India welcomes retail giants...with much ado

While Pakistan struggles to shore FDI up in any way possible, its newly-befriended neighbour is getting the flack for easing up the leeway for FDI inflows in the retail sector. Hitherto, single-brand and multi-brand retail stores could not have a holistic presence in India; single-brand retailers (such as Ikea) were allowed 51 percent foreign investment, while multiple-brand retailers (such as Walmart, Tesco, etc) were not allowed to set up shop. Only the wholesale cash-and-carry format had the privilege of being allowed 100 percent FDI. But in a move that establishes its liberalistic stance, the Congress Party approved 51 percent FDI for multi-brand retailers and 100 percent for single-brand retailers, last Thursday. The reform, dubbed "one of the most far-reaching economic reforms in years" by Reuters, elicited tremendous uproar from the Opposition, which claimed that allowing giants such as Walmart and Carrefour into the country will rob many small shopkeepers off their livelihoods. Still, Indian policymakers have not made it an easy gateway for big retailers into Indias $450 billion retail sector. The strings attached to a possible entry include an investment of $100 million by a chain over five years, along with the requirement that 30 percent of the stores stock should come from local, small- and medium-sized suppliers and that stores may only be set up in cities with population exceeding one million people. The proponents of this move claim that it will help allay inflation pressures in the economy, particularly food inflation which has averaged double-digit rises over the past 12 months. "Indias rickety infrastructure imposes huge costs on businesses in general and food vendors in particular: poor refrigeration and distribution networks destroy half of all fresh produce before it reaches shelves," commented an editorial in the Financial Times, this week. At the same time, foreign capital inflows that can help with infrastructural developments will also be the cherry on the cake. Yet, fears of the reforms opponents cannot be brushed aside completely. Though the derived benefits of reduced inflation from supply chain efficiencies will be reaped, it will take its sweet manifesting itself in the countrys economic indicators. Besides, the risk of the loss of employment for many is also vital as the FT editorial pointed out: "A consolidated retail sector would require consolidated agriculture to supply it. Such changes could cost millions of Indians their livelihoods. With no functioning welfare system that is a serious worry. The government must now prepare measures to absorb this surplus labour" These concerns have, in fact, jeopardised the approval of reforms by the Indian cabinet, as ferocious opposition from two ruling coalition allies of the Congress besides the Bharatiya Janata Party; is pressurising the government to reverse this decision. Though the Oppositions stance is not all wrong, it needs to weigh in the pros of such a policy before out-rightly rejecting it. Besides, as Alam Srinivas, business analyst for BBC, quotes retail consultants: "Only a few supermarket chains can afford the minimum investment, or would like to do so." Yet the government needs to be wary of unemployment risks, and be mindful of the need for establishing a sounder agricultural economy with minimal interference of middlemen. Yet the Indian government deserves credit for at least trying to keep the interests of local tradesmen in mind, as it has built in mandates for working with local suppliers and manufacturers.