Mains Current Affairs UPSC CSE -Oct Week 1
Recovering Gandhi’s religious vision
Gandhi was suspicious of many things modern, including modern Hinduism: a new, 19th century religion, sharply demarcated from others, and a fitting rival of Islam and Christianity. Why? Because he viewed himself as a sanatani, an adherent of a way of life that started long, long ago but, unlike the ancient that is dead and gone, continues to live today.
- Central to this seemingly everlasting Hindu imagination is its deep plurality, reflected in its acceptance of the co-existence of three basic ethical forms: one dependent on multiple gods and goddesses, one on a single god, and one even entirely independent of god, gods and goddesses (truth-seeking).
- For Gandhi, this religio-philosophical plurality is the inevitable and healthy destiny of humankind. “There is endless variety in all religions” and “interminable religious differences,” he said. “Some go on a pilgrimage and bathe in the sacred river, others go to Mecca; some worship him in temples, others in mosques, some just bow their heads in reverence; some read the Vedas, others the Quran… some call themselves Hindus, others Muslims…”
- For Gandhi, there is not only diversity of religions but also diversity within them. “While I believe myself to be a Hindu, I know that I do not worship God in the same manner as any one or all of them.”
- Given the inescapability of deep religious diversity, he argued, “the need of the moment is not one religion for the whole of human kind, but mutual respect, equal regard and tolerance of the devotees of different religions.”
- This moral-practical attitude of equal regard for all religions is entailed by an epistemic grasp of the deeper, more fundamental unity of all religions. “The soul of religion is one, but encased in a multitude of forms. Wise men will ignore the outward crust and see the same soul living under a variety of crusts.”
- The basic reference of all religions is the same: God or Truth. “All religions are true and all have some error in them and that whilst I hold by my own, I should hold others as dear as Hinduism and make no distinction between them.”
- Gandhi’s inclusive (belief in one God that encompasses all gods) rather than exclusive (belief in only one True God, while holding all others as false) monotheism flows directly from Indian ‘polytheistic’ traditions, a trait they share with other religious traditions of the ancient world (Greek, Latin, Pre-Islamic Arab religions).
- The implicit theology of these religions allows for translation of gods.
- In virtually all cultures of classical antiquity, each god performed a function based on his cosmic competence — gods of love, war, knowledge, or craftsmanship. Likewise, each god embodied an entity of potentially cosmic significance — gods of fire, rain, earth, time, sun, moon, sea or there were primal gods who create, destroy, preserve and so on.
- Virtually, every god or goddess in one culture could be related to gods and goddesses of another culture. For example, the goddess Parvati of one Indian regional culture is related to the goddess Durga of another region by viewing both as benign and fierce forms of one primal goddess, Devi. This way differences — benign/fierce — continue to be viewed as irreducible and yet translatable. This is a theology of recognition in which the gods and goddesses of each culture are recognised within the background of a common semantic universe.
- One feature of inclusive monotheism then is that “all worship the same God although under different names”. Gandhi illustrates this by a striking verse from the Guru Granth Sahib in which Nanak says that God may be called by the name of Allah, Rahim or Ram. Such an ecumenical perspective permits multiple attachments. If different names refer to the same god, then why not embrace all?
- Two more things follow.
- First, “to revile one another’s religion, to make reckless statements, to utter untruth, to break the heads of innocent men, to desecrate temples or mosques is a denial of God.”
- Second, “it is wrong for anyone to say that his God is superior to that of another’s. God is one and the same for all.
- At one level, there is a fundamental unity among all religions and precisely because of it they must be regarded as equal. If so, movements of conversion or purification are pointless.
- ‘The real Shuddhi movement consists in each one trying to arrive at perfection in his or her own faith.” In such a plan, a person’s character is the only test. “What is the use of crossing from one compartment to another, if it does not mean a moral enhancement?”
Toleration and respect
- For Gandhi, respect and toleration were related, and virtually indistinguishable. This might appear strange. To ‘tolerate’, in the classical 17th century meaning of the term, is to refrain from interference in the activities of others even though one finds them morally repugnant and despite having the power to do so.
- Here one puts up with, even suffers the morally reprehensible activities of others. At best, the powerless other escapes interference of the powerful because the latter shows mercy towards them. This is hate-based toleration — I hate but still tolerate.
- Gandhi’s ‘toleration’ is different. How? Parents often put up with the blemishes of their children which they would not suffer in others. We choose to overlook a fault in our spouse, lover, or close friend that we would not excuse in others.
