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The Second Chance

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The slogan ‘India Shining’ invented to promote the country was dumped after the electoral defeat of its creator — the Bharatiya Janata Party (BJP). The tourism campaign ‘Incredible India’ is now seen as more appropriate, not for pithily capturing the amazing beauty of the country, but for the world’s largest blackout.

The grid failure is emblematic of larger failure in governance. As industrial growth slows, investors flee, exports drop and the deficit rises, India is approaching a test not unlike the one that launched the country on a path of reform in 1991. Markets will be watching the current session of Parliament to see if  the Manmohan Singh-led coalition government can overcome its paralysis to re-engage with the world and open sectors of the economy that have remained closed to foreign investment.

Nothing, perhaps, would have a greater, immediate impact in re-energising the economy than allowing FDI in retail. It will enable farmers to earn more and stop wastage of up to 40 per cent of fresh produce, while meeting the rising demand of India’s growing urban population. To travel in India’s rural areas is to marvel at the agricultural riches and to despair at the poverty of farmers. In village market after village market, fresh fruit and vegetable sellers with an abundance of produce wait for customers before letting their rotting produce go to feed cattle. City and town folk, on the other hand, pay hefty prices for fresh produce to the middlemen and transporters who carry them along rickety roads. The development of cold storage and refrigerated transport systems essential to link the growers and consumers in this vast country has been held back in the absence of large-scale commerce in produce. India has fallen behind China, Brazil, Malaysia and other developing countries in this area because of opposition from vested interest, ill-informed fear mongering, political opportunism and antiquated ideology. 

Last November, a half-hearted attempt to introduce FDI in multi-brand retail was quickly withdrawn in the face of opposition by coalition members. Even permission to open 100 per cent foreign-owned single brand retail stores has been complicated by onerous provisions requiring the sourcing of materials made in India.

As the monsoon session of Parliament opens in August, the government has a small window in which to roll out FDI in retail and other reforms to give a jolt to the slowing economy. Feeling politically secure after the installation of its candidate as the President of India and open support of many state governments for FDI reforms, the coalition has a chance. Failing to deliver here could prove very damaging to the economy — and Congress’s own electoral chances — in two years’ time. Although the association of retail traders was initially vociferous in its opposition to big-box stores, there is a growing realisation that in a vast and populous country, the appeal of kirana or local mom-and-pop stores and ambulant vendors far outweighs the advantages of bulk shopping in faraway stores. Many of the smart retail shop owners are taking steps, like offering online shopping and home delivery, to retain the loyalty of their customers ahead of the arrival of big-box stores in the suburbs. 

If allowed, foreign investors — from Walmart and Tesco to Carrefour — could partner with Indian companies to set up big-box stores in 53 Indian cities with populations of more than one million people. The logistical and supply-chain knowhow to set up cold storage and transportation brought by investors would enable a significant reduction in wastage, raise the income of farmers, and boost local production.

There are hints that the government might consider relaxing its requirement that 30 per cent of manufactured or processed products be domestically produced. As the experience of IKEA shows, Indian producers may not be able to supply required items for the merchandise. But the rule opens up opportunities for Indian companies to compete, which will benefit nimble-footed and innovative companies to come up to global standards. Likewise, the building of supporting infrastructure, from cold storage and transportation to the construction of stores and communication networks, could immediately generate employment. 

If the second attempt to liberalise FDI rules in multi-brand retail passes the political hurdles before it, that would also send a signal that India still aspires to be shining.
The author is director of publications at the Yale Center for the Study of Globalisation, and Editor of YaleGlobal Online 

(This story was published in Businessworld Issue Dated 27-08-2012)