Flipkart to acquire a 7.8% stake in Aditya Birla Fashion. How is this deal going to redesign the future of Indian retail?
Flipkart and Aditya Birla Fashion entered into a strategic partnership aimed at enhancing the consumer fashion experience.
The Walmart-owned e-commerce company, Flipkart in a move to strengthen its presence in the apparel fashion segment will acquire a 7.8 percent stake in Aditya Birla Fashion & Retail Limited (ABFRL) for Rs. 1,500 crores ($203.78 million). According to the reports, ABFRL said that the equity capital will be raised at Rs. 205 per share. The promoters will be left with a respectable number of 55.13 percent stake in the company after the completion of the deal.
This deal between Flipkart and ABFRL is being considered as a second big deal in two months in the domestic retail market. Earlier in August, Reliance Industries’ unit Reliance Retail Ventures acquired retail and wholesale business and the logistics and warehousing business from the Kishor Biyani-promoted Future Group as going concerns for an amount of Rs 24,713 crore.
The move is seen as a part of the larger trend of consolidation of the e-commerce and offline sales channels, witnessed post the outbreak of the pandemic. Even though e-commerce only constitutes around 5 percent of the retail business in India, the growth of online marketplaces has accelerated due to the arrival of the pandemic.
Kumar Mangalam Birla, Chairman Aditya Birla Group said, “This partnership is an emphatic endorsement of the growth potential of India. It also reflects our strong conviction in the future of the apparel industry in India, which is poised to touch $100 billion in the next 5 years.”
Aditya Birla Fashion & Retail Limited
Aditya Birla Fashion & Retail Limited (ABFRL) is an Indian clothing retail chain, headquartered in Mumbai. ABFRL emerged after the consolidation of two branded apparel businesses: Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL). The company apart from Pantaloons also runs brands like Allen Solly, Peter England, Louis Philipe, Forever 21, Ted Baker, Ralph Lauren, and Van Heusen.
The company has more than 3,031 brand stores in around 750 cities all across the country with the presence of 35 million loyal customers.
What advantages Aditya Birla Group is likely to gain from the deal?
Aditya Birla Fashion & Retail Limited (ABFRL) and e-commerce giant Flipkart entered into an agreement that would see the latter infuse Rs. 1,500 crores into the company for a 7.8 percent stake. As per the reports, the deal will result in Aditya Birla Fashion “aggressively accelerating” its omnichannel strategy through which it will expand the reach of its portfolio brands.
COVID has forced ABFRL to relook at their business strategies. It is believed that engaging with e-commerce platforms will make them less vulnerable during these difficult times and will also help them save rental and other asset-heavy costs. Instead of fighting against the growing prominence of online retail, ABFRL found it more appealing to join hands with Flipkart in order to gain profit with the collaboration.
Also, Flipkart’s investment will enable Aditya Birla Group to understand the technological functioning and know-how of online retailing through its various platforms like digital money app PhonePe, Google Pay, and e-commerce platforms Flipkart and Myntra. According to sector experts, such engagements, help companies like Aditya Birla particularly to understand the transformation from physical to online stores.
What is Flipkart going to gain?
Flipkart through this deal will benefit by strengthening the range of brands offered on its e-commerce platform including Myntra. According to Flipkart, getting international and domestic brands associated with ABFRL on its platforms will attract more customers to the company.
For Flipkart, the deal also means to have a strong offline partner in Aditya Birla Group to raise the stakes in its battle with Amazon, which had invested in Future Group last year.
With this deal, it is believed there is a chance of Flipkart increasing their stake in ABFRL in the future. Flipkart cracked this deal at Rs. 205 per share. The e-commerce platform gained the deal at a discount as ABFRL was trading above Rs. 250 during February 2020 but later due to COVID-19, the company’s share tumbled to Rs. 102 in May.
However, Flipkart is paying more than the current market price of the stock which implies that Flipkart gets pre-emptive rights, or the right to buy additional shares from ABFRL before the general public for a period of 1-5 years that allows the online platform to increase their stake in the company in near future.
COVID-19 played a major role in the deal:
The business of manufacturing and retailing of branded apparel suffered massively during the lockdown. Aditya Birla Fashion & Retail reported a revenue of Rs. 323 crore in Q1FY20. This was 85 percent below Rs. 2,065 crore they reported in the same quarter the previous year. The company reported a net loss of Rs 410 crore as compared to Rs. 21 crore profits they declared in June 2019.
