Good Governance in India: Gandhian Economic Philosophy with Digitally Connected India

One of the election planks of Narendra Modi’s campaign has been ‘Minimum Government-Maximum Governance’. It is befitting that the elected Government of Narendra Modi has organized an essay competition for school children on good governance. Governance is a word that has become important in a business context as well. Corporate governance, for example, is taken very seriously by all progressive corporations. Governance is applicable for any and every organization, for that matter. At a broader level, of course, governance at a national level is the most relevant factor for national development. This blog post seeks to delve into the definition of governance and explore what could governance for India’s development and strategies to secure and institutionalize good governance.

Governance defined

The word ‘govern’ is defined in a national context. It means legal control of a country or its people with the responsibility for introducing new laws, organizing public services and managing economy. Governance is the activity of governing a country in terms of its various facets. At a company or organizational level it involves setting its articles and memorandum of association, forming its code of conduct, and establishing and operating the company as per the articles, business code and all applicable national and international laws.  Governance at the country level is extremely important for India as governments are formed by the parliamentary and legislative representatives of democratic India elected by its people as per the constitutional processes. With 29 States and 7 Union Territories having local State level governments and the nation as a whole having the Union government at the Centre, governance in India, however, tends to be quite plural.

The central theme of good governance is economic growth with social equity. There are, of course, other supportive themes such as gender equality, poverty elimination, people empowerment, modernity with tradition, globalization, employment generation, universal education, healthcare and sanitation, housing for all, rule of law etc. All such themes can be defined as integral inputs or outcomes to the central theme of economic growth with social justice, and in short - development. While people’s aspirations are expressed through elections, they can only be achieved through governance by the elected representatives. The structure and processes of governance are determined by the constitution while the strategies to execute on governance are determined by various laws, policies, schemes and procedures (together, governance tools). While the bureaucracy both creates and executes the governance tools and is accountable to the elected governments, they, in turn, are accountable to the people.       

Gandhian Governance

Mahatma Gandhi advocated a concept of good governance that emanates from the grassroots level. He held that the village is the smallest microcosm of the nation which must reflect good governance through empowerment and self-rule. His concept of Panchayat Raj is the structural definition of his concept. Gram Swaraj for Mahatma was very much a part of his concept of Poorna Swaraj for the nation. In one of his writings, Mahatma said, “Panchayat Raj represents true democracy realized. We would regard the humblest and the lowest Indian as being equally the ruler of India with the tallest in the land”. Successive governments have tried to provide constitutional and legislative enablement to Gandhi’s concept of Gram Swaraj and Panchayat Raj. That said, even after several decades of Indian independence, the rural population and the underprivileged continued to be left out of the mainstream of development which is reflected in recent governmental initiatives such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

MGNREGA seeks to guarantee 100 days of livelihood security to the population meeting prescribed criteria. While it is welcome, Mahatma’s goal of generating wealth through economic activity and good governance remains unfulfilled. Gandhiji gave several avenues, under the broad umbrella of Sarvodaya, to achieve economic self-sufficiency at the village level. He advocated ending poverty through improved agriculture and small scale cottage industries across all villages. Gandhian Economics focused on economic self-sufficiency at rural community level. He not only advocated Sarvodaya but gave relevant tools such as Charkha and Khadi to generate employment. Large scale industrialization that emphasizes machine made products vis-à-vis handmade products has pushed Gandhian economic tools to the background. The call by the Prime Minister Narendra Modi for Indians to patronize khadi is indeed a welcome exhortation. Good governance initiatives of the PM have a greater probability of success with a digital connect that would restore both gram swaraj and Gandhian economics.

Five principles

Governance, in its fundamental ambience, represents universal inclusiveness, transparency, access, simplicity, objectivity and ease. If we agree that India still lives in its villages (as it is true) and true empowerment must start with the indigent and downtrodden, whether rural or urban (as also it is true), whatever ideal governance we have must satisfy the six principles of inclusivity, transparency, accessibility, simplicity, and objectivity. Law and procedures, projects and schemes, structures and processes, administrators and enablers must have a system of governance that works for the layman as much as it does for the erudite. This can be achieved by imbuing simplicity in each second component of the four pairs mentioned above. For example, while laws would perforce need to be complex to envisage and address all eventualities, procedures at least must be simple and intelligible.

