India's retail reform of little
substance By Raja Murthy
MUMBAI
- Prime Minister Manmohan Singh's decision to
allow foreign investors into India's US$500
billion retail trade seems more a master stroke of
self-preservation than a move that bursts with
benefits for Indian companies or overseas retail
giants. Manmohan may have pulled the proverbial
fast one.
On Friday, Manmohan's government
said it would permit 51% foreign direct investment
(FDI) in multi-brand retail, apparently
surrendering to relentless pressure from Western
and Indian business chieftains, their media
mouthpieces and dubious Western credit rating
agencies.
In this, Singh displayed a deft
balancing act, shifting the onus of letting in
multinational retailers to individual states. If
state governments do not want Walmart, then they
won't have to suffer
it. [1] Foreign investors
can apply to the central government's Foreign
Investment Promotion Board for clearing retail
collaborations only with a no-objection
certificate from the local state government.
Further, Walmart and co can open shop only in
towns with populations of more than one million.
After the FDI announcement, opposition
parties like the Bharatiya Janata Party (BJP) are
howling with baffled wrath, more so for being
unceremoniously shoved off the political high
ground. Their planned "nationwide" agitation on
September 20 cannot have much fizz -
responsibility for letting in those foreign retail
devils rests with state governments.
With
his unexpected move, Prime Minister Singh has
sucked the wind out of sails of the BJP, his own
United Progressive Alliance parties, and a
clueless media now hailing him a hero after
calling him zero for most of 2012.
Riots
were expected to break out across India if
Manmohan "sold off" the country to foreign retail
giants. When I walked the streets of south Mumbai
at the weekend, retail traders showed no signs of
running amuck or protesting at having their
livelihoods robbed en masse by Walmart, Carrefour,
Tesco, Metro and other foreign devils.
This anti-climax at Mumbai retail hubs
like Crawford Market, Dadar, or wholesale markets
in New Bombay, is due largely to the 51% limit on
FDI in the retail sector, at least as things
stand, which is likely to inhibit hundreds of
foreign-linked stores popping up across Mumbai.
The much-hyped prospects of large-scale
FDI in retail producing "millions" of jobs has so
far impressed only nine of 28 Indian provincial
governments. Farmers love the idea of having FDI
in agriculture, according to Commerce Minister
Anand Sharma. But so far, most Indian farmer
groups seem spectacularly shy about expressing
this alleged love.
Likewise, Indian
corporate leaders seemed to inhabit a different
world of reality from that of farmers, small
retailers and non-Congress politicians. Federation
of Indian Chambers of Commerce and Industry
president R V Kanoria gushed about a "retail
revolution" that FDI could bring forth.
"There will be a multiplier effect in
terms of employment generation," Kanoria told the
media on September 14, following the FDI
announcement. "Domestic manufacturers will benefit
as they integrate with the supply chains of global
retail majors. Consumers will have a wider choice
and get better deals."
Yet farmers and
consumers in key agricultural states such as Uttar
Pradesh, Haryana, Punjab, Karnataka, Tamil Nadu
and even backward Bihar chose to reject "benefits"
and "better deals" courtesy FDI in retail.
Eight of the nine states that have
welcomed retail invaders are Congress-ruled states
- with chief ministers who jump when party
president Sonia Gandhi asks them to jump. The
rubber-stamp list includes Maharashtra, whose
capital is India's financial capital, Mumbai.
Omar Abdullah of Jammu and Kashmir appears
the only non-Congress chief minister to hop onto
the hugely under-crowded FDI retail wagon.
Abdullah has little choice, and his choice is
irrelevant. His violence-scarred northern Indian
state lags regions like Maharashtra by decades,
and it desperately needs any kind of investment.
But Warren Buffett-backed Walmart and other big
bazaar barons are unlikely to be rushing to
Kashmir to do business.
India's
drama-driven media are nevertheless celebrating
the FDI move as "Big Bang Reforms", and not as a
bloated mirage devized at shoring up the battered
image of a government. Manmohan was under
relentless pressure from numerous "scandals",
including one over allocation of coal-mining
licenses.
First, the electronic media and
paper journalists blew away basic professional
ethics by reporting the supposed coal "scam", as
if allegations in a bureaucratic report are
court-ruled convictions. Then the media proclaimed
the wondrous cures of FDI in retail to heal an
allegedly ailing Indian economy, one that has
consistently been growing at over thrice the rate
of the US economy.
