Indian Navy - Future Ready

The ‘sea blindedness’ and ‘continental’ mindset of Indian political class and bureaucracy have hobbled us. The fact that colonial powers like Britain, Spain, Portugal, Dutch, and French conquered and commercially exploited us by sea is lost on them. These countries, if taken in totality, have less than half the coast line we have (7516 Kms). Yet we have been colonized more from the sea than from land! So, instead of becoming a sea faring nation and outward in outlook. India has remained inward looking and insular in nature. It is to the credit of naval planners that they have built true blue water navy inspite of this mindset in 60 odd years. All this with patience and perseverance, and mostly without the benefit of any higher political direction (no White Papers, or Defence Reviews; not even approval of the recommendations of committees convened by the GoI)One could argue that this perhaps has been a blessingin disguise! Of late there has been some soul searching on whether the recent submarine accident could have been avoided, or has there been any setback to the blue water vision by spreading oneself too thin - embarking on ambitious carrier, nuclear propulsion program and 30 sub plans. It would seem that the diversion of (scarce) men, money and material can either do one or the other well. But not all. Hence ‘overreaching strategic ambitions’. Not so. All professional and blue water navies have had to cope with (or rather learn to cope with) rapid growth during its ‘scaling up’ stage - from coastal/littoral and sea defense navy to a blue water one. Recruitment at entry levels have to scale up. Training, induction and infrastructure also has to keep pace to ‘feed’ and constantly update the various arms of the navy whether it be pilots, divers, electrical/system engineers, artificers, long course specialist officers, cooks, etc. During this phase different parts of the Navy tend to grow at different rates – some faster, some over decades. That is natural. For e.g. (1) the nuclear submarine propulsion programme was conceptualized in 1967 with a feasibility plan prepared by the Navy & BARC, and went thru several fits and starts till 1980. It was only in 1984 that the program got its due budget, focus and political mandate. And now has come to its logical fruition. (2) On the other hand the aviation wing came off the starting block faster than any other arm with the original INS Vikrant (1961) coming in very early in the navy’s evolution (this is Naval aviations 60th anniversary), and the vision for subsequently embarking upon a 2/3 carrier navy being in the pipeline from the late 80’s (3) The 30-sub plan also has also been in the making from the late 90’s. But delays in decision making have dogged this plan from coming in on time. At the end they have all come together rather nicely. Therefore In isolation and in totality, naval planners seem to have cut their cloth according to their long term vision – not too much, or too little. For a country which is still a developing one with numerous resource constraints, a noisy and often time’s fractious democracy with several competing forces for scarce means. This is creditable. Naval Vision 3.0 My view, and I have held this for some time now, that the Indian Navy needs ideally 3 Battle Groups (BG’s). Two being CBG’s. One for the Arabian, ME & Mediterranean regions HQ’d in Mumbai/Karwar (lets call this command as CinC,AMEN) . One for the Indian Ocean and Littoral States (CinC,IOR) HQ’d at Cochin/Karwar, and one for the South Asia & Far East (CinC,SAFE) region HQ’d at Vizag and Port Blair. I know the 2+1 is the carrier tasking policy, but there will be times when all three carriers will be in active operational simultaneously. And when, 2+ 1 kicks in, then the capital ship of the third Battle Group will be a Nuke Sub or amphibious assault ship/Helo carrier. These BG’s will not only be there for deterrence and defence of the homeland and expeditionary operations, but more importantly, to ‘fly the flag’ from Vietnam to Venezuela – where significant Indian economic & commercial assets and interests are expected to lie in within the next 20 years. The soft power that is talked about by all. And which China with its hospitals ships and visiting warships to areas of their interest have been doing for some time, and of course the western powers perfected to an art form over the last 300 years! The fly the flag activities will be cross subsidized by the MEA, since this will form part of its outreach and ‘winning friends’ program. If and when India gets to the high table of the permanent member of the UNSC, this will be a hygiene factor. And if the roadmap and intent is laid out in advance, then an enabling condition.

Now your Bank account in the sky!