Similarly, while projects must be based on an overall developmental magnum opus, schemes must be those that touch the lives of all in a simple manner in an immediate and recurring timeframe. Again, in a large federal country like ours political and administrative structures cannot anything but be complex. However, the processes must be simple and speedy. Administrators who are required to work with multiple political systems may be cautious by instinct and training but those who are heads of agencies (district collectors, departmental secretaries or public sector heads) need to focus on being in touch for speedy delivery. This duality of foundation and purpose or of the institution and the individual requires that the back-end of the governance mechanism could be as complex is the wont but the front-end of people contact must be as simple as it can be. This balance of internal complexity and external simplicity can be achieved only with digitization.

Digital governance

Digital governance is a system of governance in which all laws, procedures, projects, schemes, structures, processes, administrators and enablers are connected with each other and the individual across India in a seamless way. This requires that the whole of India is a wifi village with broadband, fibre optics and tower systems connecting all of India. This also requires that every individual has a Unique Personal Identification Number (UPIN) and every institution will have a Unique Institutional Identification Number (UIIN). Needless to say, India is moving into a new future in that direction with the Central Government sponsored Aadhar Project. The governments would like to connect subsidies and benefits to Aadhar number, for example. AP Government has made supplies of sand for construction purposes a digitally enabled process administered through women self-help groups. However, much more needs to be done for total digital governance at a national level, in terms of hardware and software.

In the full digital model, every individual will possess at least one electronic device, one smart phone and one tablet. He or she would have Internet access wherever he or she is in India. Every transaction requiring interface between the individual and government would have an electronic form and processing system. Every individual would have opened a new Jan-Dhan Bank account or would convert one of his available accounts into a Jan-Dhan account. The entire landscape of laws, procedures, projects, schemes, structures and processes would be in the form of multi-language ready access portals, with easy to manage forms and processes for applications and approvals, queries and responses, and self-certifications and random evaluations. Every minister and public official should have a position-linked email ID based on which he or she can be communicated with. Each Minister and Officer should have an information processing assistant to handle queries and responses on a prioritized basis. The objective would be to enable a person of even ordinary literacy be a helpful and helped member of pan-Indian digital governance.

Connected India

Connected India is possible with a mammoth collaboration between global and Indian digital giants. The recent days have seen such global majors making a beeline to the Prime Minister Modi, Central and State Chief Ministers and officials. India must conceptualize collaborations between global majors such as Google, Facebook, Twitter, Microsoft, Cisco and such other digital enablers on one hand and Reliance, Bharti, Idea, Tata, Infosys, TCS, Wipro, HCL Technologies, Cognizant, BEL and such other Indian telecommunications and information technology companies on the other to develop a digitally connected India. Just as ‘Make in India’, ‘Connect India’ must be a campaign and execution platform for global and Indian corporate majors to receive support from India’s Union and State Governments.

Connected India would fulfil the Gandhian economic dream of Sarvodaya whereby the most distant and grassroots individual could be connected with the rest of the country and the highest echelons of the governments. It will connect the producers with the marketplace, and help identify and integrate inputs for producers and outputs for users. India has wrought an information technology revolution for the world; it is time that India did something digitally for itself. The Government may need to establish a major collaborative fund, with contributions by global and Indian governments and corporations, to finance the Connected India program. The programs will provide economic returns to contributors in terms of hardware and software sales. The only ask should be that the costs of connectivity should be extremely affordable. Gram Swaraj, Poorna Swaraj, Sarvodaya and Gandhian Economics and Good Governance will merge with, and enable, each other in a completely Connected India.