As the lockdowns are getting eased, with the arrival of festivals Navaratri, and Dussehra, people are returning to the shops for purchasing. Even though the company has reported disappointing first-quarter results, the revenue of the company is expected to bounce back in Q3. With Indian festivals just around the corner, the company is highly optimistic about its sales and return of its customers.
Assassination of Shinzo Abe & Salman Rushdie – Know Real Facts
The months July and August of 2022 saw two cases of extermination to promote the fear of terrorism. One of the assassination of Shinzo Abe former Japanese Prime Minister, and another of the famous Novelist Salman Rushdie.
Shinzo Abe succumbed to a gunshot wound, whereas Rushdie’s health conditions are improving and he is under medical supervision after the knife attack. However, various assassination attempt of Salman Rushdie has been made during the year.
These two terror acts force us to think about the impact of terrorism on society, the main objective of which is to create an atmosphere of fear so that citizens of the country cannot rely on their government.
This ultimately disturbs the law and order of the society, and serves the terrorists’ purpose of creating a chaos.
Here we will see how these two attacks had different reasons but the objective remained the same – to stop someone from propagating his/her opinions independently, and also the factors that make attackers indulge in such acts.
Assassination Attempt of Salman Rushdie – Satanic Controversy
On 12 August 2022, Rushdie was attacked several times by a 24-year-old man Hadi Matar. The attacker’s intentions can be linked to Rushdie’s fourth novel, The Satanic Verses, published in 1988. Some Muslims considered the novel disrespectful towards Prophet Mohammed.
Soon after its publication, the novel sparked a ‘fatwa’ or a religious decree. The Iranian revolutionary leader Ayatollah Ruhollah Khomeini called for Rushdie’s death in 1989. After, this various assassination attempt of Salman Rushdie has been made.
Complete conversation for Salman Rushdie Assassination:
When asked about the attack Hadi Matar said, “I don’t like the person. I don’t think he’s a very good person. I don’t like him very much”. He further criticised Rushdie’s work by saying, “He’s someone who attacked Islam, he attacked their beliefs, the belief systems”. Mr. Matar also told New York Post that he had only read ‘a couple of pages’ of the book and did not tell about whether the fatwa had inspired him or not.
While praising the Iranian religious leader, he stated, “I respect the Ayatollah. I think he’s a great person. That’s as far as I will say about that”.
One can observe that the psychology of the attacker was that he simply disliked the novelist because of his work; although he read only two pages of the novel, but was rather influenced by the religious leaders and their sayings. Just, like this the assassination of Shinzo Abe has been made during this year, which we will discuss on next section.
Perceptions like these can have a long-lasting impact on future generations which can further deteriorate the situation. Violent acts like this demand proper scrutiny of the dissemination of information.
Extremists take advantage of such incidents and brainwash the young minds so that they can be used by them for their selfish purposes.
Assassination of Shinzo Abe – Complete Truth
On 8 July 2022, it was just another day of Abe’s political campaign for the upcoming parliamentary elections. He was delivering a speech in Nara City, but no one is the aware about the assassination of Shinzo Abe that day. When a 41-year-old Tetsuya Yamagami shot him twice from behind from a distance of about 10 meters.
During the investigation, he confessed his intentions of killing and it was found that his motives had more to do with religious backing instead of a political reason.
It so happened that Yamagami’s mother was a member of a religious group which she joined after her husband’s death in 1998. She used to donate huge amounts of money as charity to the group, after the assassination of Shinzo Abe and Yamagami blames the sect for bankrupting his mother.
Confession Statement on Abe Case
The report reveal that Abe was closely associated with the sect, and wanted to take revenge against him for promoting it. “The suspect stated that he held a grudge against a particular organisation and that he committed the crime because he believed former Prime Minister Abe had a connection to it”, a senior police officer in Japan’s Nara region told reporters.
While the police hasn’t given any clarification regarding the unidentified organization, social media in Japan has it that it could be the Unification Church.
Yamagami was unemployed, felt isolated in society, was against religious preaching and blind faith, and wanted to kill the leader of the religious organization but couldn’t. One can see the psychological aspects of it that, the killer was anguished with the organisation and blamed them for his conditions and economic turmoil.
