It took unrelenting high inflation for the government to see merit in the case of organized retail. With most measures—regulating exports and imports, rate hikes by the Reserve Bank of India, etc—failing to rein in prices, an important section in the ruling dispensation is veering towards the view that big chains can help bring down inflation.
So, the inter-ministerial group (IMG) has recommended foreign direct investment (FDI) in multi-brand retail and changes in agriculture marketing laws to control soaring. “We are taking a clear position on FDI in multi-brand retail. Of course, it is a recommendation, not policy,” Chief Economic Advisor and IMG chairman Kaushik Basu said last week.
The IMG also suggested the chalking out of a model Agriculture Produce Marketing Committee (APMC) law. States could adopt it to get rid of supply bottlenecks at the local level. “There is a need to revise the AMPC Act to reduce the price gap between farm gate and consumer prices. We need a model act to be adopted by states,” Basu said.
Other members of the IMG are: Planning Commission Member Secretary Sudha Pillai, Agriculture Secretary P.K. Basu, Food Secretary B.C. Gupta, Finance Secretary Sushma Nath, Economic Affair Secretary R. Gopalan, Commerce Secretary Rahul Khullar and Chief Statistician T.C.A. Anant.
The IMG’s viewpoint is not without foundation. In a study three years ago, the Indian Council for Research on International Economic Relations had favored big retail.
Apart from the inflation concerns, there is another reason the government should be more amiable to foreign investment: FDI inflows dipped by 22.5 per cent to $3.4 billion in 2010-11. Global consultancy firm KPMG executive director Krishan Malhotra was reported as saying, “The decline is mainly because of global financial problems. There was a worldwide downfall.”
However, the services sector is still on the top of the chart in attracting maximum investment; this is primarily because the sector contributes over half the gross domestic product or GDP.
As always in India, it is not rational discourse and informed debate that seem to be clearing the path for FDI in big retail; it is not that politicians are moving towards a sensible consensus; it is almost a crisis situation that is thrusting policy change on our political masters. Crisis leading to good policy framework—it happened, on a much larger scale in 1991; it may happen once again.
Politics, unfortunately, remains mired in triteness and rhetoric. The government was lukewarm to FDI in organized retail. The Bharatiya Janata Party has always opposed it. The Communist Party of India (Marxist) has been prompt to denounce Basu’s views. The CPM politburo said. “The specious arguments put forward by IMG that entry of MNC retail giants like Walmart will enhance efficiency of the supply chain and bring down the trading margins belie international experience.”
Typically, the Marxists see a conspiracy by evil forces to impose “pro-MNC neo-liberal framework.” The CPM said, “In fact, MNCs will enjoy much greater monopoly power over both farmers and consumers and manipulate prices to their benefit while, at the same time, livelihood of millions of small unorganized retailers will be virtually wiped out.”
The Manmohan Singh government has to take on such disinformation and demagoguery. It must go ahead with the IMG recommendations.