The Economics Hub Newsletter: Week 8
India's personal data protection bill, RBI's MPC meet, Argentina's economic crisis, Microsoft blocks Tutanota and other article recommendations
Happy Sunday!
Welcome to another issue of The Economics Hub Newsletter! I hope you are well.
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Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!
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1. Highlights: India’s Central Bank RBI’s MPC meet
Reserve Bank of India’s Monetary Policy Committee (MPC), whose primary objective is to maintain price stability while keeping in mind the objective of growth met between 3rd August to 5th August to review the macroeconomic framework of India and its outlook.
Some of the highlights are:
The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday hiked the repo rate by 50 basis points (bps) to 5.40% with immediate effect, RBI Governor Shaktikanta Das announced. This is the third consecutive rate hike by the central bank in this financial year.
After RBI's August policy meet decision, the repo rate is above pre-pandemic levels of 5.15%. With this, the overall rate hike in three successive policy meets has now gone to 140 basis points, in line with the global trend of monetary policy tightening to cool off inflation.
With inflation currently at 7.0% year-on-year, the MPC also decided to remain focused on the “withdrawal of accommodation” policy to ensure that inflation remains within the target going forward while supporting growth.
RBI’s MPC believes that these decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2% while supporting growth.
The MPC’s rate hike is intended at curbing demand, and, thereby, control high inflation. However, much of the risks to inflation are emerging from external factors, including a huge upswing in global commodity prices and foreign fund outflows.
The latest round of rate hikes is unlikely to prompt banks to pass on the impact in a big way, analysts say. That’s because banks have already hiked rates by a significant margin this year. A further rate hike in loan rates could affect the nascent recovery seen in the economy in the post-pandemic period.
ING observes that, if the destination for the RBI is to get real rates (policy rates minus inflation) to approximately zero, then continuing at even a 25bp pace over the remainder of the year should see the repo rate rise to 5.9% by the year-end.
RBI has proposed to enable Bharat Bill Payment System to accept cross-border inward bill payments. This will enable NRIs to undertake bill payments for utilities, education and other such payments on behalf of their families in India. This will benefit the senior citizens, in particular, Das said.
RBI’s assessment of the domestic economy:
Domestic economic activity remains resilient. As of August 4, 2022, the southwest monsoon rainfall was 6 per cent above the long period average (LPA). Kharif sowing is picking up. High-frequency indicators of activity in the industrial and services sectors are holding up. Urban demand is strengthening while rural demand is gradually catching up. Non-oil and non-gold imports were robust, indicating strengthening domestic demand.
Overall system liquidity continues in surplus, with average daily absorption under the LAF at ₹3.8 lakh crore during June-July. Money supply (M3) and bank credit from commercial banks rose (y-o-y) by 7.9 per cent and 14.0 per cent, respectively, as of July 15, 2022. India’s foreign exchange reserves were placed at US$ 573.9 billion as of July 29, 2022.
CPI inflation eased to 7.0 per cent (year-on-year, y-o-y) during May-June 2022 from 7.8 per cent in April. Food inflation has registered some moderation, especially with the softening of edible oil prices, and deepening deflation in pulses and eggs. Fuel inflation moved back to double digits in June primarily due to the rise in LPG and kerosene prices. Core inflation remains at an elevated level.
Macro-economic outlook:
Elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook.
The appreciation of the US dollar can feed into imported inflation pressures.
Cost pressures are expected to get increasingly transmitted to output prices across the manufacturing and services sectors.
On the growth outlook, rural consumption is expected to benefit from the brightening agricultural prospects. The demand for contact-intensive services and the improvement in business and consumer sentiment should bolster discretionary spending and urban consumption.
Investment activity is expected to get support from the government’s CAPEX push, improving bank credit and rising capacity utilisation.
The MPC has noted that inflation is projected to remain above the upper tolerance level of 6% through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second-round effects.
Further MPC policy actions should be expected to contain inflation in the future.
The central bank now sees inflation for Q2 at 7.1%; Q3 at 6.4%, and Q4 at 5.8%.
The real GDP growth projection for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, and risks broadly balanced.
The next meeting of the MPC is scheduled during September 28-30, 2022.
2. The Indian Government Scraps Personal Data Protection Bill that Alarmed the Tech Giants
On August 3, 2022, the Indian government scrapped the Personal Data Protection Bill it's worked on for three years. The bill drew widespread criticism and scrutiny from privacy advocates all over the world and also from tech giants who feared the legislation could restrict how they managed sensitive information while giving the government arbitrary powers to access and control it. For instance, Delhi-based privacy advocacy group Internet Freedom Foundation said the bill:
The point of the data bill is to empower you with rights relating to your own data. But in its current form, it provides large exemptions to government departments, prioritises the interests of big corporations, and does not adequately respect your fundamental right to privacy. This move, when taken with the lack of literacy around data protection in India, may be dangerous on an individual level - where your everyday privacy is threatened - and on a collective level, given how it makes allowances for mass surveillance.
