Stockholm Syndrome in Indian Organizational Culture

by Tapishnu Samanta and Manish Kumar Singh.

Stockholm syndrome is a state of the mind where a captive develops a psychological alliance towards his or her captors to the extent of defending them (Smith, 2009; Fabrique et al 2007). The term was coined in 1973 by Swedish psychiatrist Nils Bejerot during the Kreditbanken Bank robbery investigation in Stockholm, where four employees, taken hostages, defended their captors and refused to testify against them (Bejerot 1974). At the heart of Stockholm syndrome lies a person who implicitly or explicitly exerts power, control and influence over another person without him noticing that his behaviour is almost to the degree of blind loyalty. This label has been used to define circumstances of incest victims (Carver 2007), prisoners of war (Hunter 1988), political prisoners (Wardlaw 1982), suicidal terrorists (Speckhard 2005), victims of home violence (Walker 2016), rape trauma (Burgess & Holmstrom 1974), sex trafficking (Canada Department of Justice 2012), prostitutes (Karan 2018; Kathleen 1984; Farley 2003), and cases of elder abuse (Scaletta 2006). Several authors have also used Stockholm syndrome to define the relationship between the state and the society, where the citizens tend to be loyal despite the several instances of the country trying to exploit their fundamental human rights (Hudson 2014; Chu 1999).

This concept has been extended to organisational culture, also known as the Corporate Stockholm syndrome where employees of a company start to identify with, and are exceedingly loyal to, an employer who is manifestly hostile to their self-interest (Adorjan et al 2012; Ullrich 2014; Logan 2018). This has become an area of interest in health and labour economics because of the severe health ramifications. India has been consistently ranked among the worst countries for workers' rights (see the ITUC Global Rights Index). A fragmented society, massive unorganized sector, and weak state capacity can be a breeding ground for labour force exploitation (Harriss-White & Gooptu 2009). In this article, we present evidence of Stockholm syndrome in Indian corporate culture from a small pilot study. This study should be seen as a precursor to more rigourous research that may be conducted in the future.

Data and methodology

In-depth interviews were conducted with ten white-collar employees with at least one year of work experience. They were first introduced to questions such as ideal working hours, proper working conditions, and ethics of overtime work. They unanimously agreed that eight hours of working shift should be suitable in an organization and that all overtime duties must be sanctioned only for extreme situations and compensated. They were then asked personal questions related to their corporate experience.

When asked about their working hours, they worked from Monday to Friday for a minimum of nine hours and were frequently burdened with overtime duties. They were occasionally verbally and mentally abused by their managers, especially when there were tight deadlines and tremendous work pressure. Most of them had even stayed up the entire night on a few occasions. It was quite evident from the in-depth interviews that their managers mistreated all the subjects through verbal abuse, long working hours, overtime, and negligence towards their mental and emotional wellbeing. However, they also agreed that they were happy with their work-life as it offered excellent learning opportunity and displayed great loyalty towards their organizations. All the candidates accepted that not being compensated for overtime work made them annoyed and occasionally frustrated, but argued that those conditions were necessary for the success of the organization.

A detailed survey questionnaire was developed based on this data for further qualitative analysis. A pilot survey was conducted with a sample representing the top 5% of the Indian white-collar employees in terms of salary. Fifty-one respondents with at least six months of work experience and employed with organizations in India participated in the survey. The respondents consisted of 76% male and 24% female participants. 86% of the participants represented the service sector, while the remaining 14% represented the manufacturing sector. The group represented 90% of people in the age group of 21-30 years, 6% in the age group of 31-40 years, and 4% in the age group of 41-50 years. Culturally, the participants were from diverse languages and different Tier-1 cities.

The first part of the survey contained personal questions mostly aimed to identify the perceived level of abuse that the employees face in their respective organizations. The corporate abuse was classified into six categories, viz. verbal abuse, financial abuse, mental abuse, physical abuse, sexual abuse, and abuse of work-life balance. Each of these abuses was further classified into five levels viz. not at all, slightly, somewhat, moderately, and extremely. A Likert scale was used in the survey to capture the levels of each of the reported abuses. The second part of the survey asked whether they would recommend their organizations to their friends and relatives.

Level and prevalence of abuse in Indian corporates

Table 1 shows the level and extent of abuse prevalent in Indian organizations based on the responses. Participants who responded "extremely", "moderately", "somewhat" or "slightly" for any of the six abuse categories were cosidered victims of corporate abuse in that category. Over 50% of the respondents (27 out of 51) reported financial and mental abuse in their organization. Further, around 40% of the participants (20 out of 51) reported verbal abuse. While less than 10% reported physical abuse, none of the employees reported sexual abuse in their organizations. It must be noted that the companies represented by the respondents are all corporate-level jobs, and yet physical abuse was reported by the employees.

Table 1: Perceived degree of corporate abuses by the participants in their respective organizations

	Verbal abuse	Financial abuse	Mental abuse	Physical abuse	Abuse on Work-life balance
Extremely	2	4	1	0	6
Moderately	4	1	3	0	8
Somewhat	3	8	11	3	13
Slightly	11	14	12	1	13
Not at all	31	24	24	47	11
Grand Total	51	51	51	51	51

Moreover, the level of financial and mental abuse reported by the employees is also quite high, with 4 out of the 51 participants reporting extreme financial abuse. Since the numbers are self reported, this may be due to fault in the appraisal system, career stagnation in the current organization, or the participants overrating themselves as high-performing employees. The recorded abuse on work-life balance is also exceptionally high, with around 78% of the employees reporting so.

Do employees stay longer with the abusive employers?

One would believe that the amount of time an employee spends with an employer is inversely proportional to the level of abuse, which means that if an individual is treated well in an organization, he continues to work loyally in the firm and vice versa.

Figure 1 shows the relation between the work experiences of the abused employees with their latest employer against the degree of various abuses. Except for verbal abuse, in all other cases, we found a positive relationship between the level of abuse and the time spent with the employer. The positive slopes observed here suggest that employees stay longer with an abusive employer and the magnitude of the correlation varies from 0.09 for financial abuse to 0.35 for work-life balance abuse, as shown in Table 2.

Figure 1: Graphs showing the level of abuse in different categories versus work experience with the latest organization for abused employees.

Table 2: Correlation between the level of abuse in different categories against work experience with last/current organization for abused employees

	Verbal abuse degree	Financial abuse degree	Mental abuse degree	Work-life balance abuse degree
Work experience with last/current employer	-0.0102	0.0903	0.1132	0.3460

Based on Table 2, we can also infer the abuse categories which go undetected in an individual's decision to leave a particular job. Correlation analysis suggests the following order: Verbal abuse > Financial abuse > Mental abuse > Abuse on work-life balance. Near zero correlations (-0.01) between verbal abuse and work experience suggest people are almost indifferent to verbal abuse. Financial and mental abuse show small positive correlations (0.09 and 0.11 respectively) suggesting the presence of mild Stockholm syndrome. People are aware of it but instead of acting upon it, people are actually staying a little longer with the job. Abuse of work-life balance stands out with a positive correlation of 0.35. This also suggests how mental abuse and abuse of work-life balance might get undetected. A possibility that better employees leave the organization early and those who stay longer find it difficult to get placed in better jobs elsewhere may also partially explain this result.

Do abused employees recommend their employer?

Here we analyze if there exists any pattern between recommendations made by employees to their relatives or friends to join the organization and the different types of abuse that they face in their jobs. The results obtained from the responses are shown in Table 3. Note that we have assumed that the participants who responded "Maybe" are considering recommending their organizations to others because any employee who is tormented by the abuse in his organization would respond with a clear "No". Hence, "Maybe" as a response has been recognized as an affirmative or a "Yes."

