At the FDI crossroads

Nov 26 2012, 01:33 IST
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SummaryNothing about India is predictable and it never fails to surprise.

India needs a fresh impetus of deregulation and capital to galvanise a stuttering economy

Tanushree Sahai

Nothing about India is predictable and it never fails to surprise. One would have thought that with the staggering and perceptible economic strides made by the country over the last two decades as a direct result of economic liberalisation and opening itself up to the rest of the world, there would exist a consensus on further economic liberalisation. However, the recent decision of the government to allow FDI in multi-brand retail has raised a virtual maelstrom. Interestingly, not all of the current cacophony can be attributed to politics—India is preparing for its next general elections in 2014. There are genuinely divergent views on the benefits or damage that FDI in multi-brand retail can cause to the economy.

One thing to be recognised and appreciated is that India has always been a noisy democracy with divergent philosophies and ideologies, and these have to be respected. Therefore, India has traditionally moved ahead slowly on significant economic reforms, such as in the pensions sector and FDI in multi-brand retail.

The last attempt by the government to introduce FDI in multi-brand retail met with significant opposition and the government, already weakened by severe allegations of corruption, had to backtrack on the policy. But in all that noise, one thing that managed to creep through without attracting much attention was an increase in the FDI limit in single-brand retail from the then 51% to 100%. So, some people argue, there is justice after all in the world.

The Left parties have always been ideologically opposed to infusion of large capital, especially foreign capital, in what has traditionally been perceived to be their constituency—the small mom and pop shops and traders. The familiar argument that has been repeated is the threatened extermination of the small trader, resultant loss of jobs and creation of monopolies leading to escalation in prices of food and other essentials. As it often happens, many of these arguments appear to be more emotive than supported by empirical facts.

The truth is likely to be somewhat different. Indeed, there will be job losses but the truth is that the creation of new skilled jobs and infusion of technology and efficiencies will far outweigh these losses. The jobs threatened are likely to be the ubiquitous middlemen who don’t necessarily add great value, rather take advantage of the fragmented agricultural trading market to deny the

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