By Prof. Sthanu R Nair
The Congress led UPA
government allowed 51% FDI in multi-brand retail in September 2012 overruling strong opposition from various quarters including some of the UPA allies. The move
invited serious criticism from several quarters with regard to its overall contribution
to the growth prospects of Indian economy and its adverse impact on traditional
retailers and small businesses. The government strongly defended its move by
arguing that its multibrand retail FDI policy features some unique provisions
which would safeguard the interests of the traditional retailers, small scale
industries and the nation as a whole. The three specific safeguard measures referred
vociferously by the government and the supporters of FDI in multibrand retail
at that time are (see Table):
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| Prof. Sthanu R Nair |
- The foreign retail firm must put 50% of the total FDI in back-end infrastructure such as investment in processing, manufacturing, distribution, design improvement, quality control, cold chain, warehouses and packaging.
- The foreign retail firm must mandatorily procure 30% of the products from “domestic” small scale industries.
- The foreign retail chains will be allowed only in cities with a population of more than 10 lakh as per the 2011 census.
Almost a year after, on
August 1, 2013, the government (i.e. Cabinet Committee on Economic Affairs)
approved amendments in the policy on FDI in multi-brand retailing aimed at “dilution”
of the aforementioned three safeguard provisions. Importantly, these safeguards
were approved by Parliament while
allowing FDI in multibrand retail last year. A comparative statement of the
policy before and after the amendments is provided below.
The three adverse implications
of the proposed amendments are as follows:
- Possible reduction in the FDI in back-end infrastructure. This would defeat the very purpose of inviting FDI in the Indian retail sector. As is well known, the distinctive benefit India expects from FDI in retail is the improvements in the underdeveloped back-end infrastructure.
- As the economist and Nobel laureate Joseph Stiglitz has warned sometime ago the inclusion of perishables in the domestic sourcing provision would lead to a situation in which the foreign retailers would import manufacturing goods cheaply from China and meet the domestic sourcing condition simply by buying fruits, vegetables and other farm products.
- Foreign retailers can open shops even in cities with less than 10 lakh population census thereby fastening the exit of traditional retailers from business.
The
changes proposed by the government without waiting to see the impact of its
original policy on FDI multi-brand retailing raises some serious doubts on its
commitment to protect domestic interests, to put in place a strong retail regulatory
framework and most importantly to bring best out of FDI in the retail sector.
Sthanu R Nair is an Associate Professor of Economics at IIM Kozhikode
Sthanu R Nair is an Associate Professor of Economics at IIM Kozhikode
Sir, I was following this issue in newspapers. But it was when you told that these amendments were approved, only then came to know about that. Surprisingly, Indian Dailey including The Hindu also didn't report it till then.
ReplyDeleteFDI amendments seems to be like a mere submission from the part of government in front of the foreign corporate power. And the 3rd amendment seems too dangerous than it seems.
Thank You Sir, for this very valuable information and review
Sir, This is really an eye-opener. In ‘Animal Farm” by George Orwell, the last 4 animal commandments changed from
ReplyDelete4. No animal shall sleep in a bed. 5. No animal shall drink alcohol 6. No animal shall kill any other animal 7. All animals are equal.
TO
4. No animal shall sleep in a bed. with sheets 5. No animal shall drink alcohol. to excess 6. No animal shall kill any other animal. without cause 7. All animals are equal. but some animals are more equal than others
Animal farm unveils the detrimental consequences; the greedy, insensible and corruptive nature of the leadership of the revolution which turns an unbinding society into a totalitarian system, devaluing the rights of freedom and equality.
Where are we headed?...
Thanks for the comments.
DeleteI appreciate your concerns. The nature of businesses in a market economy is to seal the best deal for them in a given circumstance, though they open up new opportunities. It is the responsibility of the governments to balance the interests of the businesses and society, say through an effective, stable and enforceable regulatory framework. Unfortunately, we are weak in this aspect. Mostly, governments succumb to pressure from businesses at the cost of society. The solution is, we need stong, accountable and credible governments.
Very nice post. Really really informative.
ReplyDelete