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No risk no gain

December 8, 2011

The UPA government announced with much fanfare the decision by the Cabinet to allow 51% foreign direct investment in multi-brand retail. They also allowed 100% foreign direct investment in single brand retail with a minimum investment of $100 million. The Parliament was in session when this Cabinet decision was announced. Suddenly all hell broke loose. There were people criticizing the decision from all quarters. There were political parties galore coming out against the decision to allow FDI in multi-brand retail. Some of the UPA allies like Trinamool Congress and DMK went out public with their decision to oppose the government on this issue. The government was numbed by the onslaught they faced not only from BJP, the Left but also from their allies. It was as if the family silver was being pawned out. It was rhetorical and lacked in substance.

For a few days after the decision was announced the government looked determined not to buckle under pressure. BJP led opposition had another excuse not to allow the parliament to function. They wanted a roll back on the decision and nothing less would do. They also wanted a debate on the issue with voting afterwards. Government was in a quandary. The tipping point I guess was the feedback that the Congress Party received from UP. Sanjay Singh, a Congress MP from UP went public with his opposition to the decision to allow FDI in retail. There were other Congress leaders who were uncomfortable with the decision. In a few months UP will be going to polls and such a sensitive issue would have been used by the opposition to raise hysteria against the Congress Party.

Those criticizing the entry of big retail chains like Walmart, Carrefour, metro and others say that this will affect the local kirana or the Mom and Pop stores as they are called in the US. Except that here in India families live off such stores and there are millions of Indians whose livelihood depends on such grocery stores. They further said farmers will be fleeced and foreign goods will be dumped in India affecting Indian manufacturing sector.

There is some truth in this. But people are making a monster of a move that is inevitable. The vocal Left was short of arguments when it was pointed out that China had allowed FDI in retail more than 10 years ago and they had benefitted from it immensely.

The truth is that while there is always a chance of goods being dumped in India it must also be pointed out that such retail giants also give an opportunity to Indian manufacturers and agriculturists to sell their products across the globe. It’s a two-way street. The fact that SAD government in Punjab initially welcomed the move and wrote a letter to the effect to PM’s office shows that the state of Punjab has benefitted from FDI in retail. Punjab is one of the few states where Bharati-Walmart has a presence. Evidently they have had a good experience with the hyper mart and therefore welcomed the move. There is nothing like experience. SAD representatives should have been asked to make a presentation as to why they were for FDI in retail and how Punjab had benefitted. Instead BJP and other opposition parties went into a huddle and persuaded SAD to change their stance and before long the Akalis also were found criticizing the move. Remarkably the Punjab wing of the Congress did not utter a single word against the move. They just kept quiet.

The truth of the matter is that FDI in retail will have more beneficial fallouts and fewer debilitating effects on the business environment. It is true that some middlemen may be marginalized but they may not go out of business as is being projected. The small grocery stores will also not be affected, for the simple reason that they have their own clientele which is local and their services are so efficient that they cannot but remain in business. Besides these big retail marts will be on the outskirts of the city. People will not travel for every thing from one end of the city to another.

There was another condition that the government had put – that only those cities that have more than a million populations will be allowed to have such hyper stores. That came to some 50 odd cities where such stores could be opened. So the smaller towns and cities would have remained untouched. I guess the government wanted to test waters and if these stores were found to be good for the economy then they could be allowed in smaller cities too. This was a prudent caution that government had shown.

As the discussion on having FDI in retail gained momentum there was a consensus building that FDI would indeed be good for the economy. People began to realize the benefit of fast movement of goods and services, farmers getting a better price for their produce, consumers getting products at rock bottom prices and exposure of Indian produce and goods to the world market. It is not farfetched to say that Indian fruits and vegetables will find shelf space in western markets and thus their demand will increase and farmers may get prices much higher than they ever imagined. If the farming community benefits there will be all round increase in consumption which will lead to greater demand for goods and services. Farmer is still the backbone of Indian economy and if the farmer prospers the whole of the nation will transform. Critics point out that only 3 to 5% of farmers have land big enough to get into a contract with retail outlets like Carrefour and Wal Mart. While this may be true I foresee cooperatives being formed which will then make direct sale to such retail giants. Imagine Amul like cooperative movement across India in agriculture. I am convinced that once these giant retailers open shop in the 50 odd cities government will be forced to allow them to open outlets in smaller towns as people will demand them. What has happened is that opposition has tried to kill the baby in the womb. This is absolutely unethical. When BJP was in power they wanted to go in for 100% FDI in retail. This was in 2004. Come 2011 and the UPA decide to allow FDI in retail they cry bloody murder. This is politicking of the worst kind. And for them to say with a straight face that things have changed between 2004 and 2011 is hilarious. No one believes them.

I think Rahul Gandhi and the Congress think tank blinked because of the upcoming UP elections. They thought that they would not be able to stand the outrage and the shrill rhetoric that the opposition had managed. Imagine all bazaar were closed across the length and breadth of the country to protest against the introduction of FDI in retail on December 1! Rahul Gandhi and the Congress leadership had a chance to take the opposition by the horns and taken an ekla chalo stance. The people were getting convinced that FDI in retail would be beneficial. It was a matter of taking a stand and sticking to it. It was a matter of conviction and educating people about the benefits of FDI in retail. Remember, they had the example of mobile telephony and how it had benefitted people not only in big towns but also in villages and hamlets across India. They could have gone out and taken a position that other parties are not interested in progress of the farmers and benefits to the common Indian – which is the truth. It was a matter of confidence among the leaders to be able to pull it off. Evidently they were short of confidence. I guess they missed an excellent opportunity of communicating with the people and standing out from the crowd. Introduction of FDI in retail could have been their unique selling proposition. They lacked faith in the commonsense of the aam admi. They lacked faith in their own ability to get across the message to the people. Congress in UP is just another party now vying for votes from the voter who wants more and all. They could have sent home the message that Congress is a party with a difference and that they care for the welfare of the people more than others and therefore is allowing foreign players in multi-brand retail. I think Congress has missed a trick and perhaps forfeited their chances of forming a government in Lucknow. This was a risk worth taking. This was one time they should have reposed faith in the intelligence of the people. This was an honest decision. This was a good decision. Honesty has a gravity of its own. Honest politics is good politics. Congress may rue the decision to put on hold FdI in retail in hindsight.

Addendum:  ANI, Dec 8, 2011:  Congress Members of Parliament were told on Thursday that the UPA Government was “compelled” to suspend the move to allow 51 percent foreign direct investment in multi-brand retail avoid a mid-term election.

Addressing the Congress Parliamentary Party here, Finance Minister Pranab Mukherjee said going ahead with the decision could have created a “crisis” for the government.

“I am sorry to those members who had supported FDI in retail and might be feeling let down. But if we had gone ahead it could have created a crisis for the government,” he said. : Source Yahoo News

I think Pranab Mukherjee is trying to downplay the importance Congress is giving to UP elections, because if he were to say that they put on hold FDI in retail with a view to the upcoming UP elections and they do not do too well the opposition will go to town harping how Congress gave its all and still lost. Mamata Banerjee of Trinmool Congress is on record saying that while her party is opposed to FDI in retail she will not want the government to fall. That leaves the DMK and maybe the BJD. I do not think Congress would have had much problem in bringing them around. BJD had also said that had they been sounded out in advance they would have looked at the issue differently. Which basically means there was still room for maneuver.  The government could have brought the bill and ensured its passage had they really wanted. Their eyes are on UP elections and that is the only reason they have put on hold the decision on FDI in retail.

One Comment leave one →
  1. December 18, 2011 7:57 am

    i like it

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