Posted by Dr CB Rao on December 28, 2014

    

Smart Cities With Smart Villages: Need for 'Capital' Paradigms for People Development

The announcement of the 100 Smart Cities concept is one of the visionary moves of the new NDA Government in India. While there is no definition of a smart city (articulated more to support increased urbanization), one may assume that a typical smart city would have high level social and industrial infrastructure with a robust digital backbone. A smart city may have metro rail and highway connectivity with international airports to boot. It would have certain pre-existing core industrial and commercial activity that can be leveraged for expansion and diversification. It is not, therefore, surprising that Tier 2 and 3 cities like Visakhapatnam, Madurai, Kurnool, Nagpur and Cuttack, to quote a few examples, would be qualifying as smart cities. 

Clearly, development of smart cities requires not only a more precise definition of the concept but also a more clear pathway for execution. It is for this reason that the Union Budget envisages‎ an allocation of Rs 7600 crores in the Union Budget 2014-15 to develop a clearer grasp over the concept and make a start. With only 6 months to go before the next budget, it looks as if the States are yet to make specific smart city strategies.  It is hoped that the development planning exercise will be specific to each city selected as a qualifying city (rather than as a generic concept for all the cities). Specific studies will recognize the peculiar needs of each city in terms of geo-economic and demographic profiles and develop plans that would be ready to execute. This blog post suggests a few ways to lead the smart city concept to execution but more importantly touches upon the need to develop a smart village concept as well.

 

Smart villages

 

It is well-known that nearly 70 percent of India's population still lives in India's 600,000 villages. There can, therefore, be no equitable development unless the villages are also brought into the smart paradigm. If 100 smart cities are seen as the magnets to spur overall urban development, probably the country would need about 20,000 smart villages in the first phase. Smartness is the ability to be contextually efficient and effective. Given that villages are dependent on natural resources for day to day living smart villages must aim at leveraging technology for more efficient and effective use of technologies and generating surpluses that can be sold in the urban centres to generate rural wealth.

The smart villages must aim at being the nodal hubs for the balance ‎580,000 villages. While each of the 600,000 villages must be covered by total sanitation, drinking water and housing for every family, the smart villages must have certain additional capabilities. Typically, each smart village must be strategically selected to support a cluster of villages in an accessible distance; it should be the centre of a cluster of villages in a 5 kilometre radius. It should have a 3 tier school structure to support universal education, a multi-utility agricultural resource complex to support smart agriculture and a healthcare infrastructure to provide life support systems. The agricultural resource centre would be the core of a smart village. 

Smart agriculture 

India has fairly long monsoon season, extending between 4 and 5 months in different regions. What is unpredictable, however, are the start and end ‎dates as well as the curves of ramp-up extension and ramp-down withdrawal, impacting the seeding, sowing and reaping phases. In addition, unseasonal rains and floods caused by the low pressure areas in the long coast line cause damage to standing crops and produce. As all the villages are solely and wholly dependent on agriculture, the smart villages must emerge as the protective umbrella for the larger village clusters as agricultural resource centres. In addition, they must lead a smart agriculture revolution across the villages.

Each smart village must have ‎a multi-utility Agriculture Resource Complex (ARC) comprising a meteorological centre, fertiliser centre, a pesticide centre,‎ a seeds centre, a threshing centre, a drying centre, a testing centre, a grain warehouse, a crop planning centre, a logistics centre, a leasing centre (for tractors, trailers, vehicles and implements), a grameen bank, a telecommunications centre, and  a crisis management centre. The ARC in each smart village would be the key to develop and implement smart agriculture strategies in the villages covered by each smart village. All the ARCs would be digitally connected not only among themselves but with leading agricultural universities.

Smart industry

Just as smart agriculture is the core to wealth generation for sustainable rural development (all towns and cities), smart industry is the core to wealth generation to sustainable urban development. The development of smart cities must be accompanied by a smart industry strategy as well. Smart industry policy must incorporate strategies to develop custom-built industrial parks that can can cater to the entire value chain of each industry. Typically, the parks should have equal share reserved for end-products and component makers. Even if a component supplier is centrally located and well-established elsewhere there is no reason why a finishing operation cannot be decentralized locally. Bharat Forge may produce and rough machine all of its forgings for India in Pune but can set up the fine machining facilities wherever major automobile firms are. 