Ultimately his grudge converted into a motive of taking revenge for his loss and he did that by killing the perpetrator of the religious group, to give a message to the society and the world that one should avoid themselves from joining or contributing to such groups.
Japan has the strictest gun laws after the assassination of Shinzo Abe , so to bypass such stringent laws the killer used a handmade gun. The occurrence of such incidents in the island nation shows how much resentment the killer has and how strongly he was motivated to commit the murder.
Such incidents are eye-openers for the society that someone’s freedom of belief can become others’ pain, and teaches that as a society we should try to maintain a balance between them.
Two Paths to Crime
The above two accidents of assassination of Shinzo Abe, and the assassination attempt of Salman Rushdie has been terrifying for the country. First, being a part of a religious group the killer face hardship in his life, which forced him to commit the crime. In the second instance, the attacker got the impression that his religion is being targeted and that it is his responsibility to take revenge so that next time no one dares to do anything like that again.
Interpretation of things based on pre-assumed thoughts can lead to revenge, and revenge based on half-baked knowledge causes harm to the whole humanity, and not just the particular group concerned.
Seduced By China’s Communist Party – The Atë of 21st Century
Recently I attended a private dinner and was part of a conversation on the burning topic of these days – economic crisis in Sri Lanka and Pakistan. One of the guests in the gathering, an expert in Greek mythology, jokingly commented that most of the mayhems in the world today could be attributed to the “Atë” of the 21st Century – reincarnated on 23 July 1921 as the Chinese Communist Party”. To many of us oblivious of Mythos, he explained that Atë (pronounced Aite) was the eldest daughter of Zeus and is considered the goddess of evil and misfortune (Homer’s Illiad, Book 19). She was known to lure men into actions that would end in their demise usually. Though that time the story of Atë was a filler in a serious discussion, but an afterthought convinced me that what he said was not illogical. After all, so many countries have been lured by the CCP through benefactions, and slowly all of them are heading into ruins. CCP is another name for guile, greed, and cruelty – typical Atë like qualities.
Guile – the first curse of Atë
The most appropriate example of guile in modern times is the Debt Trap, brainchild of the CCP.
Sri Lanka and Pakistan, two countries which could not stop bragging about the generosity of their so called “all weather friend” till sometime back, have already seen the face of Atë and are now pleading to the world to save them. But there are many others in evil eye of the Atë.
One of the earliest successes of China’s debt-trap diplomacy was Tajikistan which not only lost gold, silver and mineral ore mines, but also 1158 sq kms of strategic Pamir Mountains territory. Later, Africa became the favourite playground of the Atë. Djibouti, Zambia, Angola and Ethiopia have debts to China equivalent to more than 20% of their GDP. In lieu, Djibouti has become a de-facto Chinese colony; Zambia is on the verge of losing two airports, hydropower project (ZESCO) and some precious mines (copper, cobalt, gold, nickel etc.); Angola is forced to sell all its oil to China; and the civil war-torn Ethiopia has been brought on knees by over 400 Chinese companies dominating the state. Other African countries which are being depredated by China include Kenya, where ownership of Port of Mombassa is under threat and Uganda where loss of Entebbe International Airport is inevitable.
Beyond its favourite playground, 21st century’s Atë, the China’s Communist Party, is reigning havoc on numerous small and middle-income economies.
Laos was forced to sign concession agreement allowing a Chinese-owned company to control its national power grid; Maldives and Solomon Islands have lost a few islets; Argentina has been denied access to and oversight of a Chinese satellite tracking station on its own territory; Ecuador is forced to sell 90% of its oil to China; and Venezuela and Kyrgyzstan have made official statements recently regarding likelihood of losing properties to Chinese debt.
Europe, the so called ‘Modernisation Hub’ of the world, too could also not save itself from the Atë jinx. Montenegro was enticed by the CCP by funding an A-1 motorway. Poor Montenegro didn’t realise that it was on a path of creating a world record of building the costliest highway ($23.8 million per kilometres) and one road has practically mortgaged the whole country. Such is the witchery of this 21st century Atë that whichever country has been seduced by it, could not save itself from misery imposed upon it.