Table 3: Relationship between the report of abuses in organizations by the participants and their recommendation to join their organizations

Recommendation to Join	Verbal abuse		Financial abuse		Mental abuse		Physical abuse		Abuse on Work-life balance
	Yes	No	Yes	No	Yes	No	Yes	No	Yes	No
	20	31	27	24	27	24	4	47	40	11
Yes (in %)	90.00	87.10	92.59	83.33	92.59	83.33	100.00	87.23	85.00	100.00
No (in %)	10.00	12.90	7.41	16.67	7.41	16.67	0.00	12.77	15.00	0.00

The table highlights that under the verbal abuse category, we have 20 people who underwent verbal abuse while 31 said there was none. Of the 20 people who reported verbal abuse, 90% would recommend relatives and friends to join the firm. Similarly, under the financial abuse category, we have 27 people who reported financial abuse while 24 said there was none. Of these 27 people who said yes to financial abuse, 92.59% would recommend relatives and friends to join the firm.

Table 3 suggests that most of the employees (over 90% on average) recommend the current organization to their friends and family members. Employees reporting abuse in their organizations are also supporting their employers to friends and families, even more than the non-abused individuals. The fact that a higher proportion of the abused individuals are recommending their organization to friends and family (except for the abuse on work-life balance) than the non-abused ones is even more surprising. For example, in the case of financial abuse, 92.59% of individuals who feel financially abused at work would recommend the organization to their friends and family, while only 83.33% of non-abused individuals would recommend it further. Similarly, 100% of the employees reporting physical abuse in their organization would recommend their employers in comparison to 87.23% of those who haven't expressed physical abuse. Although, the only exception to this pattern is observed in abuse on work-life balance, yet as much as 85% abused individuals have supported their employers further. This gives us a clear indication that despite being exploited by their employers, the majority of employees are recommending their firms to others.

Conclusion

We provide suggestive evidence that corporate Stockholm syndrome is quite prevalent in Indian organizational culture. Searching for a rationale, for most people, due to the immense value that work holds, the threat of losing one's job is a powerful motivation to comply at the beginning. However, with time the employees get emotionally attached to the workplace and develop loyalty towards it. Camaraderie and moral suasion - the view that it was the organization that offered them a monthly salary and the little sacrifice they made was for the good of the organization - helps them justify the abuse. They also believe that it was inevitable while working in a project and was sometimes necessary for the success of the project. This deep loyalty leads them to rationalize the poor treatment of the employer as a necessity for the good of the organization. Some of the employees may even develop a belief that some form of abuse is a norm across the industry irrespective of the company they work for.

It must also be noted that the respondents represent the upper segments of Indian employees in terms of salary, who have not only argumentative power but also the capability of switching jobs. We are of the opinion that if this is prevalent at the very top, then significant concerns would lie in the unorganized industrial sectors. With that being said, since people suffering from corporate Stockholm syndrome most often do not realize about the plight they are already in, no easy solution can be found.

Some employees have created websites/blogs with the provision for others to anonymously rate and review their organizations, and have become immensely popular in a quick time (see glassdoor.com, greatplacetowork.in). If more and more firms become concerned about their social image, online content related to employee concerns may likely cause a considerable impact.

References

Adorjan, M., Christensen, T., Kelly, B. and Pawluch, D., Stockholm syndrome as vernacular resource,  The Sociological Quarterly, 53(3), 454-474, 2012.

Bejerot, N., The six day war in Stockholm, New Scientist, 61(886), 486-487, 1974.

Burgess, A.W. and Holmstrom, L.L., Rape trauma syndrome. American Journal of Psychiatry,131(9), 981-986, 1974.

Canada Department of Justice, Research Report: Victims of Trafficking in Person: Perspectives from the Canadian Community Sector, May 7, 2012.

Carver, J., Love and Stockholm Syndrome: The Mystery of Loving an Abuser, May 7, 2012.

Chu, B., Taiwan Independence and the Stockholm Syndrome, September 10, 1999.

De Fabrique, N., Romano, S.J., Vecchi, G.M. and Van Hasselt, V.B., Understanding Stockholm syndrome, FBI L. Enforcement Bull., 76, 2007.

Farley, M., Prostitution, Trafficking and Traumatic Stress. Binghamton, NY: Haworth Press, 2003.

Harriss-White, B. and Gooptu, N., Mapping India's world of unorganized labour. Socialist Register, 37(37), 2009.

Hudson, M., Stockholm syndrome in the Baltics Latvia's neoliberal war against labor, 2014.

Hunter, E., "The Psychological Effects of Being a Prisoner of War." Pp. 157-70 in Human Adaptation to Extreme Stress: From the Holocaust to Vietnam, edited by John P. Wilson, Zev Harel, and Boaz Kahana. Berlin, Germany: Springer, 1988.

ITUC Global Rights Index, 2019 ITUC Global Rights Index, June 12, 2019.

Karan, A. and Hansen, N., Does the Stockholm Syndrome affect female sex workers? The case for a "Sonagachi Syndrome."; BMC international health and human rights, 18(1), 2018.

Kathleen, B., Female Sexual Slavery. New York: New York University Press, 1984.

Logan, M.H., Stockholm syndrome: held hostage by the one you love, Violence and gender, 5(2), 67-69, 2018.

Scaletta, G., "Hallmarks of Abuse: A Framework to Identify Abusers of Older Adults." Newsletter of the British Columbia Psychogeriatric Association 10(3):4-6, 2006.

Smith, D.M., Stockholm Syndrome, Wiley Encyclopaedia of Forensic Science, 2009.

Speckhard, A., Tarabrina, N., Krasnov, V. and Mufel, N., "Stockholm Effects and Psychological Responses to Captivity in Hostages Held by Suicide Terrorists." Traumatology 11(2):121-40, 2005.

Ullrich, J., Corporate Stockholm Syndrome, 2014.

Walker, L.E., The battered woman syndrome, Springer publishing company, 2016.

Wardlaw, G., Political Terrorism: Theory, Tactics and Counter Measures, Cambridge, England: Cambridge University
Press, 1982.

 

The authors are researchers at IIT Delhi. We are thankful to two anonymous referees.

Constitutionalism During a Crisis: The Case of Aarogya Setu

by Vrinda Bhandari and Faiza Rahman.

The Aarogya Setu app

Aarogya Setu is a contact tracing app that was launched by the government on April 2, 2020, as a tool to combat the COVID-19 crisis. Although initially meant to be voluntary, some government organisations, state governments, and eventually the Ministry of Home Affairs ("MHA") began mandating the installation and use of the Aarogya Setu app for their employees soon after. In a welcome move, on May 17, 2020, when the MHA issued fresh lockdown guidelines, it changed the directive for downloading the app from mandatory to a "best effort basis". However, there is still some uncertainty about the meaning of these guidelines, since the Indian Railways, and the Delhi Metro continue to require residents to download the app in order to use their services. Recent reports also indicate that the installation of Aarogya Setu will be compulsory for all air passengers above the age of 14 years. Therefore only time will tell as to whether downloading the app will de facto become mandatory. The Aarogya Setu app provides a good practical framing, to think deeply about coercion in a liberal democracy during a crisis.

There are four interesting aspects about the Aarogya Setu app.

1. The use of state coercion. The level of coercion in play has been significantly diluted by the latest MHA guidelines where the softer words "best effort" are used. However in the case of air and rail travel, there is uncertainty about whether passengers will be prohibited from travelling, if they have not downloaded the app.
2. The problem of privacy and security. The issues have been been discussed extensively in the Indian discourse [privacy, security].
3. The lack of legislative foundations. A clear and specific legal basis for deploying and using the app - an anchoring legislation, with proper safeguards - would have helped allay some of the privacy and security concerns, and would have provided a proper avenue for grievance redress.
4. Practical governance considerations. Governance related issues with the design and roll out of the app have come to the fore, especially the problems of lack of post-facto consultation, transparency, and accountability.

