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12 ISSUES AND INSIGHTS
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MUMBAI | MONDAY, 4 JUNE 2018 1

How robust is your response plan? leading organisations are adopting a

DevSecOps approach, which involves
the remediation of security vulnerabil-
ities from the design stage of the appli-
duct cyber war games to test the effec-
tiveness of their crisis-response plans
and are clear about how they will
respond to different types of incidents.
> CHINESE WHISPERS

As cyber risks increase, corporate confidence plummets
takes one bad actor across the enter-
prise’s value-chain to compromise your
cybersecurity infrastructure. It is there-
fore imperative for organisations to
devise a zero-trust security architecture
which based on the premise of “never
trust, always verify.”
Given its strategic, operational,
financial and compliance implications,
cyber security is now firmly a board-
room agenda. Regulators across the
NITIN BHATT world are demanding better security
oversight from directors, who are find-
ing themselves as targets of class-action
els” for instance, could be clinical-trials
data for a pharmaceutical company, a
securities-trading algorithm for a bro-
kerage firm, or customer portal for an e-
commerce company.
Strategic business decisions should
take into account cybersecurity consid-
erations. For instance, should the infor-
mation and operational systems of an
acquired company be integrated with
the parent company, or be “compart-
mentalised” to minimise vulnerabili-
ties? Should employees be allowed to
conduct business transactions from
cation development lifecycle itself.
A large multinational bank was under
attack for over nine months. The bank’s
security operations centre was unable to
detect the breach. To address the issue,
the bank used deception technology –
deploying decoy engagement servers to
impersonate and mimic the bank’s vul-
nerable setup. Within minutes, a zero-
day malware was spotted hitting the
decoys. This enabled the bank to identi-
fy the sources, methods and intent of the
attackers and secure itself accordingly.
A practical cybersecurity strategy
acknowledges that some attacks will
breach the company’s defence. While
It is critical to appoint and enable –
with adequate budgets and resources – Breaking news
a seasoned executive who can be held
responsible for the company’s cyberse-
curity. This individual should regularly
update the board on emerging threats
and update organisational controls
accordingly.
Since the majority of breaches
involve malicious or negligent insiders,
including employees and business part-
ners, it is critical that users’ access to
data is limited to assigned privileges. In
this regard, implementing cybersecuri-
ty awareness programmes to educate
employees of their responsibilities,

I
s your company shielded from cyber
threats? Unlikely. As you read this
article, cybercriminals may be
accessing sensitive financial informa-
tion; your competitor may have
employed a hacker to siphon off trade
secrets; malicious employees may be
installing unauthorised software with
the intent of sabotaging your factory
operations; a rouge nation might be
using your organisation’s IT infrastruc-
ture as a conduit to launch attacks
against third-parties or to surrepti-
tiously analyse traffic to exfiltrate your
most critical data. The list goes on. It
lawsuits and penalties after major
breaches. The following questions can
serve as a good starting point for direc-
tors wanting to play a more active role in
cyber governance and to fulfil their fidu-
ciary duties
Most organisations do not have a
documented cybersecurity strategy. As
such, security efforts and investments
focus on network protection and spot
fixes. A clear strategy, on the other
hand,articulates the organisation’s risk
appetite along with the identification
of the data assets and processes which
“must” be secured. These “crown-jew-
their personal mobile devices to
increase productivity? How tightly
should a company’s systems be inte-
grated with those of its value-chain?
Such decisions have a direct implica-
tion on an organisation’s cyber strategy.
As organisations embark on a digital
transformation journey, they are also
enhancing their cyberattack surface. For
instance, over 500,000 internet-con-
nected pacemakers were recalled in the
US after discovering that hackers could
take control of their pace or run down
their batteries.
In order to manage such digital risks,
most organisations have a crisis-
response plan, few demonstrate imple-
mentation-readiness. EY, for instance,
conducted a cyber-attack simulation
exercise with 79 leading CEOs. The exec-
utives were asked how they would react
when informed that their customer data
had been compromised. The responses
ranged from contacting the chief oper-
ating officer to the legal counsel to the
corporate communications officer.
When asked how they would respond to
situations involving ransom demands,
most executives did not have a concrete
plan. Leading companies regularly con-
along with the consequences of non-
compliance, are critical.
As corporate directors review their
companies’ cyber risks, they would do
well to adopt a “zero-trust” approach by
constructively challenging their man-
agement’s assurances around cybersecu-
rity preparedness. Indeed, boards that ask
the right questions can perhaps serve as
the most critical line of defence in enhanc-
ing an organisation’s cyber resilience.
The author is EY’s global risk transformation
leader and heads the firm’s risk practice
in India
One cricket aficionado in the Ministry
of Finance's social media team
perhaps wanted to break the news to
fellow cricket fanatics, but instead of
using his personal handle, he took to
the ministry's official Twitter handle
to announce that Dinesh Karthik
would be replacing India's gloveman
Wriddhiman Saha in this month's
one-off match against Test debutant
Afghanistan. When questions started
pouring in about the need to use the
ministry's official handle to
disseminate cricket news, the tweet
was taken down, but not before the
team had been harangued by other
Twitter users.

