmZOsYOHzWXGqMIUMyE5RgYglk-TOhsmtYm164LpBpBz7DrAWlKmMPRqTcdHqLkxfmRgveOpEn28QysLMSyw/s1024/DALL%C2%B7E%202023-02-05%2021.29.16%20-%20generate%20an%20image%20of%20splintering%20production%20and%20supply%20chains%20across%20the%20world%20due%20to%20geo%20political%20tensions%20between%20US%20and%20China%20in%20the%20style%20of%20grap.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1024" data-original-width="1024" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj35v1TS5DyKUU5UnfrgtbVY7wq-5V6RaXDNM0t6jmecFvgi15esVV0vByPt4tRmzlu0qu63mXXdOZLbMhhQR_WpcHm9Tg9Gmw2C1_7KADmZOsYOHzWXGqMIUMyE5RgYglk-TOhsmtYm164LpBpBz7DrAWlKmMPRqTcdHqLkxfmRgveOpEn28QysLMSyw/s16000/DALL%C2%B7E%202023-02-05%2021.29.16%20-%20generate%20an%20image%20of%20splintering%20production%20and%20supply%20chains%20across%20the%20world%20due%20to%20geo%20political%20tensions%20between%20US%20and%20China%20in%20the%20style%20of%20grap.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><b>Image credit: Dall.E version2</b></td></tr></tbody></table><br /><span style="background-color: white; font-family: inherit;"><br /></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">In short, Akamaisation is a response to the changes in the changing globalisation landscape and is a solution for companies to remain global while adjusting their production processes to be more local and agile. By leveraging Industry 4.0 advancements and optimizing their supply chains, companies can remain competitive in a de-globalising world.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><b>How's this different from Friendshoring? </b></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Friendshoring refers to a business strategy in which a company outsources its production processes to a country that has close political, economic, or cultural ties with its home country. The goal of friendshoring is to take advantage of the favorable conditions offered by a friendly nation while maintaining a high level of trust, collaboration, and shared values. This strategy is often used to reduce costs, access new markets, and benefit from the expertise and resources of a partner nation. It can also help companies mitigate risks associated with offshoring to distant or unfamiliar locations. Friendshoring is often seen as a less disruptive alternative to offshoring or nearshoring, as it allows companies to maintain a close relationship with their suppliers and customers while expanding their global reach.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Akamaisation is different from friendshoring in the sense that production chains will splinter into countries based on the market size. This may include China for US firms like Tesla. China is not exactly a great friend of US (atleast now). So anything moving into China is not friendshoring, but it can be covered under Akamaisation. Friendhsoring would fail to explain why some firms would still keep their production bases in countries which may not be that "friendly" but Akamaisation does. </span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><b>How's this different from Nearshoring? </b></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Nearshoring refers to a business strategy where a company shifts its production or manufacturing operations closer to its customers or home market. This is usually done by relocating these operations from distant, overseas locations to countries that are in proximity to the home market, usually within the same or nearby region. The main goal of nearshoring is to reduce the costs and risks associated with long-distance supply chains, while still taking advantage of lower labor costs and other benefits offered by overseas markets. This allows companies to achieve greater control over their production processes, improve delivery times, and respond more quickly to changing customer demands. Additionally, nearshoring can also help companies to reduce their carbon footprint and contribute to the local economy by creating jobs and boosting economic growth in the host country.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">This is typically true in US-Mexico context. I don't see such synergies in many other pairs. Nearshoring may not be strategic. e.g. US production chains may not leverage Cuba, though it is near but not a great friend. It may not leverage Canada though it is near and a friend but not exactly cheap. Akamaisation would acknowldge the importance of Mexico and Canada based on their labor cost and market size while accounting for the geopolitcs. </span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><b>To conclude: </b></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Akamaisation, as a term, better captures the concept of splintering production value chains compared to friendshoring or nearshoring. The term friendshoring implies a specific relationship between countries, while nearshoring suggests proximity as the main factor in the decision to move production.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Akamaisation, on the other hand, encompasses a broader range of considerations such as cost, quality, delivery time, and flexibility, which are all important factors in the decision-making process of companies looking to splinter their production value chains due to geo-political tensions or for other reasons. </span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;">Therefore, I believe a good term to use for splintering global value chains in today's context should be Akamaisation, which is more about keeping the production value chains near the markets by optimizing the size of production to cater to that particular group of markets. </span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><br /></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><br /></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: inherit;"><br /></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; font-family: Söhne, ui-sans-serif, system-ui, -apple-system, "Segoe UI", Roboto, Ubuntu, Cantarell, "Noto Sans", sans-serif, "Helvetica Neue", Arial, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol", "Noto Color Emoji"; font-size: 16px; margin: 1.25em 0px 0px; white-space: pre-wrap;"><br /></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-66739865854905122842023-01-19T08:29:00.006+05:302023-02-04T07:38:06.783+05:30Sovereign gold bonds are naked calls written by the government<p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit;">The Reserve Bank of India (RBI) issues sovereign gold bonds (SGBs). These bonds are denominated in grams of gold at current prices. I believe SGBs are the best way for individuals to invest in gold. They offer a 2.5% return each year on the invested amount. At redemption after 8 years, the bondholder will receive the equivalent price of gold in grams. Additionally, SGBs are exempt from capital gains. No other gold investment scheme can compare. In fact, regular gold-indexed funds charge management fees.</span></span></p><p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit;">From the government's perspective, SGBs are similar to "naked calls". No matter what the future value of gold is, the government will give the bondholder that price at redemption. While the government pays a 2.5% annual coupon, it also writes this "naked call" on top, due to the price promise. Is the government losing money? Let's examine.</span></span></p><p><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;"><span style="font-family: inherit;">The government can raise money by issuing regular sovereign bonds, which it usually does. Currently, these need to pay around 7% interest for a 10-year duration bond, to the subscriber. With SGBs, the government only pays 2.5% to the subscriber every year. This means the government saves on annual payouts. Another difference is that at redemption, regular bonds only pay face value, while SGBs pay the market value of the subscribed gold. If the price of gold stays the same, the government makes a profit. But if the price rises, the government loses. To protect against this, the government can buy "naked calls." To determine if the government is losing money, we can compare the cost of these options to the gains from the lower coupon rates.</span></span></p><p><span style="font-family: inherit;"><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;">I had done this analysis sometime back</span><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;"> </span><a href="https://www.indianwesterlies.com/2022/01/sovereign-gold-bond-RBI-performance-evaluation-risk-adjusted.html" style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;" target="_blank">here</a><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;"> </span><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;">where I found that government loses money on SGB. </span></span></p><p><span style="font-family: inherit;">I have now updated the results to include latest figures. You can find a copy of <a href="https://www.icloud.com/iclouddrive/043J8FhgdJ2OR_DANvfdV2b2w#SGB_analysis_paper_draft" target="_blank">draft paper here</a> (feel free to comment) </span></p><p><span style="font-family: inherit;">I find that governemnt loses money on SGB. I am not claiming that this is wrong. It's a public policy choice. I am just uncovering the price that the government is paying to run this policy. The conclusion reads: </span></p><p><i><span style="font-family: inherit;">"For every 100 Rupees of SGBs issued, the Government is facing a risk between 43.8 to 45.9 Rupees in terms of naked call value. It is partly offset by the gains that arise from cheaper money raised through SGBs. Yet, the offset falls short by around 15 to 17 Rupees for every Rs 100 raised through SGBs. Thus, the government is not sufficiently compensated for the risk."</span></i></p><p><span style="font-family: inherit;">If the government issues Rs 1000 crores of SGBs this year, it is losing around 150 to 170 crore Rupees on it over the duration of the bond. </span></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-48310604869711397732023-01-12T12:06:00.002+05:302023-01-12T12:06:49.496+05:30Understanding semiconductors industry through 10 minutes with chatGPT<p style="text-align: justify;"><span style="font-family: helvetica;"><span style="background-color: white;">This is the chat transcript with chatGPT, the latest large language AI model that's shaking the world. The chat lasted less than 10 minutes. I haven't edited any of the answers. I tried gaining a basic understanding of semiconductors industry and some policymaking aspects around it. </span></span></p><p style="text-align: justify;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;">what is the size of semiconductors market in the world?</span></span></b></p><div style="text-align: justify;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><b>chatGPT: </b></span><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">The size of the semiconductor market in the world varies from year to year, but it is generally considered to be a large and rapidly growing market. According to a report from the World Semiconductor Trade Statistics (WSTS) organization, the global semiconductor market reached $529 billion in revenue in 2020. This represents a decline of 10.5% compared to 2019, due to the impact of the COVID-19 pandemic on global economic activity. However, it is expected to grow in the coming years as well.</span></span></div><div style="text-align: justify;"><span style="background-color: white; caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;"><span style="font-family: helvetica;"><br /></span></span></div><div style="text-align: justify;"><b><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">TK: </span><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;">How much of market does the semiconductors support downstream? For example, semiconductors are used in mobile phones, computers, appliances etc. </span></span></b></div><div style="text-align: justify;"><span style="background-color: white; caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><span style="font-family: helvetica;"><br /></span></span></div><div style="text-align: justify;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><b>chatGPT:</b> </span><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">Semiconductors are used in a wide variety of downstream products, including mobile phones, computers, appliances, cars, industrial equipment, and many other electronic devices. The market for these downstream products is vast and the demand for semiconductors is driven by the growth in these industries.</span></span></div><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">According to estimates by the Semiconductor Industry Association (SIA), in 2021, the semiconductor industry supported more than $1.2 trillion in global sales of electronics, and the semiconductor content in electronics is expected to grow around 7% per year in the future. It has been reported that smartphones and PCs are the two major downstream products that drive the demand for semiconductors, accounting for over 40% of the global semiconductor consumption in 2021.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">However, the semiconductor industry's dependence on downstream industries varies depending on the specific product and market. For example, automotive industry has been growing in recent years, with semiconductors being used in cars for driver assistance, powertrain, and infotainment systems. This is one of the reason why the industry has been expanding to become one of the most important drivers of the semiconductor industry in the recent years.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Similarly, the Internet of Things (IoT) and the emergence of new technologies like 5G, AI and automation is also increasing the demand for semiconductors in a wide range of industries, including healthcare, industrial, and smart cities.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It's safe to say that, the semiconductor industry is closely tied to the growth of the downstream industries it supports, the industry's continued innovation and technical advancements is driving the demand for semiconductors in an increasing number of products and applications.</span></p><div style="text-align: justify;"><span style="background-color: white; caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;"><span style="font-family: helvetica;"><br /></span></span></div><div style="text-align: justify;"><b><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">TK: </span><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;">what are the main stages in manfucaturing of a semiconductor chip?</span></span></b></div><div style="text-align: justify;"><span style="background-color: white; caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><span style="font-family: helvetica;"><br /></span></span></div><div style="text-align: justify;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><b>chatGPT:</b> </span><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">The process of manufacturing a semiconductor chip typically involves several stages, which can be broadly grouped into the following categories:</span></span></div><ol style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; counter-reset: item 0; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Wafer fabrication: This is the process of creating the basic semiconductor material, such as silicon, and turning it into a wafer. This includes steps such as growing a crystal, cutting it into wafers, and cleaning and polishing the wafers.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Photolithography: This is the process of using light to transfer a pattern onto the wafer. This is done by using a photomask, which contains the desired pattern, and shining light through the mask and onto the wafer coated with a light-sensitive material called photoresist.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Etching and doping: These processes are used to create the desired electrical properties in the semiconductor material. Etching is used to remove unwanted material, while doping is used to add impurities to the material to create n-type and p-type semiconductors.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Metalization: This is the process of adding metal contacts to the semiconductor material to allow for electrical connection to the chip.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Assembly and packaging: Finally, the individual chips are cut out from the wafer, and then undergo further testing and assembly into a package with bonding wires and encapsulant (plastic or ceramic)</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Testing: Finally, the chips are tested to make sure they are functioning properly.</span></p></li></ol><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">This is a general overview and many specific process can vary depending on the chip or technology.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: W<span style="caret-color: rgb(52, 53, 65); color: #343541;">ho are the key players in each of the categories above?</span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;"><b>chatGPT:</b> </span>There are a number of key players in each of the categories of semiconductor manufacturing that I listed.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In wafer fabrication, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Intel</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">TSMC (Taiwan Semiconductor Manufacturing Company)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Samsung</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">SK Hynix</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Micron Technology</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">GlobalFoundries</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">UMC (United Microelectronics Corporation)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">SMIC (Semiconductor Manufacturing International Corporation)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In photolithography, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">ASML (Netherlands-based company that designs, develops, and sells lithography systems)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Nikon ( Japan-based company that designs and manufactures photolithography equipment)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Canon (Japan-based company that designs and manufactures photolithography equipment)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In etching and doping, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Applied Materials (US-based company that designs, manufactures, and supplies equipment and services used in the fabrication of semiconductor chips)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Lam Research (US-based company that designs, manufactures, and supplies equipment used in the fabrication of semiconductor chips)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Tokyo Electron (Japan-based company that designs, manufactures, and supplies equipment used in the fabrication of semiconductor chips)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In metalization, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Applied Materials (US-based company that designs, manufactures, and supplies equipment and services used in the fabrication of semiconductor chips)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">KLA (US-based company that designs and manufactures process control and yield management systems for the semiconductor and related nanoelectronics industries)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Lam Research (US-based company that designs, manufactures, and supplies equipment used in the fabrication of semiconductor chips)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In assembly and packaging, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">ASE (Advanced Semiconductor Engineering)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">J-Devices</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Amkor Technology</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Siliconware Precision Industries</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">UTAC (United Test and Assembly Center)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In testing, some of the leading companies include:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Teradyne (US-based company that designs and manufactures automatic test equipment and services)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Advantest ( Japan-based company that designs, manufactures, and sells automatic test equipment)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">LTX-Credence ( US-based company that designs, manufactures, and sells automatic test equipment)</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It should be noted that these are only some of the key players in each category and there are many other companies around the world that also play an important role in the semiconductor manufacturing industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Among the categories you mentioned above, rank them based on investments needed to establish the industry. </span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;">chatGPT: </span>The amount of investment required to establish different categories of the semiconductor industry can vary widely depending on factors such as the technology used, the scale of production, and the level of automation and complexity of the processes. Here is an estimate of a rough ranking of the categories based on the amount of investments required, from the most to the least:</span></p><ol style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; counter-reset: item 0; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Wafer fabrication: Wafer fabrication requires significant investments in equipment, facilities, and R&D, as well as large sums of capital to support the operation and maintenance of fabs. Due to the fact that the cost of building a foundry can reach billions of dollar and having the latest fabrication technology is always needed, this is the most capital intensive category</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;"><br /></span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Photolithography: Photolithography equipment is also expensive, and it requires a significant investment in R&D to design, develop and test.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;"><br /></span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Metalization: Metalization also requires significant investments in equipment and facilities, as well as R&D for the development of advanced metallization technologies.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;"><br /></span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Etching and Doping: Investment in equipment, facilities, and R&D for etching and doping processes is also significant.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;"><br /></span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Assembly and packaging: Assembly and packaging require investments in equipment, facilities, and the development of advanced assembly technologies, although it's not as capital intensive as the above categories.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;"><br /></span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Testing: The investment in testing is relatively lower compared to the above categories. It requires investments in equipment and facilities, but it's usually a smaller portion of the total cost of the semiconductor manufacturing process.</span></p></li></ol><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It's worth to mention that the investment needs to be in a long-term perspective and the industry should be developed in a comprehensive way that covers all the categories together, this will ensure that each category can leverage the capabilities of the others and create a more efficient and cost-effective manufacturing process.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Explain how South Korea became an important player in semiconductor industry. Who were the key players and how did the government play a role?</span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;">chatGPT: </span>South Korea has become an important player in the semiconductor industry over the past several decades due to a combination of factors including government policies, investments in R&D and manufacturing, and the emergence of key players in the industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the late 1960s, the South Korean government recognized the importance of the semiconductor industry for the country's economic development and began to invest in the industry through the creation of research institutes and the establishment of tax incentives for companies in the industry. In addition, government provided significant funding for the R&D, and education related to the semiconductor industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the 1970s and 1980s, companies like Samsung and Hyundai began to invest heavily in the semiconductor industry. They were the key players that established South Korea as a major player in the memory chip market, with Samsung becoming one of the largest memory chip producers in the world.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the late 1990s and early 2000s, the South Korean government continued to support the industry through the establishment of industry-specific research institutes and the funding of R&D projects. Additionally, the government provided financial incentives to companies to invest in new facilities and technologies, and developed policies to promote exports and attract foreign investment.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the last decade, South Korea's semiconductor industry has grown into a global powerhouse, with the likes of Samsung and SK Hynix becoming some of the largest and most technologically advanced chip manufacturers in the world. South Korea is also one of the largest exporter of semiconductor chips, which are used in a wide variety of products, such as smartphones, laptops and consumer electronics.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">As a result of government's strong support and investment, South Korea's semiconductor industry has been able to emerge as a significant player on the global stage, competing with other countries such as the United States, Taiwan, Japan, and China. The government has played a crucial role in supporting the industry through funding, policies, and other initiatives, which has allowed South Korea's chip makers to achieve global scale, leading-edge technology, and high efficiency.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Explain how Taiwan became an important player in semiconductor industry. Who were the key players and how did the government play a role? </span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="color: #343541;"><span style="caret-color: rgb(52, 53, 65);">chatGPT: </span></span><span style="caret-color: rgb(55, 65, 81); color: #374151;">Taiwan has become an important player in the semiconductor industry due to a combination of factors, including a skilled workforce, government support, and a focus on technology and innovation.</span></span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the 1970s and 1980s, a number of Taiwan-based electronics companies, such as Acer and Mitac, began manufacturing and assembling personal computers and electronic components. These companies saw the potential for growth in the semiconductor industry and began to invest in semiconductor manufacturing capabilities. They also began to build relationships with major international companies, such as IBM and Intel, to gain access to technology and manufacturing know-how.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the late 1980s and early 1990s, the Taiwanese government recognized the potential of the semiconductor industry and began to provide financial and other forms of support to help the industry grow. This included investments in research and development, subsidies for the construction of new fabs (semiconductor fabrication plants), and tax breaks for high-tech companies.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">The Taiwan Semiconductor Manufacturing Company (TSMC) founded in 1987, was one of the key players in establishing Taiwan as a major player in the semiconductor industry. TSMC was the world's first dedicated semiconductor foundry and began by manufacturing chips for other companies and it quickly gained a reputation for high-quality, low-cost manufacturing. The company then became one of the leading semiconductor manufacturers in the world in terms of market share, revenue and technology.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">With a strong, government supported semiconductor industry, many companies in Taiwan began to invest in semiconductor manufacturing capabilities, including TSMC and United Microelectronics Corporation (UMC). Taiwan has now a number of world-class semiconductor companies, including TSMC and UMC, that produce some of the most advanced semiconductor products in the world.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">The government played a significant role in Taiwan's semiconductor industry development by providing funding and infrastructure support, as well as by creating an environment that is conducive to innovation and technology development. The government also played a vital role in the fostering of strategic partnerships between private companies and research institutions.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Explain how Japan became an important player in semiconductor industry. Who were the key players and how did the government play a role? </span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;">chatGPT: </span>Japan has become an important player in the semiconductor industry due to a combination of factors, including the country's strong technological capabilities, its highly educated workforce, and its robust infrastructure. One of the key drivers of Japan's semiconductor industry has been government support, which has been provided through a combination of policies, programs, and investments.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">In the 1970s and 1980s, the Japanese government identified the semiconductor industry as a key area for growth and development, and it implemented a number of policies to support the industry's growth. One of the main ways it did this was through the creation of the Electronics Industry Development Association (EIDA), which provided funding and other support to companies in the industry. The government also provided subsidies to companies that were engaged in R&D, and it invested in the creation of new fabs, as well as in upgrading existing ones.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Another key factor that helped Japan become an important player in the semiconductor industry is the presence of some major Japanese companies like Sony, Toshiba, and Hitachi, which were some of the early key players. They had been working on developing the technology to create semiconductors and building their own semiconductor manufacturing facilities. The government helped these companies by providing them with subsidies and incentives to research and develop semiconductors.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Over time, these efforts led to the emergence of a number of large and successful Japanese semiconductor companies, including:</span></p><ul style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">NEC</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Fujitsu</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Toshiba</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Renesas (formed by the merger of Hitachi, Mitsubishi Electric and NEC's semiconductor businesses)</span></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; display: block; margin: 0px; padding-left: 0.375em; position: relative; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Sony</span></li></ul><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">These companies, and others like them, were able to leverage the technological capabilities and infrastructure of the country to develop advanced semiconductor technologies and products. In addition, they have been very successful in exporting their products around the world.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Finally, the government's role has not been limited to investments, subsidies and incentives, it also helped to develop a highly educated and skilled workforce. Japan has a strong education system that produces a large number of engineers and scientists, many of whom are employed in the semiconductor industry. This has helped to ensure that the country has a steady supply of workers with the skills and knowledge needed to drive the industry forward.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">All these factors together helped Japan to become an important player in the semiconductor industry and it still remain to be important till today.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Is there any country that didn't use government's help and yet developed a strong semiconductor industry?