“Make in India” campaign by building an “International City” within Indian boundaries

In developing the economy of a nation we often discuss about what incentives we need to give to investors to invest. India is now in the search for such global investments in its quest to promote the “Make In India” campaign with an aim of making India Import free by 2020.

The main impediments in such a quest is the lack of infrastructural facilities and hence one approach is to provide incentives to develop basic infrastructure such as power, water, communication and transportation. I am sure that Modi Government will pursue this approach. The US $35 billion from Japan, a possible US$20 billion from China and perhaps some thing more from USA, UK, Germany, France and Australia in the coming days can help in this direction.

However, one of the biggest hurdles in such cases is the legal impediments that prevent development. It may be in the form of Tax laws or real estate laws or human right laws etc. Yes, Modi Government is also working on making changes in these individual laws to make “Doing Business With India” easy.

But changing existing laws is a time-consuming affair and will involve the cooperation of the political parties in the opposition who would bring as many hurdles as possible in making the task of this Government difficult.

A thought that strikes me in this context is instead of making changes to our law to make our country an investment destination acceptable to global business, why can’t we make one single law to create a “Zone” where “Universally acceptable International laws” apply rather than the current laws except to ensure that India will have a royalty on the revenues generated in the zone as a part of the revenue share. For the sake of a better expression let’s call this an “International City Zone”. (ICZ) Some principles of the SEZ laws can help us understand what we need to do to make doing business in this zone easy.

This is only an initial thought and I donot have a complete solution as yet in mind. But in simple terms what I have in mind is to expand the SEZ concept and say that the ICZ will be developed as a self-contained city unit with a local administration which will make its own laws and will be free from the laws applicable to other Indian geographies except Defense  and subject to the revenue sharing arrangement.

This ICZ will therefore not be bogged down by our socialistic principles such as “Reservations on the basis of caste, religion or gender” and will be free to make laws that are good for increasing the GDP of the ICZ. It will not be bogged down by the language issues such as Hindi Vs English Vs Kannada etc. It can set up manufacturing facilities, can import resources and manpower from anywhere in the world. If resources from India are cheaper and of the required quality, it is expected that imports will happen from within India but outside of the ICZ.

The ICZ will have its own currency. Hopefully RBI will promote a Virtual Currency exclusively for this zone which can be made mandatory for recording the transactions but would be freely convertible. Use of a Virtual Currency is recommended since it can provide the best accountability since we can track every transaction and unit of currency used. RBI can be the sole mint for such currency and at its choice can outsource mining to other Indian entities outside the zone to provide the supply. Other than a source of minting of the virtual currency, rest of the financial regulation within the ICZ can be handled by a regulator within the ICZ.

The local administration will be representative of the investors for the ICZ. India will be having a share in the venture both because of the investment in land as well as some thing similar to “Sweat Equity”. In return it will have a proportionate representation. Others will have representation in proportion of their investments in the project. For example, let’s say that we start with an ICZ whose land is valued at US$10 billion. Of this 10% may be considered as core equity eligible for royalty purpose. 100% management would be with India. Then a conglomerate of US companies invest US$ 1 billion. The equity distribution then will be 10% as royalty and of the balance 90% equity, India will have 90% and the US Conglomeration will have 10%. The total distribution would be 91% for India and 9% for the US Conglomerate. In the management the same distribution would be maintained with 91% of the board of governance from India and 9% from the US Conglomerate.  Each subsequent investment will further reduce the Indian holding and it may become a minority in due course.

It should be open to the Government to however dilute its management control straight away and accept less than the eligible number of directors in the board of Governance and accommodate a minimum representation from countries of its choice for the purpose of attracting investments.

The size of the board of Governance may be determined by a constitution and may provide for expansion keeping the value of the ICZ as one of the parameters for decision. It will be like a “Cabinet” of ministers with a need to address different portfolios and experts can be drawn from across the world.

Law and Order within the Zone would be the responsibility of the Board of Governance. Defense of the territory would be the responsibility of the Indian Government.

The essence of the ICZ City would be that it would be created from a zero base. no legacy legal hurdles, with the best of administrative talent from across the globe with the sole objective that this micro economy will focus on “Governance for Building Wealth For the ICZ City”.

I invite comments.

naavi