To hike or not to hike

Recent developments suggest tighter monetary policy is inevitable; the question is one of quantum and timing
Hardworking city
Investment bank UBS has released a
list of cities with highest average
annual work hours as part of its
higher petrol and diesel prices. remains lacklustre; bank balance sheets ‘Global Wealth Management study’.
Given these distortions, we focus on are fragile; and the process of bad asset There were two Indian cities —
the ‘super core’ or consumer price index resolution will take at least another year. Mumbai and Delhi — among the top
(CPI) inflation excluding food and bev- Therefore, while growth will likely be 10. In fact, Mumbai topped the list
erages, fuel, housing rent, petrol and strong in the next few quarters, it may fiz- with 3,315 average annual work
diesel prices. On a seasonally adjusted zle out later this year. Monetary policy hours — that’s a whopping 12.8 hours
basis, ‘super core’ inflation rose by 0.63 has to be forward looking. a day if one assumes a five-day work
per cent month-on-month (m-o-m) in Of course, the pertinent question to week and 10.6 hours a day if it is a
April versus an average rise of 0.41 per ask here is that if balance sheets are as six-day work week. India’s financial
cent m-o-m during October-March. Even stressed as they are, then why is core capital's average was also 23 per cent
if one ignores the April jump, underlying inflation so strong? We believe this pos- more than Vietnam's capital Hanoi,
inflation has been running at an annu- sibly suggests that India’s potential out- the second city on the list. Some
SONAL VARMA alised rate closer to 5 per cent in the last put has fallen over the years due to inad- wondered if the work hours also
six months. equate investments. factored in commute time because
Subdued food inflation has partly To be sure, the arguments on both an average Mumbaikar spends more
than two hours commuting every day