There have been 100 mobile money deployments in emerging markets. At least 84 of them within the last three years. What I have found to be common for those that are successful (14 of them, as defined by number of payments relative to the size of the addressable market) are growing the customer base and network in tandem. This makes the overall agent economics and agent enrollment efforts remunerative. What is not so explicitly stated, but key, is role of ‘Regulation’. In under regulated, low banking penetration, light regulatory touch economies such as Somaliland, Kenya, Tanzania, and Uganda it has worked well. But in robustly regulated and supervised markets like India – the outcome is poor. M-pesa cant be re skinned for local conditions just with addition of 'a' and 'i' and drop of an 'e', Vodafone has been experimenting with M pesa in India for some years. They launched in 2011 with a pilot in Chomus, Rajasthan. And recently with ICICI Bank. It would be interesting to assess the outcome of that pilot and understand goals set with ICICI Bank. The original program was envisaged to board 10 million farmers for its financial inclusion efforts. Before that Tata Teleservices launched its own domestic money transfer program with Corporation Bank. As did Axis Bank and Airtel for the same purpose. While Airtel & SBI’s JV was short lived. In India it seems banks and telcos are dancing an endless tango to see how best to crack the conundrum of mobile money. Ideally the telcos have been trying hard to edge the banks out of this - they see it as a next value driver and best geared organizationally to deliver tangible results. And the Banks are generally wary and averse against this being driven solely by telcos and the customers being owned by them. Probably for the same reason. Except they call it fear of systemic risk! So what is the way out? Even if the over strict interpretation of Banks role for cash-in/cash-out (CICO)is maintained, there are ways to skin the cat - so that 'unbanked beneficiary' can still avail of the service.. But for this to happen (and happen it has to) two things need to change. First, the differentiation between a payment service providers and credit issuers has to be understood. In the former accepting and keeping 100 % of monies collected in pooled accounts by way of escrow or reserve requirement does not constitute systemic risk, or, constitute what is known as a Systematically Important Payment System (SIPS). In fact the mobile wallet poses even less overall risk than banking and any other payments systems. For e.g. in 2010 the accumulated balance in all Mpesa, Kenya accounts represented just 0.2 % of all bank deposits even though M Pesa transactions accounted for over 70 % of all electronic transactions! Further, as a measure of abundant caution, PPI’s do not intermediate funds or issue credit! Second, regulatory dispensation has to now accommodate a sender/receiver or both NOT necessarily (a) Having any form of formal Bank account, but just having an unique mobile wallet issued by a RBI certified PPI’s. This mobile wallet, is what I call as - ‘Account-in-the-Cloud. Lets us give it a generic brand name – My Paisa account. (b) As per prevailing RBI norms some form of KYC applies for creation/loading up such a virtual wallets. Aadhar, as a (mandatory in time) RBI accepted e-KYC tool per se – as valid ID proof serves that purpose, The aadhar number also doubles up as an unique identifier mapped to the wallet and mobile number, and in due course to a no frills account or regular account. (c) Of course until UID reaches mass acceptance, the older KYC norms used thus far over the last 60 years will suffice for creation of the wallet as per prevailing RBI Prepaid guidelines. (d) While the conventional Bank-ICT based BC/BF/CSP Model has yet to categorically deliver any tangible over the last 7 years. Either, by way of account registration and/or account activity terms. Arguably it may have met its penetration levels into villages. This effort is now best also complemented by established private players (viz. FMCG, retailers, fair price shops, etc) to allow for network effects to kick in a la Tanzania with its 27000 agents for a population of 37 million, or Somaliland with its 8600 agents for a population of 3.85 million. (e) In India a clear a million such existing unique established and trusted points of presence are there built up over the last 100 years. Even if we don’t count the Telco touch points. Allowing for cash -out on such a larger definition of BC's/BF's/BA's by leveraging established & accepted networks of private payments processors & agent aggregators, will be par for the course (f) No program can be sustained if it not remunerative to the stake holders, and does not make sound business sense. So a competitive fee structure payable to the key stakeholders is key. This has to be either borne by the consumer like it is done for PO/MO’s etc or by the Govt for DBT. A fee structure of between 2-4 % with an appropriate cap would find a sweet spot. With account in the cloud, and with minimum stake holders the fee structure could even be aggressive without destroying the business proposition. Once this is done, direct cash transfers or payments or remittances can be done directly into a farmer’s, citizen, or customers or any aadhar-wallet account, to be redeemed at merchant points for goods & services or cash out, via the established private payment processors outlets. Subsequently one could look at e money issuers (Non bank PPI’s ) to also pay the customer interest on an e float maintained by the account holder by way of some form of subvention where on the pooled account some interest is earned.