Greed – the second curse
Greed, another attribute of Atë, is an inherent characteristic of the CCP.
The foundation of the CCP itself is carved in greed and the way the party gained power through the Chinese civil war is a testimony of its cupidity and avarice.
Soon after Kuomintang was pushed out from mainland China, Tibet became the first victim of CCP’s greed for world dominance. Annexation of Tibet and controlling the territory till date through massacre of innocent populace and implementation of barbaric laws is a shame for China as a country. India was the second victim of the CCP’s greed, when China started a war in 1962, and occupied large Indian territory. Despite occupying Indian landscape, the greed of the barbaric party has not quenched, and it still lays claim on the Arunachal province of India and continues its misadventures on the Northern frontier. China has territorial disputes over land and at sea with numerous countries like Japan, Philippines, Vietnam, Nepal, Bhutan and Taiwan, which clearly indicates the greed of its ruling force. The Belt & Road Initiative (BRI), which the CCP claims to be a game changer for global prosperity is nothing but yet another trick to subjugate the weak countries in Asia, Africa and elsewhere to China’s economic domination.
Cruelty – the third curse
Guided by a totalitarian ideology CCP deprives citizens of their rights on a sweeping scale and systematically curtails freedoms to retain power. Chinese civilians cannot practice the religion or belief of their choice, express their opinions openly or form/ join groups of their choosing without fear of harassment, arrest or retribution. Authorities regularly detain those who do not conform to CCP ideology. Minorities (Uyghur Muslims, Tibetan Buddhists, Christians, and Falun Gong practitioners) are subject to mass arbitrary detention, strict surveillance, political indoctrination, torture, forced abortions and sterilization, and state-sponsored forced labour. Xinjiang is a proof of CCP’s extreme malice where more than one million locals are detained since 2017 in internment camps and are facing torture, rape, forced ingestion of drugs, sexual assault and other horrific abuses. The PRC is continuing its decades-long campaign to eradicate Tibet’s unique religious, ethnic, cultural, and linguistic identity. People in Hongkong are also under extreme misery and being handled through draconian national security legislation. The worst is that these brutalities remain veiled as CCP strictly controls telecommunication, internet and media.
As one contemplates over the characteristics of the Chinese Communist Party in wake of the arguments presented above, it is evident that CCP is indeed the Atë of the 21st Century. However, the cure for the Atë jinx is also available in the Greek mythology.
The power of Atë is in the desires of her victims. It is the desire of poorer countries which lure them towards China for a quick money for infrastructure development and once they are in CCP’s trap, there is no survival. The only way to be safe from this 21st Century Atë is to avoid and isolate her. Sri Lanka and Pakistan are testimony of the fact that there are no friends of CCP – every nation is a potential victim. It is important for middle and low income economies to realise that the there are no short cuts to development. Any easy path could be a delusion created by the Atë to lure you into a deadly trap.
Is China’s Global Security Initiative a future security hazard?
In April this year, the Chinese Communist Party (CCP) laid out a new vision to re-establish the primacy of the Middle Kingdom (or zhong guo, 中国) by adapting the ancient concept of Tianxia (天下) which literally means “all under heaven”. In typical Beijing-style misdirection, this plan was disguised under the moniker ‘Global Security Initiative’. When he announced the Initiative, at the Boao Forum on April 21, Xi Jinping asserted that this effort was based on dialogue, partnerships and win-win situations – or is this initiative just another case of standard CCP hypocrisy lexicon?
But before we discuss the Chinese proposal for GSI, lets glimpse into the other major decisions of Chairman Xi and the underlying factors which have necessitated Beijing’s new gambit:
1. Xi’s win-win developmental myth aka Belt and Road Initiative – As the CCP prepares to mark its 101st anniversary, global opinion and trust in China is reaching record low levels. With each passing week countries which bought into the Belt and Road Initiative (BRI), all face crippling loan repayments. Notably, China’s banks are never willing to re-negotiate payments, and almost always have a ‘debt-for-ownership’ deal on hand – take for example the situation of Sri Lanka and Pakistan! So, even the CCP’s friends are getting wary of making any new deals… which is casting a deep shadow over Xi’s legacy.