The first two problems (state coercion, privacy and security) have been extensively analysed by researchers in recent months. In this article, we focus on the latter two issues, aiming to obtain clarity on the issues and offer constructive policy proposals for the way ahead.

Underpinning all four issues, however, is the foundational problem of executive discretion in a crisis. While it true that the executive arm of the government has a greater ability to take emergency measures during a pandemic, it does not mean that the role of judicial review is or should be reduced to nought. We start by exploring these foundations.

Principles of evaluating executive action during a crisis

We are in the middle of a COVID-19 pandemic, which is one of the worst global health crises in a century. More than 60 countries have responded by invoking some form of emergency powers to deal with the crisis. These emergency responses have resulted in hitherto unacceptable restrictions on freedoms and civil liberties and a curtailment of the right to privacy. In India, we have witnessed among other things, the deployment of drones to monitor people's movements, the publication of the names of individuals on quarantine lists, and the roll out of a centralised contact tracing app. When government actions have been challenged in court, the courts have generally taken the view that "extraordinary situations call for extraordinary measures". This reflects the general belief that the executive should be given more leeway during a crisis.

As plausible as that argument sounds, it is not entirely correct. As Wiley and Vladeck (2020) explain, COVID-19 reinforces the case for "regular" judicial review, and not a suspension of civil liberties in times of crisis. This is for three reasons. First, emergency powers are supposed to be exercised for a crisis that is finite and limited in duration (such as the Tsunami that led to the enactment of the Disaster Management Act, 2005 in India). By its very nature, the COVID-19 crisis, with fears of a second wave, does not lend itself to a near end-point, at least not till a vaccine is developed. A prolonged use of emergency powers risks normalising the centralisation of power and potentially damages the fabric of our democracy in the long run.

Second, there is an assumption (or fear) that if courts were to perform their role of judicially reviewing government action, they would easily strike down executive orders, thus impeding the government's fight against COVID. In a sound liberal democracy, this is not the case. The doctrine of proportionality requires the government to demonstrate, rather than simply cite, its compliance with the four prongs of (a) legality: existence of a law; (b) suitability: rational connection between the government measure and the aim to prevent the spread of COVID; (c) necessity: was there a less restrictive measure the government could have employed; and (d) balancing the public interest with the loss of liberty. In times of a public health crisis, a government may well be able to satisfy these tests for the unusual actions that it takes. But in a well functioning liberal democracy, it does need to provide adequate evidence and justification for its actions. Proportionality, and judicial review, thus only ensure that we do not cut a blank cheque to the government.

The judiciary is the only branch of the Indian state that has the structural power and institutional credibility to protect the Constitution, especially in times of crisis. A robust judicial response can lead to better governmental action and protection of democracy in the long run. For example, after the Kerala High Court stayed a government orders on the deferral of salary payment, the Kerala State government brought an ordinance -- thus achieving the same result, but through a better process.

Absence of a clear and specific law

Our analysis of the Puttaswamy (2017) verdict describes how any valid restriction on the fundamental right to privacy has to satisfy the four-pronged test of legality, legitimate aim, proportionality and procedural safeguards. The first prong of legality demands that any restriction on the right to privacy must be prescribed by a publicly available law. The principle of legality, however, does not mean the mere existence of a law. Especially, in the context of communications surveillance, the principle demands that this law ought to meet a standard of clarity and specificity that is sufficient to guarantee that individuals have advance notice of and can foresee the manner in which it will be implemented.

While the issue of mandatory download of the app is behind us, many statutory agencies and private organisations continue to coerce their users or employees to install the app. Hence, the need for a law remains. The collection of personal data of an individual, without their informed consent, undermines the principles of privacy, autonomy, and informational self determination, that have been emphasised in Puttaswamy. The various privacy and security concerns associated with the Aarogya Setu app, have been well documented, including by former intelligence officials. Consequently, any direction to mandatorily install the Aarogya Setu app in order to access any service, when it is known that the app continuously collects personal information such as location data through GPS and bluetooth, has to be traced to a valid law, if it is to satisfy the proportionality test.

Drawing a parallel with the Aadhaar experience is useful. Although initially set up on the basis of an executive notification passed by the Planning Commission, the UIDAI was eventually given a statutory basis through the passage of the Aadhaar Act in 2016. The enactment of the Aadhaar Act represents an implied, if belated, admission on the part of the government that citizens' privacy cannot be violated without an enabling legislative framework. At the same time, there is a precedent, in the Aadhaar story, of making Aadhaar de facto mandatory, even though the Aadhaar Act was clear that it was voluntary.

At present, the only possible legal basis for the Aarogya Setu app could come from the issuance of MHA Guidelines under the Disaster Management Act, 2005 or the issuance of an order under Section 144, Cr.P.C. (as in Noida) However, both these provisions are inadequate and unsatisfactory as legal foundations for the app. Let us analyse each of these.

Is the Disaster Management Act an adequate legal foundation for the app?

The MHA Guidelines draw their authority from Section 10 (2) (l) of the Disaster Management Act, 2005. However, this provision cannot satisfy the legality requirement since it is a broad, omnibus provision that simply gives the power to the government to "lay down guidelines for, or give directions to, the concerned Ministries or Departments of the Government of India, the State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster." As the sentence shows, the law gives the power to coerce arms of the government, and not private actors.

The restriction of fundamental rights must be grounded in a specific legal provision that specifies the conditions under which the right can be infringed and sets out the procedural and substantive safeguards to protect privacy. As Justice Srikrishna has observed, the National Executive Committee set up under Disaster Management Act, that issued the May 1, 2020 Guidelines directing the installation of Aarogya Setu, is not a statutory body. In the present case, there is no evidence of any specific parliamentary approval having been sought for directing the mandatory installation of the Aarogya Setu app by all smartphone holders (apart from the fact that there is a lot of ambiguity around how these mandates will apply to the majority of Indians who do not own a smartphone).

The issue regarding the lack of legislative basis arose in another context before the Kerala High Court last month. In light of the COVID-19 pandemic, the Kerala Government had issued an executive order deducting the salaries of government employees. When the order was challenged on the ground of legality, the State Government tried to rely on the Disaster Management Act, 2005 as well as the Kerala Ordinance amending the Epidemic Disease Act, 1897 as providing adequate legislative basis for the government order. However, the High Court rejected the government's contention on the ground that, " the provisions that were read out, specifically Sections 38 and 39 of the Disaster Management Act 2005, do not specify or confer any power upon any Government to defer the salary due to its employees during any kind of disaster. Prima facie, I feel that law is found wanting to justify the issuance of [the order]." The government eventually passed an ordinance to achieve its intended aim.

There is also the issue of excessive delegation. Section 10 (2) (l) of the Disaster Management Act does not delegate the power to the National Executive Council to create a data collecting app, nor does it provide any guidance on the exercise of powers. For instance, in United Kingdom v. Malone, the European Court of Human Rights ("ECHR") held that the secret and opaque nature of communications surveillance meant that "it would be contrary to the rule of law for the legal discretion granted to the executive to be expressed in terms of an unfettered power". Consequently, the ECHR held that in order to satisfy the principle of legality, the law must indicate the scope of any such discretion conferred on the competent authorities and the manner of its exercise with sufficient clarity, having regard to the legitimate aim of the measure in question, to give the individual adequate protection against arbitrary interference.

On May 11, 2020, the government released the Aarogya Setu Data Access and Knowledge Sharing Protocol, 2020 ("Protocol") for the "effective implementation" of the MHA Guidelines. This Protocol lays down certain principles regarding the collection, processing, and sharing of personal data. However, the Protocol does not have the status of law, nor can it derive any statutory backing from the Disaster Management Act, 2005. More importantly, it does not seek to confer any legal status to the app itself. There is no mechanism to verify that the app actually works as stated, and nothing prevents a change in the working of the app under conditions of non-transparency. Hence, the release of the Protocol cannot be seen as providing legal foundations for the use and deployment of the Aarogya Setu app.