</span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;">chatGPT: </span>Yes, there are some countries that have developed a strong semiconductor industry without significant government support. The United States, for example, has a long history of innovation and entrepreneurship, and its semiconductor industry has been shaped by the actions of individual companies and private investors.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">One of the key examples is Intel, which was founded in 1968 by Robert Noyce and Gordon Moore, two scientists who left Fairchild Semiconductor to start their own company. They were able to develop advanced semiconductor technologies and products, and build a successful business by leveraging private investments and by forming partnerships with other companies. Similarly, other US-based companies like Texas Instruments, Micron and Broadcom has grown with very less government help.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Another example is the Israeli semiconductor industry, which is relatively small but has produced a number of successful companies like Mobileye, Mellanox, and Cognivue. This industry has developed largely due to the efforts of private companies and entrepreneurs, who have been able to attract private investment and build successful businesses.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It's worth noting that, these countries have strong institutions in place and favorable business environment, this helped the companies to grow without government's direct involvement. However, it's also true that government does play a role in creating an environment that is conducive for technology innovation, business development and education, which are important for developing a strong semiconductor industry or any industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541;">Why is China struggling to take a lead in semiconductor industry? </span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541;"><b>chatGPT: </b></span>China has been working to develop its semiconductor industry for many years, but it has struggled to take a leading role in the global industry. There are several reasons why this has been the case:</span></p><ol style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; counter-reset: item 0; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Lack of Intellectual Property: China has had a problem with protecting intellectual property (IP) and also with the domestic innovation and R&D which is critical to succeed in semiconductor industry. This has made it difficult for Chinese companies to develop and commercialize advanced technologies, and has also made it difficult to attract foreign investment and partners.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Dependence on foreign suppliers: China relies heavily on imports for the most advanced technologies, for instance the foundry manufacturing technology. This dependence on imports has made it difficult for China to build up its own manufacturing capabilities.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Quality and reliability concerns: Chinese companies have struggled to produce semiconductors that meet the high standards for quality and reliability that are required in the global market.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Shortage of skilled labor: China's semiconductor industry is also facing a shortage of skilled labor, as many Chinese engineers and scientists have moved to other countries for better job opportunities.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Bureaucracy: Government bureaucracy and lack of coordination has also affected the Chinese semiconductor industry, where the lack of a clear strategy or agenda has made it difficult for the industry to make progress.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; text-align: justify;"><span style="background-color: white; font-family: helvetica;">Economic factors: China's economic slowdown and increasing competition in the global market also have been a challenge.</span></p></li></ol><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">Despite these challenges, China has made significant progress in recent years, it has invested heavily in the industry, has been focusing on building a strong intellectual property regime and has been making acquisitions and strategic investments to bolster its capabilities. However, it will take time and sustained effort to overcome these challenges and establish a leading role in the global semiconductor industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><b><span style="background-color: white; font-family: helvetica;">TK: <span style="caret-color: rgb(52, 53, 65); color: #343541; text-align: left;">India wants to develop semiconductor industry in the country. In the long run, R&D and investement in skill development is the way to go. However, what can the policymakers do in the short run to ensure that India gets a part of semiconductor manufacturing capacity? </span></span></b></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; text-align: justify; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;"><b><span style="caret-color: rgb(52, 53, 65); color: #343541; text-align: left;">chatGPT: </span></b><span style="text-align: left;">In the short run, policymakers in India can take a number of steps to ensure that the country gets a share of semiconductor manufacturing capacity:</span></span></p><ol style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; counter-reset: item 0; display: flex; flex-direction: column; list-style-image: initial; list-style-position: initial; margin: 1.25em 0px 0px; padding: 0px 0px 0px 1rem; white-space: pre-wrap;"><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Attract foreign investment: India can work to attract foreign investment in the semiconductor industry by offering tax incentives and other forms of support, such as subsidies or grants, to companies that are willing to invest in the country.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Develop public-private partnerships: India can also develop public-private partnerships to help build the infrastructure and resources needed to support semiconductor manufacturing. This includes investing in fabs, equipment, and other resources required.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Create special economic zones: India can create special economic zones dedicated to the semiconductor industry, which would be designed to attract investment and provide the necessary resources for companies to set up operations.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Provide subsidies for R&D: The government can provide subsidies for R&D to companies that are looking to develop new technologies and products. This will help to create a strong base for innovation and technology development in the country.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Establish regulations and standards: Establishing regulations and standards can help to attract investment and ensure that the products manufactured in India are of high quality. This will help to build confidence among investors and customers.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Encourage domestic companies: Government can encourage domestic companies to expand their operations, and also invest in building their own fabs.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Look for opportunities to participate in existing supply chains: India can look for opportunities to participate in existing supply chains by identifying areas where it can add value, such as by developing specialized manufacturing capabilities or services. This can help to build a foothold in the industry and gain access to new markets.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Leverage existing strengths: India has existing strengths in areas such as software development and IT services. It can leverage these strengths to develop capabilities in areas such as design and testing, which are important parts of the semiconductor manufacturing process.</span></p></li><li style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px; padding-left: 0.375em;"><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 0px;"><span style="background-color: white; font-family: helvetica;">Make trade policies favorable: India should make trade policies favorable by negotiating trade agreements, and allowing the import of the latest technologies and the export of products made in India.</span></p></li><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; margin: 1.25em 0px 0px;"><span style="background-color: white; font-family: helvetica;">It's worth noting that, each of these steps would require careful planning, execution and coordination between the government and the industry. In addition, it should be part of a long-term plan that focuses on developing the industry's capabilities and competitiveness over time. Additionally, policymakers should be aware that the semiconductor industry is a capital intensive and technology-driven industry, it will require significant investment and support to establish a strong and sustainable industry.</span></p></ol><span style="background-color: white; font-family: helvetica;"><br /></span><div><b><span style="background-color: white; font-family: helvetica;"><span style="color: #374151;"><span style="caret-color: rgb(55, 65, 81); white-space: pre-wrap;">TK: </span></span><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;">What's the amount of subsidy or grants we are looking at for the step number 1 mentioned above.</span></span></b></div><div><span style="background-color: white; caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;"><span style="font-family: helvetica;"><br /></span></span></div><div><span style="background-color: white; font-family: helvetica;"><span style="caret-color: rgb(52, 53, 65); color: #343541; white-space: pre-wrap;">chatGPT: </span><span style="caret-color: rgb(55, 65, 81); color: #374151; white-space: pre-wrap;">The amount of subsidy or grants required for attracting foreign investment in the semiconductor industry will depend on various factors such as the size and scope of the investment, the technology and equipment being used, and the location of the manufacturing facility. In general, subsidies or grants for the semiconductor industry can be quite substantial, as the cost of building a fab can reach billions of dollars.</span></span></div><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">The exact amount of subsidies or grants required will depend on the specific investment proposal and the terms of the agreement between the government and the investing company. However, as a rough estimate, subsidies or grants can range from tens of millions of dollars to several hundred million dollars, or even more.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It's worth noting that, subsidies or grants are not the only form of government support that can be used to attract foreign investment. Incentives such as tax holidays, low-interest loans, and duty exemptions can also be effective in attracting investment. Additionally, providing infrastructure, land and other resources can also be a way of supporting the industry.</span></p><p style="--tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-ring-color: rgba(59,130,246,0.5); --tw-ring-offset-color: #fff; --tw-ring-offset-shadow: 0 0 transparent; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 transparent; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 transparent; --tw-shadow: 0 0 transparent; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(217, 217, 227); box-sizing: border-box; caret-color: rgb(55, 65, 81); color: #374151; margin: 1.25em 0px 0px; white-space: pre-wrap;"><span style="background-color: white; font-family: helvetica;">It's important to remember that the subsidies and grants should be used as a tool to attract investment, but it should not be the only way to build a sustainable industry. The government should also focus on building the ecosystem, creating a favorable environment for innovation, and providing education and workforce development to create a sustainable industry.</span></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-16579906959113929232022-10-11T22:58:00.012+05:302022-11-08T07:06:37.443+05:30Trade musings 3 - This round for India's outlook<p style="text-align: left;"><span style="font-family: inherit;">IMF released its <a href="https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022" target="_blank">quarterly world economic outlook</a> on the 11th of October. </span></p><p style="text-align: left;"><span style="background-color: white; font-family: inherit;"><span class="hardreadability" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-offset-key="iuvt-0-0" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">The report predicts that "Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023</span></span><span data-offset-key="iuvt-1-0" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-text="true" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">." </span></span><span class="veryhardreadability" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-offset-key="iuvt-2-0" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">About the situation of inflation it says, "Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024</span></span><span data-offset-key="iuvt-3-0" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-text="true" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">." The report recommends continued monetary tightening, while supporting the low income vulnerable population. </span></span><span class="veryhardreadability" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-offset-key="iuvt-4-0" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">The risk factors continue to be inflation, geopolitcal tensions and wars, slowing global trade, Chinese property collapse, pandemic related disruptions etc</span></span><span data-offset-key="iuvt-5-0" style="border: 0px; font-variant-ligatures: normal; letter-spacing: -0.2px; margin: 0px; orphans: 2; outline: 0px; padding: 0px; transition: background 0.5s ease 0s; white-space: pre-wrap; widows: 2;"><span data-text="true" style="border: 0px; margin: 0px; outline: 0px; padding: 0px; transition: background 0.5s ease 0s;">. </span></span></span></p><p style="text-align: left;"><span style="background-color: white;">The growth outlook for 2021, 22 and 23 are as follows: </span></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUlJ-1DM73USZX7ofEnXms1ka1aPDeZgTCyDsgJfGkNS_JFsSjrXVz88zQc1mwk8QTiztlSwqerUbP1sAy1NtDlfd1XcxJlmJn6rqZRGM3uWQP8PJFqUuR6GMKusMHKJHAo_7PwZ8Aq2CY7wkkNgfTpBn__e2djg3Ti2YpCW3WUndVRhMROcaJ2dpt3Q/s1892/Screenshot%202022-10-11%20at%2010.42.22%20PM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1480" data-original-width="1892" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUlJ-1DM73USZX7ofEnXms1ka1aPDeZgTCyDsgJfGkNS_JFsSjrXVz88zQc1mwk8QTiztlSwqerUbP1sAy1NtDlfd1XcxJlmJn6rqZRGM3uWQP8PJFqUuR6GMKusMHKJHAo_7PwZ8Aq2CY7wkkNgfTpBn__e2djg3Ti2YpCW3WUndVRhMROcaJ2dpt3Q/s16000/Screenshot%202022-10-11%20at%2010.42.22%20PM.png" /></a></div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEReuFxtew7wbV227sJbaRU1Q6_erLf_WqqponD9qfymhXEn5aTp56NusmBPokuWP4v_hknQ9zeAxh7xofTNEryyzEFZ-qf-q6SqG059q2MvcZyVroxzU8iISuA6X15_DWGWVziCJ4dBYYGn_z8gaRxOg7ZOId6edCf3so41vGDFNodtbBFrBBv_fOPg/s1866/Screenshot%202022-10-11%20at%2010.42.04%20PM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1436" data-original-width="1866" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEReuFxtew7wbV227sJbaRU1Q6_erLf_WqqponD9qfymhXEn5aTp56NusmBPokuWP4v_hknQ9zeAxh7xofTNEryyzEFZ-qf-q6SqG059q2MvcZyVroxzU8iISuA6X15_DWGWVziCJ4dBYYGn_z8gaRxOg7ZOId6edCf3so41vGDFNodtbBFrBBv_fOPg/s16000/Screenshot%202022-10-11%20at%2010.42.04%20PM.png" /></a></div><br />The above numbers make India the fastest growing large economy for the current year and the next year. <div><br /></div><div>It might be interesting to take a step back, and discuss the macro-economics and how India landed up at this sweet spot in terms of monetary and fiscal policy. It appears that India got something very right during the pandemic knowingly or unknowingly. </div><div><p style="text-align: left;"><b><u>The money supply during COVID:</u></b> </p><p>India dealt with the monetary stimulus differently during COVID when compared with USA or EU countries. A big part of the inflation that we see in USA and EU today is attributed on the loose monetary policy those countries ran during the pandemic. </p><p>When the supply was constrained during lock-downs, increasing money supply led to more money chasing few available goods, causing inflation. The two plots below demonstrate the difference in approach between USA and India. Notice the jump in money supply during pandemic period for the USA. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQCaBKFb1NbuFj1gwMd8e9zYLX05ilKmMJartuwteDxJgZKPi9XVG2wH1tnJWdV1iWN-JwqOGGhfyz8w2nvk1fnT8A9jylBPACn47MNvaU0qU7jePClErnOyK7y6yT3VrXMcD5PaffbHWghZdCkjDopZ9f53cGX4TmMiTqg5XU3ZL5OpJd3Jj2E_j_4Q/s2326/Screenshot%202022-10-08%20at%2010.36.45%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1162" data-original-width="2326" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQCaBKFb1NbuFj1gwMd8e9zYLX05ilKmMJartuwteDxJgZKPi9XVG2wH1tnJWdV1iWN-JwqOGGhfyz8w2nvk1fnT8A9jylBPACn47MNvaU0qU7jePClErnOyK7y6yT3VrXMcD5PaffbHWghZdCkjDopZ9f53cGX4TmMiTqg5XU3ZL5OpJd3Jj2E_j_4Q/s16000/Screenshot%202022-10-08%20at%2010.36.45%20AM.png" /></a></div><p><span style="font-size: xx-small;"><span style="background-color: white;">Source: </span><span face=""Lucida Sans", Lucida, verdana, arial, sans-serif" style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;">Organization for Economic Co-operation and Development, M3 for India [MABMM301INM189N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MABMM301INM189N, October 8, 2022.</span></span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj51diQQ6HYhj5YJ5EDyQMoTiaD7iLiR2Gei5LA62uGr_rlTFpBwvc2P55OwF7w2r_mlJ3iMp0vRI2eX4LwRDnz89Oz00M_B5YsD1fcXh-vRQC2qCZ47j5hJvWPFLtGBh2WoWbpe43QejCqWMDnx7ppejpaDa3AAgO_jhMqSDYvndeBMnIERMNjTW3SXw/s2330/Screenshot%202022-10-08%20at%2010.37.03%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1188" data-original-width="2330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj51diQQ6HYhj5YJ5EDyQMoTiaD7iLiR2Gei5LA62uGr_rlTFpBwvc2P55OwF7w2r_mlJ3iMp0vRI2eX4LwRDnz89Oz00M_B5YsD1fcXh-vRQC2qCZ47j5hJvWPFLtGBh2WoWbpe43QejCqWMDnx7ppejpaDa3AAgO_jhMqSDYvndeBMnIERMNjTW3SXw/s16000/Screenshot%202022-10-08%20at%2010.37.03%20AM.png" /></a></div><p><span face=""Lucida Sans", Lucida, verdana, arial, sans-serif" style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-size: xx-small;">Source: Organization for Economic Co-operation and Development, M3 for the United States [MABMM301USM189S], </span></span><span face=""Lucida Sans", Lucida, verdana, arial, sans-serif" style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333; font-size: x-small;">retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MABMM301USM189S, October 8, 2022.</span></p><p></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;">Most advanced economies such as EU, UK etc. that are suffering inflation have a money supply curve similar to USA.</span></span></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"></span></span></p><p style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; caret-color: rgb(0, 0, 0); color: black; font-family: -webkit-standard; font-style: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: auto; text-align: left; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;"><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"></span></span></span></span></p><p></p><p style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; caret-color: rgb(0, 0, 0); color: black; font-family: -webkit-standard; font-style: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: auto; text-align: left; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;"><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;">A comparison of resulting inflation between India and USA is presented below: </span></span></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22ii9A0xIKAv6kiuNytl6rzfiGpir1HsouNePSEQF2x4D7BOU3Q-MQAU4S5f1jESsqaayNENfA_CQujrhpAVHZVFdpB1eTe1HgaAhCpIM0kg7392qFT_Ar8TZhi7svAKt_XWHEiL1nGGnhPizoQPDnwzduiXATtZf7oq-gkr4aJbJUjUj_UjQQl6hWA/s1168/fredgraph-5.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="1168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22ii9A0xIKAv6kiuNytl6rzfiGpir1HsouNePSEQF2x4D7BOU3Q-MQAU4S5f1jESsqaayNENfA_CQujrhpAVHZVFdpB1eTe1HgaAhCpIM0kg7392qFT_Ar8TZhi7svAKt_XWHEiL1nGGnhPizoQPDnwzduiXATtZf7oq-gkr4aJbJUjUj_UjQQl6hWA/s16000/fredgraph-5.png" /></a></span></span></div><p></p><div class="separator" style="clear: both; text-align: center;"><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguZ6f7tVk4YYUUnvOi0--e8WMIE9T6cYP6tRjCLEM3ZBl1bfjI95HT1gH0PS_d_rukO75_TkKanxdOiyRP86bAo2-5FyNPSjCJ6QiZJxllvSCDxXJQxCQRTQkNbJE5o6_H6IGgDcudmGk6s6BUTPeFddf-e3VRcOrPLv6Dhhx-oNGnYah76CIHyxvm7Q/s1168/fredgraph-4.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="1168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguZ6f7tVk4YYUUnvOi0--e8WMIE9T6cYP6tRjCLEM3ZBl1bfjI95HT1gH0PS_d_rukO75_TkKanxdOiyRP86bAo2-5FyNPSjCJ6QiZJxllvSCDxXJQxCQRTQkNbJE5o6_H6IGgDcudmGk6s6BUTPeFddf-e3VRcOrPLv6Dhhx-oNGnYah76CIHyxvm7Q/s16000/fredgraph-4.png" /></a></span></span></div><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"><br /><br /></span></span>Global inflation is 9.8% today, a level unheard of in the the last 50 years. When the inflation emerged in the USA during late 2021 and early 2022, the inflation was attributed on the pent up demand from covid times. It was expected to subside by itself. <p>However, it didn't. </p><p>The central bank of US raised the rates in response starting March 2022 to counter it. And now almost all the central banks in the world have raised interest rates in the recent months. </p><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjHhoTb6iIa7xR18WkL6q8IN7MNlTVgwPLgZdRihfWM4-BX5ICADz__mjme_0uQ5Jh7vz-XQAHB4x8tGpzuu_cfEclAvO6BkQBTdPsjVkcSzCRd7PmjphkbtzN2LQANH8lRb0TBjaWPWEKv2cosc8s2wosrpBg0PHb5D4iTgiU5EvVJpR6ZOQDki9_zA/s1168/fredgraph.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="1168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjHhoTb6iIa7xR18WkL6q8IN7MNlTVgwPLgZdRihfWM4-BX5ICADz__mjme_0uQ5Jh7vz-XQAHB4x8tGpzuu_cfEclAvO6BkQBTdPsjVkcSzCRd7PmjphkbtzN2LQANH8lRb0TBjaWPWEKv2cosc8s2wosrpBg0PHb5D4iTgiU5EvVJpR6ZOQDki9_zA/s16000/fredgraph.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><p><b style="caret-color: rgb(51, 51, 51); color: #333333; font-family: inherit;"><u>Tightening leads to rise in USD: </u></b></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;">When the world economy stumbles, the USD usually strengthens. Not </span></span><span style="color: #333333;"><span style="caret-color: rgb(51, 51, 51);">because the USA does something amazing, but because the US T-Bills are considered the safest asset to move into during uncertain times. This explains why the USD appreciated during COVID. And it is again appreciating now, despite the fact that almost all the central banks are raising rates at similar speed. Most currencies have depreciated against USD, both in nominal (value) and real (purchasing power) terms. </span></span></p><p><span style="color: #333333;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="color: #333333;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjK5enZO3fV-eRnCh0lafGFX5liJHXiQ9PRtnebDYx_iQp-z20gUkU1WG57oWxnSCYjwpEVaPnSuoljKCgKckXA3ILs3SVDH4aSe5uHuMyKR4zSLEmQ8g4Y8p3lNtQHV8cJfbxO468aGlIwAKxxO8xOiSXuVkhwCYxuB7KUOt7ResQWnT_GcVFGRJhz2w/s1168/fredgraph-3.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="1168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjK5enZO3fV-eRnCh0lafGFX5liJHXiQ9PRtnebDYx_iQp-z20gUkU1WG57oWxnSCYjwpEVaPnSuoljKCgKckXA3ILs3SVDH4aSe5uHuMyKR4zSLEmQ8g4Y8p3lNtQHV8cJfbxO468aGlIwAKxxO8xOiSXuVkhwCYxuB7KUOt7ResQWnT_GcVFGRJhz2w/s16000/fredgraph-3.png" /></a></span></div><p></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuBhzylbkkOpYFUwQPxfmfGJ7L3CPyJFH-_p_MtLYYFklYFuvXeOsBZDbc5Hiu9zMMfhd6GUUmON96qFCI7YiyBKSdxAfG0ZVA5ea9CPypmokRGD4Lhgeqk5QGEig416SF6iYJXeQI-0mKyWCYJQUQScLzD1opYsI-c0p6oeyuMYv5OJk8WfY7XT7mXA/s1168/fredgraph-2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="450" data-original-width="1168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuBhzylbkkOpYFUwQPxfmfGJ7L3CPyJFH-_p_MtLYYFklYFuvXeOsBZDbc5Hiu9zMMfhd6GUUmON96qFCI7YiyBKSdxAfG0ZVA5ea9CPypmokRGD4Lhgeqk5QGEig416SF6iYJXeQI-0mKyWCYJQUQScLzD1opYsI-c0p6oeyuMYv5OJk8WfY7XT7mXA/s16000/fredgraph-2.png" /></a></div><br /><span style="font-family: inherit;">Look at the below figure on surge of USD from the IMF report:</span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEir1pSSi4saSH-wLdALA1fXCFszI9OM4akJ97KEv9g2orjP968kvKwI3AhufwYnB83uL_-n9s80E0cX57e5Qe3a5yh7dHG4sBhM5Nyt_swElsHS0pFqNDVSpRgXqtREJ6c3TXS8pvWYNj15AVAMQPe-t6PzWWIqXsR0SDdC0zVeYfwhhLn2iZrn94miaQ/s1262/Screenshot%202022-10-11%20at%2010.49.32%20PM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1262" data-original-width="954" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEir1pSSi4saSH-wLdALA1fXCFszI9OM4akJ97KEv9g2orjP968kvKwI3AhufwYnB83uL_-n9s80E0cX57e5Qe3a5yh7dHG4sBhM5Nyt_swElsHS0pFqNDVSpRgXqtREJ6c3TXS8pvWYNj15AVAMQPe-t6PzWWIqXsR0SDdC0zVeYfwhhLn2iZrn94miaQ/s16000/Screenshot%202022-10-11%20at%2010.49.32%20PM.png" /></a></div><br /><b>Where does it go from here? </b></div><div><br /></div><div>It can go anywhere depending on the geopolitcal developments and response of central banks and governments. A continued tightening by Fed in the US can lead to serious recession. Russia may squeeze EU this winter and EU may implode and slow down further. Any deeper slowdown would affect our exports adversely. Our imports are inelastic in terms of petroleum and other products. Our exports are not. However, given our deep forex reserves it is certain that before India buckles, the world would already be in deep woods.</div><div><br /></div><div><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;"><b>PS: Pay it like Crypto</b></span></span></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;">Not everything is gloomy in Bengaluru: the startup city of India and my home. And if you fail at a crypto startup, you can start a tea-shop and accept payment in cryptocurrencies. And some people can pay in cryptos in Bengaluru. </span></span></p><p><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfyWSZD1H92uPz4Px8JL-biS8snzL3eO1UC8cMtSAOyQI7yrqizq-22tw13QjvKBOs7pxEHfQwaK1bLWTZMKl0owiU6NrIwbOF-ygy4dmcMOjDPzR1XP5e5pEv4JrPO3dpgfAOVMfYiMEedb3w8jYR71dfOT1WCW93-xvnkE2MKA-sc03VMLaCyJf2Xg/s1136/Screenshot%202022-10-08%20at%2010.47.52%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="838" data-original-width="1136" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfyWSZD1H92uPz4Px8JL-biS8snzL3eO1UC8cMtSAOyQI7yrqizq-22tw13QjvKBOs7pxEHfQwaK1bLWTZMKl0owiU6NrIwbOF-ygy4dmcMOjDPzR1XP5e5pEv4JrPO3dpgfAOVMfYiMEedb3w8jYR71dfOT1WCW93-xvnkE2MKA-sc03VMLaCyJf2Xg/s16000/Screenshot%202022-10-08%20at%2010.47.52%20AM.png" /></a></div><span style="background-color: white; caret-color: rgb(51, 51, 51); color: #333333;"><span style="font-family: inherit;">More on the crypto accepting tea-shop <a href="https://twitter.com/akshaymarch7/status/1575043889144430592?s=46&t=DE1Tj9OFspOlFS3u35QnNw" target="_blank">here</a></span></span><p></p><div class="separator" style="clear: both; text-align: center;"><br /></div><br /></div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com1tag:blogger.com,1999:blog-3734986736884142928.post-36567866484495814022022-10-02T10:10:00.001+05:302022-10-02T10:20:09.636+05:30Trade musings for the week - 2<p><b>There's no hedge here:</b></p><p>Zero-hedge, the perpetual pessimist website, claims that <a href="https://www.zerohedge.com/commodities/stage-being-set-massive-global-rice-shortage" target="_blank">India is creating a massive global rice shortage through the ban on rice exports from India</a>. Zerohedge is wrong when he says that India accounts for 40% of the world's rice exports. That's not the usual case. Here are the actual figures for last 10 years: </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEji9nK7Ztp9F2chm4Bi5z78fNrOVWO4DyCiJwE0d62V-BsAuUlDPH8wP8oUcRlsce-lCiSB4TNGevRmFeu34Od8a2R1IJTd4Ptla0DNCtDGZcCmbqBmQDZxfSpFbXFyoah5bGGj-ZmxTqPLZlSkGRiZSbtkijpbHfo_hd17J8P3KB8tgSKPP56bjX3NiA/s1804/Screenshot%202022-10-02%20at%207.21.41%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="610" data-original-width="1804" height="216" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEji9nK7Ztp9F2chm4Bi5z78fNrOVWO4DyCiJwE0d62V-BsAuUlDPH8wP8oUcRlsce-lCiSB4TNGevRmFeu34Od8a2R1IJTd4Ptla0DNCtDGZcCmbqBmQDZxfSpFbXFyoah5bGGj-ZmxTqPLZlSkGRiZSbtkijpbHfo_hd17J8P3KB8tgSKPP56bjX3NiA/w640-h216/Screenshot%202022-10-02%20at%207.21.41%20AM.png" width="640" /></a></div><br /><p>India was a large supplier to the extent of 40% only in the year 2021. During other years, it was a supplier of around 15% of global supplies. There was a big jump in exports from India in 2021, not at the cost of other exporting countries, but to bridge the demand that went up by around 32% in that year. The same continued over to 2022 till the exports were banned on the 9th of September. While India has reasons to ban the exports of rice, it won't lead to a catastrophe as Zerohedge predicts. Broken rice in USA mostly goes into animal feed. And making ethanol at many places. The main importers of broken rice are China, Senegal, Belgium, Indonesia, Viet Nam, Zimbabwe and Ethiopia. Some of these countries are also native rice growers. </p><p>---</p><p><b>Slow-Steaming ahead: </b></p><p>Few months ago, we worried about rising shipping costs. It has now gone the other way with containers and dry bulk shipping costs plummenting. So much so, that <a href="https://economictimes.indiatimes.com/news/international/container-lines-like-maersk-steam-slower-to-restore-profit/articleshow/11644386.cms?from=mdr">Maersk has asked the captains of its ships to slow down the speeds</a> to guzzle less fuel. </p><p>Here's what the Drewry Container and Baltic Dry indices say: </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiA3HuzUPz1XBecoglJQ6uaB5A6Zzpt-BqDGTprPVyis-0OUgUjAmTo4YKH1UDNbkS8EOMZOplHMa4WY5EJcrA-vw1_aB8egeEvOvei0TMTDsbbLxg13pmfZQW5eziBzIJx1jFEnF98rCRXG0o35v3JmRA_KM10Sa4ppG1V6-kscUUJsAu5Yd4AQWLyXw/s1176/Screenshot%202022-10-02%20at%208.26.23%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="744" data-original-width="1176" height="405" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiA3HuzUPz1XBecoglJQ6uaB5A6Zzpt-BqDGTprPVyis-0OUgUjAmTo4YKH1UDNbkS8EOMZOplHMa4WY5EJcrA-vw1_aB8egeEvOvei0TMTDsbbLxg13pmfZQW5eziBzIJx1jFEnF98rCRXG0o35v3JmRA_KM10Sa4ppG1V6-kscUUJsAu5Yd4AQWLyXw/w640-h405/Screenshot%202022-10-02%20at%208.26.23%20AM.png" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxHMhtUPxwVtX5SIA7aViFEPwZxMiwm3lJjcLhAxQTV1OvPXF4IC0uJFDJ3G-6z8VHhWxJD5VOAXYCoCydrXj7LP_eV-bYXY30NzuIuhNZI3QUUR75D9gTkuwW3bxcfsqGv_6xxI-Xy-XMSQG7WIExwBMnZh_CFh2MQ0uH2oFUZZSz6Ii1NrwfQOP6Zw/s1988/Screenshot%202022-10-02%20at%208.34.30%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1224" data-original-width="1988" height="394" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxHMhtUPxwVtX5SIA7aViFEPwZxMiwm3lJjcLhAxQTV1OvPXF4IC0uJFDJ3G-6z8VHhWxJD5VOAXYCoCydrXj7LP_eV-bYXY30NzuIuhNZI3QUUR75D9gTkuwW3bxcfsqGv_6xxI-Xy-XMSQG7WIExwBMnZh_CFh2MQ0uH2oFUZZSz6Ii1NrwfQOP6Zw/w640-h394/Screenshot%202022-10-02%20at%208.34.30%20AM.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><p><br /></p><p><b>Friendshoring works only to a point:</b></p><p>China + 1 and Friendshoring are favourite words for those who wish to benefit from firms relocating away from China due to geopolitical headwinds. It may not may not work. Some challenges can be seen <a href="https://economictimes.indiatimes.com/opinion/et-editorial/friendshore-in-deed-works-only-to-a-point/articleshow/94255598.cms">here</a>.