2. Zero-Covid Mismanagement – The loss of faith in Beijing has been exacerbated by Xi’s refusal to recalibrate response to COVID in multiple Chinese cities. Extended lockdowns and mass quarantines have impacted global supply chains, with less developed countries facing the brunt of the economic hardship. Moreover, the complete failure of the much-touted Chinese model in containing COVID for over two months, even as the rest of the world regains a modicum of normalcy, has raised several questions about governance with CCP characteristics. Such doubts among political circles, where the CCP sought to expand influence, is deeply troubling for Xi and his party men.
3. China’s assistance to Russia’s Ukraine war – China has not been able to establish itself as a neutral player in the ongoing Russo-Ukraine conflict. Perceived by the West as supporting Russia, Beijing has faced strong headwinds across capitals in Europe. Moreover, coordinated Russia-China provocative military manoeuvres during the Quad Summit in Japan have reinforced the Western belief that Beijing and Moscow are cooperating militarily in the ongoing conflict. As a result, widespread resistance is being faced by Chinese commercial and political entities across Europe and America.
4. Rise of QUAD and Failure of Chinese Diplomacy – The deepening of the relationships among the Quad nations, as well as the declaration of multiple Quad projects and initiatives has impacted the CCP’s self-belief. Beijing was so confident of its ‘sea foam’ narrative of the Quad, that it seemingly ignored the positive effect its own provocations were having in binding together like-minded countries of the region. The Quad, today, is an accepted, welcomed and respected arrangement, which has both the capacity and capability to ensure the requisite degree of security across the Indo-Pacific, needed for inclusive growth and shared prosperity. The rise of a credible alternative, in an area which Beijing had assumed was its own backyard, has significantly undermined the CCP’s claims to absolute pre-eminence in the region.
Xi Jinping’s Global Security Initiative – overlook
Aimed at building an Asian Security Framework (with Chinese characteristics), the GSI is being touted as an alternative to confrontational alliances which seek zero-sum outcomes. The “six commitments” promised under this initiative as issued by Chinese Ambassador to Somalia, Ambassador Fei Shengchao, are staying committed to –
- the vision of common, comprehensive, cooperative and sustainable security
- respecting the sovereignty and territorial integrity of all countries
- abiding by the purposes and principles of the UN Charter
- taking seriously the legitimate security concerns of all countries
- peacefully resolving differences and disputes between countries through dialogue and consultation
- maintaining security in both traditional and non-traditional domains
Packaged as a utopian, inclusive construct which promises to better serve Asian interests (than Quad/ AUKUS) the GSI makes a wonderful read… as a work of fiction. Some issues included in the GSI which jump out at the reader, particularly considering China’s recent track record in these areas, are – trust deficit due to irresponsible actions of nations, cold-war mentality, (dis)respect for territorial & maritime integrity, rising extremism and lastly zero-respect for international law!
To put this hypocrisy in perspective, consider the following –
- China’s all-weather friendship with Pakistan, including political support for proscribed terrorists, is the best example of a confrontational alliance anywhere in the world! Even today, extensive Chinese support to Pakistan’s deep state is resulting in extremist attacks across India, Afghanistan and elsewhere.
- China’s undeclared launch of a missile by a submarine (which almost hit a passenger plane), dangerous manoeuvres and tactics by Chinese jets over international airspace which could have collided with an Australian warplane, and clear records of essential commodity hoarding (wheat, oils, etc) by Chinese businessmen (while countries across the world grapple with supply shortages) – these are some of the recent examples of how China is among the biggest contributors to the global trust deficit.
- China’s blatant violation of international laws, manipulating markets and supply chains, disrupting legal economic activities outside its jurisdiction, etc – Beijing has forced a gathering of like-minded countries, which share concerns and agree on the manner these illegal actions must be countered. Moreover, the calls of war from Chinese ‘hawks’ have become far more explicit, frequent and extreme, espcially since Xi Jinping has taken over the command of CCP.
- China’s claims of respecting territorial integrity are possibly the most ludicrous of them all. From South China Sea to Tibet, and Taiwan, Beijing’s insatiable greed for territorial acquisition and disregard for opposing perspectives is well established. It is, therefore, laughable to see this point being championed by Xi, in his idea of GSI.
- China was the first country to engage with the Taliban post the US withdrawal from Afghanistan, and it continues to shelter Pakistan’s booming terror industry. Significant proof has also come to light about Chinese support to extremists in Myanmar, Maldives and Northeast India. It would consequently be appropriate to say that China’s concern of rising extremism is another hypocritical feint by the CCP.