Likewise, the Western
media had taken to calling Manmohan Singh rude
names for his "ineffectiveness", read the
reluctance to open up India's retail industry to
multinational money bags.
Now Manmohan has
become an all-conquering hero to these overseas
and Indian commentators, who have not asked
themselves why millions of farmers continue to
curse Manmohan instead of worshipping him as their
saviour.
For the past three days and for
first time in weeks, the supposed coal "scam" -
with Manmohan Singh as leading star - was knocked
off the front pages.
"Enter FDI in retail,
exit the government", was the expected equation if
Manmohan took the plunge, but none of the ruling
Congress party allies appear likely to terminate
this government, as the script demanded.
No political party wants mid-term general
elections. The United Progress Alliance coalition
ministers don't want to renounce their cushy life
in New Delhi. And Manmohan called their bluff.
Whoever said the scholarly 79-year old Singh lacks
political smarts can permanently retire that
theory.
So, even the staunchly anti-FDI in
retail ally, Trinamul Congress, and its chief,
Mamata Banerjee, has not pulled the plug from the
United Progressive Alliance government. Her
deadline for doing so ends today. Banerjee may at
worst pull her ministers out of Manmohan's
government, a prospect that would only gladden the
rest of the cabinet.
But essentially, even
the short-tempered, agitation-prone Banerjee has
little to complain about, as the FDI in retail
issue has not been shoved down her throat, or in
her state of West Bengal. If Kolkata does not want
Walmart, Kolkata does not have to lump it. Nobody
has any real reason to complain, except the
opposition in states that have opted for FDI in
retail.
Meanwhile, retail giants have been
left scratching their heads. Indian mega-retailers
like the Future Group, Spencers, Videocon, and
Bharti have to engineer a peculiar structure of
business with foreign partners in select parts of
India. As bad or worse, those states that accept
overseas retailers may change their stance with
any change in local government, given the present
reality of opposition parties going hammer and
tongs attacking FDI in retail. It might take a brave or
desperate foreign retailer to set up shop anywhere
in India under the present stormy circumstances.
The government on Friday also announced
permitting FDI in civil aviation. With the
tax-crippled state of the floundering airline
industry, FDI in Indian carriers might be as
attractive to foreign investors as licenses for
luxury holiday resorts in Taliban country.
Leading global carriers like British
Airways and Lufthansa are fleeing major airports
like New Delhi after complaining of soaring
operational costs and taxes.
India is
trying to run the miracle of a low-fare budget
airline industry with high-cost infrastructure,
and some of the world's highest aviation fuel
taxes. The real reform would be a reduction in
those taxes. Instead, Manmohan delivered an
exhibition of defiant bravado. He had warmed
beforehand of permitting FDI in the retail sector.
Last week, his government increased diesel prices,
reduced subsidies on cooking gas cylinders and
ignoring protests of outraged allies.
This
deepened perceptions that the prime minister and
his chief economic sidekick, Montek Singh
Ahluwali, deputy chairman of the Planning
Commission, have made a habit out of kicking the
common man in the stomach.
From being
accused of "policy paralysis" for much of 2012,
Manmohan and the Planning Commission chief now
face accusations of reckless policies. Neither of
them, of course, has been directly elected to
their job by the people of the India, a
politically rootless handicap resulting in the
dangerous disadvantage of being out of touch with
harsh grass-roots realities.
So Manmohan
continues running a government with the World Bank
credo of a government being run like a
profit-making private limited company - instead of
being a caring, sensitive father to a family of a
billion people.
The reality is that the
latest "reforms" are a diversionary mirage
projected by a cunning prime minister with his
back to the wall - part of the reason why the vast
majority of Indian states have emphatically
rejected Walmart and Co, and not fallen for silly
sales hype for changes in retailing that can only
take away a few million existing jobs. That is, if
a December 2011 report from New York city titled
"Food for Thought' is any guide. According to New
York's Manhattan Borough president Scott Stringer,
a new Walmart store opening in Harlem could put 30
to 41 supermarkets, green grocers and bodegas
selling fresh produce would be put out of business
within a year. Another 18 to 25 stores could shut
down in the second year. Muliply that across
India, and the numbers of people thrown out of
work would quickly multiply.
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