Mains Q & A 20 December 2022

Q1. Discuss about the Social Stock Exchange concept’s social impact. Examine the elements that need to be implemented adequately for this unique idea to succeed in India. (250 words)

Paper & Topic: GS II Government Policies and Interventions

Model Answer:

Introduction:

In order to raise money, social enterprises, volunteer groups, and welfare organisations might list themselves on a social stock exchange (SSE). On a single platform, it would link impact investors and social enterprises. The administration intends to include funds for a social stock exchange (SSE) in the budget for 2019, according to the finance minister. The Indian SSE will fall under the purview of the SEBI.

Body:

Background:

In this regard, in September 2019, the Securities and Market Board of India (Sebi) organised a 15-person working group on a social stock exchange (SSE).

According to an estimate in a June 2020 study by Sebi’s SSE working group, India has at least 3.1 million non-profit organisations (NPOs), more than triple the number of schools, and 250 times the number of public hospitals.

Social stock exchanges’ effects on civil society:

Social entrepreneurs and others have expressed concern that the idea may radically change how they approach potential investors for funding. The proposal has generated a lot of interest.

The exchange would make it easier for nonprofit organisations that support social issues to raise money as equity, debt, or mutual fund units.

The government should invest funds in establishing an entity that serves as a facilitator.

The exchange could assist the sector in making more money given that the government is wary of foreign donations to charities.

In a country where there is extreme inequality and rapid economic growth, the idea would be a risky experiment.

In addition to demonstrating India’s independence from foreign aid as it seeks to raise its profile internationally, the exchange, if it were to be established, may offer new and less expensive sources of funding for social welfare programmes.

Different nations have SSEs, but it is currently unknown how trading, transferring tax benefits, and third-party liability restrictions would work for the Indian version.

What must be taken into account for this new idea to succeed in India:

Non-profit organisations (NPOs) NPOs would need to demonstrate the “primacy of social impact” in addition to making their operations quantitatively effective.

It seems that any company that integrates social impact into its operations, regardless of whether it is “in corporation form, partnership or sole-proprietorship firm,” can be categorised as a for-profit social enterprise (FPEs). This is a murky area where money could be misused or even prevented from getting to charitable organisations.

The SSE enforces stricter financial, social, and governance reporting requirements in an effort to encourage openness in the NPO sector. Although this is a noble goal in and of itself, information-based processes run the risk of leaving out smaller NPOs from the SSE’s purview.

Additionally, it could alienate people whose contributions or influence might not be helpful in gathering enough data. NPOs that, for instance, work in subjects like environmental justice or digital rights where the current institutions and procedures are biassed against them.

When the SSE technical committee creates standards for social auditors, there is concern that intermediary organisations may start to appear.

Due to a lack of regulatory checks and balances in the plans, such bodies face the risk of gaining total control over the SSE-NPO-donor ecosystem. This may not have achieved the desired result.

As the plan is implemented, a lot of work will be required to strike a balance between the requirement to regulate NPOs in order to prevent abuse of the freedom granted to them and the requirement to approve a wider variety of fund-raising activities that go beyond a small set of immediately measurable goals.

Conclusion:

The government’s first task is to figure out how to distinguish between traditional businesses and social enterprises.

If money designated for corporate social responsibility could be given to social entrepreneurs by way of the exchange, that would be something special.

This can lessen the misuse of CSR funding and assist businesses in making better financial decisions.

The concept of a collective stock exchange is wonderful, but it still has to be considered and discussed with all relevant parties.

Some of these crucial choices taken at the onset will determine its eventual realisation and value to many stakeholders, especially NPOs.

The Social Stock Exchange is a smart move that will aid social firms who are having financial difficulties. This will advance socioeconomic progress and encourage transparency and accountability.

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Q2. While FDI has undoubtedly contributed to India’s economic growth, the notion that it is not the only answer to the country’s socioeconomic problems is debatable. Comment. (250 words)

Paper & Topic: GS III Indian Economy

Model Answer:

Introduction:

When a firm purchases a majority stake in a company operating in another nation, it is engaging in foreign direct investment (FDI). Therefore, it is when a business or investor based outside of that country buys a stake in a corporation. When Indian FDI inflows nearly doubled over the same period the year prior, another significant milestone was accomplished in the middle of the epidemic’s second wave. FDI equity inflows increased by 168% of this total.

Body:

FDI is the primary source and driving force of India’s economic growth:

Investments increase economic output and employment.

One technique to partially finance a current account deficit is through capital inflows.

Short-term portfolio inflows are less durable than long-term capital inflows.

Banks can rapidly sell off portfolio assets during a credit crunch, but they are less likely to do so with capital projects.

By filling the fiscal shortfall, stabilising the rupee, and improving the Balance of Payments, it acts as a bridge.

Knowledge economy: Multinational international corporations can contribute more knowledge and expertise to the recipient nation.

Opens up positions, primarily in ITEC and the service industry.

Foreign investment may result in higher earnings and better working conditions if multinational corporations are aware of how their public image of working conditions in emerging nations.

Infrastructure development requires FDI in construction and railroads other than those that are currently in operation in order to support initiatives like high-speed trains and freight corridors.

Taxation: Improving community welfare through CSR initiatives and raising business tax income.

A greater level of domestic manufacturer competition might result in the production of better goods and services.

India has other options besides FDI to address its socioeconomic problems:

Since they solely worry about their personal financial well-being and not the development of their native nations, foreign investors frequently relocate in an effort to increase earnings. As a result, market instability and speculative activity rise. Their hurried departure could result in significant unemployment and inflation.

Gives multinational corporations access to influence on other nations. Those who disagree claim that strong MNCs may persuade local lawmakers to pass advantageous legislation and regulations.

Because it allows foreign multinational corporations to profit from owning raw materials, with little proof that money is being transferred throughout society, FDI does not always help recipient countries.

Multinational corporations have come under fire for the subpar working conditions in foreign factories. Chinese factories for Apple, for example

By displacing labor-intensive businesses with technology, as in multi-brand retail, it endangers already-existing markets.

FDI prefers short-term infrastructure investments over long-term ones.

Technology diffusion is challenging in our nation since neither our physical nor our human capital is at the level of developed nations. As a result, many low-skilled workers lost their jobs as technology advanced.

Only some sectors of the Indian economy, such as finance, IT, banking, insurance, and outsourcing, which predominantly use trained labour, are allowed to accept foreign direct investment (FDI).

Regional inequality can occasionally get worse when there are capital inflows. Approximately 1% of FDI, which is typically restricted to urban, developed regions like Delhi, Maharashtra, etc., flows to states like Odisha. As a result, affluent areas get even richer and poorer areas become even destitute.

FDI could be a practical method for getting around regional environmental regulations. Developing nations may be pushed to do this in order to compete by lowering environmental laws and draw the necessary FDI.

Conclusion:

At most, FDI can be considered to play a qualitatively enhancing role.

The MSME sector needs assistance from the government, which might result in more rural job creation.

Investments made by the government in infrastructure and energy will have long-term benefits that will promote economic growth and generate immediate demand.

To avert civil unrest and maintain a social safety net, spending on social sectors is necessary, as is solving India’s urgent problems with poverty, demography, and agrarian stagnation.

While continuing to speed up procedures to attract FDI, the government must realise its limited role and take steps to boost the three main pillars of economic development—health, education, and employment.