- We might endure differences with fellow citizens because we value fraternity.
- In short, we tolerate some disagreeable beliefs and practices of persons or groups because we identify with many of their other beliefs and practices.
- In all such cases, we put up with dislikeable states of others even if we have some power to do something about them simply because we have love or love-like feelings for them. Others are tolerated not despite hate but rather because they are loved — I love, so I tolerate. This is Gandhi’s love-based toleration, entirely consistent with respect.
- Unlike the mainstream, hate-based conception of toleration that presupposes that oneness with significant others is achieved by abolishing the radical other, by eliminating plurality, for this second, Gandhian conception, oneness is attained by accepting all radical others as equally significant because they variously manifest one supreme being.
- Thus, to tolerate is to refrain from interfering in the life of others not despite our hatred for them, but because we love them as alternative manifestations of our own selves or because we deeply care for some basic norm common to all of us.
- We may not be able to be what they are, we may even dislike some of their beliefs and practices but we recognise that they are translations of our own selves or of god within each of us. This, Gandhi believed, binds us together in a relationship of lasting affection.
- Gandhi’s religious vision encouraged multiple attachments, multiple belongings, and multiple religious identities.
- Is it not time that we challenge the idea of religion as an exclusive monolith, one for which the highest achievable social ideal is an opportunist, morally dubious hate-based toleration and recover the deep pluralism and love-based toleration at the heart of Gandhi’s religious vision? Indeed, as religious rivalry, conflict and violence intensify, can we afford not to?
Making political parties accountable
- Recently, the Supreme Court in D.A.V. College Trust and Management Society Vs. Director of Public Instructions held that non-governmental organisations which were substantially financed by the appropriate government fall within the ambit of ‘public authority’ under Section 2(h) of the Right to Information Act, 2005.
- Under this section of the RTI Act, ‘public authority’ means “any authority or body or institution of self-government established or constituted by or under the Constitution and included… any non-government organisation substantially financed directly or indirectly by funds provided by the appropriate government.”
- Owing to the reasoning given by the court, the judgment can potentially have wide ramifications in the discourse pertaining to the ambit of the RTI regime on national political parties.
- In D.A.V., the top court held that ‘substantial’ means a large portion which can be both, direct or indirect. It need not be a major portion or more than 50% as no straitjacket formula can be resorted to in this regard.
- For instance, if land in a city is given free of cost or at a heavily subsidised rate to hospitals, educational institutions or other bodies, it can qualify as substantial financing. The court resorted to ‘purposive’ interpretation of the provisions by underscoring the need to focus on the larger objective of percolation of benefits of the statute to the masses.
- In 2010, the Association for Democratic Reforms (ADR) filed an application under the RTI to all national parties, seeking information about the “10 maximum voluntary contributions” received by them in the past five years. None of the national political parties volunteered to disclose the information.
- Consequently, ADR and RTI activist Subhash Agarwal filed a petition with the Central Information Commission (CIC).
- In 2013, a full bench of the CIC delivered a historic judgment by declaring that all national parties came under ‘public authorities’ and were within the purview of the RTI Act.
- Accordingly, they were directed to designate central public information officers (CPIOs) and the appellate authorities at their headquarters within six weeks.
- In 2013, The Right to Information (Amendment) Bill was introduced in Parliament to keep political parties explicitly outside the purview of RTI that lapsed after the dissolution of the 15th Lok Sabha.
- Notwithstanding the binding value of the CIC’s order under Section 19(7) of the Act, none of the six political parties complied with it. Quite interestingly, all the parties were absent from the hearing when the commission issued show-cause notices for non-compliance at the hearing.
- Finally, in 2019, a PIL was filed in the Supreme Court seeking a declaration of political parties as ‘public authority’ and the matter is sub judice. Irrespective of the ideological differences among these political parties on almost all the issues under the sun, non-compliance of the RTI mandate has been a great unifier.
- Drawing an analogy between the Supreme Court’s judgment on D.A.V. and the political parties’ issue which is sub judice, it can be argued that national parties are ‘substantially’ financed by the Central government.
- The various concessions, such as allocation of land, accommodation, bungalows in the national and State capitals, tax exemption against income under Section 13A of the Income Tax Act, free air time on television and radio, etc. can easily satisfy the prerequisite of Section 2(h) of the RTI.