Meta, Google and Amazon were some of the companies that had expressed concerns about some of the recommendations by the joint parliamentary committee on the proposed bill. The tech companies questioned a proposed provision in the Bill called data localisation, under which it would have been mandatory for companies to store a copy of certain sensitive personal data within India, and the export of undefined “critical” personal data from the country would be prohibited.
(Similar: My short explainer on India’s IT Rules and new amendments)
In the “reasons for withdrawal” shared with other Members of Parliament, Ashwini Vaishnaw, the Minister for Communications and Information Technology, stated that the government now considers a “comprehensive legal framework” to regulate the online space, including bringing separate laws on data privacy, the overall internet ecosystem, cybersecurity, telecom regulations, and harnessing non-personal data to boost innovation in the country.
Union minister Rajeev Chandrasekhar also tweeted about the cancellation and echoed the importance of replacing it with a comprehensive framework in accordance with global standards.
Behind China, India is the world’s second-largest internet market, has seen an explosion of personal data in the past decade as hundreds of citizens came online for the first time and started using internet applications and services. However, unlike the European Union’s General Data Protection Regulation (GDPR), India never had a robust legal provision for the protection of the personal data of its citizens, and desperately needed one.
With Personal Data Protection Bill, the Indian government originally sought to empower Indian citizens with rights relating to their data. Privacy advocates had argued that the bill had so many loopholes and it rather benefits the government and large corporations way more than it benefits users such as you and me. The Internet Freedom Foundation had started a new series that actively highlighted the drawbacks of the bill. You can check it out here. According to IFF, the top 10 issues and loopholes in the DPB, 2021 are:
On its cancellation, IFF's executive director Apar Gupta told The Register:
It has been close to ten years since the government constituted the A.P. Shah Committee report on privacy, five years since the Puttaswamy Judgement and four years since another government constituted the Srikrishna Committee report – they all signal urgency for a data protection law and surveillance reforms.
Each day lost causes more injury and harm. Hence the withdrawal of the Data Protection Bill, 2019 is concerning – for a belated, deficient regulation is being junked.
The revamped bill is expected to be tabled in the winter session of Parliament. According to senior government officials, the new data protection Bill will do away with some recommendations by the JCP such as including “trusted hardware”, and local storage of some kinds of personal data within the boundaries of India. Instead, it will add these ideas to the larger framework for the Internet ecosystem, which will replace the Information Technology Act of 2000. All these separate laws, it is learnt, will be presented at the same time.
I sincerely hope that the new bill is put up for a consultation with the public, advocacy groups and industry stakeholders. After all, wider participation will improve the robustness of the legislative framework underlying the Personal Data Protection Bill. The importance of robustness should not be undermined as our livelihoods continue to be digitalized and surveilled by governments, corporations and start-up firms.
3. Argentines turn to black market dollars as crisis worsens
Argentina’s name is very tantamount to the occurrence of a financial crisis and this time is no different. With inflation hurtling toward triple digits and, economists say, just a policy mistake or two away from setting the stage for hyperinflation, the central bank is desperately trying to avert a peso devaluation that would only trigger another wave of price hikes.
Bloomberg notes that the problem stems from their depleting foreign exchange reserves as they are now so low that no one can tell just how much more they can spend. By some accounts, policymakers have already blown through all the easy-to-spend reserves they had on hand, leaving them scrambling to come up with ways to turn illiquid assets into cash.
Why the foreign exchange reserves are depleting? The primary reasons are worsening trade balances and costly energy imports due to higher commodity prices in global markets. The rising global cost of energy and rampant government spending in the first half of the year caused total import costs to outpace revenue from agriculture and other exports. Argentina’s trade balance dipped negative in June for the first time since December 2020, according to Bloomberg data.
Furthermore, Argentina has been largely cut off from international debt markets since its default in 2020. The government is instead funding itself through money-printing and domestic debt, most of which is inflation-linked and comes at ever-higher rates of interest.
Therefore, Argentina’s chances of getting some financial help from international capital markets look very slim. For instance, their sovereign bonds are now worth 20 cents on the dollar, less than half of their post-2020 debt restructuring value as foreign bond investors are too scarred by a string of past defaults to lend the country money now. The International Monetary Fund is unlikely to step in this time either. It’s already committed some $44 billion to the country and is showing no interest in pledging more capital.
With depleting foreign exchange reserves, soaring dollar value, and slim chances of receiving foreign aid or capital, the administration has resorted to money printing to cover its chronic fiscal deficit. This in turn has resulted in peso devaluation and skyrocketing peso value to the dollar. With the peso plummeting, prices are soaring to keep up. Inflation reached 64 per cent a year in June and is forecast to accelerate beyond 90 per cent by the end of the year, according to Morgan Stanley.