</p><p><b>Old-infant is crying: </b></p><p>Carmakers (of the IC Engine types) in India object to <a href="https://www.business-standard.com/article/economy-policy/india-uk-free-trade-agreement-carmakers-against-sharp-import-duty-cut-122092500640_1.html" target="_blank">duty cuts proposed under Indo-UK FTA</a>. The FTA between India and UK is currently under discussion. Car manufacturers in India are protected from imports with the help of a steep tariff barrier. Government has protected this industry throughout the last 30 years. The tariffs for import of a completed car is over 100% in India. This is is not so with most other industries that were opened up after India signed WTO. It is alleged that this protection has helped India to grow into an auto manufacturing hub for cars and components. India is 5th largest auto manufacturer(4.5 million per year) in the world, behind Germany(4.7 million per year). The <a href="https://www.investopedia.com/articles/markets-economy/090616/6-countries-produce-most-cars.asp">top auto manufacturers</a> are China (26 million per year), USA(11 million per year) and Japan(9.7 millioin per year). The Indian government is now committed on protecting the emerging EV market as this is the new infant in town. Also, 'Old infant' is an oxymoron. The earlier the IC Engine automakers realize this, the better for them. </p><p><br /></p><p><b>The clever way to non-tariff barriers</b></p><p>US and EU are pushing for a border tax adjustment (import duty) based on some kind of measure of amount of carbon that an imported product emits. India and some other developing economies oppose this. While the debate slugs itself out, researchers are <a href="https://www.resources.org/common-resources/the-greenhouse-gas-index-a-metric-for-greenhouse-gasintensive-products/?mc_cid=0fad56d5c3&mc_eid=13fc092351">coming up with indices</a> that can be used to arrive at the border tax amount for a given product that can be levied without falling foul with the WTO rules. The border tax concept is going smart with such ideas. India too, I feel, must come up with an adjustment mechanism that relies upon something like the per-capita-emission concept in order to ensure that we are ready to retaliate when the time comes, in a smart way. Meanwhile, <a href="https://crsreports.congress.gov/product/pdf/R/R47167">US Congress feels that the benefits of border adjustment tax</a> is uncertain. </p><p><br /></p><p><b>The increasing trade deficit in goods: </b></p><p>The trade deficit in merchandise has become a sinkhole for India. The month of August was brutal with a deficit in goods trade growing to almost 28 billion USD. Services exports cannot hope to make up for such a deficit. Nor can the capital inflows of any type. This needs deeper thought to address. Here are the figures: </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2my1nmPciCPcBr8dYmXVCwCyQjMZYzd_UbDoJCGeTVZ9joB44eRXIvCtSl-aeDP6ZcPdm3r_lC1bDr9SqfYYOew5gi8Wzl9hUuxrYPFu0wiPW4zztdELQA2hjcj7Sb8gBZ-QJ5X2ntwvAGQUFfasSqgtjnVzi7WZ16AnujhzwlU8lO1_tC9hiwV_lgQ/s2534/Screenshot%202022-10-02%20at%209.46.21%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1046" data-original-width="2534" height="264" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2my1nmPciCPcBr8dYmXVCwCyQjMZYzd_UbDoJCGeTVZ9joB44eRXIvCtSl-aeDP6ZcPdm3r_lC1bDr9SqfYYOew5gi8Wzl9hUuxrYPFu0wiPW4zztdELQA2hjcj7Sb8gBZ-QJ5X2ntwvAGQUFfasSqgtjnVzi7WZ16AnujhzwlU8lO1_tC9hiwV_lgQ/w640-h264/Screenshot%202022-10-02%20at%209.46.21%20AM.png" width="640" /></a></div><p><br /></p><p><b>National Logistics Policy and PM’s speech </b></p><p>I am not a fan of political speeches. But I usually listen to the ones that the PM makes during the launch of any policy or plan. These carry distilled insights. The PM's speech on National Logistics Policy was a great one. You can <a href="https://www.narendramodi.in/text-of-prime-minister-narendra-modi-s-address-at-the-launch-of-national-logistics-policy-at-vigyan-bhawan-new-delhi-564484">read the text here</a>. The policy aims to cut logistics costs in India from around 14 percent today, by at-least 5% in coming years. This would add directly to the bottomline of the firms that export out of India. It's equivalent to the MEIS incentive that government used to dole out to exporters, and which were struck down due to WTO objections. However, acheiving the goal would need unprecedented efforts and inter-ministerial coordination. Target setting is just the first step. And as the PM himself says in the speech: Policy is just a beginning, policy plus peformance is equal to progress. </p><p><b>Gyan of the week: </b></p><p>See the text in the image below from commerce ministry's website. The sentences "This is a system, everything is related to trade data" are nothing short of a good 'haiku'. Think about it. It will make a lot of sense. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQj5w2ixGZsVGAMCAKe421a8vjKfeqfxAYa0dJdQTPWkB8On8FaXV52Z6D18HGbmNaKew96-b6Y0OKXSWDE0IQfqivnDDF9bzWmR-s6DLAQKIQF3u129_f1RNAMcqZk9rc5mLyd2T4_VrHa4mB_DzG0KIddq567Rl-ulHnpbj1hbBCghtNbac9usTLTQ/s1376/Screenshot%202022-10-02%20at%209.43.30%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="796" data-original-width="1376" height="370" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQj5w2ixGZsVGAMCAKe421a8vjKfeqfxAYa0dJdQTPWkB8On8FaXV52Z6D18HGbmNaKew96-b6Y0OKXSWDE0IQfqivnDDF9bzWmR-s6DLAQKIQF3u129_f1RNAMcqZk9rc5mLyd2T4_VrHa4mB_DzG0KIddq567Rl-ulHnpbj1hbBCghtNbac9usTLTQ/w640-h370/Screenshot%202022-10-02%20at%209.43.30%20AM.png" width="640" /></a></div><br /><p>A real haiku in English that won an award in 1899: </p><p><i><span face="sans-serif" style="background-color: white; caret-color: rgb(32, 33, 34); color: #202122; font-size: 14px;">The west wind whispered,</span><br style="caret-color: rgb(32, 33, 34); color: #202122; font-family: sans-serif; font-size: 14px;" /><span face="sans-serif" style="background-color: white; caret-color: rgb(32, 33, 34); color: #202122; font-size: 14px;">And touched the eyelids of spring:</span><br style="caret-color: rgb(32, 33, 34); color: #202122; font-family: sans-serif; font-size: 14px;" /><span face="sans-serif" style="background-color: white; caret-color: rgb(32, 33, 34); color: #202122; font-size: 14px;">Her eyes, Primroses.</span></i></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-67673147804871343352022-09-15T00:41:00.003+05:302022-09-15T00:54:46.991+05:30Thoughts that mattered for trade this week - 1<p style="text-align: justify;"> - A delay in filing a response by an Indian exporter (Pokarna Engineered Stone Ltd) to a regulatory enquiry by the US Dept of Commerce led to imposition of a whooping 323% anti-dumping duty. India is the chief supplier to US market for quartz countertops, and this particular exporter is a major player there. The delay in filing was 5 hours, something that could have been condoned in the larger interest of trade. The prices of quartz countertops in US market would now go up, hurting Indian exporters and US consumers while benefiting the complainant importer in the USA who imports from some place other than India. Here's the <a href="https://www.wsj.com/articles/trade-bureaucrats-gone-wild-commerce-department-quartz-india-antique-group-cambria-11662152006?mod=opinion_lead_pos4" target="_blank">link</a> for more info. </p><p style="text-align: justify;">- Two things may hurt dollar dominance as per The Economist in this <a href="https://www.economist.com/leaders/2022/09/08/the-dollar-is-as-strong-as-ever-isnt-it">post</a>. One, the digital-currency systems that may evolve out of central banks from China, India or Brazil. UPI is specifially mentioned in the post, probably due to the resilence it has shown in the face of huge number of transactions. Two, the evolving decentralized finance systems such as cryptocurrencies. Ethereum is <a href="https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/">moving away from the proof of work concept to proof of stake</a> which would then take a fraction of energy currently consumed - 0.05% of current consumption to be precise. This is a significant step in the evolution of crypto. </p><p style="text-align: justify;">- <a href="http://toi.in/O-U5Ka21 http://toi.in/O-U5Ka21 ">Prof. Raghuram Rajan criticizes the Production Linked Incentive scheme</a>. The professor argues that the amount of subsidy doled out under the scheme creates perverse incentives to shift assembly plants into India. He hints that these assembly plants might move out once the subsidy stops. He argues that the scheme is making Indian consumers pay more (due to higher tariffs imposed on assembled phones, for example) while the Indian taxes pay for the subsidies. The solution? Professor recommends human capital investments, better land acquisition process, better infrastructure and better taxation and tariff policies. The recommendations are lazy thinking. Refuting professor's first set of arguments is easy for any serious trade policy practitioner. To give a hint, the professor agrees that he has scanty data to form any opinion about the PLI scheme. </p><p style="text-align: justify;">- While Prof Rajan criticizes India for strengthening her industrial policy, the US too is not listening to the professor and doing a full fledged incentive raj for chips, clean-energy and electric-vehicles. The budgetary outlay of USA is far bigger than that of India's. <span style="text-align: left;"><a href="https://www.economist.com/united-states/2022/09/13/joe-bidens-industrial-policy-is-big-bold-and-fraught-with-difficulty" target="_blank">Joe Biden’s industrial policy</a> is big, bold and fraught with difficulty. As per The Economist, <i>"</i></span><span style="text-align: left;"><i>The sums involved are vast. An infrastructure law passed last November assigns more than $20bn for new clean-energy technologies such as carbon capture and nearly $8bn for electric-vehicle charging stations. A technology bill approved in July will put $52bn into semiconductors while promising a further $170bn to support research in other fields. An act passed in August allocates $370bn to combat climate change, including investments in clean vehicles and renewable energy."</i></span></p><p style="text-align: justify;"><span style="text-align: left;">- If you are thinking that appetite for global trade is waning, probably you are not looking at services exports. <span style="font-family: inherit;"><i>"</i></span></span><span style="background-color: white; caret-color: rgb(51, 51, 51); text-align: left;"><span style="font-family: inherit;"><i>This 'new globalization' is based on digital services, research and development, data, ideas, and other intangibles. This development has been going on for a while and has evolved more rapidly after the previous global financial crisis (GFC) in 2008-9"</i>, says <a href="https://ecipe.org/publications/globalization-is-changing/" target="_blank">Erik Van Der Marel</a> in his post. This gives hope for India to ride an export led growth model in services. A visual from the post is placed below: </span></span></p><p style="text-align: justify;"><span style="background-color: white; caret-color: rgb(51, 51, 51); text-align: left;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9GPvSdlhmOQM1JCdJJg6qCi5AmhusXTSLyFOTBjM6VdVKj0ikZUROiTQsbTS7EcimbV2qGHuDJNk3Oria53Q5nB42ViIFEYfT-2TH_8v7uefRewXl7iCiFeCyyKM3jcLsmocYEXUUeDFSAaDjvVtwb4iWTh85dTJlMfr8pCXQ_yYpOLB7f7RJXt2sog/s1436/Screenshot%202022-09-15%20at%2012.26.22%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="736" data-original-width="1436" height="328" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9GPvSdlhmOQM1JCdJJg6qCi5AmhusXTSLyFOTBjM6VdVKj0ikZUROiTQsbTS7EcimbV2qGHuDJNk3Oria53Q5nB42ViIFEYfT-2TH_8v7uefRewXl7iCiFeCyyKM3jcLsmocYEXUUeDFSAaDjvVtwb4iWTh85dTJlMfr8pCXQ_yYpOLB7f7RJXt2sog/w640-h328/Screenshot%202022-09-15%20at%2012.26.22%20AM.png" width="640" /></a></div><span style="font-family: inherit;"><br /></span><p></p><p style="text-align: justify;"><b>- Trendy new terms: </b></p><p style="text-align: justify;">1. <b>Quiet quitting</b>: Elders in corporate firms feel that youngsters don't give their 100% to the job these days. Most just do enough not to get fired, or better still, wait for the managers to fire them while doing almost nothing. Work is low on priority, and family, vacations and leisure are high. Such people, it is alleged, are part of the trend known as 'Quiet quitting'. </p><p style="text-align: justify;">2. <b>Moonlighting</b>: Infosys warns that employees who moonlight <a href="https://www.outlookindia.com/business/infosys-warns-employees-of-moonlighting-in-email-says-no-double-lives--news-223053" target="_blank">would be terminated</a>. Same-to-same says <a href="https://timesofindia.indiatimes.com/gadgets-news/ibm-to-employees-moonlighting-not-welcome/articleshow/94200449.cms" target="_blank">IBM in India</a>. Moonlighting is when while holding a regular job, the (software) engineers also work full or part time with another regular or startup firm. As the days are spent at the regular job, the second job is usually when the natural satellite shines, hence the term. </p><p style="text-align: justify;">Million dollar question: If an Infy engineer is scared of the HR and quietly quits her moonlighting job, would the Infy job be then called sun-shining?</p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-18485457471296641162022-07-27T11:56:00.002+05:302022-07-27T12:28:59.772+05:30The Indian Agarbatti exports case study - effect of import control<p>What happens if we restrict cheap imports coming into the country in an employment intensive sector? While a free trade economist would squirm in agony, policymakers are faced with such choices on daily basis. Navigating multilaterally agreed rules in order to create space for domestic industry to fight and survive is a tight balancing act. I present a case study where the policymakers made a choice under similar circumstances. </p><p>Agarbatti (Incense sticks) industry in India is small in terms of turnover at around Rs 7000 crores (under USD 1 Billion). However, it is large in terms of employment per Rupee it generates. It employs close to 400,000 people, around 80 percent of whom are women (https://bit.ly/3oyNysO). Agarbatti industry also exports a significant amount of production and maintains leadership position in the world market. The leading competitor is China. </p><p>Agarbatti manufacturing needs raw material - a premix powder popularly known as 'masala' - and bamboo sticks. Over a period of time, India lost competitiveness in making masala at industrial scale due to cheap imports from China and Vietnam. Vietnam exported Agarbattis to India by taking advantage of the free trade agreement under Indo-ASEAN FTA. China was pushing the products without an FTA. </p><p>Due to the cheap imports, Agarbatti industries started downing shutters. Almost 25% of the small scale units closed down as per an estimate (https://bit.ly/3b7Qzxb), hurting domestic employment. </p><p>The government and the policymakers had to make a choice. Restricting imports were risky. It was believed that stopping imports of cheap masala and bamboo might hurt exports. </p><p>After consultations, the government decided to restrict the imports of agarbattis and masala. A notification was issued on 31 August 2019. Also the duty on Bamboo imports, another key ingredient for Agarbattis, was increased. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdul_9sOXa_Hez83dGl0x6imlk54G_7-WLxuXqv3gkkwZiVRMxZvbQXEFgvYywiyE7FW39jUndhMTQ9SFi4qWnFSOV7Q_SvFq_XoOHRHNr4bvnFqNxAlHBcd0dvojtdd87qi8mqh7CYZWllMM9JLBXhUtraG-tfddfpRdLNj_q7uRnirat1qDVCpNjxg/s1864/Screenshot%202022-07-27%20at%2010.34.23%20AM.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1044" data-original-width="1864" height="329" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdul_9sOXa_Hez83dGl0x6imlk54G_7-WLxuXqv3gkkwZiVRMxZvbQXEFgvYywiyE7FW39jUndhMTQ9SFi4qWnFSOV7Q_SvFq_XoOHRHNr4bvnFqNxAlHBcd0dvojtdd87qi8mqh7CYZWllMM9JLBXhUtraG-tfddfpRdLNj_q7uRnirat1qDVCpNjxg/w588-h329/Screenshot%202022-07-27%20at%2010.34.23%20AM.png" width="588" /></a></div><br /><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p>I will let the figures tell the rest of the story. Here's the yearly (Jan-Dec) figures for imports of Agarbatti by leading importing countries of the world. India was the leading importer country till 2019. Then the ban kicked in. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjolPjyvXkDDbspK9NXp91QHnNcfj1YrPL7TpXaxpWlLRdBgcSQEjAXgR9QRr2dv-5znKZFC2X270lf_s7o74dpIRWXy1FakdOEdlhYr_n7QarNC37Nc-G1tJwGKl2ZhJ3tiepodY4hA1l1fUVIS8AE2xlcm80weIlw-eqVwlKZrnse38FphDb2B9ZBg/s1886/Screenshot%202022-07-27%20at%2011.33.01%20AM.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="540" data-original-width="1886" height="173" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjolPjyvXkDDbspK9NXp91QHnNcfj1YrPL7TpXaxpWlLRdBgcSQEjAXgR9QRr2dv-5znKZFC2X270lf_s7o74dpIRWXy1FakdOEdlhYr_n7QarNC37Nc-G1tJwGKl2ZhJ3tiepodY4hA1l1fUVIS8AE2xlcm80weIlw-eqVwlKZrnse38FphDb2B9ZBg/w605-h173/Screenshot%202022-07-27%20at%2011.33.01%20AM.png" width="605" /></a></div><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p>The imports fell drastically after the ban, from around 84 million USD to around 1 million USD.</p><p>The apprehension was that this decrease in imports would affect India's ability to export to the world. However, the figures tell another story. The exports to the world, by various countries over years, are as follows: </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6wacrzhy3gKUJHCiBYId8hgSs69JD54HApFkry214Al2VgDn1o9CI-TUVmD7dv1WfP08JKnLZp1uyIcwcFdGGX0k13CthK5J2o8CXy9smPg1pwqSBO2_Fn9uSrKaPp9DjBTxzTBHW7b94BXfOJr8C9TD3j7xy_PK0n_wnoL0Vc2zRnBcv8DUaTXTHEw/s1734/Screenshot%202022-07-27%20at%2011.32.53%20AM.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="472" data-original-width="1734" height="157" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6wacrzhy3gKUJHCiBYId8hgSs69JD54HApFkry214Al2VgDn1o9CI-TUVmD7dv1WfP08JKnLZp1uyIcwcFdGGX0k13CthK5J2o8CXy9smPg1pwqSBO2_Fn9uSrKaPp9DjBTxzTBHW7b94BXfOJr8C9TD3j7xy_PK0n_wnoL0Vc2zRnBcv8DUaTXTHEw/w577-h157/Screenshot%202022-07-27%20at%2011.32.53%20AM.png" width="577" /></a></div><br /><p>The exports increased after the ban! By more than 50% over the two year period, despite the pandemic.</p><p>What explains this? </p><p>- Indian exporters were capable of ramping up. They did so on the back of some policy support such as 'Atmanirbhar allowance' under the Income Tax Act, and other timely incentives. (https://bit.ly/3oyNysO)</p><p>- India started sourcing domestic Bamboo from north eastern states, benefitting states such as Tripura (https://bit.ly/3vi61gO). </p><p>- Many units re-opened, providing employment to women and low-skilled labor thus increasing production and exports. </p><p><br /></p><p>On a good day, this is bad for free-trade. We don't know how much the prices of agarbattis went up and how much did such price rise impact the consumers. Consumers are usually the losers in any trade restrictive policy regime. Going by the volume of exports, it doesn't appear that there was significant price rise in Agarbattis. Secondly, what if every country resorts to retaliatory protectionism. We all would end up losers in the long run. </p><p>However, on a bad-day, the policymakers worry more about domestic job losses and poverty. In a developing economy context, free trade advocated by suave economists and UChicago trained bureaucrats would lose the round against those who seek votes every five years. </p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com1tag:blogger.com,1999:blog-3734986736884142928.post-62713086193192130532022-06-02T18:46:00.002+05:302022-06-02T18:46:28.960+05:30Framework for Artificial Intelligence Regulation – Questionnaire (FAIR-Q)<p><span style="font-family: inherit;"> <b style="font-size: 12pt; text-indent: -0.5pt;">Introduction:</b></span></p><div style="border: 1pt solid black; margin-left: -0.75pt; margin-right: 0in; padding: 0in;"><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 17.1200008392334px; margin: 0in 0in 6.15pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;"><o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 24px; margin: 0in 0in 21.95pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;">Artificial Intelligence (AI) tools used in governance require a great degree of scrutiny before they are launched. This is due to the potential of AI tools to create a disproportionate impact when used to achieve a public policy goal. To mitigate the risks, a Framework for AI Regulation – Questionnaire (FAIR-Q) is proposed, which can be used by regulators or government departments implementing these AI based solutions.<o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 17.1200008392334px; margin: 0in 0in 6.15pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;"><b>Recommendation:</b><o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 24px; margin: 0in 0in 21.95pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;">FAIR-Q should be adopted by any department that proposes use of any AI tool for governance. FAIR-Q covers questions related to the need for AI, algorithms, processes, fairness, accountability, and ethical issues. The government department and the AI team should be able to satisfactorily answer these before the tool is allowed into public service. The questions are designed to remain simple, yet effective.<o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 17.1200008392334px; margin: 0in 0in 6.15pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;"><b>Relevance:</b><o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 24px; margin: 0in 0in 0in 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;">AI tools can embed and exacerbate biases and inequalities found in the data that is used to train the tool. This raises important questions about fairness, accountability, and ethics. FAIR-Q ensures that these questions are adequately addressed.<o:p></o:p></span></p><p class="MsoNormal" style="border: none; font-size: 12pt; line-height: 24px; margin: 0in 0in 21.95pt 0.5pt; padding: 0in; text-indent: -0.5pt;"><span style="font-family: inherit;">FAIR-Q is an interim tool to mitigate adverse effects arising from use of AI tools in governance while formal standards and guidelines evolve on the subject.<o:p></o:p></span></p></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><style class="WebKit-mso-list-quirks-style">
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</style><p class="MsoNormal" style="font-size: medium; line-height: 17.600000381469727px; margin-bottom: 27.85pt; margin-left: -0.25pt;"><span style="font-family: inherit;"><b>What is AI in governance?</b><o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">When there are clear rules for a process, they can be coded into software, and computers can do the work faster and at a much larger scale than manual efforts. This is also true for governance and public service processes. Examples include bank transactions, applications for government services, and direct subsidy transfers. This type of computerization in governance began in the 1990s and continues till date. Various public service delivery processes are computerized using software that codify the rules.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 0.2pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">AI is the next level and touted as the futuristic solution to solving most problems at scale. The computers learn the rules on their own, based on the examples shown to it, to make an AI tool.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 6.15pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">We call such examples training data. The learning process is called ‘training’ or<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 24.4pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">‘machine-learning’. The code that helps the computer to learn is called a ‘training algorithm’. Once trained, the tool is shown new test examples which the AI has never seen. The AI is evaluated based on how well it performs on these unseen test examples. The trained tool, ready for deployment, is the ‘AI’. As the computer learns the rules on its own, we call it intelligent. For example, to create an AI tool that detects tax evaders, the training algorithm is shown thousands of examples of tax evasion, and thousands more where there was no tax evasion. The training algorithm picks up the patterns from the examples to understand features that contribute to tax evasion. Given enough examples, the accuracy improves, and we get an AI tool. The cases that are shown to the training algorithm are labelled examples, that is, someone identifies these cases as a tax evasion case or otherwise. This type of training is called supervised learning. Most AI applications in governance are of the supervised type.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">AI tools are powerful. Their performance, on the narrow tasks that they are designed to perform, is better than humans. We have AI Chess and Go grandmasters that can beat the best human players. The AI X-ray pathology detectors perform better than human pathologists today. Similarly, an AI tool is expected to perform well on governance tasks.<img height="16" v:shapes="Group_x0020_10220 Shape_x0020_14306" width="3" />Artificial Intelligence tools are being increasingly deployed across the world. In the hands of the government, they are powerful tools that can be leveraged for public welfare.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">Algorithms can go wrong<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">AI algorithms are black boxes for most people, except for the engineering teams that work on them, or the AI researchers. The inner workings of some of the advanced AI algorithms are not well understood. The engineering teams that develop these tools also struggle to explain the working of these algorithms. It’s difficult to understand what ‘rules’ the AI has learnt when a complex learning algorithm is used. An AI model with great performance doesn't translate to understanding of the tool's inner workings.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 0.2pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Many AI researchers are working to make AI systems explainable, to themselves first, and to the larger world subsequently. When Google’s team initially developed an AI based medical pathology detector to detect pathologies based on X-ray images, the AI showed great performance on the test data. However, the performance of the AI on fresh images was bad. When the team looked closely, they found that the AI was looking at the pen marks left by the pathologists on the training images. Rather than learning pathology, the tool learned that more pen marks indicate the presence of pathology (Mullainathan 2021). As these pen marks were absent in fresh images, the AI tool failed. This has since been rectified. It is likely that if the team had not looked close enough, the tool might have been released into the wild based on the initial test performance. We have examples where algorithms have gone unintentionally wrong.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">For a long time, image search for ‘CEO’ on google images threw up only white men in suits. Racial biases found in AI tools such as COMPAS that was used to detect recidivism in undertrial prisoners in the US is another such case. (Julia Angwin 2016)<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">Processes and Standards for AI – Current state<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 0.5pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">The legal guardrails to prevent unintended consequences arising from AI tools in the public domain are being deliberated by the governments and multilateral institutions. OECD’s efforts to codify <a href="https://oecd.ai/en/ai-principles"><span style="color: black;">AI principles</span></a><u> </u>(OECD 2019) and UNESCO’s recommendations on <a href="https://en.unesco.org/news/unesco-member-states-adopt-first-ever-global-agreement-ethics-artificial-intelligence"><span style="color: black;">ethics of AI</span></a><u> </u>(UNESCO<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 6.95pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">2021) are initial efforts to ringfence the bad effects of AI in the hands of a strong government.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">The EU has proposed an <a href="https://eur-lex.europa.eu/resource.html?uri=cellar:e0649735-a372-11eb-9585-01aa75ed71a1.0001.02/DOC_1&format=PDF"><span style="color: #0563c1;">AI Act</span></a><u><span style="color: #0563c1;"> </span></u>(European Commission 2022) which is being deliberated in Brussels and which may act as a reference for other governments. However, <a href="https://themarkup.org/news/2022/01/04/why-its-so-hard-to-regulate-algorithms"><span style="color: #0563c1;">it is challenging to </span></a><a href="https://themarkup.org/news/2022/01/04/why-its-so-hard-to-regulate-algorithms"><span style="color: #0563c1;">create sound legal and regulatory framework for a new and evolving subject like AI</span></a><u><span style="color: #0563c1;"> </span></u>(Feathers 2022). At the current state of development in the field, we are in a place where availability, ease of deployment of such tools, and their impact on the society outpaces the development of regulatory framework.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">The interim solution<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Good design and correct processes can prevent AI tools from committing serious errors. While the regulatory framework and standards evolve, there is a need for interim practical tools and methods on thinking about AI. These can be used by the department heads, parliamentary committees, public policymakers, and the judiciary. Asking meaningful questions at the right time can help steer AI based tools in the right direction and ensure that they do no harm to the public. By asking these questions one can be reasonably assured about the correctness of inputs and the learning process.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Framework for AI Regulation – Questionnaire (FAIR-Q) proposes a set of three questionnaires. These questions are adapted from various sources. They are based on the experiences across the world, managerial ways of thinking about AI from top business schools, and best practices gleaned from documents released by various agencies.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 24.1pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">The questions fall into three broad categories:<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 107%; margin-left: 0.5in; margin-right: 0.1pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: inherit;">a)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Business case and Governance process redesign for AI<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 107%; margin-bottom: 6.95pt; margin-left: 0.5in; margin-right: 0.1pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: inherit;">b)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Algorithm design<o:p></o:p></span></p><p class="MsoNormal" style="margin-bottom: 23.3pt; margin-left: 0.5in; margin-right: 0.1pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: inherit;">c)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Fairness, accountability, and ethics<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Each question seeks a specific type of non-technical response from the department that owns the AI tool and the associated engineering team. The answer would help policy makers gauge the impact and understand any potential side effect of the AI tool on the public. Each question also provides a brief note on the purpose of the question and the blunder it tries to prevent.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">Business case and Governance Process questions<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">AI for the sake of AI is not a good approach especially when simpler rule based programming could work. A clear demonstrable competitive advantage should arise out of usage of AI. There should be clear justification for developing and using an AI tool in governance.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">The approved process flow in many government departments does not permit automated AI tool-based decisions. Using AI may lead to legal challenges especially if an AI is used for initiating investigative actions. The grounds for legal challenge could be violation of principles of natural justice, or executive overreach.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 44.05pt; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Business and process design questions are designed to reduce the risk by overextending AI without justification. They also prevent the use of AI at wrong places in public governance processes. <b>(FAIR-Q : Appendix A)</b><o:p></o:p></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">Algorithm design questions<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">Algorithmic design questions ensure that the AI tool is designed to the specification of the policy makers. These questions attempt to evoke answers that translate machine learning jargons into plain speak. They ensure that the AI tool is trained on correct data that matches the deployment scenario. The evaluation metrics are also covered through these questions. AI tools should be evaluated on customized evaluation criteria keeping in mind their intended application in the public domain and should not blindly rely on the usual accuracy and precision measures used by the machine learning community. <b>(FAIR-Q : Appendix B)</b><o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><b><br /></b></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><b><br /></b></span></p><h1 style="line-height: 17.600000381469727px; margin-left: -0.25pt;"><span style="font-family: inherit;">Fairness, accountability, and ethics of AI questions<o:p></o:p></span></h1><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 0.2in; margin-left: -0.25pt; margin-right: 4.45pt;"><span style="font-family: inherit;">AI in governance should be fair, unbiased, and ethical. There should be clear accountability established for usage of AI for governance purposes. Departments should not be allowed to hold the AI tool accountable for any wrong decision. At the least, the AI tools should not violate the fundamental rights and ethical principles as outlined by UNESCO or OECD. These questions probe ethical aspects of AI. Each question is linked to a specific recommendation on fairness, bias, and ethics. <b>(FAIR-Q: Appendix C) <o:p></o:p></b></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-bottom: 0.2in; margin-left: -0.25pt; margin-right: 4.45pt;"><span style="font-family: inherit;"><b>Conclusion:</b><o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;">FAIR-Q is designed to remain simple, yet effective enough to serve the purpose of guiding the development of the AI tool. FAIR-Q asks penetrating questions to prevent harm and seek answers in clear language that could be understood by policy makers and administrators. They ensure that the AI team introspects deeply, and clearly explains as to how the AI tool furthers the cause of good governance in the country.