- If an entity gets substantial finance from the government, there is no reason why any citizen cannot ask for information to find out whether his/her money which has been given to the entity is being used for the requisite purpose or not.
- Applying the purposive rule of interpretation which is discernible from the preamble of the RTI Act, the ultimate aim is the creation of an ‘informed’ citizenry, containment of corruption and holding of government and its instrumentalities accountable to the governed.
- Under the anti-defection law, political parties can recommend disqualification of Members of the House in certain eventualities under the Tenth Schedule of the Constitution.
- The Law Commission opines that political parties are the lifeblood of our entire constitutional system. Political parties act as a conduit through which interests and issues of the people get represented in Parliament.
- Since elections are predominantly contested on party lines in our parliamentary democratic polity, the agenda of the potential government is set by them.
- As noted by Dr. B.R. Ambedkar in his famous Constituent Assembly speech, “The working of a Constitution does not depend wholly upon the nature of the Constitution. The Constitution can provide only the organs of State…The factors on which the working of those organs of the State depend are the people and the political parties they will set up as their instruments to carry out their wishes and their politics.”
- It is hoped that the top court will further the positive advances made in this direction. Since sunlight acts as the best disinfectant and our political parties tirelessly claim themselves to be apostles of honesty and integrity, it is expected that they would walk the talk.
Citizenship Amendment Bill will result in untold fear and dislocation of Muslim citizens
It is now apparent that the Union government, the ruling party and their ideological lodestar, the RSS, are determined to introduce both the Citizenship Amendment Bill (CAB) and national NRC, in pursuit of their political agenda.
The NRC and Citizenship Amendment Bill
- There was, for a while now, the ominous rumbling of distant thunder. Today, this is fast gathering into a menacing storm, one which can ultimately destroy India as we know it.
- Many had hoped that the idea of amending citizenship laws in ways which exclude from citizenship people of just one religious identity would be abandoned in the face of vehement opposition in the states of India’s Northeast.
- They also expected that talk during the communally-surcharged summer election campaign of 2019, of extending the National Register of Citizenship (NRC) to states outside Assam, was just electoral provocation, which would be stilled after the polarised election accomplished its objectives.
- But it is now apparent that the Union government, the ruling party and their ideological lodestar, the RSS, are determined to introduce both the Citizenship Amendment Bill (CAB) and national NRC, in pursuit of their political agenda.
- Home Minister Amit Shah declares in Parliament his commitment to deport every “infiltrator” from every square inch of Indian soil, asks states to build detention centres for foreigners, and affirms his resolve to pass the CAB in ways that protect the interests of states of the Northeast.
- Several BJP chief ministers and leaders call for the extension of the NRC to their states. And Mohan Bhagwat, RSS chief, assures Hindus that they will not be harmed in any way by the NRC.
- The result is widespread panic and dread in Muslim settlements across India, including in Bengal, Bihar, UP and the metropolises.
- People are desperately asking what documents will be required to prove they are Indian citizens, what the cut-off year will be — 1971, 1947, 1951, 1987 — and what will be the consequences for those who cannot muster these documents. No one in the ruling establishment is supplying answers, and the trepidation and confusion only mounts each day.
Evolution of the CAB
- For the first 40 years of freedom, until 1987, anyone born in India was deemed an Indian citizen. In 1987, the law was amended to require, in addition, that at least one parent was Indian.
- In 2003, anyone could become a citizen only if one parent was Indian and the other not an illegal migrant, defined as one who has entered or stayed in India without legal authorisation.
- This laid the seeds of the terrifying exclusions which lie ahead. What the CAB, if passed, would do is to allow illegal migrants from Pakistan, Bangladesh and Afghanistan, who are of every religious identity except Muslim, to become Indian citizens.
- Combined with the 2003 amendment, this would mean that only Muslims who are unable to prove that they did not enter India unlawfully would be deemed illegal migrants. Not only they, but their children, and in turn their children, would be denied the right to Indian citizenship.
- This denial would be in perpetuity, because there is no redress in the law for the progeny of such persons to ever become Indian citizens, even though they were born in India, and know and aspire for no other country.
- This amendment would also mean, in effect, that the NRC will have no impact on people other than Muslims, because all others would qualify for Indian citizenship even if they are undocumented. The NRC, after the CAB, would, in operation, only require Muslim Indians to establish that they or their ancestors entered India lawfully.
- Other Indians may be mandated to produce documents, but even if they fail, they would qualify for citizenship.
