President Holds Equity In PSUs On Behalf Of People Of India; Time To Transfer Some Of That Back To People Themselves?   

India has made rapid strides in financialisation of the economy in the last decade. The JAM trinity (Jan Dhan-Aadhaar-Mobile) has facilitated inclusion of masses into mainstream financial system.

This has brought countless people into the formal economy enabling direct benefit transfer, digital payments and design of new products to suit their needs better.

India follows a system of mixed economy where both public and private sector companies co-exist to ensure the benefits of both systems are available while reducing the negative externalities of either system.

The experience so far in this has been mixed. We have examples of good and bad outcomes in both public and private sector. The President of India holds shares in public sector companies on behalf of the citizens of India.

Recent developments in science and technology have massively accelerated innovation and consequent wealth creation in many societies. While innovative technology has found wide usage amongst the masses, the economic benefits of the same have been cornered by a very small minority.

Early equity investors in companies like FAMGA (Facebook, Apple, Microsoft, Google and Amazon) and others like Netflix, Tesla etc, have made manifold returns on their investment. Wealth creation through innovation is, by its very nature, unevenly spread.

Equity ownership (direct or indirect via mutual funds, provident fund, pension etc) in innovative, disciplined, well-run companies can rapidly lift wealth for shareholders.

In India, equity ownership (direct and indirect) is still rather limited (by some estimates less than 5 per cent of the population as compared to about 50 per cent for say the US via direct, mutual funds, 401k, pension etc).

This has led to a disinterest in the equity culture in India and consequently, loss of opportunity to participate in the upside presented by a growing Indian economy that is attracting equity investments from all over the world.

Equity ownership affords a way for individuals and households to increase wealth in a non-linear fashion as compared to other savings and debt investments.

Government of India could examine possibility of expanding the JAM trinity to a quartet by opening demat depository accounts linked to Aadhaar (to begin with) for every citizen of India.

Into this account, the government could transfer a part of the holding of the President of India such that every citizen directly gets one share in each public sector undertakings (like SBI, LIC, GIC, IOC, MNGL, IGL, HMT, HAL etc).

Such a direct transfer of ownership could begin at say 5 per cent or 10 per cent of the equity capital of the PSU entity.

Necessary changes to face value/number of shares issued could be made prior to transfer of the share owned by the government.

Discussions can be held around the target ownership that could be directly transferred depending on the political party’s proclivity towards the size of the direct government ownership in the economy.

Such a scheme would immediately allow the citizen to see the assets that she owns as a citizen of the country in the PSUs set up on her behalf. She would receive the right to participate in the growth of that entity and demand good governance from its managers as a shareholder. She would also receive benefits in the form of corporate action like dividend, bonus etc, as a right rather than as a dole.

This would likely inculcate the spirit of equity ownership in the people and enable them to benefit from potential upside as India grows to be a $5 trillion (and more) economy in future.

In order to ensure that citizens don’t sell immediately, the design of the scheme could ensure that such directly transferred shares (could be a new class of citizen shares) cannot be sold or bequeathed.

However, these shares could be provided as collateral against bank loans.

A portfolio of shares of PSUs across industries is likely to be a robust set of companies with counter-cyclical trends to ensure that over time, the shares could be expected to lead to reasonable wealth creation for the citizens.

This could also address the promise made by the Prime Minister Narendra Modi to directly transfer funds into the accounts of the citizens.

Some philanthropist promoters of private companies could also be encouraged to share in the equity of their companies on similar line with the citizens of the country.

This could be thought of as CSOP (citizen’s stock option plan) and could form part of the corporate social responsibility (CSR) activities of the company and benefit both the company and the citizens by co-opting the citizens into its own growth and welfare.

Universal basic income (UBI) in various forms is being discussed to allow citizens all over the world to lead a dignified life as far as basic human requirements are concerned.

This is in active discussion and experimentation in many countries and many political parties are advocating steps towards UBI even in India.

The suggestion made above could be thought of as a form of universal basic wealth (UBW) which provides a sense of ownership for every citizen in the affairs of her country.