Is Section 144, Cr.P.C., an adequate foundation for the app?

As an example, the Gautam Budh Nagar (Noida) administration in Uttar Pradesh had earlier passed an order under Section 144 of the Code of Criminal Procedure ("Cr.P.C."), mandating the installation of the Aarogya Setu app for residents of the entire district, under the threat of criminal sanction. In another welcome move, the orders under Section 144, Cr.P.C eventually lapsed.

It is an interesting intellectual puzzle, to analyse the ability of the executive to coerce private persons through this route. Section 144 of the Cr.P.C authorises the Magistrate to issue an order in urgent cases of nuisance of apprehended danger directing "any person to abstain from a certain act" or to take certain order with respect to certain property in his possession or under his management. The Calcutta High Court, in a series of decisions in the early 1930s, interpreted this provision to mean that a Magistrate is only entitled to make a restrictive order preventing the opposite party from doing an act. It does not enable him to make a mandatory positive order directing an individual to do a particular act. For instance, in Kusum Kumari Debi (1933), an order by the Magistrate directing the Petitioner to fill up an excavation at her own cost was held to be beyond the remit of Section 144, Cr.P.C, and the subsequent proceedings initiated under Section 188, I.P.C were quashed. Similarly, in B.N. Sasmal (1930), the Magistrate's direction under Section 144, Cr.P.C directing Sasmal to leave the Midnapur District for two months was quashed since it "was in effect not a direction to abstain from doing anything, but a direction upon a person to remove him self from the district." These judgments have subsequently been cited with approval by various High Courts (Ramanlal Patel (1971), Muzaffarpur Electric (1973).) Thus, any order passed by a Magistrate under Section 144, insofar as it directs individuals to download the Aarogya Setu app falls foul of the law.

The importance of a law and the process of legislation

In a constitutional democracy, the authority to coerce private individuals can only flow from a law that has been vetted and approved by democratically elected representatives of the people. While the executive is often charged with filling out the details missing in parliamentary legislations through rules and regulations, the democratic deficit of these instruments is undeniable i.e., these instruments are drafted and approved by members of the executive, bureaucrats or regulators, and not directly by representatives of the people. In contrast, legislations are often preceded by important deliberations, where elected representatives discuss competing policy choices to decide the best course of action, and negotiate middle roads based on the interests of different social groups.

A contact tracing law would regulate (a) the collection, storage, and use of personal data collected by the app; (b) serve as a check on governmental power; (c) enshrine critical privacy protections; (d) create mechanisms for independent oversight of the functioning of the app; and (e) provide a legislative basis for grievance redressal avenues. These elements are particularly important in India given the absence of a general data protection law. For instance, the Protocol states that any violation "may" lead to prosecution under the Disaster Management Act. However, it does not specify the conditions under which prosecution can take place; nor does it actually set up a complaint mechanism to provide an appropriate forum for grievance redressal (leaving aside the vexed question of how the Disaster Management Act will be used to prosecute privacy violations). Even the privacy policy only designates the Deputy Director General at the National Informatics Centre (NIC) as a grievance officer, without providing any further details or powers. Currently, the privacy protections guaranteed to citizens are based exclusively on the privacy policy, the terms of service of the app, and the new "Protocol", which add up to inadequate protections, which can be unilaterally changed by the executive, and lack mechanisms to ensure compliance by the state. This is incompatible with the protection of fundamental rights and the rule of law.

The need for a specific enabling legislative framework for contact tracing has also been reiterated in other countries. In Israel, the Supreme Court recently held that the Israeli Security Agency, the Shin Bet, required a law to continue using emergency powers (granted by the Cabinet) that allowed it to deploy phone location tracking and electronic contact tracing. In reaching its decision, the Court recognised that the State was monitoring individuals, without their consent, without any legislative framework in place.

Similarly, in the UK, the Parliamentary Joint Committee on Human Rights (2020) released a report stating that a contact tracing app should not be rolled out nationally "unless the Government is prepared to enshrine [intended privacy] protections in law", in the form of primary legislation. Legislative backing was deemed essential for the contact tracing app so as to provide the requisite "legal clarity and certainty" regarding the collection, storage, and use of personal data; whilst simultaneously increasing confidence and trust in the app; and an increase in uptake, which could improve the efficacy of the app. Notably, this demand to legislate specifically for contact tracing comes despite the U.K having a comprehensive data protection legislation.

One way forward: An ordinance

Given that the Parliament is not currently in session, the ongoing national lockdown and the urgency of the COVID-19 crisis, the Central Government should have used the ordinance making power under the Constitution, which is precisely provided for such occasions, to set out a legislative framework for the operationalisation of Aarogya Setu app in India. This would have ensured that ordinance either received the scrutiny and approval of the Parliament when it reconvened, or ensured that the ordinance lapsed if it was not approved by the Parliament. Various states like Uttar Pradesh and Kerala have been taking the ordinance route to address legislative lacunae during the COVID-19 crisis.

Addressing the procedural irregularities and governance related issues

Apart from the legal issues highlighted above, the operationalisation process exhibits a number of procedural irregularities and governance related issues. These can be addressed through the following steps:

1. Need for public consultation: The conceptualisation, design, and implementation of the Aarogya Setu app was not preceded by public consultation. Given the urgent nature of the COVID-19 crisis, it is understandable that the Central Government was not in a position to hold detailed public consultations before designing and rolling out the app. However, the the government should still initiate a formal post facto consultation process to seek comments from civil society, technical experts and other stakeholders regarding, inter alia, the technical and legal framework, and deployment issues with the app. Given low state capacity in India, such consultation processes are particularly valuable in identifying errors and offering solutions.
2. Enhancing transparency regarding design and deployment choices: So far the Aarogya Setu app has been accompanied only by (a) terms of service (b) privacy policy and (c) the Aarogya Setu Protocol. There is a foundational problem, located in health policy: What is the overall plan for contact tracing, and what is the role that the app will play in this? Can the complex problem, of public administration and state capacity for contact tracing in an epidemic, be short-circuited by using an app? How do we know that there are commensurate benefits, for contact tracing, in return for intruding into the lives of private persons? It is not obvious that the app will help improve public health, and the case needs to be made for it, where an intelligent balance is struck between cost and benefit. There is a `technology theatre' streak in Indian public policy, where solving complex problems is avoided by building and exhibiting a piece of software.

   For instance, it is unclear why the makers of Aarogya Setu chose to collect location data through both GPS and bluetooth when similar apps, built by some of the best technologists in the world, are choosing to use only Bluetooth signals from phones to detect encounters and do not use or store GPS location data. An explanatory memorandum detailing the reasoning behind the various design choices could go a long way in increasing trust in the app and consequently enhancing its uptake.

   A similar trust building measure, that will show the extent to which the actual operations of the app are aligned with the claims made in documents, will be the release of source code. In fact, even with the latest revision to its privacy policy, the source code has not been released. As an example, contact tracing apps being designed by the U.K and Singapore have made their source code public, thereby enabling greater scrutiny from the technical community, and building confidence that the high level documents are being adhered to in the implementation.

   Confidence would be enhanced if small pilots were rolled out prior to large scale deployment, with extensive involvement of researchers in public health, computer engineering, and civil liberty. As an example the NHS contact tracing app being proposed in the U.K is first being trialled in Isle of Wight on a purely voluntary basis. This has helped identify significant glitches with the app.

3. Setting in place an open and transparent audit mechanism: Confidence will be enhanced by releasing periodic audit reports detailing key insights obtained from analysis of the data collected by the app. For instance, it will be useful for the public and technologists to know details such as the total number of COVID-19 positive cases detected with the help of the app, the number of false positives or false negatives thrown up by the app, the number and nature of user complaints received etc. Publicly available periodic audit reports of this nature will increase confidence in the operation of the app, ensure transparency in its governance, and help evaluate success or failure of the app.