<o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><h1 style="line-height: 17.1200008392334px; margin-bottom: 10pt; margin-left: 0in; text-indent: 0in;"><span style="color: #2f5496; font-size: 16pt; font-weight: normal; line-height: 22.82666778564453px;">Bibliography</span><o:p></o:p></h1><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 0in; margin-left: -0.25pt; margin-right: 0.1pt;">European Commission. 2022. <i>eur-lex.europa.eu. </i>May. Accessed May 19, 2022.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 15.45pt; margin-left: 36.5pt; margin-right: 0.1pt;">https://eur-lex.europa.eu/resource.html?uri=cellar:e0649735-a372-11eb-9585-01aa75e d71a1.0001.02/DOC_1&format=PDF.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 0in; margin-left: -0.25pt; margin-right: 0.1pt;">Feathers, Todd. 2022. <i>The Markup. </i>Jan 4. Accessed May 19, 2022.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 14.25pt; margin-left: 36.5pt; margin-right: 0.1pt;">https://themarkup.org/news/2022/01/04/why-its-so-hard-to-regulate-algorithms.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 0in; margin-left: -0.25pt; margin-right: 0.1pt;">Julia Angwin, Jeff Larson, Surya Mattu and Lauren Kirchner, ProPublica. 2016. <i>ProPublica. </i>May<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 15.45pt; margin-left: 36.5pt; margin-right: 0.1pt;">23. Accessed May 19, 2022. https://www.propublica.org/article/machine-bias-risk-assessments-in-criminal-sentenci ng.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 0in; margin-left: -0.25pt; margin-right: 0.1pt;">Mullainathan, Sendhil. 2021. <i>Gold lab foundation. </i>Accessed May 19, 2022.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 15.45pt; margin-left: 36.5pt; margin-right: 0.1pt;">https://goldlabfoundation.org/wp-content/uploads/2021/05/GLS-2021_Presentation_M ullainathan.pdf.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 14.25pt; margin-left: -0.25pt; margin-right: 0.1pt;">OECD. 2019. <i>OECD.AI. </i>May. Accessed May 2022. https://oecd.ai/en/ai-principles.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 17.1200008392334px; margin-bottom: 0in; margin-left: -0.25pt; margin-right: 0.1pt;">UNESCO. 2021. <i>unesco.org. </i>Nov 25. Accessed May 19, 2022.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 0in; margin-left: 36.5pt; margin-right: 0.1pt;">https://en.unesco.org/news/unesco-member-states-adopt-first-ever-global-agreement-e thics-artificial-intelligence.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 0in; margin-left: 36.5pt; margin-right: 0.1pt;"><br /></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 0in; margin-left: 36.5pt; margin-right: 0.1pt;"><br /></p><p class="MsoNormal" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; caret-color: rgb(0, 0, 0); color: black; font-family: Calibri, sans-serif; font-size: medium; font-style: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; margin: 0in; orphans: auto; text-align: start; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;"><b>Appendix A – Business case and Process design related questions<o:p></o:p></b></p><table border="1" cellpadding="0" cellspacing="0" class="MsoTable15Grid1LightAccent5" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: collapse; border: none; caret-color: rgb(0, 0, 0); color: black; font-style: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: auto; text-align: start; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; width: 876px; word-spacing: 0px;"><tbody><tr style="height: 20.65pt;"><td style="border-color: rgb(189, 214, 238) rgb(189, 214, 238) rgb(156, 194, 229); border-style: solid; border-width: 1pt 1pt 1.5pt; height: 20.65pt; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Category<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 1.5in;" valign="top" width="144"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Question(s)<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 261pt;" valign="top" width="348"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Expected answer<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 202.5pt;" valign="top" width="270"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Purpose <o:p></o:p></span></b></p></td></tr><tr style="height: 165pt;"><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; height: 165pt; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Business case<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 1.5in;" valign="top" width="144"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">What is the justification for use of AI, over the normal rule based programming in this case?<span> </span><o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">What performance enhancements in public service delivery arises due to the proposed AI tool?<o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 261pt;" valign="top" width="348"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">The department/team should demonstrate the advantage of usage of AI for the specific case <span style="color: red;">(general advantages of AI is not an acceptable answer).<span> </span></span>The answer should explain why normal rule based approach would fail and why an AI system would be able to perform better. Any benchmark performance improvements expected should also be shown, if available. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Example answer (for AI based localized weather forecast):</span></b><span style="font-size: 10pt;"> It is difficult to codify weather predictions using normal programming methods. The AI system has consistently outperformed rule based local weather predictions. Therefore, AI is being suggested for use here to help farmers at local level by providing accurate, localized weather predictions. Evaluation measures confirm better performance. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 202.5pt;" valign="top" width="270"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l10 level1 lfo4; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Prevents irrational exuberance about AI capabilities leading to unnecessary usage of AI where such tools are not warranted<o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0in 0.25in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l10 level1 lfo4; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Ensures that minimum benchmark performance expectations are set before significantly investing into development<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l10 level1 lfo4; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Clear advantages of AI tool are established for public policy purposes<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Process design<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 1.5in;" valign="top" width="144"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">At what stage does the AI come into the process flow?<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">Show the process diagram with AI and demonstrate the legal or business rules that allow the use of such tool.<o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 261pt;" valign="top" width="348"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><span> </span>The answer should show the step where AI tool comes in the department’s process flow chart. If the AI based decisions are used for any investigative actions, necessary legal support/legislative approval/business rules for such actions should be clearly explained with list of all approvals needed or taken.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Example answer (for AI tool that detects tax evaders):</span></b><span style="font-size: 10pt;"> The AI tool comes at the time of tax scrutiny. The AI flags suspicious cases for human tax inspector for detailed examination. As the tool doesn’t initiate investigative actions on its own and relies on human tax inspector for further verifications and for initiating any investigations under the Income Tax Act, no separate approval is required. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 202.5pt;" valign="top" width="270"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo5; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Helps gauge the centrality and role of AI tool in the whole process <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0in 0.25in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo5; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Prevents overstepping legislative and administrative mandate in using the AI tool<o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Process design<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 1.5in;" valign="top" width="144"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">Was any existing process altered or proposed to be altered, to accommodate AI tool? <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">If yes, what approvals are/were required? <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">List of such approvals may be enclosed. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 261pt;" valign="top" width="348"><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">Some AI tools may require altering existing process flow. The answer should demonstrate clearly if such change requires any approval from competent authority and if so, whether the same was obtained or is being planned. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><b><span style="font-size: 10pt;">Example answer (for an AI tool that stops automatic refunds of tax in cases of suspicion of tax evasion):</span></b><span style="font-size: 10pt;"> The AI tool stops and flags cases of tax evasion and stop the refunds in suspicious cases till an officer verifies the cause of suspicion and clears the case. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">There is a significant process alteration from earlier practice of human intervention moving to AI now. The following approvals were taken (List).<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;">The AI tool is also used for launching investigative actions and the additional following approvals were taken: (List) <o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in;"><span style="font-size: 10pt;"><span> </span><o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 202.5pt;" valign="top" width="270"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l11 level1 lfo6; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Prevents executive overstepping of powers<o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="font-family: Calibri, sans-serif; font-size: 12pt; margin: 0in 0in 0in 0.25in;"><span style="font-size: 10pt;"><o:p> </o:p></span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l11 level1 lfo6; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 10pt;">Ensures that necessary legislative and administrative approvals are taken before the AI tool starts altering public service delivery process of the government. <o:p></o:p></span></p></td></tr></tbody></table><p class="MsoNormal" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; caret-color: rgb(0, 0, 0); color: black; font-family: Calibri, sans-serif; font-size: medium; font-style: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; margin: 0in; orphans: auto; text-align: start; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px;"><b><o:p> </o:p></b></p><p class="MsoNormal" style="font-size: medium; line-height: normal; margin-bottom: 0in; margin-left: 36.5pt; margin-right: 0.1pt;"><style class="WebKit-mso-list-quirks-style">
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</style><b style="text-indent: 0px;"><span style="font-size: 12pt;"><br clear="all" style="break-before: page;" /></span></b><span style="font-family: -webkit-standard; text-indent: 0px;"></span></p><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><b> </b></p><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><b> </b></p><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><b>Appendix B – Algorithm design related questions<o:p></o:p></b></p><table border="1" cellpadding="0" cellspacing="0" class="MsoTable15Grid1LightAccent5" style="border-collapse: collapse; border: none; color: black; width: 876px;"><tbody><tr style="height: 20.65pt;"><td style="border-color: rgb(189, 214, 238) rgb(189, 214, 238) rgb(156, 194, 229); border-style: solid; border-width: 1pt 1pt 1.5pt; height: 20.65pt; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Category<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 85.5pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Question(s)<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 256.5pt;" valign="top" width="342"><p class="MsoNormal"><b><span style="font-size: 10pt;">Expected answer<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 229.5pt;" valign="top" width="306"><p class="MsoNormal"><b><span style="font-size: 10pt;">Purpose<o:p></o:p></span></b></p></td></tr><tr style="height: 165pt;"><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; height: 165pt; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Source of data<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 85.5pt;" valign="top" width="114"><p class="MsoNormal"><span style="font-size: 10pt;">What data did the AI train on? How was the data generated, who owns it? Are there any legal or administrative approvals needed to use this data? <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 256.5pt;" valign="top" width="342"><p class="MsoNormal"><span style="font-size: 10pt;">Answer should include data source details, ownership details, public availability status, and details on generation of data and completeness. Any administrative, legal, or legislative approvals required for using the data should be outlined clearly. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><u><span style="font-size: 10pt;">Example answer for tax fraud detection AI:</span></u></b><span style="font-size: 10pt;"><o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">The tax returns data of past tax delinquents was used along with tax returns data of non-delinquents as examples for training. The department owns the data, the data is complete and accurate, and the same is not publicly available as per the business rules (show why). The tax evaders were identified in the data by the department based on past investigation records (show how). The following ddministrative approvals were taken for using this data (List). <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; height: 165pt; padding: 0in 5.4pt; width: 229.5pt;" valign="top" width="306"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo1; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Ensures that AI tool retains contextual relevance in terms of data used and is not built on artificial or hypothetical data. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo1; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Ensures that there is clarity on data gathering process and usage of departmental data for governance purposes. If private/sensitive data is used, the mandate of the department should allow such access and use. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo1; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">c.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Ensures necessary approvals for using data for developing AI tool. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Construction of data<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 85.5pt;" valign="top" width="114"><p class="MsoNormal"><span style="font-size: 10pt;">Explain construction of training data with an example. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 256.5pt;" valign="top" width="342"><p class="MsoNormal"><span style="font-size: 10pt;">Should include all features, details or inputs that go into making an example. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">The training examples shown should include: <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">a) what was shown as input features <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">b) The labels attached to each example <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><span style="font-size: 10pt;">An example data about a person might capture age, gender, height, race, religion, caste, income, education, disability among other inputs. For subsidy disbursals, certain inputs might be crucial, such as gender or income which should be positively captured in the examples for the AI to learn. The application of AI would indicate broad guidelines as to what features are important. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 229.5pt;" valign="top" width="306"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l6 level1 lfo2; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">AI learning from wrong/frivolous inputs. For example, a person’s religion should not be captured for developing an AI tool to detect tax evasion. It might learn undue biases due to this input. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l6 level1 lfo2; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Prevents out of context learning for AI tool by keeping the training examples within the scope and range. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l6 level1 lfo2; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">c.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">AI learning from insufficient inputs. For example, AI should get adequate features to learn correctly. An AI tool that analyzes anomalies in subsidy disbursal should have data on gender, age, and demographic features for each example.<o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Labelling <o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 85.5pt;" valign="top" width="114"><p class="MsoNormal"><span style="font-size: 10pt;">Who labelled the examples for training? Explain the process of labeling the data.<o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 256.5pt;" valign="top" width="342"><p class="MsoNormal"><span style="font-size: 10pt;">The experts in the subject area should ideally label the data. The quality of the AI is determined by how good the labels are. The biases of the labelers are picked up during training by the AI. This answer should clearly explain the process of labeling, and the people responsible for assigning the labels. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><u><span style="font-size: 10pt;">Example answer for food grain price predictor AI: <o:p></o:p></span></u></b></p><p class="MsoNormal"><span style="font-size: 10pt;">The data was labelled by agriculture mandi/market agents. The agents were shown the images of food-grains along with the quality parameters such as moisture content of grain, harvest duration etc. Based on the price predicted by these human agents, each image was labelled. Aggregate value of three unrelated agents from different markets was taken to avoid collusion or price rigging. The AI is expected to learn and become at-least as good as market agents or better. This is measured through our evaluation methods as listed below. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 229.5pt;" valign="top" width="306"><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l2 level1 lfo3; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Prevents biases of labelers from becoming an AI tool. For example, in the agriculture produce price predictor AI, if labelers consistently flag small farmers’ produce as inferior, the AI learns to discriminate against small farmers. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l2 level1 lfo3; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Prevents wrong labelling leading to confused AI. The labels may be generated by a process which is flawed. For example, if rules are applied to generate labels about delinquency of tax filers, the rules should be carefully investigated for correctness, failing which the AI will learn these flawed rules. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 85.25pt;" valign="top" width="114"><p class="MsoNormal"><b><span style="font-size: 10pt;">Evaluation metrics<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 85.5pt;" valign="top" width="114"><p class="MsoNormal"><span style="font-size: 10pt;">Explain the deployment based evaluation measures of the AI tool? How good is the tool in doing what it is supposed to do? Does the tool commit error? If yes, what type and how much?<o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 256.5pt;" valign="top" width="342"><p class="MsoNormal"><span style="font-size: 10pt;"> The evaluation measure process should match the deployment case. The explanation should be de-jargonized <span style="color: red;">(usage of recall, F1 score, ROC characteristics curve etc is discouraged) </span>and explained in simple words and numbers. A tax fraud detection AI tool should not only tell the accuracy (98% accurate), but also inform how many wrong cases are flagged by it (false positive rate). The evaluation metrics should be tailormade for the AI tool. Confusion matrix, if used/applicable, should be explained in simple words. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><u><span style="font-size: 10pt;">Example answer for tax fraud detection AI: <o:p></o:p></span></u></b></p><p class="MsoNormal"><span style="font-size: 10pt;">In test 100 test cases given to the AI to evaluate the performance, there were 20 examples of tax avoiders and 980 innocent cases. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">Our AI model flagged 30 cases as tax avoiders. It identified 18 tax avoiders correctly and the remaining 12 were innocent people flagged as tax avoiders by the tool. <i>(The accuracy as per the machine learning community for the same numbers would come to 98.8% which is misleading)</i><o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 229.5pt;" valign="top" width="306"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l5 level1 lfo12; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Avoids machine learning jargon based evaluation measures which may confuse policy makers about true efficacy of the AI tool. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l5 level1 lfo12; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Customizing evaluation measures to match the deployment scenario would help visualize impact on the public once the tool is launched. <o:p></o:p></span></p></td></tr></tbody></table><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><b> </b></p><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><b>Appendix C – Fairness, accountability, and ethics related questions<o:p></o:p></b></p><table border="1" cellpadding="0" cellspacing="0" class="MsoTable15Grid1LightAccent5" style="border-collapse: collapse; border: none; color: black; width: 876px;"><tbody><tr style="height: 20.65pt;"><td style="border-color: rgb(189, 214, 238) rgb(189, 214, 238) rgb(156, 194, 229); border-style: solid; border-width: 1pt 1pt 1.5pt; height: 20.65pt; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Category<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><b><span style="font-size: 10pt;">Question(s)<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><b><span style="font-size: 10pt;">Expected answer<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(156, 194, 229); border-bottom-width: 1.5pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: solid solid solid none; border-top-color: rgb(189, 214, 238); border-top-width: 1pt; height: 20.65pt; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoNormal"><b><span style="font-size: 10pt;">Purpose<o:p></o:p></span></b></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Fairness and bias<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">Do you suspect the AI to have any biases based on the inputs supplied during training? <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><span style="font-size: 10pt;">What efforts have been made to check fairness and to ensure unbiasedness? <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">The answer should include the features used for training and how the data is free from any biases. Special focus should be given on biases based on gender, income, age, poverty, religion, caste among others. Some subgroups may not be represented well (sparse data problem) in the given examples which needs to be examined in the answer. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><u><span style="font-size: 10pt;">Example answer for AI based subsidy determination tool:</span></u></b><span style="font-size: 10pt;"> The data has been tested for balance to ensure that there is no systematic discrimination among subgroups based on inputs such as gender, religion etc. Each sub-types of examples are covered adequately for the AI to learn. The results have again been examined for unbiasedness. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l1 level1 lfo7; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">AI learning from wrong/frivolous inputs. For example, a person’s religion should not be captured for developing an AI tool to detect tax evasion. It might learn undue biases due to this input. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l1 level1 lfo7; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">AI learning from insufficient inputs. For example, AI should get adequate features to learn sufficiently. An AI tool that analyzes anomalies in subsidy disbursal should have data on gender, age, and demographic features for each example captured properly. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Accountability <o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">Who is accountable for the AI tool going wrong? <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">Is the accountable person named in the answer administratively and legally responsible for the process? <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">The department should own any AI tool that is developed for public use. In case of unintended consequences arising out of the usage of AI tool, the department should clearly identify the roles and responsibilities to amend/alter the AI tool for improvements. The AI tool owner cannot be the engineering team. The engineers are only responsible for development of the tool based on the intent of the policy as revealed by the policymakers. It is the policy makers who are legally and morally responsible for any AI based governance tool. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">This should be displayed in the answer. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo8; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Avoids post-facto accountability fixing. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo8; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Makes policy makers cautious while green signaling AI tool for public use. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l4 level1 lfo8; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">c.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Forces the policy makers to engage with the development process of the AI tool. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Data Privacy<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">Demonstrate the data privacy measures. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;">Who has certified them as sufficient? <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">The second question is important. The person who signs off on adequacy of data privacy measure should be the key person in the department who is responsible for AI tool’s development and maintenance. This can be the engineering head of the department. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l8 level1 lfo13; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Data privacy concerns are at the forefront whenever data is collected by the government. The same should extend to AI development. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Public Consultation<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">What type of public or private consultations were/are held about the safety of the AI system before the launch? <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><span style="font-size: 10pt;">All concerns raised by the stakeholders may be listed along with the remedial measures proposed. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">The consultations depend on the department and the kind of AI tool being developed. For public use tools that are not sensitive, wide public consultations may be held to address issues of concern. For department based tools and investigation tools, security and audit agencies within the government should be engaged to study the tool. Any other government department may be included under confidence for such cases. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><span style="font-size: 10pt;">The concerns raised by stakeholders should be carefully examined for action and demonstrated in the answer. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l7 level1 lfo9; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Prevents security, privacy and ethical concerns that may arise and detected after the launch of tool. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 0.25in;"><span style="font-size: 10pt;"> </span></p><p class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto; mso-list: l7 level1 lfo9; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Wider consultations would generate higher trust on the tool upon launch. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Risk evaluation<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">Show the risk evaluation carried out for things that can go wrong with the AI tool. <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">The department should adopt a tool/methodology of their choice to identify risks associated with the usage and mitigation measures if AI goes wrong. Best practices such as using a Failure Mode Effect Analysis (FMEA) for AI tool is a good way to go about this. Specific risks about privacy (data leaks) and adversarial attacks must be covered in the FMEA or tool of choice. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><u><span style="font-size: 10pt;">Example ideal answer:</span></u></b><span style="font-size: 10pt;"> The risk analysis was carried out to identify severity, occurrence and detectability of each risk that arises from using the AI tool. The FMEA containing the risk priority number/scores and mitigation measures is enclosed for reference. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l12 level1 lfo10; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Tools such as FMEA are effective and can ensure that high risk possibilities and vulnerabilities in the tool are addressed and mitigation measures are put in place. <o:p></o:p></span></p></td></tr><tr><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-left-color: rgb(189, 214, 238); border-left-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 71.75pt;" valign="top" width="96"><p class="MsoNormal"><b><span style="font-size: 10pt;">Explainability of the AI tool<o:p></o:p></span></b></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 121.5pt;" valign="top" width="162"><p class="MsoNormal"><span style="font-size: 10pt;">Explain how the AI tool arrives at the decisions? <o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 274.5pt;" valign="top" width="366"><p class="MsoNormal"><span style="font-size: 10pt;">Depending on the algorithm used, the engineering teams may or may not be able to come up with a good answer. It’s difficult to explain a multi layered neural network based AI tool in simple language. However, simpler AI models can be explained by methods that show feature importance. As a rule of thumb, more trust may be reposed on AI that can be explained. Complex algorithms, even when they perform better, might be focusing on features that may induce bias/unfairness and this needs to be verified thoroughly before allowing the launch. <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 10pt;"> </span></p><p class="MsoNormal"><b><span style="font-size: 10pt;">Example answer for an AI that determines if a loan may be given to the business:</span></b><span style="font-size: 10pt;"> (<span style="color: red;">Not acceptable: The AI uses 4 layer LSTM Recurrent Neural Network, with 600 dimensional embeddings matrix, to arrive at the decisions. The features that the AI focuses on do not contain any bias inducing elements.) </span>Acceptable: The loan determination is based on a) past tax filing records, with suitable weights given to accurate and timely filing of taxes. b) The current working capital requirements to the assets ratio of the business c) The credit rating of the firm/business d) Past delinquency records e) Current outstanding. Each of them have the following weights…<o:p></o:p></span></p></td><td style="border-bottom-color: rgb(189, 214, 238); border-bottom-width: 1pt; border-right-color: rgb(189, 214, 238); border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 189pt;" valign="top" width="252"><p class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l9 level1 lfo11; tab-stops: 193.