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Admin 2019-10-04

04 Oct 2019: The Hindu Editorial Summary

1) On ending open defecation


  • India’s declaration on the 150th birth anniversary of Mahatma Gandhi that its rural areas are now open defecation-free will be acknowledged around the world as a milestone in its developmental journey.
  • Cleanliness and sanitation were central to Gandhi’s concerns for his vast number of impoverished countrymen, and should ideally have been pursued zealously by governments in free India, along with good housing and access to clean water.
  • In 2014, the NDA government made total sanitation a high priority, with the avowed goal of bridging decades of neglect through a policy focused on toilet construction.
  • That 110 million toilets were built under this programme since then counts as an achievement in itself, even though many of these structures have been bootstrapped to ramshackle dwellings; many do not meet construction standards.
  • Forward-looking as it is, the campaign for universal sanitation and an end to open defecation cannot go far if toilet access is the sole metric of success. One independent survey shows toilets are not used by up to half the population in some places, underscoring the challenge ahead.

  • It is welcome, therefore, that an ODF-Plus programme has been adopted by the Ministry of Jal Shakti to encourage toilet use and create the infrastructure to manage solid and liquid waste in every village.
  • This is a long road, and the Central government can hope to achieve sustainable outcomes only if it prioritises citizen rights and community participation. The campaign has erred in its approach in many instances, opting for coercive methods that produce dreadful consequences.
  • Development literature makes it clear that bringing one set of freedoms to people, including material benefits, cannot compensate for the loss of others, notably freedom from oppression.
  • This bears mention in the context of Swachh Bharat Abhiyan and its efforts to end open defecation, since officials and campaigners have resorted to violence, public shaming and the threat of deprivation of welfare benefits to bring about compliance. Such methods must be ended immediately and voluntary participation should be encouraged.
  • The concern too is a possible resort to illegal manual scavenging, since many toilets built under the Swachh mission are not of the prescribed twin-pit design, and will need periodic evacuation.
  • Despite widely reported cases, the Centre does not appear to be eager to eliminate manual waste removal through a war-like effort, under which all States will install sewage and sludge treatment plants.
  • Neither are States keen to strictly enforce the law that makes the practice punishable. The campaign to end open defecation can succeed only if it takes communities with it.
  • In the years ahead, making sanitation universal and sustainable will depend not just on toilets, but on providing decent urban and rural housing, and strengthening another key determinant of development - the right to a good education.

 

2) On the brick and mortar of FDI 2.0


  • 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.
  • The 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.
  • 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.
  • Mirroring Mexico: For successful implementation of Proposal 2, the Indian government may need to facilitate following measures:
  1. Permit Indian bourses to implement international trading system on the lines of Mexico.
  2. 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.
  3. For taxation purposes, no distinction should be made between transactions in comparable domestic and foreign securities.
  4. LRS implementation for buying foreign stocks in GIFT City/NSE/BSE could be simplified and work as single click functionality.
  5. Educate Indian investors about the value of diversification of their portfolio in international stocks for achieving better risk adjusted returns.
  6. 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.
  7. 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.
  • 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.