Conclusion

Courts of law are more deferential to the executive in an emergencies. However, it is also widely known that "temporary" leeways granted to the executive during emergencies have a tendency to transform into permanent fixtures that last long beyond the actual duration of the crises (Harari, 2020). This is because governments often use crises as an opportunity to expand and further centralise their powers. Interestingly, while the Aarogya Setu protocol has a sunset date, which is subject to extensions, there is no clarity on how long the app itself will remain operational. The Union Minister for Information and Broadcasting has also indicated that the app may continue to function for one or two years. Dangerous precedents occur in dangerous times.

On May 5, 2020, a writ petition was filed before the Kerala High Court challenging the MHA directive mandating the use of Aarogya Setu by public and private employees on the grounds that it was violative of the right to privacy and personal autonomy. In response, while the Kerala High Court declined to grant any interim relief on the plea, it directed the Central Government to file a statement on the measures taken to protect the privacy of person's whose data is collected by the app. While the new MHA guidelines have since moved away from making the app mandatory, news reports suggest that the access to important services is increasingly being made contigent on the mandatory installation of the app by users.

When faced with a war, a terrorist attack, or a pandemic, there is an instinctive response in India to be deferential to the executive. However, the founders of the Republic did not intend for colonial rule to be replaced by the rule of officials. The Constitution of India does not see liberal democracy as a luxury to be enjoyed in good times. Apart from freedom being valuable in and of itself, there is also a strong pragmatic value in emphasising checks and balances. Under conditions of low state capacity, unchecked power leads to more mistakes. The quality of work in public policy goes up through the operations of checks and balances, and this is even more valuable in difficult times.

References

Paul Daly, The Covid-19 Pandemic and Proportionality: A Framework, Administrative Law Matters (2020).

Sidharth Deb, Privacy prescriptions for technology interventions on Covid-19 in India, IFF Working Paper No. 3/2020 (2020).

Tom Ginsburg and Mila Versteeg, State of Emergencies, Part II, Harvard Law Review Blog (2020).

Oren Gross, Emergency Powers in the Time of Coronavirus ... and Beyond, Just Security (2020).

Yuval Noah Harari, The World After Coronavirus, Financial Times (2020).

Joint Committee on Human Rights, Human Rights and the Government's Response to Covid-19: Digital Contact Tracing United Kingdom Parliament (2020).

SFLC.in, Our concerns with the Aarogya Setu App (2020).

Joelle Grogan, COVID-19 and States of Emergency: Introduction and List of Countries Verfassungsblog (2020).

Lindsay Wiley and Steve Vladeck, COVID-19 Reinforces the Argument for "Regular" Judicial Review-Not Suspension of Civil Liberties-In Times of Crisis, Harvard Law Review Blog (2020).

Emperor v. B.N. Sasmal (B.N. Sasmal), ILR (1930) 58 Cal 1037.

Kusum Kumari Debi v. Hem Nalini Debi (Kusum Kumari Debi), AIR 1933 Cal 724.

Muzaffarpur Electric Supply Co. v. State of Bihar (Muzaffarpur Electric), 1973 Crl. L.J. 143 (Patna).

Justice K.S. Puttaswamy v. Union of India (Puttaswamy), 2017 (10) SCC 1.

Ramanlal Bhogilal Patel v. N.H. Sethna (Ramanlal Patel), 1971 Crl. L.J. 435 (Guj).

Malone v. The United Kingdom (Malone), [1984] ECHR 10.

The International Principles on the Application of Human Rights to Communications Surveillance ("the Necessary & Proportionate Principles") (2013).

 

Vrinda Bhandari is a practicing advocate in Delhi. She is involved in the legal challenge to the app before the Kerala High Court. Faiza Rahman is a researcher in the technology policy team at the National Institute of Public Finance & Policy. We thank Ajay Shah, Renuka Sane, and Smriti Parsheera for useful comments.

Do stamp duties affect transaction volumes? A study of real estate transactions in Mumbai

by Diya Uday.

The real estate market in India has many factors that cause price inefficiencies. The outcome is that investors will stay away from real estate markets as long as these inefficiencies exist. So how can market efficiency and thereby participation be increased? The Coasian answer is that a market will yield efficient outcomes in the absence of transaction costs.

What constitutes real estate transaction costs in India? Transaction costs are of two kinds: manifest and hidden. Manifest costs are apparent. They are borne by the parties to the transaction and not the market as a whole. They are quantifiable and therefore lend themselves well to observation and possibly measurement. Hidden costs are not statutorily imposed by the government but they increase the cost of conducting transactions. They may be identified but are difficult to quantify and therefore do not lend themselves well to measurement. Some of these are borne by the parties to the transaction while others hidden costs such as price distortions are borne by the market as a whole. In a previous article we argued that price distortions are the unseen consequences of restrictive land market regulations (Uday, 2019). The table summarises this typology of transaction costs with some examples.

Typology of land market transaction costs in India

Manifest transaction costs	Hidden transaction costs
Stamp duties	Title searches
Registration charges	Intermediary charges
Cost of updating government records	Price distortions

Having identified some transaction costs, we attempted to determine the effect of stamp duties on transaction volumes, using Mumbai as the environment under examination. We ask the question: Do transaction volumes change after an increase in stamp duty?

Our motivation for conducting this study is to gain some insights on the relationship between stamp duties as a transaction cost and transaction volumes in the Indian real estate market.

In the literature we see that stamp duties are considered as taxes that cause market inefficiencies (Maatanen and Tervio, 2019). They discourage mutually beneficial transactions and ensure that properties are not held by the people who value them the most (Mirrles et al., 2011). An increase in stamp duty leads to a decline in the number of sales (Dachis et al., 2012). This decline is attributable to a reduction in property prices (Davidoff and Leigh, 2013; Dachis et al., 2012). Similarly, elimination of stamp duties, increases transaction volumes (Best and Kleven, 2018). The literature that examines the effect of stamp duty interventions on transactions uniformly finds that transaction volumes react to stamp duty interventions.

Methodology and findings

For this study, we selected three types of transactions: conveyance, lease and mortgage. We first extracted transaction volumes data for these transaction types in Mumbai, from the website of the Department of Registration and Stamps in Maharashtra. We then calculated the total yearly transaction volumes for each of the three transaction types across all the years for which the data was available (July 2012 onwards). We extracted all notifications which amended stamp duty rates for the relevant period of the study (July 2012 - February 2020). From these, we selected the notifications applicable to conveyances, leases and mortgages only. The selected notifications were then sorted by month and year.The following interventions were studied:

• Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012 notified on 15 April, 2012
• Maharashtra Stamp (Amendment) Act, 2015 notified on 24 April, 2015
• Maharashtra Stamp (Second Amendment) Act, 2017 notified on 7 September, 2017
• Mumbai Municipal Corporation (Second Amendment) Act, 2018 notified on 17 December, 2019

These interventions were overlaid on the transaction volumes data in the appropriate point in time. A cross-sectional observation of the effect of the increases in stamp duty on each transaction type was done.

This analysis yields the following observations:

• Conveyance transactions: There are three relevant interventions in the form of amendments to the law on stamp duty rates for conveyances for the period under examination. The first amendment was notified on April 25, 2012 by Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012. Under this amendment the stamp duty on conveyances within the limits of the Municipal Corporation was increased from 4 per cent to 5 per cent of the market value of the property. The stamp duty for conveyances within the Municipal Council and cantonment areas was increased from 3 per cent to 4 per cent of the market value of the property. In both cases, there was an increase of 1 per cent. The second amendment was notified on September 7, 2017 by Maharashtra Stamp (Second Amendment) Act, 2017. Under this amendment the stamp duty payable on transactions in Municipal Council and Cantonment areas was increased from 4 per cent to 5 per cent of the market value. The third intervention was the Mumbai Municipal Corporation (Second Amendment) Act, 2019 notified on December 17, 2019. Under this amendment a surcharge of 1 per cent is charged on conveyances in the certain areas. In these places, the stamp duty payable on conveyance transactions is effectively increased to from 5 per cent to 6 per cent of the market value.

