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Tuesday, November 29, 2011

Retail FDI: The Calculations and Compulsions..

Retail FDI: The calculations and compulsions

Parsa Venkateshwar Rao Jr | Monday, November 28, 2011

Parsa Venkateshwar Rao Jr
Parsa Venkateshwar Rao Jr
The Manmohan Singh government's decision to allow foreign direct investment in the multi-brand retail sector was a decisive step at a troubled time. There are a few calculations and also compulsions behind it.
Singh has always derived advantage from his weak position as a non-politician, as a nominated head of government. He has managed to push difficult and major decisions that would benefit the country in the long term, all in the name of apparent economic objectivity.
During his first term, he pushed the India-US civil nuclear deal in the teeth of opposition from the communists. And he was able to carry the sceptical Congress with him because he convinced them it was for the country's benefit. The Congress people embraced the idea that nuclear power will help take electricity and computers to villages.
This time round, with the decision of allowing FDI in retail, he has come up with the persuasive argument that it will provide a fair deal to the farmers, and create employment in the villages. It is good enough to provide ballast to Congress' political rhetoric. This could possibly fetch votes for the party in 2014 more than the civil nuclear deal could in 2009.
The compulsions are hidden, though not completely. There has been consistent American pressure to open up retail trade. The government resisted the pressure for quite a long time as it seemed to sink in the rising tide of scandals. But he has used the fog of scandals to take this major step, flummoxing the opposition in the process.
There will be an aggressive American presence following this decision. Like Enron, which bulldozed its way into the power sector in the 1990s, Walmart is going to go for a big push now. There are some similarities between Enron and Walmart. They are aggressive upstart companies, and their operational methods raise eyebrows, to say the least. It is necessary to recognise this without getting paranoid about allowing foreign players into the country.
Enron fell to its own corporate chicanery and collapsed. Walmart is already controversial for its predatory pricing and unfair treatment of its employees in its American outlets. Walmart may not go the Enron way; it is open to charges of unfair trade practices. But then retail in FDI goes beyond Walmart, and the bad experience of Enron did not scuttle FDI flow and the entry of multinationals.
The other compulsion of the government, which industry and commerce minister Anand Sharma let out in the course of his media briefing on Friday when his attention was drawn to accommodating small and medium enterprises from everywhere and not just from India for 30% of sourcing in setting up retail infrastructure.
He said that as member of the World Trade Organisation, India cannot avoid its obligation and it should not be hauled by other countries before WTO's dispute resolution mechanism. The general compulsion is that unless India allows Western businesses to enter key areas, the troubled Western economy will not be able regain its feet.
Senior Bharatiya Janata Party leader Murli Manohar Joshi's barb that there is no need for India to give a bail-out package to the West at the expense of the Indian kirana shopkeeper and farmer has a grain of truth in it. What is troublesome with the BJP is not its legitimate warning but its unalloyed phobia that Walmart and others would destroy the Indian cultural institution of the kirana shopkeeper. The BJP, for all its vaunted cultural nationalism, does not seem to have faith in the resilience and vibrancy of the kirana shopkeepers and their customers.
A realistic assessment would show that FDI in retail would not fetch much FDI, and international majors like Walmart and Carrefoure may make a limited impact in the Indian market even if they were to succeed because of the expanding Indian market and also because Indians are not regimented customers and they never let their cultural quirks die. The Udipi hotel and the street food vendor in cities and town have survived and even beat back the competition of MacDonald's and Kentucky Fried Chicken. It was not a calculated resistance movement against the foreigner. It is just the Indian way of exercising choice.
The sad thing is that the BJP is genuinely afraid, and it can be clearly seen in the opinions of its leaders. This loss of self-confidence in the country's major opposition party is not good news.
The communist opposition is rooted in its ideological confusion as to what should replace the failed ideology of Marx. Until they clear their own intellectual webs, we can never know as to why they oppose this and they oppose that.

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