Will the world accept China’s Global Security Model?
Despite the obvious hypocrisy in the GSI proposal, Beijing does have a fair chance of success in areas where the US’ influence is resented. Some countries in South America, in particular, will welcome it as a medium to hedge their bets, thereby extracting more from the West. Closer to China, however, nations would do well to be more circumspect.
Alternatively, the GSI could be a way to distract the Chinese people from the widespread failures of the CCP in recent years, as well as China’s declining influence in multiple regions. A big, grandstanding announcement, notwithstanding limited capabilities to ensure success, would provide enough short-term political gains for Xi and his men to retain a favourable narrative during the CCP’s 101st birthday party. This may well be the true motive behind the GSI.
Any security framework with CCP characteristics would ultimately have a hierarchical architecture, with Xi enthroned at its summit. The GSI’s concept of an Asian Security Framework would yield an Asian order where Beijing commands the loyalty of all regional countries, and peace prevails at the pleasure of the CCP’s top leadership. With Chairman Xi all but certain to stake a claim to the ‘CCP Chairman for Life’ position during the upcoming Congress, he would ultimately become the ‘de facto’ emperor of the new Tianxia… the true goal of the CCP, particularly since Xi’s ascension in 2013-14.
Pelosi in Asia: An Accidental Provocation?
Second in line for the US presidency, Nancy Pelosi’s prospective vacation plans had already sparked a domestic political controversy and a ruckus in international policy before she even touched down on the democratic island.
On Pelosi’s schedule, everyone from President Joe Biden to former members of the Trump administration to the Kremlin has voiced their opinions. Antagonized by the fact that a high-ranking American official intended to visit the neighbouring island that Beijing claims as its own, China quickly started issuing threats. China conducted military exercises, including the firing of missiles and other live-fire training, in the waters near Taiwan on Thursday as a show of might. The manoeuvres, which according to experts seem to envelop Taiwan and simulate a Chinese invasion of the island, will last for four days, according to the Chinese authorities.
Pelosi travelled to Taiwan with a group of five House Democrats, where they met with President Tsai Ing-wen and other officials. Pelosi stated in a Washington Post op-ed that “our congressional delegation’s visit should be perceived as an unequivocal declaration that America stands with Taiwan, our democratic partner, as it protects itself and its freedom.”
The now-completed visit—the first by a sitting House speaker in 25 years—raises fresh interest in the delicate juggle the US maintains on Taiwan’s status. It’s a nuanced diplomatic approach that aims to improve relations with China while simultaneously defending Taiwan against Chinese aggression. The US has concentrated its efforts on containing China’s influence globally in response to its swift economic and military development.
Because of this, there is now hazardous competition between the two nuclear-armed nations, and even travelling overseas can have strategic repercussions.
Members of Congress routinely travel to hotspots abroad; for instance, just last week, House Armed Services Committee Chair Adam Smith (D-WA) led a delegation of congressmen to Ukraine. The last time a candidate for the US presidency visited Taiwan was when Republican Rep. Newt Gingrich was the speaker in 1997. But the relationship with China has gotten worse since the 1990s, in addition to Pelosi being a prominent member of the same party as Biden. China has adamantly threatened “serious actions” against Taiwan in response to Pelosi’s visit and has expressed grave reservations to the White House over the trip. Chinese warplanes flew along the line dividing the Taiwan Strait on Tuesday before Pelosi arrived.
The timing of the trip may be a large part of the unease in Washington and Beijing. The 20th congress of the Chinese Communist Party will take place this fall. This important event is held every five years, and it is anticipated that Xi Jinping will be elected to an unprecedented third term as party leader. He’ll probably talk about Taiwan at the conference at a time when analysts compare China’s desire to dominate Taiwan to Russia’s invasion of Ukraine. (Many people are curious about the lessons China is learning from Vladimir Putin’s ruthless adventurism and the West’s response.) Last week, Biden and Xi spoke over the phone for two hours to improve US-China relations.
Lev Nachman, a scholar at the Harvard Fairbank Center for China Studies, told me last week that there are terrible timings and worse timings, and this is unquestionably the latter. It is feared that Pelosi’s resignation might be the straw that breaks the camel’s back.