- The Supreme Court has already shifted the burden of proof to individuals to prove their citizenship based on documents such as of birth, land ownership or voting rights, which most impoverished and poorly lettered citizens find difficult to muster.
- To make matters worse, the home ministry under Shah has already notified the right of every state government, and even district magistrates, to establish Foreigners’ Tribunals, and for these tribunals to frame their own procedures and standards of proof.
- The Union government is confident of passing the CAB in the Rajya Sabha, given the divided and ideologically confused Opposition.
- But even before this change in law, the Union government, by a notification in 2015, had exempted non-Muslim “illegal immigrants” from the three neighbouring countries from adverse legal action, and in 2018, had accelerated the process for their citizenship.
- The CAB, and indeed these notifications, fly in the face of many fundamental rights under the Indian Constitution. One of these is the right to equality.
- After all, if religious persecution of illegal migrants in India’s neighbourhood is deemed to qualify migrants for accelerated citizenship, then why not extend this to the Rohingya from Myanmar, Uyghurs from China, Ahmediyas and Shias from Pakistan and Bangladesh, and indeed secular bloggers and homosexual Muslims from these countries?
- But even more fundamentally, these amendments strike at the soul of the secular democratic constitution of India.
- The India we inherited from Mahatma Gandhi, B R Ambedkar, Jawaharlal Nehru and Maulana Azad was a country which belonged equally, in every way, to all its people, regardless of which god they worshipped or if they chose to worship no god.
- India was not imagined as a country that would either exclude or include people on the basis of their religious identity.
- A hundred years ago, the Hindu Mahasabha, and in 1925, the RSS, imagined another India, one in which Hindus would rule and dominate, and in which Muslims would be expelled or forced to live as second-class citizens.
- The current ruling establishment believes that 100 years later, their time has come.
- The CAB, followed by a nation-wide NRC, in which effectively only Muslims will have to prove their citizenship, will result in untold fear, suffering and dislocation of millions of Muslim citizens.
- This is the fearful tempest that threatens to engulf India in the coming months, one which will destroy in its wake this country as it was imagined and promised.
- Do we not realise that this will mark the death of India’s secular democratic constitution?
Creating jobs for young India
Unemployment has been at the centre of public debates in India recently. The government’s Periodic Labour Force Survey carried out in 2017-18 revealed that unemployment in the country reached an all-time high rate of 6.1%. What explains this sudden jump in unemployment in India, which had remained at a rather low rate of around 2% for several decades?
Our estimates based on official employment surveys and the Census show that in 2018, there were 471.5 million persons employed and 30.9 million unemployed in India. At the heart of the unemployment problem in India were young, unemployed men aged 15 to 29 years who comprised 21.1 million or 68.3% of all the unemployed in the country. To understand how their numbers rose recently, we need to examine the behaviour of not just labour demand but also labour supply over time.
Rising numbers of job seekers
- First, the size of labour supply in India is getting a boost from the rapid expansion of the working-age population in the country — the population of 15-59-year-olds increased at the rate of 14 million a year in the 2000s.
- Second, the nature of labour supply is changing too, with increasing enrolment of young adults for education and their rising job aspirations. Of all 15-29-year-old females in India, 31% had been attending schools or colleges in 2018, up from 16.3% in 2005 (although, it needs to be mentioned here that there have been questions on the quality of education received and skills acquired by these young people).
- Third, the size of the workforce engaged in agriculture (and allied activities) has been declining in India: from 258.8 million in 2005 to 197.3 million in 2018 (which still accounted for 41.9% of the total workforce in the country).
- This decline has been partly due to the ‘push’ from low-productivity agriculture, which has suffered due to stagnant public investment from the 1990s onwards. The decline has also been driven by the ‘pull’ of new opportunities that emerge in the towns and cities.
- A significant number of people who are ‘employed’ according to official statistics could actually have been in ‘disguised unemployment’ in agriculture (consider a person who does no job but occasionally assists his family in cultivation). Young persons in rural areas will be increasingly keen to exit disguised unemployment in agriculture.
- As a result of the above-referred factors, there has been a significant increase in India in the supply of potential workers for the non-agricultural sectors. These are 15-59-year-olds who are not students nor engaged in agriculture.
- If provided the relevant skills, they could possibly work in industry, construction and services. Our estimates show that the potential non-agricultural workforce in India grew at the rate of 14.2 million a year between 2005 and 2012, which rose further to 17.5 million a year between 2012 and 2018.