Smart industry policy also involves creation of the entire comm‎ercial and governmental infrastructure that is required to serve the industrial park through single window clearances and commercialisation. Smart industry policy should aim at crating product-specific logistics and transportation hubs and parking terminals (for both cargo and people) and container terminals for mulltimodal transportation (of incoming and outgoing goods). Most parks are developed only for bare factory requirements and not for the whole series of support centres and hubs that are mentioned herein. New industrial parks in smart cities should, therefore, be conceptualised with foresight and industry collaboration.

Smart residence 

 

As much as industry is important, civic life is equally important. Indian residential market has been progressively moving out of the reach of the lower and ‎middle income groups, essentially due to escalation of land prices and construction costs. The efforts by the governments to develop low income houses in far flung areas has increased the distance between the workplace and homespace for vast tracts of workforce. The affordable homes conceived by certain reputed builders, such as Mahindra and Tata, are too few and isolated to make an impact. As the Governments set about building smart cities and smart villages it is time to do away with the concepts of economic isolation that have taken root over the years. 

Indian cities as they historically evolved had little planning for integrated residential habitats. From Mumbai to New Delhi and from Chandigarh to New Raipur, one can see multiple models, none of them fully thought through for a sustainable high quality living with socio-economic integration. Alternative models do exist; the campus of the ‎Indian Institute of Technology Madras is a good example of harmonious housing colonies with multiple templates co-existing.  As the smart cities get built, integrated planning of residential and commercial spaces would be required. There is no reason for abandoning the weaker sections to isolated existence and tardy development in the fringes. On the other hand, there is every need to use the smart city and smart village as well as new capital developments to integrate all sections of the population, socially and economically.

Renewing the core

 

An important component of developing the smart cities and villages is the renewal of the core. Any observation of historical development indicates that civilisations deve‎loped on river banks, sea coasts or hill valleys for good socio-economic reasons. While developing smart cities and villages, efforts must be made to renew the core to retain traditional advantages while injecting contemporary land use planning. Just as land pooling is being planned for construction of a new capital in the Vijayawada region, building pooling can be considered for renewal of old urban centres. This must focus on unplanned, impoverished, dilapidated and bottleneck parts of the urban centres to convert them into more vibrant zones which can meet the needs of the coming decades. 

An aerial view of any of the cities identified as smart cities would reveal congested building clusters which are not only partially constructed but are also unsafe. Yet they constitute valuable property and the only means of security to the owners. A major people's initiative would be required to achieve productive renewal of the core. It is likely that a well conceived and apolitical plan in public-private participation would help achieve the objectives. The renewal can be an opportunity to create large horizontal free spaces for movement and parking while going vertical for creating commercial and residential space. In the urban renewal, care needs to be taken to avoid wall to wall packing of buildings, a legacy or temptation to which even the world's greatest cities have succumbed.

 

Waves and ripples

Along with the identification and renewal of a core, new zones must be created for expansion of smart city areas from the available basic stages. There are two ways the development can be effected; one as waves and the other as ripples. A wave form of development starts from a developed core and moves towards an unexplored horizon. The development of Hyderabad which proceeded from the core Ameerpet are‎a to Banjara Hills, Jubilee Hills, Hitex City and now Gachi Bowli is an example of wave development. The advantage of wave development is that the existing connectivity options can be progressively extended while new enclaves get developed. The disadvantage of wave development is that the constraints of a previous development tend to impact the newer developments as the core is what provides the basic development backbone.

The ripple  development is based on choosing new nodes far away from the core, and developing them towards one another‎. The development of Bengaluru with new distant clusters like Sarjapur, Whitefield, Peenya and Davanahalli serving as the four new clusters expanding and rippling outwards from each of the new cores is an example. The advantage of ripple development is that it enables a much larger canvas and a much faster pace of development. The disadvantage is that it tends to be a connectivity nightmare if people need to commute across work areas of one location and residential areas of another location. Bengaluru is an example of both. As the governments embark upon converting the existing cities into smart cities, the need for orderliness and convenience cannot be ignored.