A
fter months maintaining the sta-
tus quo, the monetary policy com-
mittee could reach a turning point
at its June meeting. Recent developments
— both domestic and global — suggest
three reasons to consider a shift from ‘neu-
tral’ to a ‘withdrawal of accommodation’.
First, the economy is experiencing a
strong cyclical recovery, having dusted
off the twin shocks of demonetisation
and implementation of the goods and
services tax. Both the engines — private
consumption and fixed investment —
are currently robust. The strength in
import volumes is also testament to sol-
id domestic demand.
Second, consistent with increased
domestic demand, core inflation has
risen. The jump in services inflation in
April looks particularly alarming and
possibly reflects a release of pent up
inflation pressure at the start of the
new financial year in a rapidly for-
malising economy. There are various
ways to measure core and some of the
standard year-on-year core measures
are distorted due to base effects or
because they incorporate the statisti-
cal house rent allowance impact or
offset higher-than-expected core. Food
(excluding vegetable) prices have risen
by only 0.55 per cent between January
and April this year, which is significantly
below the average rise of 2 per cent dur-
ing the same period in 2014-16, partly
due to supply glut and also due to low-
er input costs. But the question is
whether low food prices will sustain.
While the expectation of a normal
monsoon is good news for food infla-
tion, the impending decision to raise
minimum support prices (MSP) and
efforts to make MSPs an effective floor
for all crops through a fiscal transfer
mechanism are upside risks, especially
if it entails physical procurement by
government agencies. Higher MSPs
alone could add around 50bp to head-
line CPI inflation, on our estimates.
More recently, higher oil prices and
a weaker Indian rupee have emerged as
additional risks. Since the April policy
meeting, Brent oil prices have risen by
about $8-9/barrel, while the rupee has
depreciated by 3.5-4 per cent against
the US dollar. The two together can add
about 40bp to headline inflation.
Third, recent global developments
CLOSE YET FAR While growth is picking up cyclically, it may not sustain. Even
without a change in the policy rate, market interest rates (and bank lending
rates) have moved higher
have increased emerging market risk pre-
mia. The combination of a stronger US
dollar and higher US yields have resulted
in portfolio outflows and caused balance
of payment strain on a number of
economies. Countries such as Argentina,
Turkey and Indonesia have responded
by hiking interest rates to preserve finan-
cial stability. The double whammy of
higher oil prices and portfolio outflows
has hit India too, and we estimate the
balance of payment has been in deficit
since mid-April. As global quantitative
easing gives way to quantitative tighten-
ing, emerging markets have to be pre-
pared for lower capital inflows, higher
volatility and higher risk premia. Macro
stability considerations should remain
at the fore, especially for current account
deficit countries like India.
Every coin has two sides and there are
arguments against tightening. First, the
mandate of the monetary policy commit-
tee is headline inflation. Excluding the
statistical house rent allowance impact,
CPI inflation is likely to average around
4.5 per cent in 2018-19 relative to a repo rate
at 6 per cent, which suggests the real pol-
icy rate cushion is still sufficient.
Second, while growth is picking up
cyclically, it may not sustain. Even with-
out a change in the policy rate, market
interest rates (and bank lending rates)
have moved higher. This tightening of
financial conditions — along with the
adverse terms-of-trade shock from high-
er oil prices — will eventually hurt growth.
Moreover, the new investment pipeline
sides of the hike or no hike debate are
“fair”. Left to weak domestic balance
sheet considerations alone, there is a case
for monetary policy to wait-and-see, as
sharply higher real interest rates could
delay balance sheet improvement.
However, changing global dynamics
(higher oil prices, rising risk premium)
also mean that India does not have the
luxury of time anymore. In conjunction
with higher-than-expected core inflation
and the need to reinforce credibility in
the early stages of the flexible inflation
targeting regime, we believe the balance
is tilted in favour of a reversal, including
the cut delivered last August. The only
debate now is by how much and when.
Given India’s starting position of
higher real interest rates, weak bank bal-
ance sheets and already tighter finan-
cial conditions, we believe the economy
does not need significant tightening.
However, signalling is important. Given
the delayed impact of monetary policy
and the current investor focus on twin
deficit economies, the signal should be
given sooner rather than later.
The author is chief India economist at Nomura
to and from office.
Questioning stand
Thursday's Lok Sabha and assembly
by-election results have rattled the
Janata Dal (United) leadership. Party
colleagues have started questioning
Bihar Chief Minister Nitish Kumar, who
is also RJD chief, on his wisdom in
parting ways with the Rashtriya Janata
Dal (RJD) and Congress in mid-2017.
Kumar has asked party leaders to take
a leaf out of Andhra Pradesh Chief
Minister N Chandrababu Naidu's book,
and start organising protests and
demonstrations against the Narendra
Modi government at the Centre for not
granting Bihar a special package.
However, Kumar is still uncertain
whether he should leave the Bharatiya
Janata Party-led National Democratic
Alliance or just hang in there. RJD's
Tejashwi Yadav isn't keen on forgiving
chacha, or uncle, Nitish.