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 10.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 10pt;">Explainability is a cornerstone for trustworthy AI. Public would trust an AI that can be explained over a tool that is difficult to understand. The same goes for policy makers. <o:p></o:p></span></p></td></tr></tbody></table><p class="MsoNormal" style="font-size: medium; text-indent: 0px;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="font-size: medium; line-height: 23.68000030517578px; margin-left: -0.25pt; margin-right: 0.1pt;"><span style="font-family: inherit;"><br /></span></p></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><span style="font-family: inherit;"><br /></span></div><div><br /></div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-14724589240719174112022-01-17T02:15:00.006+05:302022-02-10T05:44:59.638+05:30Sovereign Gold Bonds of Government of India – a risk factored evaluation<p style="text-align: justify;"><span face=""Calibri Light", sans-serif" style="color: #2f5496; font-size: 13pt; text-align: center;">Draft (email comments to tirumalakv@gmail.com)</span></p><h3 style="text-align: justify;">Brief</h3><p class="MsoNormal" style="font-size: medium; text-align: justify;">Unconventional monetary instruments carry risks that need to be quantified to help policymakers make an informed decision by allowing an objective cost-benefit analysis. </p><p class="MsoNormal" style="font-size: medium; text-align: justify;">This paper discusses Sovereign Gold Bonds (SGBs), a unique monetary instrument issued by the Government of India, and quantifies the risk that the government bears while underwriting the guarantee on the future gold price. One way to quantify this risk could be by using Black-Scholes-Merton’s option valuation model. It is seen that quantified risk arrived this way outweighs potential benefits arising from cheaper money raised through SGBs. This helps policymakers to understand the true risk they are undertaking by promising future gold price-linked returns. </p><h3 style="text-align: justify;">Sovereign Gold Bonds (SGBs)<o:p></o:p></h3><p style="font-size: medium; text-align: justify;">Sovereign Gold Bond (SGB) scheme was launched in November 2015. The main objective of SGB is to act as an alternative to purchasing/holding physical gold. These bonds are issued on payment of Indian Rupees and is denominated in grams of gold. The bond returns the Indian Rupees equivalent to the same number of grams of gold at the time of maturity. The bond has a maturity period of eight years. Bonds are issued on behalf of the Government of India by the Reserve Bank of India (RBI) and have a sovereign guarantee. The bonds are restricted for sale to resident Indian entities. The investment limits are presently 4 kgs per fiscal year, for individuals and Hindu Undivided Family (HUF) and 20 kgs per fiscal year for Trusts and similar entities. The ceiling will be counted on a financial year basis and will include the SGBs purchased during the trading in the secondary market. The ceiling on investment will not include the holdings as collateral by Banks and Financial institutions. Interest payable on these bonds is half-yearly @ 2.50% percent per annum. Interest on the Bonds is taxable as per the provisions of the Income-tax Act. The bonds are available both in demat and paper form and are tradeable in the Secondary Market. The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond. <o:p></o:p></p><p style="font-size: medium; text-align: justify;">(Technical details on SGBs may be found at <b>Appendix C.</b> FAQs on the SGB scheme: <a href="https://m.rbi.org.in/scripts/FAQView.aspx?Id=109">https://m.rbi.org.in/scripts/FAQView.aspx?Id=109</a>).<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Series of SGBs are released multiple times every year to the public for subscription. There is no specified upper value on the amount released for subscription, and the public can subscribe as per the eligibility guidelines when the series opens for subscription. The SGB subscription has grown significantly in the last two years, indicating that the bond is gaining traction with the public. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; color: black; text-align: justify; width: 414px;"><tbody><tr style="height: 48pt;"><td style="background-color: white; border: 1pt solid windowtext; height: 48pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">Financial year (April-March)<o:p></o:p></span></p></td><td style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; height: 48pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">Issue value in Rs. Crore<o:p></o:p></span></p></td><td style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; height: 48pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">Issue value in USD million (1USD=75 rupees)<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2015-16<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">245<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">32.7<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2016-17<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">4553<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">607.1<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2017-18<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">1895<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">252.6<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2018-19<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">643<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">85.8<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2019-20<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">2316<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">308.8<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2020-21<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">16049<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">2139.8<o:p></o:p></span></p></td></tr><tr style="height: 15pt;"><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; height: 15pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"><p class="MsoNormal"><span face="Calibri, sans-serif" style="font-size: 11pt;">2021-22 (till Nov)<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 97pt;" valign="bottom" width="129"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">11088<o:p></o:p></span></p></td><td nowrap="" style="background-color: white; border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; height: 15pt; padding: 0in 5.4pt; width: 118.25pt;" valign="bottom" width="158"><p class="MsoNormal" style="text-align: right;"><span face="Calibri, sans-serif" style="font-size: 11pt;">1478.4<o:p></o:p></span></p></td></tr></tbody></table><p class="MsoCaption" style="text-align: justify;">Table 1: Subscription to SGBs over years – Data from RBI<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h3 style="text-align: justify;">Gold import countermeasures<o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>SGBs may be seen as one of the countermeasures against increasing gold imports. Some other measures taken by the Government of India to curb gold imports in recent years include increase in customs duty on gold, direct curbs on gold imports through 80:20 scheme, gold monetization scheme and allowing gold-based exchange-traded funds. However, the trend in gold imports indicate that gold demand in India is inelastic to usual countermeasures. There may be cultural and other reasons for the same which is not discussed here. Gold-based exchange-traded funds have lost their importance after introduction of SGBs due to interest return of 2.5% per annum under SGB, absence of fund management charges and tax benefits on capital gains. </p><p class="MsoNormal" style="font-size: medium;"><o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse; color: black; text-align: justify; width: 509px;"><colgroup><col style="width: 204pt;" width="272"></col><col style="width: 178pt;" width="237"></col></colgroup><tbody><tr height="17" style="height: 13pt;"><td class="xl77" height="17" style="border: 0.5pt solid windowtext; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; font-weight: 700; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap; width: 204pt;" width="272">Year</td><td class="xl77" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 0.5pt; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; font-weight: 700; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap; width: 178pt;" width="237">Value in USD Billion</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2001</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">4.8</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2002</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">3.7</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2003</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">5.4</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2004</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">8.8</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2005</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">11.7</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2006</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">13.3</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2007</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">17.2</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2008</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">19.9</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2009</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">23.4</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2010</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">38.4</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2011</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">53.7</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2012</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">52.6</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2013</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">37.7</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2014</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">31.0</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2015</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">35.0</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2016</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">22.9</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2017</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">36.1</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2018</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">31.9</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2019</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">31.2</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2020</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">21.9</td></tr><tr height="17" style="height: 13pt;"><td class="xl73" height="17" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-left-color: windowtext; border-left-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">2021 (Jan-Nov)</td><td class="xl76" style="border-bottom-color: windowtext; border-bottom-width: 0.5pt; border-right-color: windowtext; border-right-width: 0.5pt; border-style: none solid solid none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 10pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; text-align: center; vertical-align: bottom; white-space: nowrap;">51.1</td></tr><tr height="17" style="height: 13pt;"><td class="xl79" colspan="3" height="17" style="border: none; color: rgba(0, 0, 0, 0.847); font-family: Arial, sans-serif; font-size: 9pt; height: 13pt; padding-left: 1px; padding-right: 1px; padding-top: 1px; vertical-align: bottom; white-space: nowrap;">Source - Trademap for all years except 2021. For 2021, source is DGCIS data</td></tr></tbody></table><p class="MsoCaption" style="text-align: justify;"><span style="font-size: 12pt;">Figure </span><span style="font-size: 12pt;">1</span><span style="font-size: 12pt;">: India's gold import over years <o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h3 style="text-align: justify;">Comparison of SGB and Treasury Bonds<o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>The government borrows from market through issue of treasury bills and bonds. SGBs on the other hand are unique instruments, prices of which are linked to gold price. SGBs are also budgeted in lieu of market borrowing by the government. Government may thus resort to raising money through SGBs, where it may be able to raise public money at a rate cheaper than through similar maturity sovereign bonds. For example, the regular 10-year bond issued by government of India in 2021 carried a coupon rate of 6.1% (with a yield of around 6.2% when it was listed, current YTM is around 6.5%), whereas the SGB issued in 2021 with 8-year maturity carried a coupon rate of 2.5% (considering the interest paid as coupon). </p><p class="MsoNormal" style="font-size: medium;"><o:p></o:p></p><h3 style="text-align: justify;">Gold price risk in SGBs<span style="font-size: medium;"> </span></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;">While raising money through such unique instruments, the issuer bears the associated risks and should suitably price the instrument to account for such risks. If the government is the issuer, then such risks are ultimately borne by taxpayers and citizens unless they are nullified. In the case of SGBs, the gold price is anchored to the bond value at the time of issue. Gold price fluctuation is a risk which the government bears. In case of significant price appreciation of gold between the time of issue and maturity, the initial gains of the government may turn into losses. On the other hand, a drop in gold price may lead to additional gains for the government. </p><p class="MsoNormal" style="font-size: medium; text-align: justify;">One possible strategy to counter gold price risk could be to purchase equivalent amount of physical gold as a hedge, when the government issues the SGBs. However, this would be counter to the objective of the SGB – which aims to act as an alternative to purchasing/holding physical gold. Government would also incur storage and security costs on such physical gold. Additionally, government would incur a cost of 2.5% per year that is paid out as interest. Therefore, this strategy is not optimal. This paper therefore assumes that government doesn’t undertake any gold purchase to offset gold price risk. </p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Central banks around the world buy gold for forex management and other purposes. RBI too buys/sells Gold for central banking/forex management purposes. It is not linked to SGB. SGB is a debt instrument issued by RBI on behalf of Government of India, which is a separate function of RBI under its responsibility as the public debt manager for the government. Thus, it is assumed for this paper that any fluctuation of gold assets in the forex reserves basket of RBI is also not to be linked to potential SGB hedging activities of the government. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>A better way then, perhaps, to account for gold price risk would be to quantify it and account for the same in the instrument price. To do so, we shall start with quantification of gold price risk. </p><p class="MsoNormal" style="font-size: medium;"><o:p></o:p></p><div style="text-align: justify;"><br /></div><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h3 style="text-align: justify;">Risk quantification for SGB <o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Government earns an interest differential when it raises money through SGB over regular sovereign bonds. The yield on regular sovereign bonds of 8-years maturity is over 6 percent (based on yield curve), and such bonds would be listed for auction with annual coupons of around 6 percent. The annual coupon payout on SGB is 2.5% per annum. The differential of over 3.5% is the potential gain for the government when it chooses the SGB route to borrow from public. This potential gain comes with the gold price risk. One possible approach to quantify this gold price risk would be to treat SGB as a risky asset and use hedging techniques to arrive at the valuation for the underlying risk. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">We shall take a simple approach and compare whether the gains arising out of raising money through SGB outweigh the quantified risk. We may use a standard similar-maturity sovereign bond for comparison. A sovereign bond has no risk for the purpose of our calculations. The mechanics would involve arriving at the gains coming from borrowing money using SGB over a standard sovereign bond, and checking if this compares well with the risk involved. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Let’s assume that an SGB worth 1000 crore Rupees (10 Billion Rupees) is issued at the same time as a sovereign bond of the same par value with a similar maturity period (8 years) during a reference year, say late 2021. The sovereign bond gives coupons, paid out semiannually at 6.1% per annum rate, until maturity and pays out the par at maturity along with the last semiannual coupon. The SGB on the other hand pays 2.5% interest per annum, paid semiannually, and let’s assume for now that it also pays out par value at maturity along with the last installment of interest. The assumption of payout of par value (Rs. 1000 crore) at the time of maturity is to make the comparison with sovereign bonds easier. If this plays out in real, the SGB would be a better way to borrow money from the public as the interest rates to be paid on SGB is far lesser than that on a standard sovereign bond. However, the last par value payout on SGB might not be Rs 1000 crore, but it can be more or less than Rs 1000 crore depending on where the gold price prevails at the time of maturity. This risk is what we quantify now. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The gold price risk for the Government can be modeled as the price for writing a European Call Option maturing in 8 years at a price equal to the current value which equals the assumed par value that is paid out at maturity. The assumption is that the call buyers (public) would encash the option at any price, but from the SGB issuer’s point of view, any payout above par value is the gold price risk that is being borne over and above that of a normal sovereign bond. The call writer thus bears the risk of any upward movement in the price of Gold beyond the existing price. This paper uses the Black-Scholes model to arrive at the call price for the European Option. One may also model Black’s equation for the European future Option in this case. As the value for a European future Option and European Call Option contract maturing at the same time is the same for both Black and Black-Scholes models, this paper shall use Black-Scholes. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The SGB gold price risk modeled as a European Call Option is justified on the basis that SGBs are usually redeemed at maturity upon completion of eight years. While there is an option to list and trade the SGBs on secondary exchange from the fifth year onwards, it is noticed that the liquidity of SGBs is extremely limited and most of the bonds are kept in the custody of investors and redeemed at maturity. This assumption may come under challenge once the SGB market develops further, and we may then need to revise the calculations to an American-type Option. However, for now, we may use the assumption of European Call without losing accuracy. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">(<b>Appendix B</b> - calculations and formulae for Black-Scholes and Black’s model)<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The calculation has the following steps: <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Step1: Calculate the present value of all payments over eight years for a normal government bond. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Step 2: Calculate the present value of all payments over eight years for an SGB.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Step 3: Find the difference between the present value of payouts at Step 1 and Step 2. This would give us the gains the government derives from issuing an SGB over a normal bond of eight-year maturity. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Step 4: Calculate the price of writing a European Call Option with a strike price equal to the current price of gold. This is the quantified gold price risk. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">If the quantified value of risk at Step 4 is larger than the value arrived in Step 3, it means that the policymakers need to justify the additional price paid to raise money through SGB. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"> <o:p></o:p></p><h3 style="text-align: justify;">The risk-free rate for Option price calculation<o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Black Scholes model uses the risk-free rate to discount for the present value of the future strike price of the Option. The current analysis relies upon the existing bond return rates on similar-maturity duration bonds (by interpolating the rates if required), to arrive at the risk-free rate (<b>Appendix A).</b> As the government of India has never defaulted on its obligations, this paper considers the government bond rate for a similar duration (8 years) as practically risk-free for the purpose of estimation.<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The risk-free rate thus comes out to 6.1 % for an 8-year maturity bond. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h3 style="text-align: justify;">The standard deviation of Gold prices for Option price calculation <o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The standard deviation (sigma for Black-Scholes) has arrived from the historical estimation of fluctuation in gold prices in INR. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Three different annualized standard deviations for the returns are calculated to generate three scenarios: <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo2; text-align: justify; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman", serif;">Standard deviation for the returns covering period over 40 years from 1979 to mid-December 2021. The prices on a weekly basis are used to calculate the annualized log-returns and standard deviation. The standard deviation for this period comes to 0.189. <o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo2; text-align: justify; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman", serif;">For the period covering 8 years ending in mid-December 2021. The standard deviation for this period comes to 0.141. <o:p></o:p></span></p><p class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo2; text-align: justify; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman", serif;">For the period covering 3 years ending in mid-December 2021. The standard deviation for this period comes to 0.152. <o:p></o:p></span></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">These standard deviations look reasonable when compared against implied volatility in the gold futures market. For long-term gold futures ending in December 2026, the implied volatility is around 17.15% (<a href="https://www.barchart.com/futures/quotes/GCZ26/volatility-greeks/dec-26?moneyness=allRows&futuresOptionsView=split">link</a>). Thus, the standard arrived to generate the scenarios using historical data appears to be erring on the conservative side. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h3 style="text-align: justify;">Calculations and findings<o:p></o:p></h3><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><h4 style="margin-left: 0.5in; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -0.25in;"><!--[if !supportLists]-->a)<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-style: normal; line-height: normal;"> </span><!--[endif]-->Benefit from issuing SGB over normal bonds<o:p></o:p></h4><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">Differential gain arising due to coupon and par value payouts between regular bonds raised at risk-free rate of 6.1% with a semi-annual coupon payout of 6% per annum versus SGB raised at 2.5% per annual coupons paid out semi-annually is shown below. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The government gains a total of 219.6 crore rupees measured in terms of present value (discounted at risk free rate) by issuing an SGB of Rs 1000 crores in place of a standard eight-year bond. <o:p></o:p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgzbSLnG_1QFKAUge1yr-UO_P74GgZrYOrZenlPwdgIlZMNrrVQSlUOh56Msg1Liy2FHNjUk96cHMu5jNTNTmzdUyBngw0dHdSBIP80nTnFhNa1GKlucSellK8l6s-uMAoH4h7joFwTPwZOLezmcdrHdiz7ATJL9k-dE5KKbpg7VvyyXZR_zyyhzSqLUw=s585" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="155" data-original-width="585" height="106" src="https://blogger.googleusercontent.com/img/a/AVvXsEgzbSLnG_1QFKAUge1yr-UO_P74GgZrYOrZenlPwdgIlZMNrrVQSlUOh56Msg1Liy2FHNjUk96cHMu5jNTNTmzdUyBngw0dHdSBIP80nTnFhNa1GKlucSellK8l6s-uMAoH4h7joFwTPwZOLezmcdrHdiz7ATJL9k-dE5KKbpg7VvyyXZR_zyyhzSqLUw=w400-h106" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Comparison calculation of SGB vs Normal Sovereign Bond</td></tr></tbody></table><br /><p class="MsoNormal" style="font-size: medium; text-align: justify;"><br /></p><p class="MsoNormal" style="font-size: medium;"><o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><br /></p><h4 style="margin-left: 0.5in; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -0.25in;"><!--[if !supportLists]-->b)<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-style: normal; line-height: normal;"> </span><!--[endif]-->Price to write the call option<o:p></o:p></h4><p class="MsoNormal" style="font-size: medium; text-align: justify;">The Black-Scholes equation is used to price the call option. The amounts required to write the Call option depends on the scenario using the Standard Deviation. The values in Rupee crores for a strike price of Rs 1000 crore are as shown below: <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; color: black; text-align: justify;"><tbody><tr style="height: 26.05pt;"><td style="border: 1pt solid windowtext; height: 26.05pt; padding: 0in 5.4pt; width: 116.85pt;" valign="top" width="156"><p class="MsoNormal"><b>Standard deviation<o:p></o:p></b></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; height: 26.05pt; padding: 0in 5.4pt; width: 116.85pt;" valign="top" width="156"><p class="MsoNormal" style="text-align: center;"><b>0.189 (40 yr)<o:p></o:p></b></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; height: 26.05pt; padding: 0in 5.4pt; width: 116.9pt;" valign="top" width="156"><p class="MsoNormal" style="text-align: center;"><b>0.141 (8 yr)<o:p></o:p></b></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: solid solid solid none; border-top-color: windowtext; border-top-width: 1pt; height: 26.05pt; padding: 0in 5.4pt; width: 116.9pt;" valign="top" width="156"><p class="MsoNormal" style="text-align: center;"><b>0.152 (3 yr)<o:p></o:p></b></p></td></tr><tr><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-left-color: windowtext; border-left-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid; padding: 0in 5.4pt; width: 116.85pt;" valign="top" width="156"><p class="MsoNormal"><b>Call option value/Quantified risk (in Rs Crores)<o:p></o:p></b></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 116.85pt;" width="156"><p class="MsoNormal" style="text-align: center;">426.6<o:p></o:p></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 116.9pt;" width="156"><p class="MsoNormal" style="text-align: center;">402.5<o:p></o:p></p></td><td style="border-bottom-color: windowtext; border-bottom-width: 1pt; border-right-color: windowtext; border-right-width: 1pt; border-style: none solid solid none; padding: 0in 5.4pt; width: 116.9pt;" width="156"><p class="MsoNormal" style="text-align: center;">407.6<o:p></o:p></p></td></tr></tbody></table><p class="MsoNormal" style="font-size: medium; text-align: justify;"><br /></p><h4 style="font-size: medium; text-align: justify;">Finding<o:p></o:p></h4><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>The quantified risk arising from increase in gold price ranges from 426.6 to 402.5 crore rupees for every issue of 1000 crore rupees worth of SGBs depending on the standard deviation considered. The corresponding benefit arising out of lower coupon/interest on SGB is around 219.6 crore rupees. Thus, the quantified risk outweighs the benefit in all cases. </p><h2 style="text-align: justify;">Conclusion<o:p></o:p></h2><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>SGB as an investment instrument is becoming popular with public (it may touch Rs 20000 crores worth of subscription this year), and this paper attempts to understand the gold price risk that the government underwrites while issuing SGBs by quantifying the same by modeling it as a European type call written by the government. </p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p>For every 1000 crore rupees of SGBs issued, the Government is facing a risk which is quantified between Rs 402.5 crores to Rs 426.6 crores. It is partly offset by the gains that arise from cheaper money raised through SGBs. After this adjustment, the government is still underwriting around 180 - 207 crore Rupees worth of uncovered risk for every Rs 1000 crore raised. </p><p class="MsoNormal" style="font-size: medium; text-align: justify;">The main objective of SGBs is to act as an alternative to purchasing/holding of physical gold. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">It is for the policymakers to now examine if this level of risk underwriting is acceptable after examining the impact of SGBs on gold import over years and the gold purchase pattern of the public. </p><h2 style="text-align: justify;">Appendix A<o:p></o:p></h2><div style="text-align: justify;"><br /></div><h2><div class="separator" style="clear: both; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEia4D4qYwz06OaNdXBzWWqIdWZt-CXLE8-MNq8fDE9CNvzziJl4EoxflL4RPi4srY9AGx3EfGHeT2GEoLtzDwWnhrgb63_lJwW6EK4nJJpJHJeUbTGR2SOYzsFyikJAYDyVHYIIk8wYCqiMo-0gdgkVd8y2H1Ec3D77k_z3i06m2dKmxEBfdf97pZrA7A=s580" style="margin-left: 1em; margin-right: 1em;"><img alt="Sovereign Gold Bonds of Government of India – a risk factored evaluation" border="0" data-original-height="580" data-original-width="414" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEia4D4qYwz06OaNdXBzWWqIdWZt-CXLE8-MNq8fDE9CNvzziJl4EoxflL4RPi4srY9AGx3EfGHeT2GEoLtzDwWnhrgb63_lJwW6EK4nJJpJHJeUbTGR2SOYzsFyikJAYDyVHYIIk8wYCqiMo-0gdgkVd8y2H1Ec3D77k_z3i06m2dKmxEBfdf97pZrA7A=w285-h400" title="Sovereign Gold Bonds of Government of India – a risk factored evaluation" width="285" /></a></div><div style="text-align: justify;">Appendix B</div><o:p></o:p></h2><p class="MsoNormal" style="font-size: medium; text-align: justify;">Black-Scholes equation used to price the risky asset is shown below. <o:p></o:p></p><div style="text-align: justify;"><br /></div><p class="MsoNormal" style="font-size: medium; text-align: justify;"> <br clear="all" style="break-before: page;" /><o:p></o:p></p><p class="MsoNormal" style="font-size: medium;"></p><div class="separator" style="clear: both; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhahPMXYPPRPzSTM1-hN9x2Uly6cs83r5ymvomuh1NKpei4cWwxvPAeB8hVmUKIIDSyZ_taTGS-qM7ZHR5DIFfOIQYfKnmYK3Y9-Ix6zAH7pbpyMZ8AfRhIb_4LjL4BAkmViEVPjnNzuANsRMP0XZryH5e_0cDddDFH21x8GJShaKilO3ZpK3uw60rCzg=s465" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="442" data-original-width="465" height="380" src="https://blogger.googleusercontent.com/img/a/AVvXsEhahPMXYPPRPzSTM1-hN9x2Uly6cs83r5ymvomuh1NKpei4cWwxvPAeB8hVmUKIIDSyZ_taTGS-qM7ZHR5DIFfOIQYfKnmYK3Y9-Ix6zAH7pbpyMZ8AfRhIb_4LjL4BAkmViEVPjnNzuANsRMP0XZryH5e_0cDddDFH21x8GJShaKilO3ZpK3uw60rCzg=w400-h380" width="400" /></a></div><div class="separator" style="clear: both; text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjMxJNaG7pXODrLl6fROTMbzz43UwKvhFI_vcgnnLu6HxJZcIh2MG4Y8dk0BpgsVTKdo_yMr-5jZYzkEW69iwNsiaynP9Yq2PxchC4UZxzas8gZxWLVDr2B3sQ40qZliPWuIaC8UZsaXo7aUjEg3oRegQ6umEiwg9y0pwXQooGCOhB-xBpQ2Yco2i03Kw=s586" style="margin-left: 1em; margin-right: 1em;"><img alt="Sovereign Gold Bonds of Government of India – a risk factored evaluation" border="0" data-original-height="261" data-original-width="586" height="178" src="https://blogger.googleusercontent.com/img/a/AVvXsEjMxJNaG7pXODrLl6fROTMbzz43UwKvhFI_vcgnnLu6HxJZcIh2MG4Y8dk0BpgsVTKdo_yMr-5jZYzkEW69iwNsiaynP9Yq2PxchC4UZxzas8gZxWLVDr2B3sQ40qZliPWuIaC8UZsaXo7aUjEg3oRegQ6umEiwg9y0pwXQooGCOhB-xBpQ2Yco2i03Kw=w400-h178" title="Sovereign Gold Bonds of Government of India – a risk factored evaluation" width="400" /></a></div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: justify;"><br /></div><o:p><div style="text-align: justify;"> </div></o:p><p></p><h2 style="text-align: justify;">Appendix C<o:p></o:p></h2><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">SGBs are unique instruments, prices of which are linked to commodity price viz Gold. SGBs are also budgeted in lieu of market borrowing. The calendar of issuance is published indicating tranche description, date of subscription and date of issuance. The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be one gram with a maximum limit of subscription per fiscal year of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the Government from time to time, provided that (a) in case of joint holding, the above limits shall be applicable to the first applicant only; (b) annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market; and (c) the ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions. The Bonds shall be repayable on the expiration of eight years from the date of issue of the Bonds. Pre-mature redemption of the Bond is permitted after fifth year of the date of issue of the Bonds and such repayments shall be made on the next interest payment date. The bonds under SGB Scheme may be held by a person resident in India, being an individual, in his capacity as an individual, or on behalf of minor child, or jointly with any other individual. The bonds may also be held by a Trust, HUFs, Charitable institutions, and universities. Nominal Value of the bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. The Bonds shall bear interest at the rate of 2.50 percent (fixed rate) per annum on the nominal value. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal. The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. SGBs acquired by the banks through the process of invoking lien/hypothecation/pledge alone shall be counted towards Statutory Liquidity Ratio. The above subscription limits, interest rate discount etc. are as per the current scheme and are liable to change going forward. <o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;">(Adopted from RBI’s website: <a href="https://rbi.org.in/Scripts/FAQView.aspx?Id=79"><span color="windowtext" style="text-decoration: none;">https://rbi.org.in/Scripts/FAQView.aspx?Id=79</span></a>, dt: Jan 4, 2022)<o:p></o:p></p><p class="MsoNormal" style="font-size: medium; text-align: justify;"><o:p> </o:p></p><div class="separator" style="clear: both; text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div><br /><style class="WebKit-mso-list-quirks-style">
