The UPA government is facing a major crisis. The government ill-timed its decision on allowing FDI in multi-brand retail. Both from the viewpoint of economic realities of India and the present political situation, any political observer will be surprised by the timing of the decision. The government’s credibility is at rock bottom. The leadership has been unable to counter the allegations of both corruption and economic mismanagement. The agenda of Parliament was already loaded with issues embarrassing to the government. With great difficulty, it attempted to ward off a voting motion on price rise and agreed to a voting on a resolution on black money and corruption. In the midst of Parliament session, the Cabinet took a decision to allow FDI in multi-brand retail.

What was the political compulsion behind this decision? In the last few years, the government was conveying an impression that it had abandoned the path of economic reforms. The business confidence in the Indian economy has been declining. For three years, inflation has remained uncontrolled. Fuel prices have touched a new high, partly because rising international prices of crude oil and partly because of the high taxation imposed on petroleum products. Infrastructure creation has slowed down. The investment environment in the country has been destructive. Fiscal deficit has risen and the GDP growth is likely to decline this year. Faced with the criticism that government was doing nothing, the government suddenly decided to go in for a big-ticket agenda namely FDI in multi-brand retail.

The decision of the government united the otherwise fragmented opposition. The two major constituents of the UPA viz. Trinamool Congress and DMK decided to oppose the move. The two parties giving outside support to the UPA government viz. Samajwadi Party and the BSP faced with the compulsion of the Uttar Pradesh election also decided to oppose the government. Parliamentary numbers are loaded against the government. The government has got in a chakra-byuha. It is finding no escape route. If it rolls back the decision, the Prime Minister will lose face. If it agrees for an adjournment motion with a vote, the Parliamentary numbers are loaded against the government. The government cannot afford to lose the vote and hence, its entire energy is concentrated on the DMK and TMC to get them dilute their position. Small retail is the only significant component of Bengal’s economy. Traders conventionally have been against the CPI (M). If the TMC agrees to support the government, it can end up gifting the traders’ vote to the CPI (M), and thereby reducing its own vote bank. Its political opposition is therefore understandable.

Parliament is stalemated not because of the disturbance of the Opposition but that the government is not able to find a solution. A negative vote will hurt the government and so will the rollback. Today, it is faced with the dilemma of losing in both the situations. The character of Indian economy is such that FDI in multi-brand will certainly hurt the economy. Only 18 percent of India’s workforce is gainfully engaged in structured employment, 30 percent are unemployed or are casual labour, 51 percent of India are self-employed. The largest component of self-employment is agriculture. Over four crore Indians are self-employed in retail trade. Retail trade thus constitutes one of the largest providers of jobs in India. Structured international trade will displace jobs existing in present retail sector. This harsh reality has been experienced even in developed economies. It is for this reason that the big towns even in the USA do not allow stores like Wal-Mart for fear of displacing corner shops.

A huge setback will also be witnessed in Indian manufacturing sector. Our manufacturing sector reforms have still not taken place. Our interest rates are very high; infrastructure is poor; utilities like electricity are costly; and trade facilitations are poor. Unless we can reform these areas, we cannot reach the target of low-cost manufacturing like China. The consumers will buy products, which are cheaper and not costlier. Thus, international retail chains, controlled by foreign corporation will source products which are cheapest in the world. The prospects of their selling the consumer goods, which are sourced from China and other low-cost economies is most likely. Indians will thus be serviced by US and EU companies selling Chinese products. This is going to lead to fall even in manufacturing jobs. There will be displacement in retail sector and job losses in the manufacturing sector.

The argument that elimination of middlemen and the transportation of produces from the farm to the factory or the stores will benefit the farmers does not appear to be realistic. The sugarcane growers in India transport their products directly to the factory without any middleman. But for the security provided to the sugarcane cultivator, by the state advised prices, market forces could have led to his exploitation. If this was true, then why would large countries with large retail chains subsidize their farmers? The subsidies given by Europe and America to its farmers are almost equivalent to Rs. 5,000 crores per day. Why is it that retail chains alone do not lead to enrichment of the farmer in those countries?

Even otherwise unilaterialism in trade decisions does not serve the larger interests of Indian economy. We live in an era of international trade. When developed countries in the Europe and the USA seek entry for their corporations into the multi-brand retail sector, the basic principle of trade dialogue demands that no unilaterial concessions are to be granted when they are sought. International trade is like a bazaar; you charge for what you give and pay for what you get. Even at a later stage, if ever a government feels that time has come for allowing FDI in retail sector; it cannot allow such a concession to the USA and European nations as a matter of charity. Corresponding concessions, which help the Indian economy, should have been sought.

The example being given that China has benefitted and, therefore, India will benefit from multi-brand retail sector is misconceived. Before China allowed multi-brand trade in its economy, it had first developed itself as low-cost manufacturing hub. International retailers thus, for selling the product in China and in rest of the world, started sourcing Chinese products. China thus gained hugely in terms of job in the manufacturing sector. Having achieved this, China could safely then open up its retail sector. Stores like Wal-Mart source from China and sell in China as also to the rest of the world. China does not stand to lose. India on the contrary will stand to lose because we have still not specialized in being a low-cost manufacturing hub.

When the NDA government was in power, we faced that demand from western powers seeking that India open up its retail sector to multinational corporations. We resisted that pressure. There was a national consensus that time has still not come to open this sector. The government has gone against this consensus. It will still be prudent for the government to rollback the decision.