Band of men in their yellow submarine!

Unlike the lyrics of the famous Beatles song, one does not “live a life of ease, and have all you need”, if you join the submarine arm. As recent events have shown. As I am sure many of your readers know only too well submarine accidents are not the domain of 'happens only in India'! And from 1947 to now probably around 80 accidents have taken place. Since the year 2000 itself , there have been twenty-seven major naval incidents involving submarines from: ten American submarines, five Russian, five British, two Canadian, one Chinese, two Indian, one Australian, and one French. Eight nuclear submarines have sunk as a consequence of either accident or extensive damage: two from the United States Navy, four from the Soviet Navy, and two from the Russian Navy. Only three were lost with all hands: two from the United States Navy and one from the Russian Navy. All sank as a result of accident with the exception of K-27, which was scuttled in the Kara Sea when repair was deemed impossible and decommissioning too expensive. All of the Soviet/Russian submarines belonged to the Northern Fleet. Although the Soviet submarine K-129 (Golf II) carried nuclear ballistic missiles when it sank, it was a diesel-electric submarine and is not in the list below. Of the 8 sinking’s, 2 were due to fires, 2 were due to explosions of weapons systems, 1 was due to flooding, 1 was weather-related, and 1 was sunk intentionally due to a damaged nuclear reactor. In 1 case, the cause of sinking is unknown. All of the subs are in the Northern Hemisphere, and there are none in either the Indian or Pacific Oceans. In fact it is to the credit of the Indian Navy to have had over 40 years of submarine operation almost blemish free. I don’t know of any other Navy who can claim the same track record. Having said that, there is no excuse for any peacetime accident in one’s own berthing station regardless of the cause. Commanding any warships is a non compromising job. The Captain of a warship is responsible and accountable for his ship and men at all times, short of an unexpected act of God. In the merit order of calamities. Losing a submarine in war is forgiven, than losing it in peacetime while on patrol or exercise. And certainly, losing your ship while it is in harbor or tied up alongside is not acceptable. Captains, whose ships are hit and sunk in wartime, therefore choose to go down with their ships to avoid the shame & ignominy of their fellow men in not being able to secure their ships, and bring their men home back safely, and are in line with naval traditions from centuries of seamanship. Death before dishonor best describes this practice. Nothing has changed since. Two points; (1) Other than the usual suspects (engineering/material failure/faulty equipment, battery, electrical, aux, etc) which will be investigated. The issues of (a) human error by way of SOP’s/ inspection regime before and during handling of ordinance loading (b) Availability, preparedness and adherence to ’Stand by' SOP's in case of exigency /eventualities of such nature, and (c) any reduction in the recently concluded 'full overhaul' for submarine fleet operational reasons, merit some attention. If I recollect this is the third incident within Mumbai naval dockyard and harbor in last few years. Sinking at ones berthing station was last evidenced at Pearl Harbor! And that was during 'imminent hostile action. Since then the US Navy changed their strategy, as did all professional navies of the World. The sinking’s of USS Thresher (1963) and USS Scorpion (1968) with all hands on deck were defining points in submarine history - as that kicked off the most ambitious submarine safety, rescue program, and culture of its kind (SUBSAFE). Lessons obviously lost on the Russians with their plethora of mishaps with various submarines over the last few years! (2) Perhaps this will give a fillip to (a) expediting the 30 sub fleet plan & replacement of obsolescence (b) improve submarine rescue capability, and (c) last but not least, a secular and steady programme of navy indigenization – with near zero dependence on diffident suppliers of yore! Sending ships to and fro their original yards and paying top $ for such services for major overhaul and refits creates an unhealthy dependency. I hope the Navy BOI headed by a senior submariner does get to the bottom of it and makes requisite changes in SOPSs, inspection & verification regime, safety regulations compliance, command & control, training, drills, exercises, manuals, contingency plans, emergency response, etc. When you join the submarine arm, you it is not just a well paid job or post with good retirement benefits. It is a calling, a passion. Where margins of error are zero, and consequence is life!