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</style>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-83959676448473107892021-07-09T21:00:00.000+05:302021-07-09T21:00:38.643+05:30Dominant Currency Paradigm - An interesting progress in open economy macroeconomics after IS-LM-BoP<p><span style="font-family: inherit;">Does it matter if the exporters/importers of a country show preference for a certain currency while invoicing the trade? I had dabbled with this few years ago <a href="http://www.indianwesterlies.com/2016/01/inrinvoice.html">here</a>, which was based on the Dominant Currency Paradigm presented by Gita Gopinath, Casas et.al. The expanded theory titled "<a href="https://www.aeaweb.org/articles?id=10.1257/aer.20171201">Dominant Currency Paradigm</a>" (DCP) was published at the AER in 2020 and the corresponding replication code with data is made available <a href="https://www.openicpsr.org/openicpsr/project/111161/version/V1/view">here</a>. </span></p><p><span style="font-family: inherit;">DCP is a significant development after Mundell-Fleming's model using IS/LM/BP curves which has been a workhorse model for decades. Mundell-Fleming (and the Devereux model) uses bilateral exchange rates to arrive at equilibrium rates, whereas DCP takes into account the additional factor that countries may use a third currency as invoicing currency while trading bilaterally. For example, traditional Mundell Fleming model for trade between India and Japan would use INR/Yen pair to understand disequilibrium whereas the actual invoicing of this trade may happen in USD due to various factors. DCP corrects this by allowing usage of third currency, and goes on the prove that for the world that we are currently in, the USD is the dominant currency, with most third currency invoicing taking place in USD. India invoices around 86% of its imports in USD and around 10% in Euro as per the paper, the importance/pitfall of which would be clear in a moment. </span></p><p><span style="font-family: inherit;">Let me summarize DCP's key takeaways: </span></p><p><span style="font-family: inherit;">- <b>The terms of trade for a country are uncorrelated with exchange rates in short and medium term: </b></span><span style="font-family: inherit;">Mundell-Fleming predicts that, because prices are sticky in the producer's currency (Producer Currency Paradigm - PCP), a nominal exchange rate depreciation is associated with a depreciation of a country's terms of trade. That is, currency depreciation would lead to increase in ratio of price of imports to price of exports. If INR/USD deprecates to Rs 100/USD, our import prices would shoot up leading to deteriorated terms of trade with the USA. A counter argument was given by Devereux et.al. that as the prices are sticky in destination country's currency (Local Currency Paradigm - LCP), a depreciation in exchange rate would lead to appreciation of country's terms of trade. With 100 Rs/USD, our exporters would now get more rupees for each dollar worth of goods exported and hence terms of trade would improve. </span></p><p><span style="font-family: inherit;">DCP researchers find no such correlation. They find that the terms of trade are not correlated with bilateral exchange rates - neither PCP nor the LCP holds. This is counter-intuitive as it is usually believed that nominal appreciation/depreciation of currency would worsen/improve the terms of trade depending on whether the country imports more or exports more. Rather the terms of trade are defined in a way to align to this view and this mental model drives a lot of understanding about future direction of currency movement. If this is not true, a lot of other things that we know about forex markets appear to be standing on shaky grounds. The researchers have used non-commodities data, after excluding agri commodities (chapter 1 - 27) and certain engineering commodities (chapter 72-81) constituting almost 25% of total trade. Thus the research covers 75% of the </span>international<span style="font-family: inherit;"> trade as per my estimates. (The paper says it covers 91% of trade, I am not sure how) </span></p><p><span style="font-family: inherit;"><b>- Dollar is the dominant currency and influences the international trade disproportionately: </b></span><span style="font-family: inherit;">DCP takes a stand that neither PCP nor the LCP models hold true when it comes to international trade, but it is a small set of dominant currencies led by USD that determines the direction. The paper estimates that a 1% appreciation in USD against all other currencies leads to a 0.6% shrinking of global trade after controlling for business cycles.</span></p><p><span style="font-family: inherit;">The effect of dollar appreciation on exports outweighs bilateral currency appreciation (appreciation of recipient country's non-dollar currency). If India is exporting to Japan, the effect of dollar appreciation would lead to greater fall in exports when compared with appreciation in Yen. This is the effect of invoicing </span>Inso-Japan<span style="font-family: inherit;"> trade in dollars. </span></p><p><span style="font-family: inherit;">- <b>The price pass-through for non US economies is directly in proportion to trade invoiced in USD, the dominant currency</b>: </span><span style="font-family: inherit;">The trade mechanism for exchange rate adjustments work for all economies except the dominant currency economy, i.e. USA. This leads to two further findings. US economy is negligibly impacted by price changes in Dollar - which implies that the inflation targeting monetary policies run by other economies has insignificant impact on US. On the other hand, price changes in US arising out of monetary adjustment leads to impact on other economies through trade route (there may be other mechanisms of adjustments through capital flows which is not dealt directly). The exchange rate pass throughs are significant for all economies but US is immune to it. Any adjustment in US has to happen through other routes other than import price pass through. </span></p><p><span style="font-family: inherit;">Where does that leave us? A revision is in order in the way people construct mental models about exchange rate effect on exports. A general thinking is that a depreciation in rupee is good for our exports as we become more competitive. The paper shows that it may be contrary and the trade may actually shrink when the dollar gets stronger. </span></p><p><b><span style="font-family: inherit;">What next:</span></b></p><p><span style="font-family: inherit;">One concern I find in this paper is that there is no discussion about hedging of currencies at the time of invoicing. Usually, long term players cover their risk through currency positions they take while raising invoices in order to immunize against currency fluctuations in short and medium term. This is especially true for non-commodity trades. This, and the fraction of players who do this, may have a significant role in the way the pass through works. This needs investigation. </span></p><p><span style="font-family: inherit;">Also, it is difficult to imagine that if a country mandates local currency pricing (imagine India issuing a fiat to quote all invoices in INR), it would somehow lead to lesser pass through. The exchange rates are an indirect indication of relative prices and to imagine that the way it is quoted leads to effect on trades is counter-intuitive. I will take time to get used to this new smell. To that extent Mundell-Fleming/Devereux made more intuitive sense. </span></p><p><br /></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0Chicago, IL, USA41.8781136 -87.629798213.567879763821153 -122.7860482 70.188347436178844 -52.473548199999996tag:blogger.com,1999:blog-3734986736884142928.post-16283383169229771452021-06-24T08:49:00.001+05:302021-06-24T08:49:31.085+05:30Fourth industrial revolution and India's demographic challenge<div style="text-align: justify;"><span style="color: black;"><a href="https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/" target="_blank">Klaus Schwas coined the term 'fourth industrial revolution'</a> to describe the confluence of emerging technology breakthroughs, covering wide ranging fields such as artificial intelligence, robotics, telecommunication revolution such as 5G, the internet of things, driverless vehicles, 3D printing and additive manufacturing, nanotech, biotech, materials science, energy storage and quantum technology. On the surface, it appears to be the next logical step from the third industrial revolution where electronics and IT were leveraged for production and service delivery. However, as Schwas argues, the growth of these in future would lead to exponential impact on various spheres. The velocity, scope and impact of these changes may take directions that may not be wholly predictable, affecting all fields from agriculture, education, trade, warfare, manufacturing and everything in between. There is a good (and urgent!) reason why policymakers should be abreast of developments in more than a cursory way. It would not only preempt the adverse affect on the country, but it might also help to prepare policies to take advantage of the developments. </span></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">The traditional economics still looks at manufacturing and trade from last century's perspective. This needs an urgent revision, especially when it comes to a developing economy context. The macroeconomists still dabble in general grand equilibrium models that went nowhere when financial crisis hit. The microeconomics still begin with economies of scale and theories of firm that could barely explain the growth of IT and services firms such as Amazons and Facebooks which operated without profits for long time. Theories based on Ricardo's comparative advantage are still being taught in graduate schools with wine and cloth being traded between England and Portugal. The sad truth is that trade practitioners still use indices such as Balassa's "Revealed Comparative Advantage" to arm themselves during negotiations, advised by advisors trained during last century. The theories are not to be blamed as they played vital role in understanding the factors that contribute to development. The models had their use. The blame must lie with people who have turned these theories into religion despite piling evidence that points to the staleness. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">There is an acknowledgement, lately, in the various circles about gaming of globalization by countries such as China and the backlash may be seen in terms of waning political appetite for further globalization. However, the firms in a capitalistic economy such as US would nevertheless push for optimization through supply chain relocation into countries where cost of production is cheap. However, the cost advantage gained through cheap labor price would erode through advancement in technology mentioned in fourth industrial revolution. The threat of automation displacing labor is being discussed at various places in the last five years. However, the exact mechanism is not well known and the suggested panacea of skilling the labor might at best produce mediocre results, or at worst might not work at all. This would have serious repercussions for young countries such as India unless we take remedial steps. </div>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-21968216089521167182020-08-22T21:07:00.017+05:302022-02-09T09:39:20.204+05:30Akamaisation<p><span style="font-family: inherit;">(This post originally appeared at Swarajya magazine <a href="https://swarajyamag.com/business/its-not-deglobalisation-but-akamaisationwhen-firms-go-local-to-stay-global" target="_blank">here</a>) </span></p><p><span style="font-family: inherit;"><span face="" lang="" style="text-align: justify;">During the 1990s, computing faced a unique ‘</span><a href="http://www.eecs.ucf.edu/~lboloni/Teaching/EEL5708_2006/slides/wulf94.pdf" style="color: #954f72; text-align: justify;"><span lang="">memory wall problem</span></a><span face="" lang="" style="text-align: justify;">’ due to increasing processor clock speeds but relatively slow memory speeds. While processor speeds increased at 50% year on year (Moore’s law) memory speeds increased only by 10%. Imagine a talented and quick chef bogged down by a slow assistant, who takes longer than usual to fetch ingredients from the pantry. The solution was found by using a ‘cache’, a smaller but faster memory placed nearer to the processor, thus avoiding multiple trips to the larger and slower main memory. This was like the chef getting a shelf that stocked all recently used or frequently used ingredients closer to his table. Today we have multiple caches at multiple levels in any given computer. Similar problem of earth-size arose when digital contents were to be served to multiple users across the globe. Imagine Netflix maintaining data centers only at US and trying to service the users across the world. The geographical distance that each data packet needs to travel would be huge and may clog the network affecting speed and user experience. The solution is again in a form of caching created by ‘</span><a href="https://en.wikipedia.org/wiki/Content_delivery_network" style="color: #954f72; text-align: justify;"><span lang="">Content Delivery Networks’</span></a><span face="" lang="" style="text-align: justify;">whereby proxy servers and data centers are maintained nearer to the users, optimizing the content travel over the network. One of the largest firms in this field is Massachusetts headquartered Akamai which roughly covers a quarter of the web traffic today. Akamai is present wherever the users reside and maintains around 3 lakh servers in 136 countries and </span><a href="https://www.akamai.com/us/en/about/facts-figures.jsp" style="color: #954f72; text-align: justify;"><span lang="">claims to have 85% of internet users within single network hop</span></a><span face="" lang="" style="text-align: justify;"> to an Akamai server. </span></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">Going local as an optimization technique was a natural development in the above cases. This may also apply to the world of manufacturing. Supply chain management is known to use such optimization techniques while deciding on warehouse location. But when it came to manufacturing, scaling up at one location was usually considered an ideal way, especially in the recent decades. This is now changing, and China centered global production models is on the verge of being altered where production would take place in multiple geographies to cater to local markets. It will be the next logical step for production firms to survive in a de-globalizing world. Geopolitics, advancements in automated production techniques, declining appetite for globalization, rise in border barriers, and rogue behavior of China are the precipitating factors that would push this movement for change. We cannot term such optimization by production networks as ‘deglobalization’. A parallel term is ‘Akamaization’ – a solution where the firms go local in order to remain global. Akamaization would arise in the beginning due to multinationals adjusting their international supply chains to the reversals in globalization by leveraging on Industry 4.0 advancements such as automated manufacturing, robotics and IoT. In the second stage, Akamaization would include growth of organizations that design their manufacturing processes to be agile and Akamaization friendly. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">The good years of globalization saw concentration of production in labor intensive countries. This was possible due to falling tariffs, technological developments, and logistics optimization such as containerization of cargo. The scale of concentrated production decreased costs and the decreased barriers to trade alongwith cheaper logistics ensured that geographical distances didn’t matter. The data suggests that this model peaked sometime around 2012-13, few years after the financial crisis. Both in terms of merchandise trade as percentage of GDP as well as total merchandise trade as measured in current US Dollars terms has stagnated (or declined) after the recovery following financial crisis. One may say that the world reached ‘peak trade’ during the first half of 2010s. The decades leading to peak trade were marked by growth and concentration of manufacturing in China and nearby countries including Taiwan, Korea and ASEAN. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-0WG88DEyNOw/X0E8OY4a8AI/AAAAAAAAG50/3l2JhWE7oHczygdKf011LQEFMSaAdq0QQCLcBGAsYHQ/s902/Picture%2B1.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;">
<img alt="Akamaisation: Merchandise trade as percentage of GDP" border="0" data-original-height="496" data-original-width="902" height="330" src="https://1.bp.blogspot.com/-0WG88DEyNOw/X0E8OY4a8AI/AAAAAAAAG50/3l2JhWE7oHczygdKf011LQEFMSaAdq0QQCLcBGAsYHQ/w640-h352/Picture%2B1.png" title="Akamaisation: Merchandise trade as percentage of GDP" width="500" />
</span></a></div><p></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><b><span lang="" style="font-family: inherit;"> Fig: Merchandise trade as percentage of GDP - Source: World bank</span></b></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-37yHtODjgcM/X0E8SwPXVjI/AAAAAAAAG54/XtlUSI5-zoo3URq7ICbGIcMHXcuCLPU8ACLcBGAsYHQ/s902/Picture%2B2.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;">
<img alt="Akamaisation: merchandise trade current USD" border="0" data-original-height="350" data-original-width="902" height="320" src="https://1.bp.blogspot.com/-37yHtODjgcM/X0E8SwPXVjI/AAAAAAAAG54/XtlUSI5-zoo3URq7ICbGIcMHXcuCLPU8ACLcBGAsYHQ/w640-h352/Picture%2B2.png" title="Akamaisation: merchandise trade current USD" width="500" />
</span></a></div><span lang="" style="font-family: inherit;"><br /></span><p></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><b><span lang="" style="font-family: inherit;">Fig: Merchandise trade in current USD - Source: World bank</span></b></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">There is no single explanation for peak trade. The most likely explanation is that the factors that drove the growth had run their course and there was not much that could be done further on. However, the decline starting thereafter and the expected decline in future would be of a different nature. It’s easy to call it de-globalization, but for the adaptability of the firms that run the international value chains. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">In the last few years, after decades of embracing globalization, developed countries finally woke up to the unsavory side effects. ‘Hyper-globalization’ – a term used by Dani Rodrik – of the last three decades where capital as well as value chains cut across borders, is not proving to be a sustainable proposition in the long run as the free trade of hyper globalization type creates a losing side. The political setup of the losing side can’t explain away the job losses with consumer welfare or Ricardian theories. Free trade had peaked before the emergence of the protectionist political leaders who called it out. While the globalized model with zero barriers suit the multinationals, the politicians and policymakers increasingly realize the bad effects on domestic job growth and general prosperity. The backlash by the increasingly frustrated population is partially responsible for emergence of protectionist political leaders. Similar sentiments may also be seen in the prevailing mood of going local slogans such as ‘Make America Great’ and ‘Atmanirbhar Bharat’. While the free trade economists may rue the developments and sermonize about unlearnt lessons from history, it provides no solace to the multinationals who operate the international value chains and who need to explore alternative models to remain in business. Deglobalization by disengaging or shrinking their markets and business is not an option for the globalized firms. That’s where Akamaization steps in. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span style="font-family: inherit;"><span lang="">Akamaization of a global firm involves higher level of integration and interdependence in terms of management, design, and product development while maintaining a network of production setups catering to limited geographies isolated by rising trade barriers. Imagine a global cell phone manufacturer rolling out new products every year but choosing to make similar models in different key geographies with significant market shares. Most components may be sourced locally to avoid border crossings. The manufacturing setup would cater to the domestic market, and export to those nearby markets where the market share is not significant enough to warrant setting up an independent manufacturing base. The optimization problem for an Akamaizing firm would involve variables such as direct and indirect cost of crossing borders, geographical distance, market size, investment and business costs etc. Akamaization may also happen due to geopolitical pressures. For example, Taiwan’s </span><a href="https://edition.cnn.com/2020/05/15/tech/tsmc-arizona-chip-factory-intl-hnk/index.html" style="color: #954f72;"><span lang="">TSMC, the largest chipmaker in the world, has announced that it would be setting up manufacturing in US</span></a><span lang=""> in response to Trump administration’s pressure to move critical technology back into US. <o:p></o:p></span></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">For policymakers Akamaization starts with attracting ‘screw-driver’ technology where assembly operations would move in first, followed by indigenization of components. This can be engineered by carefully planned tariff and non-tariff barriers across the value chain starting with higher barriers for fully assembled products and moving down to smallest of the components in a graded manner. A success story for India is the mobile phone manufacturing which got an upshot due to the border duty tweaks on mobile phones during 2016-17. Apple’s decision to set up assembly plants in India and further plans to increase local sourcing of components is an example of Akamaization. The growth of mobile phone exports from India may be seen below. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-LMTA2j4sA1s/X0E8XJ-oZYI/AAAAAAAAG58/XXUO2jtbqVsgvLhgkFRphK_D0x_tvDugQCLcBGAsYHQ/s902/Picture%2B3.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img alt="Akamaisation: Export of mobile phone and parts from india" border="0" data-original-height="482" data-original-width="902" height="214" src="https://1.bp.blogspot.com/-LMTA2j4sA1s/X0E8XJ-oZYI/AAAAAAAAG58/XXUO2jtbqVsgvLhgkFRphK_D0x_tvDugQCLcBGAsYHQ/w400-h214/Picture%2B3.png" title="export of mobile phone and parts from india" width="400" /></span></a></div><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span style="font-family: inherit;"><br /></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><b><span lang="" style="font-family: inherit;">Fig: Export of mobile phones and parts from India in USD Billions - Source: UN COMTRADE<o:p></o:p></span></b></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span style="font-family: inherit;"><span lang="">Now the </span><a href="https://www.meity.gov.in/esdm/pli" style="color: #954f72;"><span lang="">Ministry of Electronics and IT is incentivizing production</span></a><span lang=""> of electronics and mobile phone components in India through various capital investment and manufacturing linked support plans. This may further accelerate the trend shown above, not only for exports but also in terms of decreasing dependence on imports of electronics hardware. This support shall go hand in hand with border barriers for import of the components. It must also be noted that there would be limited scope for export led growth in an Akamaizing world in future, a factor that policymakers must consider while intervening. <o:p></o:p></span></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">Akamaization would not remain restricted to fields such as automobile, electronics or technology products alone. Even in fields such as garments and footwear, there is a chance that the ever-changing fashion trends and the need to be nearer to the market may drive Akamaization. The high labor input in some of these fields may delay Akamaization, but beyond a threshold and with rising border costs, the cost benefit analysis shall tilt towards manufacturing near the markets, starting initially with the high-end segment. As the manufacturing technology improves with advances in technologies such as 3D printing and robotics, even the fields that were considered offshoring friendly would be relooked at. When Akamaization touches labor intensive fields, it may affect the employment potential of those fields. This would be a challenge for labor rich countries like India which should explore upskilling the future generation to cater to altered needs of the future industry. <br /><br /><o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">Akamaization also has the potential to divide world into groups based on mutual trust on intellectual property (IP) front. Like minded countries that are trusted with IP and show greater regulatory coherence would bond together. The experience of US and western firms with China has shown the importance of IP protection and preventing corporate espionage. This may build a new world order based on emerging alignments where trade and geopolitical interests converge, breaking away from the existing multilateral arrangements. Firms would be more comfortable Akamaizing within the group. <o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;">It is important to understand that Akamaization would happen under a certain set of conditions. These conditions include a significant market size and right policies for setting up manufacturing in the country. If the market size decreases, or if the border resistance rises to unsustainable levels where it no longer makes sense to transact anything across borders, firms may give up on the market over Akamaizing. The same goes for steps towards greater ease of doing business which facilitates easy Akamaization. It’s easy to miss the balance, and that would bring back the free trade economists who have been predicting doomsday since the time India tried to fix the distortions in trade arising out of poor policy choices in the past.<o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p><p class="MsoNormal" style="margin: 0cm; text-align: justify;"><span lang="" style="font-family: inherit;"> </span></p>Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-73986552839891160582020-04-08T18:00:00.003+05:302022-02-09T09:31:03.605+05:30Would more COVID testing uncover more COVID positive cases?<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: inherit;">It is alleged that India is not testing enough. The number of tests per million population in India stands at around 100 when compared against countries like USA which stands at 6300, or </span>Italy<span style="font-family: inherit;"> which stands at 12000, or Switzerland which is around 19000 tests per million population. </span></div>
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<span style="font-family: inherit;">So, is it that because India is testing lesser number of people per million population, India is reporting less number of cases? Would more testing lead to uncovering of more cases, increasing India's infected count?</span></div>
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<span style="font-family: inherit;">Ashish Chandorkar, in<a href="https://swarajyamag.com/science/testing-the-testing-argument" target="_blank"> this Swarajya magazine article</a> disagrees. Rightly so. He states: </span></div>
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<span style="font-family: inherit;"><i>"What does the data tell us?</i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">In India, out of the 100 high risk cases being tested for COVID-19, only 4 are testing positive.</span></i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">Of those testing positive, roughly sixty per cent are either individuals who traveled from a foreign location or were part of the single source Delhi Nizamuddin congregation.</span></i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">The positive cases per 100 tests is 17 in the USA, 19 in Italy, 23 in the UK, 24 in France and 37 in Spain.</span></i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">What does this tell us?</span></i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">That in spite of the fact that the USA has done more than 16 lakh tests and Italy has had more than 6.5 lakh tests, there is a need for more testing as a large fraction of people are turning to be COVID-19 positive.</span></i></span></div>
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<span style="font-family: inherit;"><i><span style="font-family: inherit;">Testing in itself is not a panacea to all the problems being associated with COVID-19. Testing for testing’s sake is of no use. Testing should be done for identification and for quarantine."</span></i></span></div>
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<span style="font-family: inherit;">While that was my hunch too for long, and I agree with Ashish, I still thought of running the numbers quickly and plotted a scatter bubble for all data available for all countries across the world. Here it is: </span><br />
<span style="font-family: inherit;"><i>(A note here: We are talking about percentage of cases, not absolute numbers. While more testing will lead to more absolute numbers, the percentage positive would remain mostly a constant)</i></span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-cDixa_Fg64o/Xo2v-FSOnGI/AAAAAAAAGtk/-ZKULGSoe_oOh17Ay_GNMml9PJ4zBlviQCLcBGAsYHQ/s1600/COVID19.png" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img alt="image for Test per million capita Vs Percentage positive cases COVID testing" border="0" data-original-height="450" data-original-width="900" height="333" src="https://1.bp.blogspot.com/-cDixa_Fg64o/Xo2v-FSOnGI/AAAAAAAAGtk/-ZKULGSoe_oOh17Ay_GNMml9PJ4zBlviQCLcBGAsYHQ/w640-h333/COVID19.png" title="Test per million capita Vs Percentage positive cases COVID testing" width="640" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">COVID Testing - Would more testing help?</span></td></tr>
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<span style="font-family: inherit;">It's always tricky to explain a plot unless the intuition autoclicks for the onlooker. </span></div>
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<span style="font-family: inherit;">On the X axis you have the Tests per million on log scale. On the Y axis you have % of tests that turned out positive. No country reports that all tests conducted were found COVID positive. France comes close to a point where 1 in every 2 tests return positive. In India for every 25 people tested, one returns COVID positive. For USA it is one positive in five tests and so on for all </span>countries as one can see. </div>
