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FDI Deadlock! How Not to Make Policy!
|by Dr. Rajinder Puri|
Good governance depends upon good policies and good implementation. If the implementation of policy formulation itself is horribly flawed what hope might be placed on getting good governance? The current controversy over the government’s decision to allow Foreign Direct Investment (FDI) in multi-brand retail reveals the sorry performance of both the government and the opposition in their approach to formulating policy. What compulsion impelled the government to suddenly announce FDI in retail not only during a parliamentary session but on the eve of assembly polls in four states? With an eye on votes would the opposition react in any which way except to vehemently oppose the proposal with populist vehemence? Was the government compelled to act due to some hidden reason involving pecuniary advantage to somebody or some group or some nation? Did the opposition lack sufficient ammunition to flay this corrupt and tainted government to garner votes without irrevocably committing itself against a policy proposal that deserves serious consideration?
There is much to commend FDI in retail trade. There are many valid concerns about introducing it. What was required was a serious debate to consider the pros and the cons and to explore whether adequate safeguards could be devised to address genuine concerns before arriving at a final decision about this proposal. Instead the government is stubbornly clinging on to the policy without participating in a transparent discussion with stake holders. Sections of the opposition have announced resolve to burn down any foreign retail outfit that dares to enter the country. How pathetic!
Undoubtedly there are some advantages in allowing FDI in multi brand retail. The 40 percent wastage of foodstuffs due to poor storage infrastructure could be avoided. There would be new jobs in creating that infrastructure. There would be an impetus to agro industry that could substantially increase employment. There could be a surge in the manufacturing sector which is badly needed. There could be better price for farmers. There could be better quality and price for consumers. But there are serious concerns too. Small farmers could suffer. Small traders could suffer. Local corner shops could close down. There could be large scale displacement and unemployment. Foreign multinationals could gain disproportionate influence to dictate the market. Benefits need to be weighed against losses and it has to be seen whether the losses can be altogether avoided. For that a serious debate is required. For that innovative ideas are required. For that amendments to the government’s declared policy are required.
Belatedly Finance Minister Mr. Mukherjee pointed out that the cabinet had declared only an enabling policy which need not be implemented by a state opposed to it. Why are many opposition leaders therefore so violently disturbed? Let the states supporting the policy implement it and those opposing it block it. Time will tell which state progresses faster. Both the Punjab and the Gujarat chief ministers have welcomed the policy. In fact a modest pilot project for FDI in retail trade has already started in Punjab. Walmart entered into a joint venture with Bharti Enterprises for wholesale business and started the ‘Best Price’ stores. With a 51 percent stake Walmart could go really big in Punjab. Apparently the farmers in Punjab are happy with the prospect which is why Mr. Prakash Singh Badal is strongly supporting the policy on the eve of the Punjab assembly elections.
Belatedly also the government backed down and after Mrs. Sonia Gandhi’s intervention clarified that the 30 percent reserved for procurement from Small and Medium Enterprises (SME) should be only for domestic outfits. Retail chains would be debarred to procure from global SMEs. A similar safeguard could be introduced for small retailers as for small wholesalers. Government could insist upon the big retail chains reserving 30 percent of all products for sale on their counters for purchase by corner shops at wholesale prices leaving the identical profit margin at a fixed price for their retail sale. This would strengthen small retail shops instead of threatening them.
In addition the government could stipulate that a percentage of FDI should be spent towards building up infrastructure, logistics and agro processing units. It could also be stipulated that at least 50% of the jobs in the retail outlet should be reserved for the rural youth. The government could also reserve the right to procure a certain amount of food grains for replenishing the buffer. The government could establish a regulatory mechanism to prevent the retailing giants from predatory pricing or acquiring monopolistic power. The government could evolve suitable policies to protect retailers in the unorganized sector. The feasibility of these and other safeguards could be proposed and considered in a meaningful debate.
Instead the government for obscure reasons and the opposition for electoral reasons have scuttled necessary debate and adopted hardened positions on a potentially gainful policy. From being a rising economic power India is rapidly sliding downhill. The decline will not be halted unless the political class becomes sufficiently committed to the national interest as against its singular obsession with electoral and partisan advantage.
|More by : Dr. Rajinder Puri|
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Comments on this Article
11/29/2011 22:58 PM
11/29/2011 22:20 PM
Dinesh Kumar Bohre
11/29/2011 14:04 PM
11/29/2011 10:48 AM
11/29/2011 10:19 AM
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