AS I SEE IT > LETTERS

Is the wind changing direction?
On Kashmir and Pakistan, it seems to be. The question is, how strongly it is
blowing and for how long
Jammu and Kashmir or demilitarisa-
tion and lifting the Armed Forces
Special Powers Act.
It’s also clear what could be bring-
ing the two sides closer. The govern-
ment must be concerned that since
2014 terrorist incidents have increased
160 per cent whilst the number of local
Kashmiris joining militant organisa-
tions has doubled. Indeed, by one
count a Kashmiri joins militant ranks
KARAN THAPAR every third day. Meanwhile, young
Kashmiris, both boys and girls and
often in their teens, no longer seem to
it set the ball rolling by proposing full
implementation of the badly under-
mined 2003 ceasefire which India
accepted with alacrity. Consequently
the two Directors General of Military
Operations have agreed “to ensure
that henceforth the ceasefire will not
be violated by both sides”.
Once again, the compulsions are
clear. By India’s reckoning there were
860 ceasefire violations in 2017 with 15
soldiers killed and 908 so far this year
with a further 11 soldiers killed. By
Pakistan’s count there were 1,813 viola-
Thoughtless comments
Actor Rajinikanth (pictured) commit-
ted a grave error in pinning the blame
reporters is anything to go by, he still
has a long way to go before transition-
ing into a liberal, media-friendly
politician. No doubt he is an immense-
ly popular actor. But he is unlikely to
win the hearts and minds of the people
of Tamil Nadu by making thoughtless
and insensitive comments.
G David Milton Maruthancode
Focus, focus, focus
This refers to “Patanjali’s Kimbho app
makes swift retreat” (May 31). After jolt-
ing the FMCG majors, Patanjali was
eying the communication space and
take the fight to WhatsApp, the instant
messaging app. Now, since the app has
been removed from the Google Play
Kimbho episode: Focus. Focus on what
you are doing presently, whatever you
do, do it with perfection. Decisions
made in haste are good for none.
Ankita Kalia Chandigarh
Volatile oil
Apropos “To keep fuel rate in check,
ONGC may get dividend waiver for
price freeze” (June 2). Over the last year
or so, daily revision of fuel prices has
increased the overheads and adminis-
tration costs for oil manufacturing com-
panies. On the other hand, very little
benefit has been passed over to the con-
sumers. During the period, petrol and
diesel prices have hardly been found to
mirror the international trend/fluctua-

