Good morning, it's Monday, and this is Vedica with the update today kicking off our last week of updates for the year!
➡️ Internet entrepreneur Sanjeev Bikhchandani has argued that foreign funds are the new East India Company that are colonising successful Indian startups by transferring ownership abroad to skip Indian regulations and taxes. He claimed an estimated Rs 17 trillion of market cap has been transferred abroad after young Indian start-ups were forced to shift their company domicile overseas by foreign investors promising the funds they need for growth.
➡️ Last week Bikchandani tweeted: "Shades of the East India Company type of situation here - Indian market, Indian customers, Indian developers, Indian workforce. However 100% foreign ownership, foreign investors. IP and data transferred overseas. Transfer pricing issues foggy." "Basically institutionalised transfer of wealth away from India while living off the Indian market and Indian labour somewhat like the days of the Company rule."
➡️ Bikchandani further clarified that the transfer of ownership to a foreign entity not only makes the Indian entity a 100% subsidiary of the foreign company, but also transfers all IP and data captured to the overseas entity and outside Indian jurisdiction.
➡️ Bikchandani argued that the government should insist that data and the IP should belong to the Indian subsidiary and cannot be owned by the overseas entity in sensitive sectors like fintech. This could be done retrospectively, he said.
➡️ The Zomato and policybazaar investor noted that if this flipping option was not available, most investors would invest in Indian start-ups regardless. Ironically, Bikchandani noted the problem himself saying that investors want access to Indian market and customers, but not the Indian government, regulators or tax authorities.
➡️ I have a lot of respect for Bikchandani, and even though I really dislike the EIC comparison, I don't think he is wrong in raising these concerns. I think there's a role for policy making here, but India has always struggled with consistent policy when it comes to foreign investors and companies. Is retrospectively changing policies really the best way forward given how badly that has undermined confidence in India in the past (think Vodafone). There seems to be a view that India is such an attractive destination for foreign capital on account of its population that foreign capital will continue chasing the Indian market no matter what. Given the lack of exits, challenges with monetization, and the overall economic downturn, I am not so sure.
2. https://bit.ly/37Ydm93: An ideological view to suspect foreign capitalists: Abhijit Banerjee
➡️ At least it looks like I have some good company in my distaste for this suspicion of foreign capital. I found myself nodding along vigorously as I read this interview with Nobel Laureate Abhijit Banerjee. Banerjee was speaking more specifically about banking reforms and the benefits of involving foreign banks in the struggling Indian banking sector.
➡️ As some of you may remember, a recent RBI working document floated the idea of potentially allowing industrial houses to receive banking licenses. Banerjee said that if the take-away is that Indian banking needs more private ownership then restricting this to Indian ownership will be a mistake.
➡️ ET quotes Banerjee as saying: "I think we have some ideological view that Indian capitalists are somehow good capitalists and foreign capitalists are bad. We're staring in the face of large defaults by Indian capitalists and our banks are a complete mess ... we actually have no way of even writing [bad debts] down unless we get some capital inflow from abroad. I don't think anybody else will have deep enough pockets to write down that debt.
➡️ Banerjee was equally scathing on the subject of start-up ownership and listings arguing that pushing against foreign ownerships and listings is a "effectively a subsidy to the Indian capitalist class. This way good companies remain cheap for them to buy out." He noted that the country has always been afraid of competition. I keep saying this and have written about this before, but the Indian capitalist class is much more comfortable with crony capitalism than a more open and free market.
➡️ Banerjee also had my heart when he also took on the discourse around the EIC saying, " This is an colonial mindset. It's been a long time since we've had foreign rule over us, we are a $3T economy now." He noted that being defensive has always suited a particular group of capitalists who have the cash to get whatever is going cheap.
Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/MilanV/status/1338317793528172544?s=20
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