  For the first stamp duty intervention in 2012 we do not observe a drop in the transaction volumes. In fact we see a steady increase in the year 2012 despite an increase in the rate of stamp duty until 2013. After 2013, the transaction volumes are on an upward trend until 2018. We do not observe an immediate drop in transaction volumes after the second intervention. We see that the upward trend from 2016 continues despite an intervening increase in stamp duty. From the year 2018 we observe a drop in the number of registered conveyance transactions. At its lowest point, the number of registrations were the lowest since the later half of 2012. The downward trend from the year 2018 continues into 2019.

  One might theorise that the drop in transaction volumes from 2018 and into 2019 are the effect of the stamp duty interventions in 2017 and 2019. However, a look at the trends in transaction volumes of leases and mortgages also reveals a fall in the number of registered transactions from the year 2018. This indicates that the reduction in transaction volumes is likely to be on account of some other variable that affected the real estate market as a whole rather than on account of the increase in stamp duty rates. Figure 1 depicts conveyance transaction volumes in Mumbai for the period from July 2012 to February 2020. The dotted lines represent relevant stamp duty interventions in the month and year of the intervention.



• Lease transactions: There are two relevant interventions on stamp duty rates for lease transactions in the period under examination. The first intervention was the Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012 notified on 15 April, 2012. This amendment applied to conveyances and not leases directly. However, we are considering this a relevant intervention for leases because the stamp duty for lease transactions is a percentage of the stamp duty for conveyance transactions. Therefore, any change in the stamp duty for conveyances will cause a consequent change to the stamp duty for lease transactions. Since the 2012 amendment increased the stamp duty for conveyances, it consequently increased the stamp duty for lease transactions. The second intervention for lease transactions was the Maharashtra Stamp (Second Amendment) Act, 2017 notified on September 7, 2017. Again, this amendment did not directly apply to lease transactions however, given the linkage between the stamp duty payable on conveyances and leases as explained above, we have included this amendment as a relevant intervention for lease transactions. Under this amendment, the stamp duty for conveyances was increased, thereby increasing the stamp duty for lease transactions.

  We observe no immediate effect of the increase in stamp duty on lease transaction volumes for both interventions. However, as observed with conveyance transactions we see a continuing upward trend in transaction volumes in the period immediately after the increases in the stamp duty rates by both interventions. After 2018, we observe a downward trend in transaction volumes. This continues into 2019. This trend has been observed with conveyance and mortgage transactions as well and is therefore, likely on account of some other variable affecting the real estate market as a whole rather than the increase in stamp duty. Figure 2 depicts lease transaction volumes in Mumbai for the period from July 2012 to February 2020. The dotted lines represent relevant stamp duty interventions in the month and year of the intervention.



• Mortgage transactions: There are four relevant interventions on stamp duty rates in the period under examination. The first intervention was the Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012 notified on 15 April, 2012. While this amendment was for conveyances and not directly for mortgages, we consider this a relevant intervention because the stamp duty for mortgage transactions is a percentage of the stamp duty for conveyance transactions. Therefore, any amendment to the stamp duty for conveyances is a relevant intervention for mortgage transactions. Since the 2012 amendment increased the stamp duty for conveyances, it consequently increased the stamp duty for mortgage transactions as well. The second intervention was the Maharashtra Stamp (Amendment) Act, 2015 notified on April 24, 2015. Under this amendment, the stamp duty payable on a mortgage was increased from five hundred rupees to 0.5 per cent of the amount secured by the mortgage subject to a maximum of ten lakhs. The third intervention was notified on September 7, 2017 by the Maharashtra Stamp (Second Amendment) Act, 2017 whereby the stamp duty for some conveyances was increased to 5 per cent of the market value. Given the linkage between stamp duties for conveyances and mortgages, we have considered this a relevant intervention. The fourth intervention, is the Mumbai Municipal Corporation (Second Amendment) Act, 2019 notified on December 17, 2019. Under this amendment a surcharge of 1 per cent is charged on mortgages in the certain areas, increasing the overall stamp duty payable on mortgage transactions.

  As observed in case of lease and conveyance transactions, we observe no immediate reduction in the transaction volumes after increase in stamp duty by the 2012 intervention. We do observe a fall in the transaction volumes immediately after the 2015 amendment either.This appears to be a continuation of a downward trend in mortgage transaction volumes from the beginning of 2015. While we cannot say for certain, perhaps the sharpness of the downward trend could be affected by the increase in stamp duty. One may have observed a more gradual decline in the downward trend if the stamp duty has remained unchanged. We cannot however, verify this. After the short-term reduction, transaction volumes for mortgages increase until 2018 when a a sharp decrease in the transaction volume is observable. This downturn is consistent with the downturn we observe in respect of the transaction volumes of conveyances and leases and we therefore, cannot attribute this to increased stamp duties alone. Figure 3 depicts mortgage transaction volumes in Mumbai for the period from July 2012 to February 2020. The dotted lines represent relevant stamp duty interventions in the month and year of the intervention.

Limitations:

• The study has been done for the period from July 2012 upto February 2020. This is on account of the lack of published transactions volume data for the period prior to July 2012 from the website of the Department of Registration and Stamps in Maharashtra.
• This study observes the effects of stamp duty interventions on three types of real estate transactions only.
• The increases in stamp duties have not been significant.
• We have not controlled for the effects of other events in the real estate market on transaction volumes. However, we proceed on the assumption that a change in the market as a whole will affect all three types of major transactions. For example, an increase in interest rates for home loans will affect not just conveyances but also mortgage transactions and possibly leases. The observations for 2018 are in-line with this reasoning.
• The represented data is year-on-year and does not report month-on-month changes to transaction volumes.
• The sharpness of the increase in transactions in the year 2012 maybe smaller than what is being observed as we only have data from July 2012.
• The data does not distinguish between primary and secondary market transactions or residential and commercial transactions.

Conclusion

We undertook this study to determine the effect of stamp duties on transaction volumes by attempting to answer the question: Do transaction volumes change after an increase in stamp duty? Our motivation for doing so was to gain insights on the relationship between stamp duty as a transaction cost and transaction volumes in the Indian real estate market.

We did not observe any immediate decreases in transaction volumes in Mumbai pursuant to increases in stamp duties. This is a departure from global literature which suggests that transaction volumes decline with increases in stamp duties. However, our data offers some insights which are as follows:

First, while we may not observe immediate changes in any transaction volumes pursuant to stamp duty interventions, we observe that all three types of transactions follow some common trends. For example, there is an increase in transaction volumes across all transactions types in 2017 and a significant drop in transactions across all transaction types from the year 2018. This decline continues into 2019. This is significant because it indicates the existence of market variables that affect all transactions regardless of the type of transaction. These variables appear to have a possibly greater impact on transaction volumes than changes in stamp duties do.

Further, given that stamp duties are among the larger manifest costs, it is likely that we will not be able to observe any changes in transaction volumes if smaller manifest costs are changed. The variables affecting all transactions types in common are therefore perhaps hidden costs.

Second, the lack of volatility in the period immediately following an intervention may be indicative of a thin market where only the bare minimum on-market transactions are taking place. Transaction volumes are therefore not likely to be affected by rises in stamp duty rates. This confirms our view that despite the high market value of real estate assets in Mumbai, transactions are likely to be taking place out of necessity rather than for investment purposes, unlike in other countries where such studies have been conducted.