- How has the growth of labour demand matched up to the job challenge in India? Between 2005 and 2012, construction had been the major source of employment in India, absorbing men who exited agriculture in rural areas, especially in Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh.
- The growth of construction jobs was associated with a revival in agricultural incomes and rural wages during this period.
Labour demand lagging behind
- However, the growth of agricultural incomes and the rural economy in India slowed down markedly after 2012. New employment opportunities in construction created in rural India amounted to 18.9 million between 2005 and 2012, which fell sharply to 1.6 million between 2012 and 2018.
- The size of the manufacturing workforce in India declined by one million between 2012 and 2018, with micro and small firms in the informal sector suffering severe setbacks.
- At the same time, some segments of the services sector, especially education and professional, business and allied services recorded acceleration in employment growth after 2012. The crisis in the rural economy appears to have been moderated to some extent by an increase in governmental spending in 2016-18.
- Even from 2005 to 2012, job creation in industry, construction and services in India (at the rate of 6.3 million a year) was inadequate to absorb the increase in potential job seekers into these sectors (at the rate of 14.2 million a year).
- Between 2012 and 2018, while the supply of potential workers into the non-agricultural sectors accelerated (to 17.5 million a year), actual labour absorption into these sectors decelerated (to 4.5 million a year).
- Thus, the mismatch between potential supply of and demand for labour deepened after 2012. While only the women suffered due to the mismatch during 2005-2012, young men were also affected after 2012. In fact, 30-59-year-old men managed to secure 90.4% of all new non-agricultural employment opportunities that emerged in India between 2012 and 2018, leaving too few new jobs for women and younger men.
Status of Gender based Unemployment
- Faced with the inadequate number of new jobs generated in the economy, women withdrew altogether from the labour market.
- Of all 15-59-year-old women in India, only 23% were employed in 2018, down from 42.8% in 2005.
- Correspondingly, there had been a sharp rise in the proportion of women who reported their status as attending to domestic duties in their own households.
- At the same time, the response of young men to the slow job growth in the economy was to continue in the labour market as job seekers.
- Among 15-29-year-old men, there was an unprecedented increase in the number of the unemployed, from 6.7 million in 2012 to 21.1 million in 2018. This was indeed the main contributor to the sudden increase in overall unemployment in India.
- India faces a tough challenge in creating decent jobs for its growing young population.
- To tackle this, action will be needed on multiple fronts including investments in human capital, revival of the productive sectors, and programmes to stimulate small entrepreneurship.
- If the country is unable to make effective use of the strengths of its young women and men now, it can perhaps never do so.
- Within the next two decades or so, India’s population will gradually start getting older, and it will be tragic for millions of poor Indians to grow old before getting even moderately rich.
Those who heard the address to the United Nations climate change summit by the teenager Greta Thunberg earlier this month may not be as worried about economic growth as the government is. Globally, industrial growth driven by mindless consumption is the cause of climate change, now unmistakably upon us. But India does need some growth as income levels here are still very low. The problem of low incomes can, however, be tackled even with less growth so long as it is of the appropriate type. So, the slowing of growth in India cannot reasonably be termed a crisis.
- There is, however, one feature of the economy that does answer positively to the query of whether it is in crisis today, and that is unemployment.
- Figures reported in the report of the last Periodic Labour Force Survey point to a dramatic rise in the unemployment rate since 2011-12, when the previous survey on unemployment was undertaken. Apart from the category of ‘Urban Females’, the most recent estimate of unemployment shows that it is the highest in the 45 years since 1972-73.
- But even for ‘Urban Females’, it is double what it was in 2011-12. For the largest cohort, namely ‘Rural Males’, in 2017-18, it is four times the average for the 40 years up to 2011-12. These figures should convince us of the existence of a grave situation, if not crisis, with respect to employment in the country.
- In the average country of the OECD, an increase in unemployment of such magnitude would have triggered a nationwide debate, not to mention agitation on the streets.
- The government has responded to the slowing of growth by announcing a range of measures, the most prominent of them being the reduction in the corporate tax rate. While this may have a positive effect, the move is not based on the big picture.
- The tax cut is meant to be a remedy for stagnant corporate investment. But if the level of corporate investment itself reflects some underlying reality, it is only by tackling the latter that we can get to the root of the problem.