China often irritates Taiwan with military exercises, but this week’s live-fire drills are very near to the island’s coastline and are the closest in 25 years. However, there might be something far more offensive. China makes a big deal out of virtually every congressional delegation and every arms transfer that goes through to Taiwan, Nachman claimed. “The concern is: Will that be like, you know, the same shtick they always give us when China says they’re going to do something in retaliation? Otherwise, will there be something more?
The goal of House Speaker Nancy Pelosi’s trip to Asia was to emphasise the US’s “strong and unwavering” commitment to the area. Many nations were left speechless in shock as China carried out unprecedented military exercises near Taiwan.
Days, after she returned to Washington, the shockwaves from the highest-level US visit to Taiwan in a quarter-century, are still echoing throughout the region. Days after firing missiles that most likely flew over Taipei and into waters Japan claims as its exclusive economic zone, China’s military has continued training exercises meant to demonstrate its ability to encircle the island and cut off the Taiwan Strait, one of the busiest trade routes in the world.
Such a spectacle would typically lead to considerable criticism of China on its own. However, many governments viewed Pelosi’s visit as going too far, and they don’t want to get drawn into the controversy. While other security partners in the region remained silent, longtime allies Japan and Australia joined the US in denouncing China’s response. Members of the Association of Southeast Asian Nations hurried to reiterate that they only recognise One China after South Korea’s leader snubbed Pelosi following the visit, India remained silent, and this is the basic framework Beijing demands diplomatic relations, though interpretations vary across nations.
According to Shahriman Lockman, a director at the Institute of Strategic and International Studies in Malaysia, “most Southeast Asian countries will perceive the United States as having prompted China’s entirely inevitable overreaction.” “The takeaway for ASEAN members is that you must always hedge your bets. Whose actions might trigger the next crisis in US-China ties is impossible to predict.
Since entering office, President Joe Biden has worked to forge a wide alliance in Asia to oppose Chinese expansionism, in part by reassuring smaller economies that they do not need to choose sides. In stark contrast, the Trump administration pushed the region’s nations to impose sanctions on Huawei Technologies Co. and take other actions that would compel them to choose between the two largest economies in the world. The strategy was exemplified by the Indo-Pacific Economic Framework, which Biden presented while travelling to South Korea in May. Although China was left out of the IPEF launch, the US was able to enlist seven Southeast Asian nations as well as Fiji by adamantly stating that it was open to Beijing and excluding Taiwan, even as the administration started parallel trade negotiations with the government of the island.
Despite falling short of the comprehensive trade agreement many in the area hoped for, those broader negotiations signalled a stronger US leadership presence in Asia to confront China in a way that was agreeable to countries that depend on close commercial relations with Beijing to grow their economies. They also praised other US counter-Chinese efforts, such as a drive for closer cooperation in commerce, public health, and cybersecurity, as well as the introduction of an alternative to President Xi Jinping’s Belt and Road infrastructure expenditures.
However, Pelosi’s visit abruptly forced Asia to take a position on China’s most delicate subject after months of trying to make it easy for nations to support the US. However, a lot of governments simply hid their faces.
Defense Cess – The Need or The Want of Need
With the Finance Ministry coming down heavily on the Fifteenth Financial Commission on the latter’s suggestion for creating a ‘Defense Modernization Fund’, the question pesters the general public at large as to whether a separate defense cess is really required. Seemingly, the capital needs of the Indian military do not seem to be a problematic scheme. It rather appears to envisage a separately structured funding program in furtherance of enabling the Indian military to work in a more well-ordered manner.
WHY THE FUSS?
The root of every operative that there is, is guided by the procedure laid under the Indian Constitution. Hence, a casual read of the Seventh Schedule of the Constitution elucidates the responsibilities between the Union and the States. Subjects such as defense, and foreign affairs are on the Union list while responsibilities like public order, healthcare, etc. fall under the purview of the State List. The third list, i.e., the Concurrent List is a unique, centralizing feature adopted from the British Raj, that embodies the fundamentals of federalism. The list has both State and Union play a role with powers tilting towards the latter. It was due to this provision only that the government brought in the farm laws. However, while a large section of funds and resources rests with the Union in New Delhi, expenditure of those funds is at the behest of different States, the taxes of which is collected by New Delhi. Hence, the Financial Commission of today now distributes the revenue collected by the Centre to various States and therefore, supervises the financial commitments of the States and the Union.