Third, we know that real estate transactions in India have a cash component. Given this, transactions are unlikely to be significantly affected by small increases in stamp duty.

Does this also mean that the converse is true? Will reductions in stamp duties increase transaction volumes in the real estate market in India? Literature indicates that significant changes such as tax holidays have more sizeable effects on transactions (Besley et al., 2014). For instance, a temporary elimination of transaction taxes was found to increase real estate market activity by twenty per cent in the UK (Best and Kleven, 2018). Less significant reductions in stamp duties are unlikely to have a sustained and significant effect on market participation, given the state of the Indian real estate market. While small reductions in stamp duty rates may seem like low hanging fruit with which to fix the problems of a thin market, this study indicates that without addressing the other variables that appear to be affecting transaction volumes, it is likely to be a blunt policy intervention. However, governments tend to lean towards offering stamp duty concessions to boost market participation. This is not the shot in the arm that the real estate market needs.

Since the Indian real estate market appears to present a unique case, the answer to increasing participation perhaps lies in a bundle of interventions aimed at addressing and reducing both hidden and manifest transaction costs. Some of these could be the removal of land market restrictions that have distortionary effects on the market (Uday, 2019), increasing information symmetry by creating more comprehensive land records (Shaikh and Uday, 2018) and the creation of streamlined market places which allow easy trading of real estate assets.

References

Besley et al., 2014, The Incidence of Transaction Taxes: Evidence from a Stamp Duty Holiday, Timothy Besley, Neil Meads and Paolo Surico, Journal of Public Economics, Volume 119, November 2014.

Best and Kleven, 2018, Housing Market Responses to Transaction Taxes: Evidence From Notches and Stimulus in the UK, Michael Carlos Best and Henrick Jacobsen Kleven, The Review of Economic Studies, Volume 85, Issue 1, January 2018.

Dachis et al., 2012, The Effects of Land Transfer Taxes on Real Estate Markets: Evidence from the Natural Experiment in Toronto, Ben Dachis, Giles Duranton
and Mathew A. Turner, Journal of Economic Geography, Volume 12,
November 27, 2012.

Davidoff and Leigh, 2013, How Do Stamp Duties Affect the Housing Market?, Ian Davidoff and Andrew Leigh, Economic Society of Australia, Volume 89 No. 286, September 2013.

Maatanen and Tervio, 2019, Welfare Effects of Housing Transaction Taxes: A Quantitative Analysis with an Assignment Model, Niku Maattanen and Marko Tervio, European Research Council, 2011.

Mirrlees et al., 2011, Tax by design, James Mirrlees, Stuart Adam, Tim Besley, Richard Blundell, Stephen Bond, Robert Chote, Malcolm Gammie, Paul Johnson, Gareth Myles and James M. Poterba, Institute for Fiscal Studies, Economic and Social Research Council, September 2011.

Shaikh and Uday, 2018, Rethinking urban land records: A case study of Mumbai, Gausia Shaikh and Diya Uday, The Leap Blog, November 1, 2018.

Uday, 2019, How land laws create dead capital, Diya Uday, The Leap Blog, July 15, 2019.

 

Diya Uday is a senior researcher at the Finance Research Group, Mumbai and visiting faculty at the Tata Institute of Social Science, Mumbai. The author would like to thank Ajay Shah and the two anonymous referees for their comments and suggestions.

Announcements

Call for Papers: 11^th Emerging Markets Finance Conference, 2020

14^th - 16^th December 2020

The Finance Research Group in collaboration with S.P.Jain Institute of Management and Research and Vanderbilt law School is inviting papers to be submitted for the 11^th Emerging Markets Finance, 2020, conference. In the past, the audience for these events has comprised of academics, participants from the legal and financial industry, policy makers from government and regulators. Details of the previous conferences can be viewed at https://www.ifrogs.org/conf.html. The conference aims to cover presentations and discussions across the following set of research topics:

• Unique features of emerging markets asset pricing
• Liquidity and liquidity risk in emerging markets
• Risk measurement and risk management
• New thinking in market design
• How investors and households participate in equity and debt markets, and how they respond to news and information.
• How emerging market firm finance themselves.
• Corporate governance in emerging markets
• The political economy of finance
• Consequences of infirmities of regulation and supervision
• Law and finance in the emerging market finance setting

Conference Design

For EMF 2020, we intend to bring on board a wider Research Papers, Panels on contemporary policy and Keynotes by experts in the area of Finance, Economics and Law.

Important Dates

• Paper submission deadline: 31^st August 2020.
• Expected date for notification of acceptance: 21^st September 2020.
• Dates of the conference: 14^th − 16^th December 2020.

We are monitoring the progress of the COVID-19 pandemic. At this point we are hopeful that the conference will proceed as planned. If it becomes necessary to make changes in our plans, we will let you know as soon as possible.

Support

Financial support for academic authors whose papers have been accepted at the conference includes travel support of up to USD 750 as well as accommodation at the conference venue for 3 nights of the conference (13^th to 15^th December).

Registration and Contact details

Submissions of the papers must be sent as PDF files only, to Jyoti Manke at jyoti.frg@gmail.com. For any clarifications, please contact Jyoti at +91-98205-20180 (cellphone).

Estimating customer complaints using Twitter feeds

by Vimal Balasubramaniam, Kusan Biswas, Renuka Sane and Mithila A. Sarah.

The lockdown that began in the last week in March 2020 has affected people from all walks of life. Frictions faced by several sectors and stakeholders such as essential service suppliers, farms, factories, migrant labourers have been widely reported. One set of frictions that are yet to be studied is that of consumers of financial products.

The financial system is extremely important to households as they navigate the crisis. An increasing number of households will be making online payments and using non-cash technologies such as QR codes to undertake cashless transactions. Households may need to borrow fresh, and also need to continue paying their EMIs on existing debts. Given the plethora of transaction activities and the centrality of accessing formal financial systems for households, it is important to understand what are the types of concerns they faced during this lockdown? In this article, we ask: a) was there an increase in the number of complaints in accessing financial services during the lockdown? and b) what is the nature of the problems we observe?

Such statistics are generally hard to come by, especially in India, where firms do not present information on complaint resolution, or where we do not possess a public record of complaints such as the CFPB Consumer Complaints database to estimate a high-frequency measure of consumer complaints. We use Twitter -- a platform that is often used to air grievances and take a first look at what it may offer in our context. We present an analysis of Twitter posts related to the banking sector surrounding the current crisis. No doubt, the Twitterati in India is not representative of the average Indian household. We focus our gaze on a select sample of Indian households that have access to the internet (on phones and otherwise) and use English as a medium of communication by only focussing on Twitter. However, we believe that this is one source of information that provides a high-frequency monitor to the types of grievances generated in a data-scarce environment. Such an analysis does not tell us how the system resolved such problems. However, it presents us with statistics on the kinds of problems faced and sheds light on where the bottlenecks lay in the financial system, in general, and in the implementation of specific policy measures.

Approach

The methodology for our study is as follows:

1. Banks : We gathered tweets related to all Indian private and public bank handles from 27th January to 23rd April, 2020. The total number of tweets for this period were 1,83,295, out of which 70,419 were about public sector banks and 1,12,876 were of private sector banks. The difference in the tweet frequency between banks need not reflect the intensity of complaints as different banks have different customer bases. For instance, it is more likely that customers of private sector banks are more tech-savvy and hence able to use Twitter. Figure 1 presents the proportion of tweets for each bank as a proportion of the type of bank.