- A large part of corporate sales is driven by rural demand, reflected in the reported lay-offs by biscuit manufacturers. We do not hear their voices or, more importantly, the government does not, as they are less organised than some other sections of the corporate world, the automobile industry being one such.
- The rural picture matters not only because the largest numbers are located there but also because of their low incomes. This means that the future growth of demand for much of industrial production is likely to come from there.
- After all, how many more flat-screen televisions can an urban middle-class household buy once it already possess one? The high unemployment rate for ‘Rural Males’ does suggest that we have zoomed in up to a reasonable degree of precision on the site of low demand.
- We must now answer the question of why rural incomes are growing so slowly. The recent history of crop agriculture points towards one reason. In the nine years since 2008-2009, this activity has recorded zero or negative growth in five. Put differently, in the majority of years, it has shown no growth. The economy has very likely not seen anything like this since 1947.
- When growth fluctuations include production decline, a particular feature emerges. Households incurring consumption debt in bad crop years would be repaying it in the good ones. This implies that consumption does not grow appreciably even in good years.
- Recognising the record of agricultural production is sufficient to grasp what we see in India today. This does not imply that other factors do not matter, and we could imagine several, ranging from low export growth to the state of the banking sector, but this does suggest that poor agricultural performance is a significant explanation of slack domestic demand.
- Unstable agricultural production first lowers the demand for agricultural labour and, subsequently, its supply, showing up in greater unemployment. It has been pointed out that the investment rate has declined.
- This is indeed correct but this may well be a reflection of the poor agricultural performance. Private investment both follows output growth and leads it. When non-agricultural firms observe slow agricultural growth, they are likely to shrink their investment plans and may not revise their decision till this growth improves.
- Thus, attempting to influence the private investment rate is to only deal with a symptom. It is rural income generation that is the problem.
- Any long-term solution to the problem of unemployment to which the slowing growth of the economy is related must start with agricultural production.
- Observing the performance of crop agriculture for close to a decade since 2008-09, we might say that we are witnessing something wholly new in India. It has long been recognised that there is a crop-yield cycle related to annual variations in rainfall but we are now witnessing a stagnation.
- Now, unlike in the case of a cycle, recovery cannot simply be assumed. We would need the expertise of agricultural scientists to confirm what exactly is responsible for this state but it would not be out to place to ask if there is not a role for ecological factors in causing agricultural stagnation.
- These factors encompass land degradation involving loss of soil moisture and nutrients, and the drop in the water table, leading to scarcity which raises the cost of cultivation. Almost all of this is directly man-made, related as it is to over-exploitation or abuse, as in the case of excessive fertilizer use, of the earth’s resources.
- Then there the increasingly erratic rainfall, seemingly god-given but actually due to climate change entirely induced by human action. A deeper adaptation is required to deal with these factors. Intelligent governance, resource deployment and change in farmer behaviour would all need to combine for this.
- It is significant that the reality of an unstable agricultural sector rendering economy-wide growth fragile has not elicited an adequate economic policy response.
- Policy focus is disproportionately on the tax rate, the ease of doing business in the non-agricultural sector and a fussy adherence to a dubious fiscal-balance target.
- It is now time to draw in the public agricultural institutes and farmer bodies for their views on how to resuscitate the sector. We may be experiencing an ecological undertow, and it could defeat our best-laid plans for progress.
The brick and mortar of FDI 2.0
- Foreign Direct Investment (FDI 1.0) has been welcome in India irrespective of whether or not its equity structure includes Indian public shareholding.
- However, the world has undergone a structural change with the emergence of Internet Multinational Companies (MNCs) such as Microsoft, Google, Facebook and Twitter that are based on ‘winner-takes-all’ platform business models.
- These firms are characterised essentially by inequitable dynamics, since they distribute most gains to themselves vis-à-vis their host countries. This situation demands a policy response.
- Perhaps this is one of the reasons why China banned Internet MNCs. This led to China creating nine out of the 20 global Internet leaders.
- China strategically deploys a quid pro quo policy. MNC firms are mandated to transfer technology, share patents and enter into 50:50 joint ventures with Chinese partners in return for market access.
- Given our political system, India will obviously need to follow a new FDI 2.0 policy to achieve more desirable outcomes.
- Rather than accepting the ‘winner MNC takes it all’ as fait accompli, FDI 2.0 should harmonise interests of all stakeholders including Indian consumers, the government and investors. FDI 2.0 could deploy ‘List or Trade in India’ as a strategic policy tool to enable Indian citizens become shareholders in MNCs such as Google, Facebook, Samsung, Huawei and others, thus capturing the ‘upside’ they create for their platforms and companies. This is equitable to all, since Indian consumers contribute to the market value of MNCs.