A
re we witnessing a change in
the government’s stand on
Kashmir and Pakistan? The
straws in the wind are accumulating
and it's now tempting to add them up
and see if they suggest an outcome or,
at least, a new direction. Even if the
present situation is not clear, it cer-
tainly feels noticeably different from
the past.
First, on Kashmir. The Ramzan
‘ceasefire’, which has held for nearly
two weeks and could be extended to
cover the Amarnath yatra, was the ini-
tial positive development. Now, talks
with Hurriyat could be next. Speaking
to India Today, Home Minister Rajnath
Singh has said: “If Hurriyat is ready to
talk, we have no problem. We are ready
to talk to anyone.” That’s a marked
shift from Special Representative
Dineshwar Sharma’s refusal to engage
with them.
In response, Hurriyat has signalled
its own willingness to talk provided
“the government …give clarity on
what it wants to talk about and speak
in one voice”. Even more important-
ly, Hurriyat did not reiterate previ-
ously proclaimed conditions such as
accepting the disputed status of
fear for their lives when they obstruct
security forces.
For its part, Hurriyat knows it's
being marginalised. It needs to reassert
its importance and that can only hap-
pen by re-establishing its credibility
through talks with the government.
The Home Minister’s statement was
an unexpected life-line.
If anything, the shifting position on
Pakistan is more clearly discernible.
To begin with, Indian High
Commissioner Ajay Bisaria spoke of
“signs of positivity” after the two coun-
tries exchanged prisoners and the
Indus Water Commission and Coast
Guards met. “All these steps add to the
general level of trust (and) prepare us
for bigger moves,” he added.
Then Home Minister Rajnath
Singh told the Indian Express: “If
Pakistan is ready to talk why won’t we
talk? We want to have good relations
with our neighbour. But even the
neighbour will have to take some ini-
tiative.” Even though Sushma Swaraj
seemed to pour cold water on this,
when she reiterated the old policy that
talks and terror “can never go togeth-
er”, Pakistan, it seems, chose to only
hear the Home Minister. Last Tuesday,
tions in 2017 and uptil now 1,321 in 2018.
So, on Kashmir and Pakistan, is
the wind changing direction? Clearly,
it seems to be. The question is, how
strongly is it blowing and for how
long. With elections in Pakistan in
less than two months and our own in,
perhaps, 10, all we may get is a passing
shower. Unless, of course, we have an
‘understanding’ with the Pakistan
army. In that case the forecast could
be very different.
Now, could such an understanding
emerge? Pakistan’s Army Chief, Gen
Bajwa, has already welcomed the
prospects of a political dialogue with
India. The full implementation of the
2003 ceasefire, which was proposed
by Pakistan, could be the first step in
that direction. The swiftness with
which India accepted is, possibly,
another. If talks with Hurriyat start,
easing internal tensions in Kashmir,
that may constitute a third.
Step by step we could be moving
towards a better relationship with both
Kashmiris and Pakistan. But that’s also
where the danger begins. One wrong
move and we could badly stumble and
who knows how long it will take to pick
ourselves up again.
for the police firing during Sterlite
protests on “anti-social elements”
without any evidence to substantiate
his charge. In doing so, he rubbed salt
into the wounds of the residents of
Thoothukudi. Now that he has made
the charge, he must disclose the details
— of the “anti-social elements’’ — in
order to be taken seriously in future.
He should have avoided toeing the
line of the Bharatiya Janata Party and
the All India Anna Dravida Munnetra
Kazhagam on the Sterlite protests. It
is sad that he chose to be the alter-ego
of these parties and parroted their infil-
tration theory. His accusation that the
Dravida Munnetra Kazhagam is “politi-
cising everything” made his desired
political alignment clear.
It must have been a sobering
moment for the superstar when con-
fronted by a victim of the police firing
with the question “Who are you?”. His
statement that Tamil Nadu will turn
into a graveyard if people start protest-
ing for everything is infantile, to say
the least. He seems to lack sophistica-
tion to see things in a proper perspec-
tive. His advocacy “to crush anti-social
elements with an iron hand”, without
elaborating, betrayed the authoritari-
an streak in him. If his yelling at
store, the question is, what is Patanjali
trying to prove? Is it trying to become a
“jack of all trades”? Managing a con-
glomerate is definitely not an easy task
and this is what the company is head-
ing towards by entering into unrelated
diversified business segments. What
started just as a herbal products com-
pany in 2009, by 2018, has spread its
wings into the communication space
by launching its Swadeshi Samriddhi
SIM cards with BSNL and then this
Kimbho app. The company has closed
FY18 with revenues standing at the
same level as that of FY '17, despite
making tall claims of doubling its
turnover to ~200 billion. There is an
important lesson for Patanjali from this
> HAMBONE
tions in crude oil. The authorities must
be analytical in their review of potential
inflationary pressures in the commod-
ity market. Net cost-benefit as a result
of the real-time pricing must be evalu-
ated. A robust strategy must be
deployed to offer a framework that is
acceptable to customers and promises
to mitigate the adversities of risk/uncer-
tainty in the long run.
Girish Lalwani New Delhi
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BY MIKE FLANAGAN