Government of India’s decision to permit 100 percent foreign direct investment in single-brand retail and a maximum of 51 percent such investment in multi-brand retail business has been received with ferocious opposition from various traders’ associations and then entire gamut of political parties.
The proceedings of the Indian Parliament (Lok Sabha and Rajya Sabha) have been stalled, and there is a general strike that has been called by the traders’ association.
Unfortunately, an important policy decision is lost in lot of noise — both the proponents and the opponents of the proposal have merit in their arguments but all that is lost in the din.
The proponents argue that such FDI in retail business will lower the cost of many consumer goods, reduce the inflation, increase the productivity and lower wastage. In sum, the investment will create large consumer surplus. Additionally, there will be substantial investments in infrastructure, logistic and operational technologies, create millions of jobs, and reduce the rural-urban divide.
The opponents argue that the proposed policy will severely hurt and damage the small individual retail owners (Kiranas), suffocate the small-scale industries, suppliers and vendors, millions will lose jobs, and the unique identity of India’s landscape littered with Kiranas will forever be changed.
Both the proponents and opponents are at least partly right. There are not definitive scientific studies (in India) to support or refute either posture. The arguments, reasonable and reasoned, are based on analogies, studies in other countries and societies, forecasting and educated guess. In any case, that’s what we can do — not much more.
While it is true that in the longer term FDI in retail business will be largely beneficial as advocated by the proponents, it is also true that in shorter term there will be substantial dislocation and disruption to the business model and economy as argued by the proponents.
Accordingly, there are two questions. One, how long will be it before the benefits of such investment start manifesting in large scale? There is no definitve answer to this. It may be 2 years or 5 years before substantial benefits become evident. Two, what has the goverment proposed to mitigate the short-term pain? There is opportunity for clarity and improvement here, At this point, there is only one element — 30 percent sourcing reserved for Indian small and medium scale entreprises.
In any case, it is a bit surprising that the Indian government made such an imporant policy decision in its cabinet meeting when the Parliament was in session and available for input and when various political leaders were available for consultations.
Examples of China, Vietnam and Cuba are cited by the proponents as acceptance of FDI in retail business even by communists and societies focused on egalitarianism. But this analogy is misleading. Vietnam and Cuba are too small in size and scope, and are countries with special history and requirements. China analogy is also misplaced. The structure of China’s economy is dependent substantially (about one-third of GDP) on exports-imports, and that’s not the right prescription for long-term stability and mass prosperity.
Tags: China, Cuba, Foreign Direct Investment (FDI), India, Indian Goverment, Indian Parliament, Indian Political Parties, Kiranas, Retail Business, Vietnam
December 1, 2011 at 10:31 am |
I agree with you, quantifying cost-benefits is essentially an exercise in guesswork and benefits will be far from universal, as some sections of the proponents are claiming.
Heads will undoubtedly roll but that’s the law of evolution. Only the most adaptable and strongest survive.
The Indian Logistics industry employs > 45 million people, higher than the retail industry (organised + unorganised). Nearly every sub-sector within logistics enjoys 100% FDI. Agitations/opposition when those was implemented were scarce. Every new port, rail network, road network, cold chain that is set up creates jobs….however, in the absence of FDI in retail, FDI in logistics has so far progressed at a snail’s pace.
When Pantaloon Retail, Shoppers Stop scaled up, there was widespread disquiet about kirana shops being driven out of business. A decade down the line, they are alive and well. India’s organised retail is 1200 kg of cement per person, India consumes < 200 kg. Speed of infrastructure execution isn't even comparable. In 1950, India, China and South Korea were at the same level of income/capita. The present rankings are all too evident. Indians may write off Korea as a small country, but China, unfortunately for them, sticks out like a black swan.
Regarding salaries, a Chinese retail store manager makes 2x his comparable Indian counterpart. Authoritarian governance isn't pushing down salaries as is cited by many of the opponents. It is easier to resist Imposed efficiency than to invest in efforts aimed at moving up the value chain.
You might draw my attention to inequality. If you look at the Gini Coefficient (a universally accepted Inequality indicator), India is well ahead of Chin. India's history with socialism and now a socialised version of democracy has led to greater inequality than an iron-hand system of governance.
A look at the Global Peace Index (which measure peacefulness across nations) would show India well-behind China.
A look at the Legatum Prosperity Index would show India well-behind China.
A look at the Corruption Index. India wins!
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Net-net, the claims of the proponents, universal spread of goodness, universal benefits etc, is far-fetched. However, the opposition for foreign participation is based on a shaky premise, unsupported by India's tardy past record, not only in economic growth but in softer aspects such as job creation, wealth distribution, quality of life, and prosperity.
December 5, 2011 at 5:02 pm |
http://www.tavleensingh.com has a different point of view, why should we try it.