68.1    The problems with FII/FDI

When a foreign company invests into India, it needs to buy deposits, shares or land/labor etc. For this the company will need rupees, and to get rupees, it gives dollars to RBI and RBI in turns gives rupees. Now RBI gives rupees under two conditions – repatriable and non-repatriable. When it is repatriable, the person who got rupees can later give rupees back and ask for dollars. And in non-repatriation, he cannot get dollars back. To get a hint, I request reader to ask his local bank manager to know interest rates and conditions of NRI’s repatriable fixed deposits and NRI’s non-repatriable fixed deposits.

Today, FII/FDI-owners are given option to repatriate their capital as well as profits. This causes problems. How?

If FII/FDI-owners demand dollars back en-masse, then this will cause a serious dollar shortfall and a repayment crisis, and rupee will fall rapidly. Solution? We should print a gazette Notification which ends repatriation. This is described in bit more detail in next 2 sections.

Another problem is in FDI/FII is that it can create undue influence on judges, Ministers, IAS, IPS etc. This is worsened by the fact that our court system is centralized, while court systems of USA is highly decentralized. In USA, it is Juries and not judges who give verdicts. And large number of judges are elected, and are recallable. And recallable judges are not under tight control of senior judges. Whereas in India all judges are recruited via interviews, there is no Jury System and no even Magistrates are recallable. And all judges are under control of handful of Supreme Court judges. So by bribing handful of Supreme judges by giving their relative lawyers crores of rupees of practice. Solution ? The solution is to have Right to Recall judges and Jury System. The details are given in chap-21.

68.2    Not giving repatriation commitment to foreign investors

The investments of FII/FDI-owners should be made non-repatriable.

So RBI will not give them dollars back. But they can take “dollars” back by buying goods other than natural resources, food, meat, milk etc. This will ensure that FDI/FII does not create repayment crisis and sudden fall in rupee and also ensure that FII/FDI-owners will put their investments in creating export grade goods. This will raise skill levels etc in India.

Further, private individuals should be allowed to have dollar accounts in foreign banks, with disclosure to RBI. The dollar incomes they earn from exports can be deposited in foreign banks and will be taxable at normal rates. And whatever dollars they give to RBI, for that they will get rupees as well as transferable tax-waivers.

68.3    Promoting exports of finished goods ; banning/discouraging export of natural resources

Only exports of finished goods should be allowed, and export of natural resources should be banned or discouraged. Such discouragement  can be implemented by imposing 300% export duty on “natural resource content of goods” and 0% duty on export of labor-value. Eg Iron ore is over 95% natural resource and so import duty on it will be high. But if a chip is exported, then natural resource in it is near zero, and so export duty on this will become automatically low. Using this guideline, export duties on various commodities can be worked out.

68.4    Moving away from dollars to gold standards

India should move away from dollars to gold standard in international trade. This can be done by creating gold reservoirs and creating gold account, and allowing all international transactions using the gold account.

68.5    Allowing FDI only in select areas

FDIs should be allowed only in areas which do not jeopardize national security and do not cause one sided dependence. Eg FDI in telecom should not be allowed because this enables US companies to put kill switches in Indian telecom network. The list has to be decided on item by item using legislations and TCP. The TDP draft is given in section-1.3.

68.6    What can YOU do to reduce FDI/FII mess?

Please read chap-13 of this book http://rahulmehta.com/301.htm . It has several steps where-in you can spend 6 hours a week and help to bring TCP draft in Gazette in India. The steps involve distributing pamphlets, informing citizens on motives of leaders such as Congress MPs, BJP MPs, The Anna, Arvind Gandhi etc who oppose TCP draft, by giving newspaper ads and contesting elections. Once TCP gets printed in Gazette, using TCP, it will become easy for activists to get citizens’ opinion law-drafts necessary to reduce the FDI/FII mess and also move towards gold standard for international trade. This will increase strength as well as independence of India.