Retail therapy

After waiting and dithering for a long time, the UPA government has summoned the courage to open the retail sector to foreign direct investment. The cabinet’s decision on Thursday to allow up to 51 per cent FDI in multi-brand and 100 per cent in single brand retail did not come easily, though left to the Prime Minister’s natural liberal instincts, it would have come long ago. There is much political opposition to the decision, from both within the UPA and from outside, and over the next few days the government will have a lot of explaining and convincing work to do. There was reason till recently for reservations over the entry of international departmental stores into India. But with the maturing of the economy, the explosion in consumer demand which is likely to continue and the increasing need to attract FDI into the economy, the opening up of the sector may be an idea whose time has come.

There are genuine fears that the operation of multinational giants like Walmart and Carrefour might adversely impact the domestic retail sector. The country’s retail trade is dominated by neighbourhood shops and millions depend on them for their livelihood. It is claimed, on the basis of experience elsewhere, that the working of such shops or domestic retail networks is not especially affected by the entry of multinationals. The government actually hopes to create more jobs through its decision. Consumers and farmers might stand to gain because the intermediaries between them might no longer be there. The absence of a cold chain and supply and storage infrastructure in the country leads to great wastage of farm products. This is for the government to put in place but it may not be done in the near future for various reasons. The creation of such a network by retailers can help the farmers, though there are risks in it also. The government’s decision has come with many conditions and restrictions and it must be ensured that they are not diluted. The conditions on FDI and location of stores and the rules on back-end infrastructure investment and procurement should act as effective safeguards.

With the decision the government also wanted to remove the impression that it is stuck in a policy paralysis. There is a political imperative for it to be seen active and dynamic. As for the actual impact of the decision, it might even take two or three years for it to be felt.