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<span style="font-family: inherit;">One may note that there is no correlation between percentage detection and per capita testing. It means that wider coverage won't necessarily lead to more detection of cases. To be sure, I have also plotted a best line fit which has almost no slope (slightly negative to be precise). This can be seen below (with a pinch of salt due to the Rsquared value): </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-VypI1L4oZZc/Xo25zc4Ut1I/AAAAAAAAGtw/NbQ7QQ_6XZAyIv1r3WhDIs3clwJXzfoVACLcBGAsYHQ/s1600/COVID19regression.png" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img alt="image of COVID test success percentage vs more per capital testing per million population" border="0" data-original-height="964" data-original-width="1600" height="385" src="https://1.bp.blogspot.com/-VypI1L4oZZc/Xo25zc4Ut1I/AAAAAAAAGtw/NbQ7QQ_6XZAyIv1r3WhDIs3clwJXzfoVACLcBGAsYHQ/w640-h385/COVID19regression.png" title="COVID test success percentage vs more per capital testing per million population" width="640" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">COVID Testing: Relation: Test success percentage(Y) vs More Per M capital Testing (X) </span></td></tr>
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<span style="font-family: inherit;">So, the data supports the theory that more testing won't help unless we have more infections in reality. By testing more, we will just go where Iceland is currently in the first plot. They are testing huge numbers with the resultant</span><span style="font-family: inherit;"> same level of success that we have in terms of percentage. We shall move on X axis without any change in Y. </span></div>
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<span style="font-family: inherit;">The data so far for India says that the infection level (on per capita terms) is very low, and there is not much transmission on the scale seen in other countries. When we juxtapose against the fact that India has been testing high potential cases (foreign returns, NZ contacts, first level contacts etc.) and still returning negative results, it bears all the more testimony that probably our level of testing is not to be blamed for low numbers. And if that is so, we have reasons to cheer. Either the lockdown has worked, or other factors such as malaria resistant people, hot/humid weather, demographic profile, inbuilt resistance etc is at work. </span></div>
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<span style="font-family: inherit;">The plot would also be interesting to watch over time for another reason. If the position of a country on Y axis doesn't change over time, or with increased testing, it </span>would<span style="font-family: inherit;"> prove that a country exists with a certain tolerance for the infection/spreading which is a function of factors other than testing. Once unmasked, this factor would tell us what might </span>further<span style="font-family: inherit;"> help. </span></div>
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Above plot were generated on 8th April 2020. </div>
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<span style="font-family: inherit;">Updated figure as on 16 April is below: The point has just moved right. I won't be surprised if it goes and touches Iceland one day. </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-22UxODjND8U/XpiNuw8kgaI/AAAAAAAAGuc/7t--JNr4PGINW9dGU4hYAjMQBq5si5GrgCLcBGAsYHQ/s1600/COVID19_16_Apr.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="845" data-original-width="1600" height="338" src="https://1.bp.blogspot.com/-22UxODjND8U/XpiNuw8kgaI/AAAAAAAAGuc/7t--JNr4PGINW9dGU4hYAjMQBq5si5GrgCLcBGAsYHQ/w640-h338/COVID19_16_Apr.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">COVID percentage detection has not changed for India - As on 16 April 2020</td></tr>
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<span style="font-family: inherit;">Updated figure as on 26 April is below: The point has just moved right as we have increased the number of test per million from around 200 ten days ago to around 450 currently. It's moving horizontally as expected. </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-ultxfYbMKfU/XqXLz0XNR-I/AAAAAAAAGvw/eDW-GMwss9Qz4U30RLACs7E6eJ1EWMLcwCLcBGAsYHQ/s1600/COVID19_26_Apr.png" style="margin-left: auto; margin-right: auto;"><img alt="figure of COVID percentage detection has not changed for India - As on 26 April 2020" border="0" data-original-height="833" data-original-width="1600" height="333" src="https://1.bp.blogspot.com/-ultxfYbMKfU/XqXLz0XNR-I/AAAAAAAAGvw/eDW-GMwss9Qz4U30RLACs7E6eJ1EWMLcwCLcBGAsYHQ/w640-h333/COVID19_26_Apr.png" title="COVID percentage detection has not changed for India - As on 26 April 2020" width="640" /></a></td></tr>
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<tr><td class="tr-caption" style="font-size: 12.800000190734863px;">COVID percentage detection has not changed for India - As on 26 April 2020<br />
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<span style="text-align: justify;">Updated figure as on 03 May 2020 is below: One million tests completed for India. A Milestone reached today. The point has just moved right as we have increased the number of test per million from around 450 a week ago to around 800 currently. It's moving horizontally as expected. </span></div>
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<a href="https://1.bp.blogspot.com/-UdvEZKGjYkU/Xq7vIZAIhTI/AAAAAAAAGwc/_HX71e20W-ol3Iae_HV4MSEHHadO7lUWQCLcBGAsYHQ/s1600/COVID19_03_May2020.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="839" data-original-width="1600" height="335" src="https://1.bp.blogspot.com/-UdvEZKGjYkU/Xq7vIZAIhTI/AAAAAAAAGwc/_HX71e20W-ol3Iae_HV4MSEHHadO7lUWQCLcBGAsYHQ/w640-h335/COVID19_03_May2020.png" width="640" /></a></div>
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<span style="font-family: inherit;">Updated figure as on 10 May 2020 is below: The point has just moved right as we have increased the number of test per million from around 800 a week ago to more than 1000 currently. It's moving horizontally as expected. </span></div>
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<span style="font-family: inherit;">Updated figure as on 31 May 2020 is below: The point has just moved right as we have increased the number of test per million from around 1000 in the previous figure to more than 2800 currently. It's moving horizontally as expected. However, there is a slight bump in Y axis by roughly around a percent (4% moves to 5%)</span></div>
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<span style="font-family: inherit;">Updated figure as on 20 July 2020 is below: The point has just moved right as we have increased the number of test per million from around 2800 in the previous figure to more than 10000 currently. It's not moving horizontally as expected and for the first time I see a slight vertical movement too. From 5% it is gone upto around 9%. Still much lower than 50% that some countries demonstrate but a movement up nevertheless. I would change my mind about the theory if it goes above 15%. </span></div><div class="separator" style="clear: both; text-align: justify;"><span style="font-family: inherit;"><br /></span></div><div class="separator" style="clear: both; text-align: justify;"><span style="font-family: inherit;"><br /></span></div><div class="separator" style="clear: both; text-align: justify;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-S0-A5tOJRSs/XxW-zKFWklI/AAAAAAAAG4Y/5em8ZM6c0koTg98aPB7VbjqKxegrZ5Z_QCLcBGAsYHQ/s2048/COVID19_31_May2020.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1082" data-original-width="2048" height="338" src="https://1.bp.blogspot.com/-S0-A5tOJRSs/XxW-zKFWklI/AAAAAAAAG4Y/5em8ZM6c0koTg98aPB7VbjqKxegrZ5Z_QCLcBGAsYHQ/w640-h338/COVID19_31_May2020.png" width="640" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Add caption<br /></td></tr></tbody></table><span style="font-family: inherit;"><br /></span></div>
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<i><span style="font-family: inherit;">(Note: All data </span>taken from <a href="https://www.worldometers.info/coronavirus/" target="_blank">Worldometer</a>. I have placed the code for generating the labelled bubble plot at </i><span style="text-align: left;"><i>https://github.com/tirumalakv/COVID19plot.git to tinker around if you are interested. The plot with the regression line was generated on MS Excel</i></span><i>)</i></div>
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com1tag:blogger.com,1999:blog-3734986736884142928.post-26016143509275931972019-12-08T18:56:00.002+05:302019-12-08T18:56:37.606+05:30WTO moratorium on E-Transmissions and OECD Pillars for digital economy<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="color: #1b1c2a; font-family: inherit; font-size: large;"><span style="caret-color: rgb(27, 28, 42);"><b>Moratorium on Cross Border E-Transmissions</b></span></span></h3>
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<span style="color: #1b1c2a; font-family: inherit;">If one imports a book into India, one will pay applicable customs duty (currently 10% basic customs duty, and all applicable cess/welfare charges). However, if one downloads the same book over Amazon Kindle, one gets it duty free. Kindle books are almost always cheaper than their paper counterparts and the zero import duty is one of the factors keeping it that way, other factors being savings on printing/paper, transportation etc. This is an example of how the <a href="https://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm" target="_blank">moratorium on international cross border taxation on Electronic Transmissions (ET), adopted by WTO in 1998</a> affect the prices. </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-RNMU6RG-TNk/XeyLbXaYNkI/AAAAAAAAGfg/Xjw0hZenshoBgMfN6yi2S8h_azOkFFQlgCLcBGAsYHQ/s1600/Screenshot%2B2019-12-08%2Bat%2B11.04.18%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img alt="image of Digital imports in world" border="0" data-original-height="810" data-original-width="1340" height="386" src="https://1.bp.blogspot.com/-RNMU6RG-TNk/XeyLbXaYNkI/AAAAAAAAGfg/Xjw0hZenshoBgMfN6yi2S8h_azOkFFQlgCLcBGAsYHQ/s640/Screenshot%2B2019-12-08%2Bat%2B11.04.18%2BAM.png" title="Digital imports in world" width="640" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">Share of Digitalised Products in Global Imports - as represented in <a href="https://unctad.org/en/PublicationsLibrary/ser-rp-2019d1_en.pdf" target="_blank">UNCTAD study</a></span></td></tr>
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<span style="color: #1b1c2a;"><span style="font-family: inherit;">Also, there is the question of direct taxation, in terms of corporate taxes or taxes on profits from the earnings made in India for companies who are highly digitalised in terms of delivery/users/markets (Amazon cloud services, Facebook, Google), and where it is not easy to actually segregate the amount of profits that arise out of operations in </span>any<span style="font-family: inherit;"> particular tax jurisdiction/country. I am not aware how Amazon India accounts for the kindle sales in India, and the subsequent profits or lack thereof and whether they are adjusted against subsidised goods sales and so on while filing the annual tax statement with the Indian government. The case becomes complicated when you look at free ebooks offered under 'Kindle Unlimited' scheme. It is not easy to establish the nexus between the operations and profits arising in any one country when the model is highly digitalised. Therefore, in a digitalised world, where companies are operating in a highly digital model, both indirect and direct taxation becomes a vexing issue. While WTO bothers more about indirect taxation such as customs duties, OECD bothers about direct taxation such as corporate tax on profits and issues related to Base Erosion and Profit Shifting. </span></span></div>
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<span style="color: #1b1c2a; font-family: inherit;"><br /></span></div>
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<span style="color: #1b1c2a; font-family: inherit;">For those who understand how digital transmission works, the issue of tarrification of electronic transmission (WTO issue) and the issue of taxing profits of digital multinational organisations (OECD issue) are two sides of the same coin. You cannot actually isolate one without stepping into the other part. But for now let's deal with them separately and frame the policy questions in these areas from India's point of view. </span></div>
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<span style="color: #1b1c2a; font-family: inherit; font-size: large;">The indirect taxation issue</span></h3>
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<span style="color: #1b1c2a; font-family: inherit;">The matter of indirect taxation basically pertains to customs duties that don't exist currently on electronic transmissions due to a <a href="https://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm" target="_blank">WTO moratorium agreed by members during 1998</a> and which continues with extensions till date. There is a now a debate about whether the moratorium needs to be ended and countries be allowed a framework to impose customs duties on electronic transmissions. At stake is the potential revenue implications which vary in calculation, <a href="https://read.oecd-ilibrary.org/trade/electronic-transmissions-and-international-trade-shedding-new-light-on-the-moratorium-debate_57b50a4b-en#page8" target="_blank">with a range that varies from 280 million USD to 8.2 Billion USD per year</a>, and which even at the higher end appears too small to actually matter. However, few countries including India wish the moratorium to end this year after it lapses leaving the members free to impose duties on cross border data and electronic transmissions. </span></div>
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<span style="color: #1b1c2a; font-family: inherit;">There is no doubt that the consumers would be at the receiving end of any such tax/duty. But more importantly we need to analyse as to whether it would work in favour or against India. There is a successful IT and ITeS sector in India that depends on electronic transmissions. If we decide to impose tariffs on certain types of electronic transmissions, we may expect reciprocal taxes from partner countries on our types of electronic transmissions, and which might damage our competitiveness in IT/ITeS. The cost/benefit analysis therefore should go beyond mere 'revenue loss' mindset and should include the reciprocation effects. <a href="https://www.bsa.org/files/policy-filings/08272019wtocustomsduties.pdf" target="_blank">Software lobbies therefore oppose the move and present cogent arguments</a>. Also, it's not easy to determine the methodology of taxation due to origin issues. The netflix videos that one watches on the mobile/computer/TV receives packets of data. These packets arrive from nearest possible servers which need not be located in one country. A typical HD movie might get millions of packets which may be served from eight different countries. To isolate the amount of taxation for each arrival would be methodologically complex. The complexity increases with characterisation of the data being transmitted. Some data can be called services, some can be IP and some transmissions such as designs might involve a royalty. Even if a simple methodology is developed to characterise the transmission and tax them, there are chances that firms may use routing protocols to <span style="caret-color: rgb(27, 28, 42);">minimise border crossings and taxes. </span></span></div>
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<span style="color: #1b1c2a; font-family: inherit; font-size: large;"><span style="caret-color: rgb(27, 28, 42);">India's unique placement</span></span></h3>
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<span style="color: #1b1c2a; font-family: inherit;">However, despite the above challenges, India's case is unique. India is is one of the biggest importers of digital products using E-Transmissions as can be seen below. </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-al8osnOQLc4/XeyRLL1LJTI/AAAAAAAAGfs/Stkhah1SilsBe8PlCZaaH1xYo6iSveQSACLcBGAsYHQ/s1600/Screenshot%2B2019-12-08%2Bat%2B11.24.01%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img border="0" data-original-height="1064" data-original-width="828" height="400" src="https://1.bp.blogspot.com/-al8osnOQLc4/XeyRLL1LJTI/AAAAAAAAGfs/Stkhah1SilsBe8PlCZaaH1xYo6iSveQSACLcBGAsYHQ/s400/Screenshot%2B2019-12-08%2Bat%2B11.24.01%2BAM.png" width="311" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">WITS database - Net exports of physical digitizable products </span></td></tr>
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<span style="font-family: inherit;">T<a href="https://unctad.org/en/PublicationsLibrary/ser-rp-2019d1_en.pdf" target="_blank">he UNCTAD study</a> has arrived at a potential revenue gain of around half a billion US dollars for India if India decides to opt out of the moratorium. The number projected as India's gain is greater than sum total of gains that might accrue to all developed countries put together if the WTO moratorium ends. Also, this number is unmatched by any other developing country and explains India's position towards ending the moratorium. </span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-8HLrfn3CfqA/XeySz0J8a0I/AAAAAAAAGgA/oMpiyj41N_MY2LQN6dw4lth3V-gOHrlBQCLcBGAsYHQ/s1600/Screenshot%2B2019-12-08%2Bat%2B11.33.25%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img alt="Image of Potential revenue gain by ending WTO moratorium" border="0" data-original-height="1366" data-original-width="1138" height="640" src="https://1.bp.blogspot.com/-8HLrfn3CfqA/XeySz0J8a0I/AAAAAAAAGgA/oMpiyj41N_MY2LQN6dw4lth3V-gOHrlBQCLcBGAsYHQ/s640/Screenshot%2B2019-12-08%2Bat%2B11.33.25%2BAM.png" title="Potential revenue gain by ending WTO moratorium" width="532" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">Potential revenue gain by ending WTO moratorium</span></td></tr>
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<span style="color: #1b1c2a;"><span style="font-family: inherit;">However, the above numbers are controversial and blamed for presenting only one side of the coin. In a paper, </span><a href="https://ecipe.org/wp-content/uploads/2019/08/ECI_19_PolicyBrief_3_2019_LY04.pdf" style="font-family: inherit;" target="_blank">Hosuk-Lee and Badri Narayan argue</a><span style="font-family: inherit;"> that the potential gain through revenue collection through border </span>taxation<span style="font-family: inherit;"> on these activities would get offset by the losses that would accrue to the GDP due to this taxation. They summarise the losses and gains as follows: </span></span></div>
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-NNjcTn6zj6U/XezS5bq9TkI/AAAAAAAAGgM/KWXX7smCzFE9BU1frP3WoELb5j_2mhfAgCLcBGAsYHQ/s1600/Screenshot%2B2019-12-08%2Bat%2B4.09.07%2BPM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit;"><img border="0" data-original-height="561" data-original-width="1600" height="224" src="https://1.bp.blogspot.com/-NNjcTn6zj6U/XezS5bq9TkI/AAAAAAAAGgM/KWXX7smCzFE9BU1frP3WoELb5j_2mhfAgCLcBGAsYHQ/s640/Screenshot%2B2019-12-08%2Bat%2B4.09.07%2BPM.png" width="640" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: inherit; font-size: small;">GDP and Tax losses upon imposition of tariffs </span></td></tr>
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<span style="color: #1b1c2a; font-family: inherit;">In short, they argue that a tariff gain of half a billion USD would lead to a tax loss of 2 Billion USD due to decreased GDP, decreased investment, welfare loss and loss in employment. These figures are for a scenario that the authors create where other countries reciprocate upon ending of moratorium. The authors also argue that there might be concomitant employment loss of around 12,70,000 jobs upon reciprocation. They feed in the indirect taxation into direct taxation issues of corporate profits and end up painting a bleak picture if moratorium ends. </span></div>
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<span style="color: #1b1c2a; font-family: inherit;"><i>(On a side note, the paper feels too pessimistic to read and serves as an effective counter to the UNCTAD study.)</i></span></div>
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<span style="color: #1b1c2a; font-family: inherit;">India needs to seriously do an independent analysis of the whole issue before pitching one way or the other. Relying solely on UNCTAD study might not be enough to take a call. </span></div>
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<span style="color: #1b1c2a; font-family: inherit; font-size: large;">The policy question on indirect taxation </span></h3>
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<span style="font-family: inherit;"><span style="color: #1b1c2a;">Therefore the correct question for policymakers in the area of indirect taxation should be: </span><i style="color: #1b1c2a;">"Is it really worth to trade away the competitiveness of IT sector, employment, tax losses, and consumer welfare for a potential tariff revenue in terms of customs duty that appears so meagre to start with, and which is difficult to implement?"</i></span></div>
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<span style="font-family: inherit;">The question is loaded in a way that it self-answers. But if you look at it carefully, the answer is: "<i>It depends.</i>"</span></div>
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<span style="color: #1b1c2a; font-family: inherit; font-size: large;">The direct taxation issue and the OECD's Unified Approach/GloBE under Pillar One/Two</span></h3>
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<span style="font-family: inherit;">Coming to the question of direct taxation, OECD, while making the final report in the matter of <a href="https://www.oecd.org/tax/addressing-the-tax-challenges-of-the-digital-economy-action-1-2015-final-report-9789264241046-en.htm" target="_blank">'Addressing the tax challenges of digital economy</a>' during 2015 stated that <i>"<span style="caret-color: rgb(51, 51, 51); text-align: left;">because the digital economy is increasingly becoming the economy itself, it would not be feasible to ring-fence the digital economy from the rest of the economy for tax purposes." </span></i></span></div>
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<span style="font-family: inherit;"><span style="caret-color: rgb(51, 51, 51);">From that conservative view in 2015, OECD evolved its way through the interim report on the matter in 2018 and finally a policy note in early 2019 which in turn evolved into full discussions leading to a public consultation document titled </span><a href="https://www.oecd.org/tax/beps/public-consultation-document-secretariat-proposal-unified-approach-pillar-one.pdf" style="caret-color: rgb(51, 51, 51);" target="_blank">"Secretariat proposal for a 'unified approach' under Pillar One"</a><span style="caret-color: rgb(51, 51, 51);"> during Oct-Nov 2019. Under this document, the matter of taxing digital multinationals has been pried open with the idea of taxing them based on location of revenue generating users over the earlier principle of place of physical presence of business. This will disrupt the existing tax position and settled way of working for Amazons and Facebooks. </span></span></div>
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<span style="caret-color: rgb(51, 51, 51);"><span style="font-family: inherit;">Chiefly, the issues being dealt by OECD under Pillar One are: </span></span></div>
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<li><span style="font-family: inherit;">the allocation of taxing rights between jurisdictions; </span></li>
<li><span style="font-family: inherit;">fundamental features of the international tax system, such as the traditional notions of permanent establishment and the applicability of the arm’s length principle; </span></li>
<li><span style="font-family: inherit;">the future of multilateral tax co-operation; </span></li>
<li><span style="font-family: inherit;">the prevention of aggressive unilateral measures; </span></li>
<li><span style="font-family: inherit;">the intense political pressure to tax highly digitalised multinationals. </span></li>
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<span style="font-family: inherit;">The discussion hovers around:</span></div>
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<li><span style="font-family: inherit;">reallocation of taxing rights in favour of users/market jurisdiction over the existing principal location of business for highly digitised businesses</span></li>
<li><span style="font-family: inherit;">The nexus rule that would be independent of physical presence in users/market jurisdiction</span></li>
<li><span style="font-family: inherit;">going beyond arms length principle currently in practice for related entities across borders</span></li>
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<span style="font-family: inherit;">The matter is work in progress. </span></div>
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<span style="font-family: inherit;">However, what's noteworthy is that the three corner positions on Pillar One are clear. The first corner is of US which wants taxation based on market intangibles, the second corner belongs to France and EU which wants taxation based on user participation, and the third corner belongs to India which wants the new nexus principle wherein level of physical presence is ignored in favour of amount of business generated in a tax jurisdiction. The negotiations shall evolve over time and the three corners should reach a consensus point wherein a final unified approach evolves and agreed by all. </span></div>
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<span style="font-family: inherit;"><a href="https://www.oecd.org/tax/beps/public-consultation-document-global-anti-base-erosion-proposal-pillar-two.pdf.pdf" target="_blank">The Pillar Two pertains to Global Anti Base Erosion Proposal</a> (twisted to fit the short-form: GloBE) wherein rules are being discussed to avoid multinationals in digital economy from shifting bases and profits. This is a purely a taxation matter. </span></div>
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<span style="font-family: inherit;">Both WTO and OECD matters are coming to an inflection point with vigorous debates/discussions/activities. It would be interesting times for trade and tax policymakers while a new legal paradise gets created for lawyers. </span></div>
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-79425410173271416572019-12-04T08:07:00.000+05:302019-12-04T08:27:28.032+05:30Bonded Manufacturing Scheme - The potential game changer for manufacturing sector<div dir="ltr" style="text-align: left;" trbidi="on">
Government has tweaked the existing scheme of manufacturing under bond at bonded warehouses (Section 58 to 65 of Customs Act) and has come up with a 'Bonded Manufacturing Scheme' which might revolutionise the way manufacturing units are organised among domestic tariff areas, Free Trade and Warehousing Zones, Export oriented units (EOUs) and Special Economic Zones (SEZs).<br />
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The relevant customs notification (69/2019) on Manufacture and other operations at Warehouse Regulations 2019 is at this <a href="http://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-act/formatted-htmls/Manufacture-in-Warehouse-Regulations.pdf" target="_blank">link</a>.<br />
Invest India (an arm of government that encourages investments in India through realtime assistance to entities to set up business) maintains a dedicated website for information dissemination on this topic at this <a href="https://www.investindia.gov.in/bonded-manufacturing" target="_blank">link</a> and the FAQs are hosted <a href="https://www.investindia.gov.in/frequently-asked-questions?category=1372" target="_blank">here</a>.<br />
Relevant Customs Circular (34/2019) that outlines the regulatory procedural details is at this <a href="http://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2019/Circular-No-34-2019.pdf" target="_blank">link</a>.<br />
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-1O811MjgB7Q/XeW9cYvzOoI/AAAAAAAAGeo/YDsbtddWLc8RUp36jhOdnmbmBECbIJQegCLcBGAsYHQ/s1600/Screenshot%2B2019-12-03%2Bat%2B7.11.48%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="image for bonded manufacturing scheme" border="0" data-original-height="866" data-original-width="1510" height="366" src="https://1.bp.blogspot.com/-1O811MjgB7Q/XeW9cYvzOoI/AAAAAAAAGeo/YDsbtddWLc8RUp36jhOdnmbmBECbIJQegCLcBGAsYHQ/s640/Screenshot%2B2019-12-03%2Bat%2B7.11.48%2BAM.png" title="Bonded manufacturing scheme" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Bonded manufacturing scheme overview - [from Invest India's Bonded manufacturing website]</td></tr>
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The salient part of this scheme is that one may import capital goods required for manufacturing without payment of import duty and use it in the factory/premises. In addition, all raw material/inputs required can also be imported duty free for manufacturing. If one exports, no duty needs to be paid on anything that was imported. Only if the finished goods are being cleared out of bonded manufacturing zone and into the local market, duties on inputs to the extent of consumption for the cleared products to domestic market needs to be paid. Also, there is no hassle or requirement of any net foreign exchange earning, or any need to export in order to fulfil some obligation against procurement of duty free capital goods, inputs etc. This is good enough for most of the existing and new industries to move into this new scheme being promoted by Invest India group of Department of Industry and Internal Trade (DPIIT). You get imported capital goods for free, and pay duty on imported raw material/inputs only when you clear them to DTA, thus deferring the duties till you actually sell the products. Even for import, stock and trade business model (say an e-commerce company which imports and sells here), this model makes sense as duties are to be paid only upon sale. Upon non-sale the goods can be returned back. Only if inputs are procured from domestic market, GST is applicable (and credit taken) and which I shall deal later in the post.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-HJbKwzSxfZY/XeXAukXFCSI/AAAAAAAAGe0/HvU134LuiCM7aZcFiHiNP6OhoNNr0eI9QCLcBGAsYHQ/s1600/Screenshot%2B2019-12-03%2Bat%2B7.25.56%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="image for Advantages of bonded manufacturing scheme" border="0" data-original-height="684" data-original-width="1298" height="337" src="https://1.bp.blogspot.com/-HJbKwzSxfZY/XeXAukXFCSI/AAAAAAAAGe0/HvU134LuiCM7aZcFiHiNP6OhoNNr0eI9QCLcBGAsYHQ/s640/Screenshot%2B2019-12-03%2Bat%2B7.25.56%2BAM.png" title="Advantages of bonded manufacturing scheme" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Advertised advantages of bonded warehousing</td></tr>
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The advertised highlights of the scheme propagates the advantage of 'no fixed export obligation' and 'deferred duty' aspect.<br />
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<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-1ygkVyhdl4U/XeXA8IkAM5I/AAAAAAAAGe4/ufR9ft1-OK0HBpJ41U_X0Q6rC1kCPAehwCLcBGAsYHQ/s1600/Screenshot%2B2019-12-03%2Bat%2B7.26.49%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="image for Ease of doing business through bonded manufacturing scheme" border="0" data-original-height="1158" data-original-width="1600" height="462" src="https://1.bp.blogspot.com/-1ygkVyhdl4U/XeXA8IkAM5I/AAAAAAAAGe4/ufR9ft1-OK0HBpJ41U_X0Q6rC1kCPAehwCLcBGAsYHQ/s640/Screenshot%2B2019-12-03%2Bat%2B7.26.49%2BAM.png" title="Ease of doing business through bonded manufacturing scheme" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Ease of doing business through bonded manufacturing scheme</td></tr>
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The scheme also emphasises upon the procedural ease of doing business at bonded manufacturing zones.<br />
While not stated in the website, the circular amply makes it clear that the intention is indeed ease of doing business and therefore no prior permission of proper officer is needed for clearing the goods each time. Also, self sealing facility of goods while clearing has been allowed. Therefore, a lot of trust has been reposed on the operating business.<br />
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<b>What are the potential downsides?</b><br />
<b><br /></b>
- The zone is administered under Customs Act, and therefore the zone will be under total control of customs commissioner with the commissioner (or the designated officer under him) being the sole approving person, and point of contact for business. Many domestic firms, especially smaller ones, might not be very comfortable with the idea due to legacy reputation of customs department.<br />
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- The Annexure B format that covers incoming and outgoing goods, along with details records of consumption, is tedious to maintain. The ERP system of the firm moving into bonded zones needs to be tweaked to align with this format as any error here would lead to serious issues. Maintaining these records digitally by inputting the details manually (say with a poorly designed excel sheet without cross checks) would be a dangerous assignment as any mismatch might attract penal actions. The Annexure is to be maintained digitally as per the notification.<br />
