The UPA government has invited political backlash after giving nod to the foreign direct investment in retail sector, but it cannot be ruled out that the retail market is in need of funds. Despite all these, the government’s bold step of allowing FDI in retail could be deemed to be a hasty decision. With this move, the government seems to be giving fillip to economic reforms. If it is so, it means that the UPA government has tightened its belt to come out of the worse phase of its second term, but the ruling dispensation has to explain about this which made it to take such a bold step without proper discussion with political parties and clearing the cynicism of retailers and farmers. It is obvious that the foreign investment will give facelift to retail markets as well as benefit consumers, but it is not logical that small towns will remain unaffected owing to allowing foreign companies to open their outlets in a place having population more than 10 lakh. In fact, retailers in small towns will face fire with the opening of foreign outlets in big cities. That’s why all opposition parties excluding Akali Dal as well as some constituents of the UPA have protested the move. Trinamool has overtly opposed it. The DMK is also not pleased with the government’s decision. However, Commerce and Industry Minister Anand Sharma during the announcement of the decision of allowing FDI in retail has categorically said state governments might not give nod for foreign companies, if they want.

According to the BJP, the Left Front along with the SP and the BSP, the FDI in retail could create problems for lakhs of small traders. Every nook and corner is teamed up with retailers’ shops. The Central government is of the opinion that with the arrival of foreign retail companies, more than one crore job would be created in three years. Besides, consumers will have better options of purchasing stuff. Undoubtedly, educated youths will have hosts of opportunity for employment, but how will the interests of small businessmen be taken care? They will find difficulties switching to other jobs.

With 51 percent FDI in multi-brand retail sector and extending the limit to 100 percent from the existing 51 percent FDI in single-brand retail as well, it would be ensured that funds are not utilized for purchasing land or erecting swanky buildings. This is fair, but it would have been better if the government had taken the Opposition and small retailers into confidence. Although the government has made a claim that it has done lots of research in this context, it is difficult to understand why has the Centre not established dialogue with the associations of retailers? The government should have also taken farmers into its consideration. This is not a mere economic decision, rather it also has social and political aspects. The government must learn, when domestic corporate house had made plan for setting up retail stores, they faced huge protests from traders, farmers and leaders as well. They were not allowed to set up retail stores in some of the states or they were forced to close them.

There could be different opinions about the cynicism of retailers, but the FDI in retail sector could benefit farmers. Currently, profits meant for the farmers are generally grabbed by stockists, who wield good political clout and they often protest government’s move in the name of farmers. Such protests are not beneficial to farmers. Needless to say farmers get five times less than the amount of rupees that consumers pay for the products. There are ample reasons that farmers will get right price of their products and perishing of fruits-veggies would get worse with the arrival of foreign companies. If the situation of farmers improves, the government can mull over decreasing subsidy on fertilizers.  Presently, the Centre is facing serious challenges of reducing the burden of subsidy. Owing to subsidy on fertilizers and petroleum products as well as social welfare schemes, the government is not able to collect requisite funds for development. The Centre can think to lessen the subsidy on manures only when it manages to give right prices to farmers for their products. The government has expressed that FDI in retail will help control soaring prices, but it is unlike to happen in coming days. Along the decision of FDI in retail sector, the government should also amend Agricultural Product Marketing Act, but this is not an easy task as the Opposition will stand against it. 

Inviting foreign companies in retails business was put on hold for many years. This could be a reason that hosts of economists hailed it as right decision in haste, but this is a folly of the government that such a big decision was taken without making conducive atmosphere and comprehensive discussion over it. There could be speculation that foreign as well as domestic retail companies might have mounted pressure on the Centre for it. It cannot be ruled out that Indian companies were striving hard for foreign capital and facing difficulties in keeping their profit intact. Had the government taken decision considering all aspects of FDI in retail sector, it would not have faced such protests and managed to remove reservations of farmers and retailers about it some extent. It seems that the government, besieged with myriad of issues, took decision in haste so that it could be billed to a right step as far as economy is concerned. There should be no politics in decision related with economy. Now it is to be seen how the strategists of the government handle the crisis and whether they can pull the ruling dispensation out of the quagmire.        

(An original copy of the article published in Hindi on November 27, 2011 translated by the English Editorial. The author is Group Editor of Dainik Jagran)