Now, the problem with the creation of a special fund – in this case for ‘defense’- creates a special third category along with Union and State. Theoretically, the Finance Commission therefore will inadvertently split monies between Union, State, and the Defense Fund. It is interesting to note that the defense is a subject already under the Union List and therefore, the creation of a third category would only cause stress for States to give up funds for defense. Now much like the game of dominoes, if one separate fund is created, many other demands for the creation of special pockets for every governance function would surface, which would unnecessarily create disruption of the flow of funds to the subjects in either of the lists and therefore would go far beyond the provisions prescribed under the Seventh Schedule in the Constitution. Hence the downpour of the Financial Ministry on the 15th Financial Commission for the reasons that setting up a separate fund for a function that is already covered under the Union’s List is against good parliamentary practice is perfectly valid.
While the Finance Ministry may have rebuffed the request to create a different fund for Defense, it is however significant to understand how such a report was allowed to be tabled before the ministry in the first place. NK Singh, the chairman of the 15th Finance Commission, when posed with similar questions, contended that as per the legal opinion he received, the defense was a “shared responsibility of the Union and the states”. Defense is explicitly mentioned as the subject under Union List and the closest thing that resembles an iota of Defense is ‘Public Order’ which falls under the State List. In no way whatsoever, can anyone with the caliber and prudence as that of NK Singh can conclude that Defense is a shared subject. Furthermore, he also remarked that Finance Commission transcends the classification in the Seventh Schedule of the Constitution, which is simply an inexplicable argument. Finance Commission is in no way empowered to transcend any part of the Indian Constitution, especially something as critical as the Seventh Schedule.
Another interesting aspect here is the branding of the ‘defense’ fund as cess. Tax and Cess are two different contributions to State welfare. While Tax is already existing in the form of GST and Income Tax, a cess is imposed as an additional tax besides the existing tax (Tax on Tax). Now while the former is kept in the Consolidated Fund of India CFI for the government to use it for any purposes it deems fit, the latter, though also kept in the CFI, can be used by the government after due appropriation from Parliament for ‘specified purpose’. Now, what rebranding of ‘general tax’ as ‘cess’ does is that it brings any revenue generated through cess under the ambit of ‘specified purpose’ resulting in states sharing any of that revenue. Statistically, cesses and surcharges that were around 10% in 2010-11 are almost doubled in the year 2021 figuring around 19.9%. This increase in cesses and surcharges is shrinking the divisive pool between State and Union, leaving States bleeding out to dry. Therefore, to have a defense cess under the ‘specified purpose’ funds would only hurt the States of the Country as the gap between State and Union’s resources would further increase.
THE NEED OR THE WANT OF NEED?
The Union in 2019, empowered the Finance Commission with additional Terms of Reference to enable it to make a suggestion on how to create the fund. Defense Ministry further stressed on the need to increase focus on national security and warranted states to share the financial burden of maintaining and upgrading the security apparatus, including buying weapons from global suppliers, etc. Defense Ministry urged that subjects like Terrorism, insurgency, and securing national borders should be recognized as a shared responsibility for the Union and States, rather than leaving it just for the Union to take care of. The demand though extremely urgent goes beyond the nexus of the Constitution. Furthermore, the 10th Finance Commission also laid down the principle that cess and surcharge should be temporary and rare.
Union has always been seen complaining about limited resources and funds and yet does not shy away from spending money on subjects concerning the State List. Cribbing about not having enough money to fund its core function of defense and catering to the electoral compulsions by spending money on state subjects – Union has only made things difficult for itself and confusing for the public at large. A demand from the Home Ministry for a seed corpus of Rs. 50,000 crores to be carved out of dues from States for Central Armed Forces deployment is simply a result of the Union being derelict in its responsibilities. The constitutional remit of defense is often sidelined during elections and therefore, it is natural for the union to have a dry state of funds to cater to its core duty. It is therefore the job of the Finance Commission to stop the political drivers in their path and prevent populist rhetoric from influencing devolution. Instead, the Commission seems to be a puppet of the Union, to say the least.
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