- In 1978, the Indian government adopted a policy that required equity dilution by 100% foreign-owned companies. This led to the ‘Listing of MNCs’, and many of which then provided handsome returns to both MNCs and Indian shareholders.
- It is estimated now that listing Indian subsidiaries of MNCs alone could add as much as ₹50 lakh crore to equity market capitalisation. This could make capital markets deeper and valuations more reasonable. ‘List or Trade MNCs in India’ could become a potent extension to ‘Make in India’ to disseminate prosperity.
- In contrast to 1978, the proposals we present here are based on incentives, more capital market-friendly and in line with the practices followed by Mexico, China, Bangladesh and other countries.
A road map for India
- India could implement the following set of proposals: Proposal 1 (List in India): Majority (more than 51%) foreign-owned Indian-listed MNCs could be eligible to domestic company tax rate whereas unlisted MNC subsidiaries could be subjected to a higher tax rate. Many countries such as Bangladesh, Vietnam and Thailand have used tax incentives to attract listing by MNCs.
- Mexico is most successful in attracting cross listings. For example, AB InBev, Coca-Cola, Walmart and Citigroup are listed in Mexico.
- To ensure the success of this proposal, the government will need to reconsider the present policy of allowing 100% MNC-owned subsidiaries to compete with their listed Indian counterparts that erodes the value accruing to Indian shareholders.
- Proposal 1, by itself, will not achieve the objective of increasing Indian participation in the fair value of Internet MNCs. This is because of complex issues in revenue booking that result in low profits in Indian subsidiaries. Hence, there is a need for additional initiative by way of proposal 2 to enable Indian investor participation in the ownership of parent MNCs’ shares.
- Proposal 2 (‘Trade in India’ i.e. U.S. dollar-denominated parent MNC Shares to be ‘Admitted for Trading’ on Indian bourses]: In this proposal, Indian investors could buy shares of parent MNCs (where global profits and value get consolidated).
- This can be permitted within the $250,000 Liberalised Remittance Scheme (LRS) limit. Indian bourses could admit only S&P 500 stocks. The Mexican Stock Exchange allows trading of international shares listed in other stock exchanges. India could replicate such models.
- For successful implementation of Proposal 2, the Indian government may need to facilitate following measures:
- Permit Indian bourses to implement international trading system on the lines of Mexico.
- Parent MNCs in S&P 500 with business interests in India could be mandated to facilitate trading of their shares in India. MNCs would readily agree as it does not envisage listing in India.
- For taxation purposes, no distinction should be made between transactions in comparable domestic and foreign securities.
- LRS implementation for buying foreign stocks in GIFT City/NSE/BSE could be simplified and work as single click functionality.
- Educate Indian investors about the value of diversification of their portfolio in international stocks for achieving better risk adjusted returns.
- The government could facilitate access to ultra-low cost (<=0.04%) S&P 500 Index Funds such as Admiral Shares (VFIAX) and ETFs using Indian e-KYC. Indian MFs charge fees from 0.54% to 2%. They are at least 13 times more expensive.
- For Proposal 2, one important issue that needs to be addressed pertains to U.S. Estate taxes. For Indian citizens, U.S. estate taxes @40% apply above portfolio value of $60,000.
- To mitigate this burden, the National Securities Depository Limited (NSDL) could design a sovereign trust for holding parent MNC stocks. The NSDL could then issue BharatShares to retail investors. Nominees of the government of India would get voting rights in parent MNCs.
- In addition, the government could make available a ‘Fully Disclosed Model’ for holding foreign stocks in line with our NSDL/Central Depository Services Ltd (CDSL) system.
- The prevalent ‘Omnibus model’ carries the risk of U.S broker default because investors’ shares are held in the U.S. broker’s name. For this reason, it could also lead to higher tax liabilities in India.
- Summing up, increasing Indian equity ownership of MNCs would offer diversification benefits and make Indians more prosperous.
- Wealth distribution through mutual funds would create a virtuous cycle of innovative ideas, entrepreneurship, employment, consumption, higher taxes, social and physical infrastructure for the benefit of Indian society.
- MNCs would earn the goodwill of Indian consumers while expanding their investor base. In other words, this is a win-win for all stakeholders.
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