Local traders are now positioning for a major devaluation. They drove the peso to as low as 338 per dollar last month in the parallel, unofficial market where it trades free from government intervention, some 60% weaker than the 130-per-dollar rate in the “official” market. The gap between the black market dollar and the artificially controlled official rate has widened to more than 150 per cent — a level last seen during Argentina’s hyperinflation in 1989-1990, according to broker Portfolio Personal Inversiones.
A devaluation of such a magnitude, economists say, could potentially spark an immediate surge in prices of up to 30% on essential goods such as foods and even bigger increases for fuel, deepening the financial pain that Argentines have been enduring for years.
At the time of writing this newsletter, the Peso is trading at 293 per dollar in the black markets. If you are not aware, then the dollar has been king in Argentina for years due to Peso’s rapidly depreciating value and the dollar’s role as a “safe haven” currency. Argentines hold so much U.S. currency — experts believe perhaps more than anywhere outside the United States. Please note that this phenomenon is not unique to Argentina as citizens of economically challenged, politically unstable and war-prone regions usually collect/stash U.S. dollars because they are about as secure a currency as exists in the world. Argentines are simply more accustomed to this practice than others because their economy has been intermittently challenged for decades if not centuries. According to economist Steve Hanke, the country has been in default for nearly 35 per cent of the time over the past 200 years.
Also, Argentina’s arbitrary currency exchange restrictions have forced its citizens to turn to black markets. In black markets, Argentines can get more pesos for their dollars at a “blue” rate in contrast to what they get at the official rate at government outlets.
Blue dollar’s website describes the whole black market currency exchange process beautifully, I will let them explain instead:
So how do you track down the more favourable blue rate? Many foreign visitors set up a local contact who can make the change, or ask their hotel to recommend a “Cueva” (literally meaning cave; in reality, more like a fully functioning businesses, accepting dollars, euros and pounds). Other tourists simply head to central shopping streets and respond to not-so-subtle calls of “Cambio! Cambio!” (exchange); the wise ones having checked the current rate first, so they can barter.
If you want to stick to using US dollars in your day-to-day transactions, that’s common too. The Argentinian market, which experienced a complete economic meltdown in 2001/02, has quickly adapted. Many businesses, including hotels and restaurants, will accept US dollars. Some will work to the blue rate, even though that is illegal, or they will come close to it. When a shopkeeper recognises you are a tourist, you are likely to be offered an upfront deal: “We accept dollars at 12 pesos”, or something similar.
The dual rate began after the government initiated a number of restrictions on currency exchange in an attempt to prop up the fledging peso and reduce capital flight (ie investors taking their fortunes out of the country). Argentinians have, of course, been hit much worse than any visitor. There has been a prohibitive amount of red tape they have to get through if they wanted to exchange pesos to dollars.
All these factors are alarming the fears of government insolvency and imminent risks of hyperinflation. In fact, fears of the government’s insolvency are so acute that savers rushed to withdraw dollars from their bank accounts last month. Dollar deposits fell to their lowest since 2016 as Argentines withdrew almost $750 million.
Given Argentina’s past episodes of hyperinflation, bank runs, currency devaluations, defaults and insolvency, Argentines are super quick to react in times of market stress, reflecting their desperateness to protect their hard-earned savings and minimize losses. In such dire times, they prefer to stash their dollar savings under mattresses, jackets, beds, floorboards, etc. rather than keep them with banks amid fears of bank runs, government confiscation and rapid devaluation.
If you want to read more on how Argentines deal and have adapted to years of high inflation, then I recommend this piece by New York Times.
What Lies Ahead?
In a bid to contain the crisis, Sergio Massa was appointed as the new economy minister, last week, giving the former cabinet chief and veteran politician an expanded portfolio and a mission to fix the economy. Investors are optimistic that Massa will have a better chance of improving the crumbling economy than his predecessor, Silvina Batakis.
He has pledged to stop printing money in an attempt to halt a spiralling currency crisis and prevent runaway inflation. Massa's economic roadmap also focuses on boosting exports, reducing the country's fiscal deficit, and refilling the central bank's severely depleted reserves. The government will finance its budget by reducing its deficit or via private lending. The country is considering four loan offers by three international banks and a sovereign wealth fund, he said.
Still, there may be only so much he can do. Devaluing the currency would stoke inflation that’s already above 60%, but trying to keep it near its current levels will be a challenge given the lack of dollars in the country. The government needs to trim spending, but that risks undermining popular political support.