Managing expectations

It appears that development of smart cities and smart villages could be at high land costs. The (already costly) experience with the new capital of AP suggests the need for tempered visions and calibrated communications. Farmers who have inherited the lands in and around Vijayawada, and have been living in abject poverty thus far should feel happy with the smart developments that fetch huge land values. On the other hand, if they have already sold their land parcels months earlier for small incremental appreciation to 'smart' people, then they may have unknowingly skirted the once in a lifetime development opportunity. Media reports suggest that this indeed could be the emerging story. Reports suggest unprecedented spikes in the land prices in and around Vijayawada, expected as the new capital city of Andhra Pradesh ever since the bifurcation of the AP State a few months ago (and announced accordingly on September 4, 2014 in the AP Legislative Assembly).

Other reports suggest that the Governments would go in for joint development for the new capital with land pooling with 40 percent share to the land owners and the skyscrapers getting built free on the land on the basis that half the number of floors would go to the Government with the balance half being retained by the developers for their sale. This has a hidden high cost element while being low on visible expenditure. The other alternative, possibly less speculative and more cost-effective, is to limit new capital development to only clusters that have government land and avoid private acquisition of land. Even if such clusters are separated, top class road and metro rail connectivity can be ensured to keep them networked. This could be a better model with each cluster focusing on one specific part of governance. 

Digital connectivity

 

An avowed objective of the NDA government is digital integration. Smart cities as well as smart villages must lead in this. Digital connectivity is more than wifi enablement or iPad deployment. An ability to access information through a private device in any public spot is only a battle half won. Digital connectivity must provide access to information for all people at all places without having to resort to private devices.‎ Announcing arrival and departure times through mobile applications may be an improvement over telephonic enquiry service but does not represent real and total digital connectivity. Digital connectivity needs time to speak and time to listen. The new Government has asked for people's  suggestions on the body to replace the Planning Commission. However, only few suggestions have flown digitally while fewer have been analyzed. When digital universe is opened up, time needs to be allotted to make use of the information highways by all stakeholders. 

Digital connectivity must facilitate instantaneous access to desired information by public. ‎This is enabled largely by major upgrades in digitization of all activities starting from one digital card for each individual to total digitization of all transactions. The Income Tax department has demonstrated how several economic transactions can be interlinked with one PAN card number. The experience can be more profound if, for example, the labour market and employment market are fully digitised with access of real time information on vacancies and candidates. A national information exchange could be a national repository of public information with a dedicated search engine. Even in today's times, ministers cannot be reached by general public. In a true digitised state, digital outreach (as organized for the Prime Minister on the Teachers' Day) would be a daily feasibility. There should be digital highways that carry the citizens' pains and pleasures to the administrators and ministers anytime. 

Smart India Authority 

The plans that are being laid out are so great with development aspirations all across India and with investment needs so huge that the development paradigms need to be created carefully. Centre could enable a centralised model based on central and global institutional funding or allow the States pursue their own models of smart development. Whichever route is taken, the development paradigms must be empathetic to the needs of the poor and downtrodden as the smart city and village concepts are the one last chance to bring people onto the developmental mainstream. Whether a new body to replace the Planning Commission takes shape or not, a new Smart India Authority seems to be definitely required so that the smart visions and raised expectations are aligned with empathetic strategies and ‎invigorated execution.

Posted by Dr CB Rao on September 8, 2014

 

 

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Stock Markets for the Masses of India in a De-risked Manner: The Concept of Social Stock Investment and Trading Corporation of India

There was an interesting article in the Business Standard of August 29, 2014 that those who invested their savings a year ago in three blue chip stocks of India would have seen their net worth double effortlessly by today. These three stocks, Axis Bank, Maruti Suzuki and L&T belong to three different sectors, banking, automobiles and capital goods. Interestingly, four blue chip companies Reliance Industries, Tata Power, ITC and Infosys which belong to four other sectors oil & gas, power, FMCG and IT provided no more than 20 percent growth. All the 7 companies are leaders and blue chips in their sectors but the diversity in growth in market capitalization has been remarkable. A deeper dive in each sector and across sectors reveals that several firms that qualify as blue chip companies have demonstrated similar divergent rates of growth.