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<b>Policy analysis </b><br />
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<b>The positives:</b><br />
<b><br /></b>
As a policy measure towards ease of doing business in India, nothing beats this scheme on paper. The EOU scheme (including EHTP, BTP etc) would become defunct, given all the license era obligations of Net Foreign Exchange earnings, limited clearance to domestic tariff areas etc.<br />
SEZ policy too would be challenged as new units may reconsider bonding under this scheme over locating into SEZs.<br />
The Foreign Trade Policy chapters 4 and 5, wherein exemptions of duties under Advance Authorisation(AA) Scheme and Export Promotion Capital Goods (EPCG) schemes are granted for procuring raw material/inputs and capital goods respectively, would also be rendered useless when units move to bonded manufacturing scheme. In fact, with no obligations on duty free import of capital goods, there is no reason now to go under EPCG scheme for any new units being set up. EPCG calls for myriad rules and obligations for exports whereas it's much simpler under bonded zone. It also frees the units from the standard input output norms which at times are tedious to align for new products and take time for fixing of such norms as the process involves the unit, local DGFT office, and DGFT headquarters at New Delhi. Under bonded zones, the input output norms are to be self declared, and any revision of the same has to be simply notified to the jurisdictional bond officer. As long as accounts are maintained, trust is reposed on the units to comply.<br />
The scheme, as it doesn't link exemptions to any export performance, and being made available to all, is WTO compliant in nature.<br />
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<b>The negative: </b><br />
<b><br /></b>
The scheme disadvantages domestic manufacturers of capital goods and inputs as no exemption has been given to domestic suppliers for supply to these units. GST is applicable to supplies made to the bonded zones and credits may be availed against the same which may later be used when the bonded units supply goods to domestic market. However, not having an upfront exemption would tilt the choice towards imports, assuming all other conditions being same. This goes against 'make-in-India' spirit of the policymakers.<br />
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<b>Conclusion</b><br />
<br />
Overall, it's an excellent step as it gives a practical option for investors trying to set up new units. When read in tandem with the reduced corporate tax rate (from 25 to 15% for new units), this move may indeed attract investments into India. It also makes sense for existing units who are thinking of procuring imported capital goods in a significant number to get bonded under the scheme.<br />
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The scheme deserves to be advertised widely for better information dissemination.<br />
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0New Delhi, Delhi, India28.6139391 77.20902120000005228.3907261 76.886297700000057 28.8371521 77.531744700000047tag:blogger.com,1999:blog-3734986736884142928.post-61464154092934956872019-05-12T17:49:00.001+05:302019-05-12T18:11:11.239+05:30The interest in free trade and related matters - a silent story from google trends<div dir="ltr" style="text-align: left;" trbidi="on">
Google web-search is a rough indicator of the hotness/popularity of the topic.<br />
Here's what you get for some of the words that this blog cares about, if you see the popularity trend in Google web searches across the world over last 15 years.<br />
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<b>1. Free Trade</b><br />
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<a href="https://1.bp.blogspot.com/-pCm5G3CjbFY/XNgTLMbmabI/AAAAAAAAGOE/9ysjw7IXLnISN7eroRmtlUq0hXO3DcQNwCLcBGAs/s1600/Screenshot%2B2019-05-12%2Bat%2B6.03.39%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="882" data-original-width="1600" height="352" src="https://1.bp.blogspot.com/-pCm5G3CjbFY/XNgTLMbmabI/AAAAAAAAGOE/9ysjw7IXLnISN7eroRmtlUq0hXO3DcQNwCLcBGAs/s640/Screenshot%2B2019-05-12%2Bat%2B6.03.39%2BPM.png" width="640" /></a></div>
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<b>2. WTO </b><br />
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<a href="https://1.bp.blogspot.com/-RKOyU4Z8onA/XNgTWFejo1I/AAAAAAAAGOI/Yf6kf1JTauQOOtMIK2FM6CTpc9AV2LcNgCLcBGAs/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.00%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="883" data-original-width="1600" height="353" src="https://1.bp.blogspot.com/-RKOyU4Z8onA/XNgTWFejo1I/AAAAAAAAGOI/Yf6kf1JTauQOOtMIK2FM6CTpc9AV2LcNgCLcBGAs/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.00%2BPM.png" width="640" /></a></div>
<b>3. Free trade agreements </b><br />
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<a href="https://2.bp.blogspot.com/-7JSjCOkjnFk/XNgTdm97TGI/AAAAAAAAGOQ/y0HA1jvaLtMsPOJ0wXGBLIF3lT-qZPCJgCLcBGAs/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.11%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="880" data-original-width="1600" height="350" src="https://2.bp.blogspot.com/-7JSjCOkjnFk/XNgTdm97TGI/AAAAAAAAGOQ/y0HA1jvaLtMsPOJ0wXGBLIF3lT-qZPCJgCLcBGAs/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.11%2BPM.png" width="640" /></a></div>
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<b>4. Tariff Barrier </b><br />
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<a href="https://1.bp.blogspot.com/-x_6tw0-rZO0/XNgTf4YvHbI/AAAAAAAAGOY/kdGkd3g1KhsaCHxUtrCfKBuMuwiyum93wCEwYBhgL/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.21%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="883" data-original-width="1600" height="352" src="https://1.bp.blogspot.com/-x_6tw0-rZO0/XNgTf4YvHbI/AAAAAAAAGOY/kdGkd3g1KhsaCHxUtrCfKBuMuwiyum93wCEwYBhgL/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.21%2BPM.png" width="640" /></a></div>
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<b>5. Non Tariff Barrier </b><br />
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<a href="https://4.bp.blogspot.com/-xlGEXG4L8dY/XNgTfwSSroI/AAAAAAAAGOc/BDlvbDeiXZcdNyjSGbAKM6gpM2j-yjDfgCEwYBhgL/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.30%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="886" data-original-width="1600" height="354" src="https://4.bp.blogspot.com/-xlGEXG4L8dY/XNgTfwSSroI/AAAAAAAAGOc/BDlvbDeiXZcdNyjSGbAKM6gpM2j-yjDfgCEwYBhgL/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.30%2BPM.png" width="640" /></a></div>
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<b>6. Trade war </b><br />
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<a href="https://3.bp.blogspot.com/-DJ_9INqwBUo/XNgTf1VK0UI/AAAAAAAAGOU/9IwHKY8iWGcaCwzlwb8FPMT5f2GLF9_cgCEwYBhgL/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.46%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="890" data-original-width="1600" height="356" src="https://3.bp.blogspot.com/-DJ_9INqwBUo/XNgTf1VK0UI/AAAAAAAAGOU/9IwHKY8iWGcaCwzlwb8FPMT5f2GLF9_cgCEwYBhgL/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.46%2BPM.png" width="640" /></a></div>
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<b>7. International Trade </b><br />
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<a href="https://4.bp.blogspot.com/-FzD_rwQHGWY/XNgTgbn579I/AAAAAAAAGOg/x35iadSGT6kx8-xjLPHfjBPEz8yLEOI4QCEwYBhgL/s1600/Screenshot%2B2019-05-12%2Bat%2B6.04.56%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="875" data-original-width="1600" height="350" src="https://4.bp.blogspot.com/-FzD_rwQHGWY/XNgTgbn579I/AAAAAAAAGOg/x35iadSGT6kx8-xjLPHfjBPEz8yLEOI4QCEwYBhgL/s640/Screenshot%2B2019-05-12%2Bat%2B6.04.56%2BPM.png" width="640" /></a></div>
<b><br /></b>
<b>8. E Commerce </b><br />
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<a href="https://1.bp.blogspot.com/-NtUGruwrGro/XNgTgndMy8I/AAAAAAAAGO0/ItCp0i71Cyk7aG_p0ESQ2x0S0P16xBYkwCEwYBhgL/s1600/Screenshot%2B2019-05-12%2Bat%2B6.05.05%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="881" data-original-width="1600" height="352" src="https://1.bp.blogspot.com/-NtUGruwrGro/XNgTgndMy8I/AAAAAAAAGO0/ItCp0i71Cyk7aG_p0ESQ2x0S0P16xBYkwCEwYBhgL/s640/Screenshot%2B2019-05-12%2Bat%2B6.05.05%2BPM.png" width="640" /></a></div>
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<a href="https://2.bp.blogspot.com/-MiFLWmvk9QQ/XNgOySRMRrI/AAAAAAAAGN4/LD1f2L6GpcQ_A1t3hEKokkkaefjPMzZ6QCLcBGAs/s1600/Babulog3.tif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="511" data-original-width="1600" height="203" src="https://2.bp.blogspot.com/-MiFLWmvk9QQ/XNgOySRMRrI/AAAAAAAAGN4/LD1f2L6GpcQ_A1t3hEKokkkaefjPMzZ6QCLcBGAs/s640/Babulog3.tif" width="640" /></a></div>
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-2586447190061234122019-03-24T17:25:00.004+05:302019-03-24T17:27:34.648+05:30MSMEs in cross border E Commerce – Challenges, Opportunities and Trade Facilitation Measures<div dir="ltr" style="text-align: left;" trbidi="on">
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</div>
<h3 style="text-align: left;">
<span style="font-family: inherit;">MSME's and E Commerce</span></h3>
<div style="text-align: justify;">
<span style="font-family: inherit;">MSMEs currently contribute to around 40% of exports of India. E-Commerce is an area that has shown tremendous potential for growth, especially for MSMEs. It is so because MSMEs suffer from certain handicaps in traditional trade models, with regard to access and scale, that are ameliorated in an E-Commerce model. This post shall elaborate some of the challenges and opportunities that pertain specifically to MSMEs when it comes to E-Commerce trade across border before deliberating on the facilitation measures specific to MSMEs.</span></div>
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<span style="font-family: inherit;"><span lang="EN-US"><span style="font-family: inherit;">Data from <a href="https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/">Statista</a> show that retail E commerce trade will grow to around 4.8 Trillion USD by 2021 – around two years from now. Around 30% of this is expected to be cross border trade through E-Commerce route. Data also shows that 82% of enterprises involved in such cross border trade are micro and small scale in size (definition of SMEs vary across countries/organisations).</span><span style="font-family: inherit;"> </span></span></span><br />
<span style="font-family: inherit;"><span lang="EN-US"><span style="font-family: inherit;"><br /></span></span></span>
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<a href="https://2.bp.blogspot.com/-f2xrKmYZfJo/XJdrpSvwtxI/AAAAAAAAGJQ/XzYULpg_p-MZ_lbWZChQPMHeJE37uXCXwCLcBGAs/s1600/Retail%2BE%2Bcommerce%2Bsale.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="image of SMEs and E Commerce" border="0" data-original-height="743" data-original-width="1000" height="473" src="https://2.bp.blogspot.com/-f2xrKmYZfJo/XJdrpSvwtxI/AAAAAAAAGJQ/XzYULpg_p-MZ_lbWZChQPMHeJE37uXCXwCLcBGAs/s640/Retail%2BE%2Bcommerce%2Bsale.png" title="SMEs and E Commerce" width="640" /></a></div>
<span style="font-family: inherit;"><span lang="EN-US"><span style="font-family: inherit;"><br /></span></span></span></div>
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<h3 style="text-align: left;">
<span style="font-family: inherit;"><span lang="EN-US">
<span style="font-family: inherit;">Opportunities for MSMEs in Ecommerce</span></span></span></h3>
<span style="font-family: inherit;"><span lang="EN-US">
</span><span lang="EN-US"><div style="text-align: justify;">
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</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">E commerce creates opportunities for MSMEs through</span><span style="font-family: inherit;"> </span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">a)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Easier Outreach potential </span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">b)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Easier Market Research</span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">c)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Easier Reputation building</span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">d)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Easier Marketing expenditures</span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">e)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Development of ecosystems creating synergy</span><br />
<span lang="EN-US" style="font-family: inherit;"><br /></span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">E Commerce brings a paradigm shift in terms of dealing in delivery time, warehousing concepts, customized production and social marketing. The traditional model of value chains are being broken up – for example, the evolution of shipping from bulk cargo to containers of last four decades is giving way to, what one may call, "<b><i>parcelization</i></b>" (there’s no such word as of now in the dictionary) where individual parcels - recall the amazon box parcel you got last time around – play the role of a unit of measure in transport cargo.</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;"> </span></div>
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</o:p></span><span lang="EN-US"><h3 style="text-align: left;">
<span style="font-family: inherit;">Challenges for MSMEs in E-Commerce</span></h3>
</span><span lang="EN-US"><div style="text-align: justify;">
</div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">The efficiency of logistics and cross border procedures are yet to catch up with the blazing speed with which E Commerce has grown. The volumes of E Commerce shipments are straining the existing logistics industry and associated business costs.</span><span style="font-family: inherit;"> </span><br />
<span style="font-family: inherit;"><br /></span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">E Commerce is also challenging border regulatory agencies and they have not evolved sufficiently fast to cater to the emergence of E Commerce. The customs operates with laws made decades ago with a priority on border controls and emphasis on duty collection over trade facilitation.</span><span style="font-family: inherit;"> </span></div>
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</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">Five types of trade costs associated for MSMEs in particular that challenge the faster growth of cross border E Commerce trade are:</span><span style="font-family: inherit;"> </span><br />
<span style="font-family: inherit;"><br /></span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">a)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Tariffs and duties</span></div>
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<span lang="EN-US" style="font-family: inherit;">b)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Technical barrier to trade – standards that are rigged against SMEs</span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">c)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Documentation requirements</span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">d)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Border costs – fee/charges associated with border crossing</span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">e)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Logistics costs – transport, insurance and warehousing costs </span><br />
<span lang="EN-US" style="font-family: inherit;"><br /></span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">The cost of delay at border clearances add up to the detriment of MSMEs, squeezing their competitiveness. </span></div>
<o:p><div style="text-align: justify;">
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</o:p></span><span lang="EN-US"><h3 style="text-align: left;">
<span style="font-family: inherit;">Vulnerability of MSMEs in international trade</span></h3>
</span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">The vulnerabilities arise due to the fact that MSME's </span><br />
<span lang="EN-US" style="font-family: inherit;"><br /></span>
<span lang="EN-US" style="font-family: inherit;">a)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">Need more human resource to export per unit of revenue due to scale of operations </span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">b)<span style="font-stretch: normal; line-height: normal;"> They Have l</span></span><span lang="EN-US" style="font-family: inherit;">imited access to financing and costlier financing when compared to bigger corporations with better access to credit. </span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">c)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">MSMEs trades are usually categorized under high risk items under Risk Management Systems and are subject to greater border controls </span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">d)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">MSMEs usually cannot afford high quality logistics operators to handle their shipment leading to sub-par performance on logistics front. </span></div>
<o:p><div style="text-align: justify;">
<span lang="EN-US" style="font-family: inherit;">e)<span style="font-stretch: normal; line-height: normal;"> </span></span><span lang="EN-US" style="font-family: inherit;">MSMEs usually export small volumes of low value added products leading to longer breakeven times for the firms. </span></div>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
</div>
<o:p><h3 style="text-align: left;">
<span style="font-family: inherit;">Trade Facilitation Measures</span><span style="font-family: inherit;"> for MSMEs in Ecommerce</span></h3>
</o:p></span><span lang="EN-US"><div style="text-align: justify;">
</div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">Trade facilitation Measures should focus</span><span style="font-family: inherit;"> on MSME's needs if India wishes to grow in this area. The bigger multinational organisations have their in-house teams to manage supply chains and optimise the operations. Giant firms operate efficiently, optimise logistics, and involve themselves with policymakers to ensure that the border policies don't harass them. The bulk of these organisations ensure that Governments heed to their demands in the interest of earnings and employments that these firms bring to the country. That's not so when it comes to MSMEs. That's where forming associations for protecting interest of MSMEs become important. Without an association or representative body, it is difficult to hear the voices of MSMEs. </span><br />
<span style="font-family: inherit;"><br /></span></div>
</span><span lang="EN-US"><div style="text-align: justify;">
<span style="font-family: inherit;">Many countries approach the trade facilitation to SMEs through a system of de-minimis where customs duties are not levied for products with value less than a certain threshold. This encourages trade while sparing disproportionate efforts by customs in collecting what in the end adds up to a relatively small percentage of revenue. India has granted certain easier tax processing and compliances for small scale industries through the composition scheme. However, for inter state and export transactions, SMEs still don't enjoy sufficient freedom. While tax evasion is certainly an issue from revenue loss point of view, but if the revenue arm enjoys overbearing say in the area of taxation of SMEs, we may end up stifling growth. While the SMEs grow, it is better to let a small bit of revenue slip in the interest of higher employment and prosperity. This, alas, is an approach that appears lost in the din for maximisation of revenue in India. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Also, schemes that are designed for greater ease of transaction at border, such as the Authorized Economic Operator (AEO) program - a program flowing from the Trade Facilitation Agreement of WTO - are heavily skewed to help multinationals and bigger corporations. A rethink is required to make such programs suitable to MSMEs. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Finally, the barriers to trade for MSMEs arising out of technical and non-technical barriers erected by various governments needs a look into. As world have negotiated away the tariffs, a common way to protect local industries is through erection of the so called Non Tariff Barriers (NTBs). The rise of NTBs in recent years has affected MSMEs badly. This has carried over to the E-commerce trade. </span><br />
<span style="font-family: inherit;"><br /></span>
To sum up, trade facilitation for MSMEs needs a paradigm shift in the way the border compliances and regulatory functions are designed. Unless addressed adequately, we may end up in a situation where the bigger organisations end up gaming the cross border E Commerce and leading to an unequal, non level playing field for SMEs.<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-63997916153465681422019-01-31T07:05:00.003+05:302021-11-04T20:25:03.538+05:30Understanding beef-ban, prohibition and prostitution in India through repugnant market theory<div dir="ltr" style="text-align: left;" trbidi="on">
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Bans are not always effective as we know. Gujarat's prohibition has given rise to a thriving black market for liquor, whereas the ban on prostitution has held up relatively well in India with only a small steady state black market that has not grown bigger. Selling and consumption of beef on the other hand, where banned, has been effective to a large extent - to the detriment of the health of cattle and leather industry - as was witnessed during recent ban on cow slaughter in Uttar Pradesh.<br />
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Bans are blunt instruments. It is necessary for a policymaker to study the effects from the prism of effectiveness of achieving policy objectives of a ban, over the negative externalities, and also lack of effectiveness arising due to administration issues. It is not that a stiffer punishment would automatically lead to desired outcome. To cite an extreme example, rape in India attracts imprisonment of 7 to 10 years. Murder attracts life term or hanging. If the punishment of rape is increased to life term or hanging, as was being mooted in media for cases of child rape, it might lead to adverse result where the rapist kills the victim as the punishment doesn't increase by the additional act of murder, whereas the killing of victim may eliminate the witness!<br />
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Such analysis may be grown rigorously. An interesting recent <a href="http://web.stanford.edu/~wqy/research/Forbidden%20transactions%20and%20black%20markets.pdf">paper</a> tackles such questions from a game theory point of view for market of repugnant transactions. Co-written by the noble prize winning author Alvin Roth of Stanford, it tries to measure repugnancy along two dimensions of extent and intensity and tries to predict the outcome of banned activities with certain assumptions on initial conditions and progress. In the words of the paper:<br />
<i style="font-family: cmr12; font-size: 12pt;"><br /></i>
<i style="font-family: cmr12; font-size: 12pt;">This paper proposes a simple, stylized theoretical model to help understand why some transactions can be effectively eliminated by legally banning them, while others are more resistant, to the point that they may be impossible to extinguish or even suppress to low levels, so that it might be wise to consider different goals for dealing with them.</i><br />
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<span style="font-family: "cmr12"; font-size: 12pt;">The paper takes the example of drug </span><span style="font-family: "cmr12";">market to develop the analysis. However, the results generally hold good across various examples including prostitution, banned meat trade and so on. An interesting result along the way is that the existence of a market before banning plays a role in the effectiveness of the ban subsequently. In the words of the authors: </span><br />
<span style="font-family: "cmr12";"><br /></span>
<span style="font-family: "cmr12"; font-size: 12pt;"><i>...Before beginning the analysis, consider how policy makers could have some control over the initial states. One example would be the regulation of synthetic drugs. When a new synthetic drug becomes available, it takes time before it can be banned. </i></span><i><span style="font-family: "cmr12"; font-size: 12pt;">The number of users it attracts before it is banned may be an important factor for the prospects of extinguishing the market.</span><span style="font-family: "cmr8"; font-size: xx-small;"> </span><span style="font-family: "cmr12"; font-size: 12pt;">So the speed of initial regulation may be consequential, and there may be markets that could be successfully prevented only by prompt action, and not when they have become well established...</span></i><br />
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<span style="font-family: "cmr12";">I quote some of the analysis and results below: </span><br />
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<i><span style="font-family: "cmr12"; font-size: 12pt;">...if the market is insufficiently repugnant in extent or intensity, even substantial legal penalties “on the books” may be insufficient to deter participation if those penalties cannot gain enough social support to be reliably enforced. Note also that if the feasible punishment is not too large, and if the extent of repugnance among the population is low, then even the maximum intensity of repugnance among those who wish to ban the market may be insufficient to control the blackmarket.</span></i><i><span style="font-family: "cmr8"; font-size: 8pt; vertical-align: 4pt;"> </span><span style="font-family: "cmr12"; font-size: 12pt;">And as an illegal market becomes larger, it becomes more likely that those who wish to participate in it can do so without encountering those who would penalize them. Consequently, black markets that have operated successfully for a long time become increasingly hard to eliminate if the underlying social parameters and legal punishments cannot be changed.</span></i><br />
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<i><span style="font-family: "cmr12"; font-size: 12pt;">But changing social repugnance, and even increasing legal punishments in an ef- fective way, may be difficult. Policy makers may be able to influence the extent or intensity of repugnance by education and public relations. But because legislators don’t have easy or direct access to who feels how much repugnance, this is not likely to be anywhere near as easy as passing legislation. At the very least, chang- ing widespread attitudes takes time. And increasing mandated punishments beyond what social repugnance will support can be counterproductive if it makes citizens less likely to report illegal transactions and juries less likely to convict.</span><span style="font-family: "cmr8"; font-size: 8pt; vertical-align: 4pt;"> </span><span style="font-family: "cmr12"; font-size: 12pt;">So we may never be able to completely eliminate some markets, despite the fact that they cause considerable harm. Hence harm reduction should be in our portfolio of design tools for dealing with repugnant markets that we can’t extinguish despite the harm they may do.</span></i><br />
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<span style="font-family: "cmr12";">Therein lies the lesson for a policymaker. </span><br />
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0tag:blogger.com,1999:blog-3734986736884142928.post-84991407237091507152019-01-08T22:24:00.003+05:302019-01-09T08:32:39.861+05:30GVCs and the tariffs - a simple fact the free traders miss<div dir="ltr" style="text-align: left;" trbidi="on">
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A common argument of free trade supporters runs this way:<br />
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<li>Tariffs create barriers to movement of goods - India has high tariffs on various goods </li>
<li>Global Value Chains(GVCs) operate better with low barriers for movement of goods</li>
<li>Therefore high tariffs are responsible for India's lack of integration into various GVCs</li>
</ol>
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In principle the argument is correct. For a graduate student who has completed a course on International Economics, the above argument is obvious. This belief carries over to the practising economists, and journalists who consult the economists. That's why we read a lot of criticism of the government when tariffs are raised - as they lead to breaking away from GVCs, or rather in India's case, not getting integrated into them.<br />
A simple case where a duty of 10% is levied every time a component crosses the border in the journey through the value chain, where a value addition of 30% takes place at each step, leads to a situation where the prices build up pretty fast as can be seen in figure below. Starting with an initial value of 100, the component start showing significant difference in price by the time it crosses a dutiable border the third time, showing that a country with even a 10% duty at border becomes a drag in the value chain, and is liable to be opted out of the chain. Thus the logic holds.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://2.bp.blogspot.com/-4SsgVzLPKpU/XDVgtqvZz3I/AAAAAAAAGB0/mfZ1Q68_CuMSglA-RA1z-G003Nkc_uktwCLcBGAs/s1600/Screenshot%2B2019-01-09%2Bat%2B8.16.04%2BAM.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="image of GVC value chain tariff duty competitiveness" border="0" data-original-height="858" data-original-width="1512" height="363" src="https://2.bp.blogspot.com/-4SsgVzLPKpU/XDVgtqvZz3I/AAAAAAAAGB0/mfZ1Q68_CuMSglA-RA1z-G003Nkc_uktwCLcBGAs/s640/Screenshot%2B2019-01-09%2Bat%2B8.16.04%2BAM.png" title="GVC value chain tariff duty competitiveness" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Effect of duty cascades with each border crossing making the duty levying participant uncompetitive in GVC</td></tr>
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In practise the above argument is not as parsimonous. The argued tariff effect on GVC participation is exaggerated. Lest I be misunderstood, let me state here that high tariffs are always a blunt instrument to use and I am not a supporter of blanket high tariffs on goods, especially the ones that are part of GVCs. However, the argument that tariffs at the border are sole reason for India not getting into GVCs is flawed. Here's why.<br />
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India, and most other countries, work under the principle that "Goods are exported, taxes and duties are not" when it comes to exports. One may call it by various names ranging from 'zero rating of exports' to 'duty nullification schemes', but the fact remains that policy practitioners all around the world understand this problem and devise means to counter this effect when it comes to goods that are re-exported with/without value addition. Such schemes also do NOT run counter to the <a href="https://www.wto.org/english/tratop_e/scm_e/subs_e.htm">Agreement on Subsidies and Countervailing Measures</a> (ASCM) at WTO.<br />
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India has mainly three ways of handling such border crossings without penalising the imports that are meant for GVCs/re-export with/without value addition -<br />
a) Advance authorisation scheme - a popular duty nullification scheme where duties are not collected at border with an assurance of re-export of goods with a minimum value addition of 15%<br />
b) Duty free import authorisation scheme - same as above with a value addition of 20%<br />
c) Dedicated duty free enclaves such as Special Economic Zones and bonded manufacturing zones such as EOUs.<br />
I am aware of such schemes being run in many countries and there can't be any objection of these schemes at WTO. In addition, India also enters frequently into various trade agreements with partners where duty free access is provided.<br />
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I consider the non-tariff barriers (NTBs) more important than tariff measures which are countered through these schemes. In addition to NTBs, India also suffers from relatively poor infrastructure, longer distance and hence travel times, poor investment in industries, and lack of economies of scale in manufacturing sectors where GVCs are prevalent (e.g. electronics/semiconductors) and such other factors that matter more in GVCs than a simple border tax that the free trade theorists abhor.<br />
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The above needs to be kept in mind when we argue against a mere border tax effecting our chances at participating in GVCs. </div>
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<i>Excel workbook for the above picture is attached for reference below:
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Tirumala Venkatesh Kaggundihttp://www.blogger.com/profile/12460774213083580129noreply@blogger.com0