Further reading resources:
Argentina Vows Not To Go Full Weimar, Will Stop Printing Money Amid 60% Inflation
Why Bitcoin Is the Perfect Haven for Argentines in This Economic Crunch
Many Developing Countries are increasingly Vulnerable to the Risk of Sovereign Debt Default
4. Microsoft blocks Tutanota users from its service
Tutanota is one of the most popular and well-respected privacy-preserving email providers out there. Since 2011, it is run by a small team of enthusiasts based in Germany. Along with Protonmail, it is a serious competitor among secure email providers. It uses a hybrid encryption system that avoids some of the drawbacks of PGP and is protected by the GDPR and other pro-privacy EU regulations. The following characteristics embodied in the Tutanota ecosystem make it appealing to privacy enthusiasts:
Encrypted mailbox: The entire mailbox – emails, calendar and address book – are stored end-to-end encrypted in Tutanota.
Tutanota uses symmetric (AES 128) and asymmetric encryption (AES 128 / RSA 2048) to encrypt emails end-to-end. When both parties use Tutanota, all emails are automatically end-to-end encrypted (asymmetric encryption).
Zero-knowledge calendar: End-to-end encrypted calendar that lets you store all your appointments confidentially.
Tutanota stores all data encrypted in highly secure data centres in Germany and Germany has one of the strictest data protection laws.
Highest level of TLS encryption with Perfect Forward Secrecy (PFS), DNSSEC, DKIM, DMARC and MTA-STS.
Free and Open source
There are other features that make it one of the competitive privacy-preserving email providers but I want to keep it simple for now. This newsletter isn’t sponsored by Tutanota and I even use it personally, but the bottom line is, that you should seriously consider “transitioning” to Tutanota or Protonmail, especially taking into account Gmail/Google’s unprecedented level of tracking history.
Anyway, back to the topic.
Microsoft is being accused of blocking Tutanota users from registering an account with its cloud-based collaboration platform, Teams if they try to do that using a Tutanota email address. “This severe anti-competitive practice forces our customers to register a second email address – possibly one from Microsoft themselves – to create a Teams account”, Tutanota argued in a blog post.
The problem is Microsoft treats Tutanota as a corporate email instead of an email service. So, when a Tutanota user attempts to register an account with Teams, they get a message that the registration has been blocked and that they should “contact your admin or try a different email.”
In one of the responses, obtained by TechCrunch, Microsoft said: “We have reviewed this internally and as of now, it is currently not feasible for the domain to become a public domain and this is because the domain has used the Microsoft Teams services.”
This is yet another anti-competitive behaviour by Microsoft and illustrates how Microsoft can and does abuse its dominant market position to harm competitors, which in turn also harms consumers. This anti-competitive behaviour reminds me of the infamous 1995 United States vs Microsoft case, a noted American antitrust law case in which the U.S. government accused Microsoft of illegally maintaining its monopoly position in the personal computer market primarily through the legal and technical restrictions it put on the abilities of PC manufacturers and users to uninstall Internet Explorer and use other programs such as Netscape and Java.
As Victor Luckerson puts it well in his article:
Its most famous victim was Netscape, the pioneering web browser, but everyone from Apple to American Airlines felt threatened by late-’90s Microsoft. The company was big enough to be crowned America’s most valuable firm, bold enough to compare attacks on its domain to Pearl Harbor, and, eventually, bad enough to be portrayed as a (semi-fictionalized) cadre of hyper-capitalist murderers in a major motion picture.
Tutanota further argues that “competing with Microsoft is nigh impossible given their sheer market power”, and urges authorities to “break up the market power of Big Tech” — highlighting the contrast between a pro-privacy end-to-end encrypted email service, such as Tutanota, and a tech giant like Microsoft which has a big ad-tech business that’s fuelled by tracking web users, stripping them of privacy to monetize targeted advertising.
It’s not the first time Tutanota has found its users’ access being blocked by larger platforms, having previously experienced issues with AT&T and Comcast in the U.S.
Other Articles of the Week
Economics and Finance
July GST revenue collection second highest ever at Rs 1.49 lakh crore
Bank of England raises key interest rate by 50 bps, highest since 1995
Suddenly, stock-market investors are wrestling with ‘boomflation’ after hot July jobs report
The west’s phantom energy sanctions fuel Russia’s war machine
Warren Buffett’s Berkshire reins in stock purchases and books $43.8bn loss
Privacy and Tech
Environmental hacktivists publish 2 terabytes of mining company emails
Twitter confirms January breach, urges pseudonymous accounts to not add email or phone number
Denmark bans Chromebooks and Google Workspace in schools over data transfer risks
Biometrics market to reach $136B by 2031…if mobile segment doesn’t top $184B first
Geopolitics
An Expert Explains: Taiwan, China, and the US — the big picture in the Indo-Pacific
Israeli air strikes take Gaza death toll to 24, including six children
Ayman al-Zawahiri: Shock in Kabul as US kills al-Qaeda leader
Ukraine war: First grain ship out of Ukraine cleared to sail to Lebanon
That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!
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Have a great week ahead,
Shreyas