Neither is it easy to hypothesize that sector outlook has a greater say than company’s outlook in driving a company’s market capitalization. A study of each sector demonstrates that there is a high variability in the performance and market capitalization of various firms in each sector. This applies to defensive sectors like pharma, forex driven sectors like IT, consumer based sectors like FMCG, economy based sectors like automobiles, metals and infrastructure, to quote a few. Over and above, governance issues in companies tend to convert high growth stocks into either highly volatile or free fall stocks, just in a matter of days. Managing the excitements and pitfalls of Indian stock markets has become a frighteningly hazardous exercise for the retail investors who put their hard earned savings into the stock market with expectations of high growth.

Virtual Reality

Stock market has been the most innovative financial forum that has been established by the business ever. It is the only forum that brings the companies and investors face to face based on goals and performance on one hand and expectations and resources on the other. For the company, it offers a foundation to build market capitalization to attract risk capital into the shareholding structure at the right time and at the right price. For the investors, it offers a forum to participate in industrial growth based on their understanding of the sectors and companies. Over time, with the evolution of mutual funds, emergence of high net worth investors and entry of domestic and foreign investment houses, the domestic small retail investor has become marginalized. Expectations have turned virtual while volatility has become real for the small investor.   

Over the last several years, the level of independent analyses that are available on Indian companies has grown manifold. The number of business papers and investor forums has also grown substantially. With availability of software, minute by minute tracking of individual stocks and highs and lows as well as volumes is available at the click of a mouse to individuals. For those who want to rely on knowledgeable advisors, portfolio managers have emerged. Yet, there is no clarity  if all of these serve to provide greater assurance or insurance to the retail investors. There is no hard research on how and to what extent the stock markets benefit the small retail investors. There is no research on the benefits of investing through mutual funds vis-à-vis direct investments. There is also lack of clarity if the scores of analyst reports that are available are of any help for the retail investor.     

Managing expectations

Over the last several years, many steps have been taken by the Securities and Exchanges Board of India (SEBI) and the Bourses (Stock Exchanges) to protect the investors. These steps focus on improved corporate governance, better regulations for initial and follow-on public offers as well as other equity and debenture issues, more evolved systems for mutual funds, foreign institutional investors (FIIs), circuit filters on regular and volatile stocks, greater oversight on insider trading and operator driven trading, wider public information campaigns and so on. That said, the small domestic investor continues to be vulnerable. Highly capitalized and leveraged companies in high market capitalization mode have seen their stock prices collapse by 40 to 50 times in just matter of days, with no understanding or clarity on what would it take to recover, and when as well as to what level. While such cases may be attributed to tainted stocks or misgoverned companies, it is clear that such companies continue to beat the elaborate financial and securities systems. Even well governed companies are induced to focus on the short term quarterly profitability than on long term sustainability.

Over and above the above, Indian stock markets have become coupled with global economic developments on one hand  and the movements of funds by FIIs and other global investors across countries based on their needs and perceptions. These two factors, including global geopolitical risks, make the Indian stock markets a slippery ground waiting for the unexpected to happen.  Public information campaigns advise the investors to be watchful. However, given the variety of investment options for several hundreds of stocks, the daily masthead news on exuberant appreciation as well as unstoppable collapse of stock prices, lack of knowledge and time on the part of small investors, such well merited advice can only moderate expectations but not prudentially manage them. Clearly, in a growing economy like ours it is important to have healthy and vibrant capital markets with as much investor participation as possible. This blog post suggests some unique ways to manage the all-round expectations with focus on productive wealth generation as opposed to wasteful wealth circulation.  

