India’s finance minister, Nirmala Sitharaman, has called for the creation of a “social stock exchange”, allowing ethically minded investors to buy stakes in social enterprises, volunteer groups and welfare organisations.
The proposal would be a radical experiment in a country characterised by stark inequality and rapid economic growth.
If created, the exchange could provide new and cheaper sources of financing for social welfare projects, while showcasing India’s independence from foreign aid as it seeks to enhance its position on the world stage.
“It is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion,” Sitharaman said in her maiden budget speech on Friday.
Sitharaman’s plan for a social stock exchange marks a new focus on sustainability and social impact in business, said Amit Bhatia, CEO of the Global Steering Group for Impact Investment. “Before, the main objective of investors was to maximise return,” Bhatia said. “In the past few years, impact funds have multiplied and every major private equity firm is jumping in.”
According to Bhatia, such “impact” assets have risen from $0 to $22tn (£17tn) in the past two decades, and almost all the major S&P 500 companies are doing some sort of sustainability reporting.
“It’s an unstoppable trend,” he said. “We have found a higher purpose for capital.”
He said a social stock exchange, if launched, would mean the government would have to create a legal definition of “social enterprise”, and businesses would start measuring the social and environmental impact of their work.
The exchange has another benefit – it could highlight India’s self sufficiency as it makes a bid for superpower status.
In the past decade, successive governments in India, including Narendra Modi’s, have been hostile to foreign-funded NGOs. Critics see international NGOs as a neo-colonial enterprise and a conduit for Westerners to meddle in Indian affairs.
Between 2014 and 2018, foreign contributions to India declined 40%, largely because the government cancelled the licences of thousands of NGOs, according to Bain and Company’s 2019 philanthropy report.
“India has a very vibrant social entrepreneurship scene,” said Subhash Chandra Garg, India’s finance secretary. “We have almost eliminated foreign aid. We are independent. We are financing our own development.”
Garg said that the launch of the exchange was still in its “exploratory stage”. If created, the exchange is likely to be regulated by India’s Securities and Exchange Board and allow charitable organisations to raise capital in the form of stocks or trading units.
Critics of Modi suggested the exchange may be used to increase the funds available to political organisations.
“Nobody that I’ve spoken to [inside the finance ministry] actually seems to understand what they’ve proposed,” said Mihir Sharma, an economist at the Observer Research Foundation. “The safest thing to assume is it has something to do with professionalising the NGOs.”
Modi’s Hindu nationalist government has strong links with the Rashtriya Swayamsevak Sangh (RSS), a network of right-wing volunteer organisations. The RSS is known in India for undertaking vast social projects such as building toilets in rural areas and cleanliness drives, but have also been criticised for being Islamophobic.
Sharma said that like strongmen leaders around the world, Modi’s government was distrustful of academia and experts and looked to right-wing thinkers for policy ideas.
“One of the things that was unique about his first term was that he has less trust for western-educated economists than those from within the RSS,” he said. “You could say the demonetisation experiment was very much something that emerged from that group of thinkers.
“This budget was part of the broadening of the indigenisation of economic thinking. It’s looking for an Indian solution to Indian problems.”