Figure 1: Proportion of tweets per bank in both public and private sector

To simplify our presentation we focus on four banks in the analysis: SBI, PNB, HDFC and ICICI bank. We choose the banks by the total volume of deposits (which includes demand deposits, saving bank deposits and term deposits) they hold. According to the RBI's data on liabilities and assets of scheduled commercial banks as of March 2019, amongst the public banks SBI has the highest volume of deposits (34.3%) followed by Punjab National Bank(PNB) (8%). Amongst the private sector banks, HDFC bank has the highest volume of deposits (24.5%) followed by ICICI bank(17.3%). This leaves us with a total of 1,18,428 tweets.

2. Dates: The first instance of a nationwide lockdown was on 22nd March 2020, when the Prime Minister of India requested all citizens to observe a "janta curfew" . The complete lockdown was announced on the evening of 24th March, and was enforced from 25th March to 14th April 2020. The first extension of the lockdown was announced on 13th April which was supposed to end on 3rd May 2020. However, an order for second extension of the lockdown was issued on 1st May and the lockdown is now expected to end on 17th May. We choose 22nd March as our "event date", and study the performance before and after the announcement of the lockdown.
3. Analysis: One of the serious challenges in using complex linguistic algorithms to classify tweets from India is that the nature of tweets in India is non-standard. Typically, such tweets have poor use of any particular language (English in our case) -- often rife with spelling errors. Some tweets contain key English words, surrounded by less clear language classification ("Hinglish", for instance) making it challenging to undertake more sophisticated analysis of text data.

Our approach is limited by this language consideration. A manual inspection of these tweets does not provide for an accessible approach to generating patterns in the data either. To keep this tractable, and also to accommodate the unusual language consideration, we use an unsupervised learning method which helps us classify tweets into different clusters. Once clustered, we go through the tweets in each group to qualitatively assess the nature of tweets to draw insights from them.

We start with creating a corpus with all the unique words that appear throughout these tweets. We exclude non-English terms and restrict our analysis to words in the English dictionary. For each tweet, we scan for these terms and quantify it as one when the word occurs, and zero otherwise. Once we quantify the combinations of words that occur in these tweets, we employ the simplest approach to unsupervised learning: the K-means clustering algorithm . The algorithm, in summary, partitions the dataset into K pre-defined distinct non-overlapping subgroups (clusters). At the end of the analysis, each data point (Tweet in our context) belongs to only one group. This algorithm, therefore, forms word clusters such that the total average squared distance (in technical parlance referred to as the within-cluster sum of squares) of the words in a cluster to its mean is minimized.

A vital step in this process is to determine the optimal number of clusters (K). The algorithm does not choose the number of groups automatically. Instead, we make use of the within-cluster sum of squares to identify the least number of groups that can explain most of the word combinations that are prevalent in the data. The K is determined at the "elbow" of the relationship between the number of clusters and the variation explained. Based on this assessment, we group all the tweets for the top four banks in our sample period into three clusters, and then qualitatively assess the nature of these clusters below.

Overall intensity

Figure 2 presents the tweet intensity for the four banks before and after the lockdown. We measure intensity relative to the median number of tweets for each bank before the lockdown. For example, at its peak, we find that all four banks witnessed tweet frequency that was three times higher than the pre-lockdown median for each bank. Indeed, by this measure, Twitter does seem to pick up information about consumer concerns around this period.

Figure 2: Tweet intensity for the four banks

Qualitative assessment of Tweet Groups

There is a change in the terms that most frequently appeared in tweets before and after the lockdown started. This is an indicator of the underlying concerns of the bank customers. Figure 3 plots a simple frequency chart of the word types before and after lockdown. Tweets before lockdown constituted of words like 'banking', 'customer', 'service', 'time', 'transaction', 'call','care', 'transaction', whereas after lockdown was announced, tweets contained words such as 'loan', 'credit', 'due', 'moratorium','pay', etc. Anecdotally, we know that there was considerable anxiety about repayments, and this is reflected in the tweets we see around the time.

Figure 3: Words that most frequently appeared in tweets before and after lockdown was announced

Analysing each cluster

Using the K-means clustering exercise, we find that the most frequent words in each cluster reflect three qualitative categories: transaction-related, branch-related, and a miscellaneous group, "others". We find a meaningful increase in the number of tweets in the transaction-related cluster (on average, about two percentage points), and a reduction in branch-related concerns. While this may seem natural, the nature of transaction-related concerns also changed towards liquidity, credit, and moratoriums.

The words appearing in the Transaction related cluster efore the lockdown announcement were 'call', 'branch', 'service', 'help', 'loan', 'work', 'one', 'credit', 'care', 'issue', while the terms post the announcement were 'loan', 'moratorium', 'help', 'deduct', 'time', 'pay', 'due', 'request', 'refund', 'charge'. This also indicates a shift in the concerns of the customers from general to more lockdown specific concerns. Transaction related tweets of post lockdown announcement highlight the concerns of customers who have to pay Equated Monthly Installments (EMI) during this period. A few examples of this category are:

"Request @YESBANK @TheOfficialSBI to provide interest free moratorium for EMIs due to #COVID19outbreak till normal business atmosphere is restored."
"dear @TheOfficialSBI Do you give a 2 month moratorium on loan repayments? Critical for daily wage, farmers and entrepreneurs at this point of time! The salaried class does not get impacted."

Branch related concerns pertain to bank branch specific complaints or queries. These are mostly centred around customer services provided by the banks at each of their branches. Few examples would be:

"@ICICIBank @ICICIBank_Care Very poor service delivery by ICICI Bank Bhabua Branch, Bihar. They are not taking customer concern seriously and only bypass the customer issues they are least bothered to help to the customer. How Bank like ICICI hire these kind of senseless people's."
"@HDFC_Bank @HDFCBank_Cares Due to some reasons my account was blocked including my net banking. Now to reactivate it I need to visit branch. But due to curfew in my area I am not able to visit branch. Please help me out. Thank you"

The decrease in the terms appearing in this category indicates how because of lockdown, concerns with bank branches have reduced due to limited access.

A limited exercise such as this highlights an often seen challenge in India. The Reserve Bank of India had announced various measures to ease the economic constraints for households in India. However, banks did not follow suit and communicate this well enough, soon enough. Naturally, annual aggregate information on consumer complaints cannot capture the timing aspect of consumer grievances. An approach to monitoring platforms where the public air their grievances may, therefore, be fruitful in understanding the speed and extent to which regulatory actions translate into ground realities.

Conclusion and limitations

An analysis of the Twitter feed suggests that there were substantial frictions faced in the access to and use of financial products. While K-means clustering is a straightforward approach to classifying tweets, more advanced approaches will allow for separating grievances from "opinions", improving the precision of these estimates. Twitter information, though helpful as a "leading indicator", may only be representative if the only difference between different sub-groups of the Indian population is channels and language of communication. However, this may not be necessarily true -- especially for the previously unbanked population. Therefore we need a far more systematic measurement of grievance incidence ever to be able to solve them. Twitter, however, can complement this systematic measurement infrastructure with a timely indication of pressure points in the retail financial infrastructure.

India has made significant strides on financial inclusion. However, our progress on building systems of grievance redress is limited. Universal financial inclusion will generate more number of frictions, especially for households that have either never used formal finance or have limited dependence on it. One such example would be that of migrants, daily wage earners and other informal sector workers who are dependant on cash withdrawals and are facing problems with new payment systems such as Aadhar enabled Payment System (AePS) transactions. The grievance landscape is certainly more complex than what Twitter may capture. Frictions faced by households may be as simple as money getting stuck in an ATM, as complex as being mis-sold an insurance policy, or as devastating as stolen bank deposits. If there is no recourse to solving these problems, then not only is there a welfare loss to the individual concerned, but also damage to the larger trust in the system. Sustained universal financial inclusion, therefore, requires investments in systems of grievance redress.

 

Kusan Biswas, Renuka Sane, and Mithila A. Sarah are researchers at NIPFP. Vimal Balasubramaniam is a researcher at Queen Mary University of London. We thank Hemen Sampat for useful comments.