The Union Council of Ministers of India recently passed an executive order to allow 51% foreign direct investment in multi brand retail, with various riders attached including access to only about 53 cities.Since this executive decision was passed, there has been a lot of debate and arguments around the merits of allowing foreign investment in a sector dominated by independent businessmen. Armchair critics from all ends of the political spectrum have been fiercely debating this issue in public and on social media websites. Even the all conquering, holy media has taken to the issue in a big way, largely driven by the prospect of increasing TRPs and print distribution.
Unfortunately, most if not all of these debates and arguments are being conducted outside of the Parliament. Our eminent lawmakers are too busy creating controversies by making grand statements to care about the short and long term implications of the move. We’re really good at electing the right people, aren’t we?
Coming back to the topic, the proponents of the policy change tout cheaper prices, elimination of middlemen and increased efficiency of the supply chain as some of the advantages of bringing in global retail chains. Point taken. However, at the same time, shouldn’t one also consider the grave risks involved in operationalizing an irreversible decision that can have a significant impact on the social structure of our country?
A lot is at stake after all – an estimated 14 million shops directly employ 30-35 million people, making traditional retail the second largest employer in the country. We must closely examine the issue of massive unemployment and resultant poverty due closure of such shops, which may not be able to compete with the larger retail chains. Step back and give it a thought – in the quest towards efficiency and becoming the next United States, do we run the risk of becoming the next Mexico instead? Do we even want to be the next United States? Why not aim to be the next Norway?
An argument can be made that in a growth economy like India, both traditional and modern retail formats can co-exist, which will only add to the net employment in the sector. If that is the case, why restrict foreign investment to a handful of cities – why not allow it across the country? How can you expect the national supply chain infrastructure to improve significantly by placing such absurd limits? Isn’t there reason to believe that FDI in multi-brand retail may largely benefit a few corporate houses who can now unlock value, while the rest of the food chain remains as inefficient / backward as before?
Further, the government has been trying to portray this policy change as a reform and a move towards becoming a capitalist, free market economy. While capitalism advocates free enterprise, isn’t it also about providing equal opportunity?
The overall economic policies of the current central government are also in question – why can such focus and attention not be paid to the core issues of universal healthcare and quality education, which can actually drive the cause for equalopportunities. Wouldn’t the government be better off focusing on these issues rather than effectively distributing free money under the NREGA or spending valuable time and resources on cosmetic policy changes? Feed the man a fish and he will come back again tomorrow, but teach the man how to fish and he’ll be independent!
In summary, we must decide whether we need a government that focuses on core development issues, or should we maintain status quo and re-elect an inept group of lawmakers who exclusively focus on noisy, high publicity cosmetic policy changes. Because our choice will decide whether we end up becoming the next Norway… or the next Mexico.
(The writer is a capitalist investment banker and good friend of CRI)
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Tags: FDI in Retail