Foreign Direct Investment Policy 2.0
The winner-takes-all business models are characterised essentially by inequitable dynamics since they distribute most gains to themselves vis-à-vis their host countries. This demands a policy response through FDI 2.0.
Proposal 1: List in India
A majority (more than 51%) foreign-owned Indian-listed MNCs must be made eligible to domestic company tax rate whereas unlisted MNC subsidiaries could be subjected to a higher tax rate. Countries such as Bangladesh, Vietnam and Thailand have used tax incentives to attract listing by MNCs.
Mexico is one of the countries which was most successful in attracting cross-listings as Coca-Cola, Walmart and Citigroup are listed in Mexico.
To ensure the proposal succeeds the government must reconsider the present policy of allowing 100% MNC-owned subsidiaries to compete with their listed Indian counterparts that erode the value accruing to Indian shareholders.
Proposal 2: Trade in India
Proposal 1 by itself will not achieve the objective of increasing Indian participation in the fair value of Internet MNCs because of complex issues in revenue booking that result in low profits in Indian subsidiaries.
Hence the Trade in India proposal must be explored to enable Indian investor participation in the ownership of parent MNCs’ shares. The Indian investors must be allowed to buy shares of parent MNCs (where global profits and value get consolidated).
SEBI could mirror the model of the Mexican Stock Exchange allows trading of international shares listed in other stock exchanges. India could replicate such models.
FDI for Benefit of Indian Investors
Increasing Indian equity ownership of MNCs would provide diversification benefits and make Indians more prosperous.
Wealth distribution through mutual funds would result in 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. This is a win-win for all stakeholders.