BRL, like BPL

All said and done, India is committed to an egalitarian society. The several schemes that successive governments have initiated such as ration card systems, subsidized food systems, rural employment schemes, subsidized transport fares, price and tariff regulations and several others seek to help the people below the poverty line (BPL) cope with the stress caused by unemployment and underemployment on one hand and scarcities and inflation in factors of living. Irrespective of party ideology, all leaders and governments in power have endeavored to be creative on this score. While skeptics may dismiss them as populist schemes, it cannot be denied that they help the people in the BPL category.  Inclusive development is the sine qua non of a stable democracy. The latest policy initiative by the Prime Minister of India, Shri Narendra Modi, the Pradhan Mantri Jan-Dhan Yojana (PMJDY) is an innovative and bold step for universal financial inclusion. With a target of opening bank accounts for 7.5 crore families in a year, PMJDY comes as a package of more than account opening. It also offers RuPay debit card, Rs 1 lakh accident insurance cover and Rs 30,000 life insurance cover for accounts opened before January 26, 2015.

Taking a cue from this, this blog post proposes Below the Risk Level (BRL) as a foundation concept for universal capital market investment. Unlike the BPL and PMJDY schemes that reach people directly and are intended to protect the people, any move to make the common man participate in the stock markets directly has the potential of destroying the meager wealth. A risk-proof plan for inducting the BPL population into the capital markets with the assurance of long term capital appreciation would be ideal but has to be carefully developed. Fundamental to that strategy would be the definition of BRL concept. The BRL concept should provide a definitional basis to identify the section of the population that should qualify for participation in the universal capital market scheme. An easy way to kick-start the concept is to define BRL population as those earning a multiple, say up to 10 times, of the BPL earnings level. Such BRL population should be linked to special bank and DMat accounts under the PMJDY.  

Social Stock Investment and Trading Corporation

Social Stock Investment and Trading Corporation of India Limited (SSITC) will be a wholly owned enterprise of the Government of India with a corpus contributed by the Government of India. The corpus would be say Rs 20, 000 (X) multiplied by twice the number of BRL accounts. All those who open the PMJDY accounts and qualify as BRL members would be provided a stock holding of Rs 20,000 in the SSITC, free of cost. The balance corpus would be used by SSITC to invest in Indian companies and trade on them. SSTIL would act as the umbrella stock investment and trading company for all the BRL members. The stocks issued for a BRL member would have a lock-in period of 5 years. At the end of the 5 years, the holding can be sold in part or full but only to another BRL member or to SSITC itself. If the holder sells the holding and the value of the holding increases by more than 1.5 times (base plus appreciation), SSITC would retain the excess over the 1.5X amount and return the 1.5X amount to the holder. The shares of the SSITC would be traded in the National Stock Exchange.

The financial burden on the Government of creating the corpus for SSITC may be reduced by making contributions to SSITC an admissible activity under the Corporate Social Responsibility rules under the New Companies Act 2013. SSITC as an investment arm of the society, for the society and by the society can do wonders in terms of bringing the stock markets within the reach of the masses in a risk free manner. It would be risk free because the original investment is a government subsidy on one hand, and is managed by SSITC as a professional organization on the other. As the SSITC holders get to know the value of their holdings through periodic newsletters, they would be encouraged to invest their savings as additional contributions in SSITC. Such contributions would not have any restrictions of sale, lock-in or retention of excess value appreciation. There would be an expert professional management team to oversee and run the day to day operations of SSITC. Obviously, a lot more thinking and strategizing would need to happen before the SSITC concept can be finalized, including how to consider members who graduate above the BRL.

Markets for masses

India’s two top bourses, NSE and BSE have an average daily turnover of Rs 376,391 crore (August 2014 data) comprising both Cash and Futures & Options segments. It would be tragic if most of the massive trade were to be in the categories of wealth circulation, with wealth erosion for the unwary, completely skirting the masses who do not know the outlines of the stock markets. The SSITC concept with its social objectives can not only bring the stock markets to the masses of India in a risk free manner but also act as stabilizing ballast for the choppy and deep waters of the stock markets. It is hoped that the proposal of bringing the stock markets to the masses of India through the Social Stock Investment and Trading Corporation of India would bear fruition sooner than later.

Posted by Dr CB Rao on August 31, 2014