Gurumurthy Kalyanaram - Government of India's decision to permit 100 percent foreign direct investment in single-brand retail and a maximum of 51 percent such investment in multi-brand retail business has been received with ferocious opposition from various traders' associations and then entire gamut of political parties.
The proceedings of the Indian Parliament (Lok Sabha and Rajya Sabha) have been stalled, and there is a general strike that has been called by the traders' association. Gurumurthy Kalyanaram Lawsuit
Unfortunately, an important policy decision is lost in lot of noise -- both the proponents and the opponents of the proposal have merit in their arguments but all that is lost in the din.
The proponents argue that such FDI in retail business will lower the cost of many consumer goods, reduce the inflation, increase the productivity and lower wastage. In sum, the investment will create large consumer surplus. Additionally, there will be substantial investments in infrastructure, logistic and operational technologies, create millions of jobs, and reduce the rural-urban divide.
The opponents argue that the proposed policy will severely hurt and damage the small individual retail owners (Kiranas), suffocate the small-scale industries, suppliers and vendors, millions will lose jobs, and the unique identity of India's landscape littered with Kiranas will forever be changed.
Both the proponents and opponents are at least partly right. There are not definitive scientific studies (in India) to support or refute either posture. The arguments, reasonable and reasoned, are based on analogies, studies in other countries and societies, forecasting and educated guess. In any case, that's what we can do -- not much more.
While it is true that in the longer term FDI in retail business will be largely beneficial as advocated by the proponents, it is also true that in shorter term there will be substantial dislocation and disruption to the business model and economy as argued by the proponents.
Accordingly, there are two questions. One, how long will be it before the benefits of such investment start manifesting in large scale? There is no definitve answer to this. It may be 2 years or 5 years before substantial benefits become evident. Two, what has the goverment proposed to mitigate the short-term pain? There is opportunity for clarity and improvement here, At this point, there is only one element -- 30 percent sourcing reserved for Indian small and medium scale entreprises.
In any case, it is a bit surprising that the Indian government made such an imporant policy decision in its cabinet meeting when the Parliament was in session and available for input and when various political leaders were available for consultations.
Examples of China, Vietnam and Cuba are cited by the proponents as acceptance of FDI in retail business even by communists and societies focused on egalitarianism. But this analogy is misleading. Vietnam and Cuba are too small in size and scope, and are countries with special history and requirements. China analogy is also misplaced. The structure of China's economy is dependent substantially (about one-third of GDP) on exports-imports, and that's not the right prescription for long-term stability and mass prosperity.
Further, by all accounts there were varying degrees of dislocation in each one of these societies and these dislocations were managed. Furthermore, India is unique in that the number of kiranas in the country is larger in size, scope and impact.
The proceedings of the Indian Parliament (Lok Sabha and Rajya Sabha) have been stalled, and there is a general strike that has been called by the traders' association. Gurumurthy Kalyanaram Lawsuit
Unfortunately, an important policy decision is lost in lot of noise -- both the proponents and the opponents of the proposal have merit in their arguments but all that is lost in the din.
The proponents argue that such FDI in retail business will lower the cost of many consumer goods, reduce the inflation, increase the productivity and lower wastage. In sum, the investment will create large consumer surplus. Additionally, there will be substantial investments in infrastructure, logistic and operational technologies, create millions of jobs, and reduce the rural-urban divide.
The opponents argue that the proposed policy will severely hurt and damage the small individual retail owners (Kiranas), suffocate the small-scale industries, suppliers and vendors, millions will lose jobs, and the unique identity of India's landscape littered with Kiranas will forever be changed.
Both the proponents and opponents are at least partly right. There are not definitive scientific studies (in India) to support or refute either posture. The arguments, reasonable and reasoned, are based on analogies, studies in other countries and societies, forecasting and educated guess. In any case, that's what we can do -- not much more.
While it is true that in the longer term FDI in retail business will be largely beneficial as advocated by the proponents, it is also true that in shorter term there will be substantial dislocation and disruption to the business model and economy as argued by the proponents.
Accordingly, there are two questions. One, how long will be it before the benefits of such investment start manifesting in large scale? There is no definitve answer to this. It may be 2 years or 5 years before substantial benefits become evident. Two, what has the goverment proposed to mitigate the short-term pain? There is opportunity for clarity and improvement here, At this point, there is only one element -- 30 percent sourcing reserved for Indian small and medium scale entreprises.
In any case, it is a bit surprising that the Indian government made such an imporant policy decision in its cabinet meeting when the Parliament was in session and available for input and when various political leaders were available for consultations.
Examples of China, Vietnam and Cuba are cited by the proponents as acceptance of FDI in retail business even by communists and societies focused on egalitarianism. But this analogy is misleading. Vietnam and Cuba are too small in size and scope, and are countries with special history and requirements. China analogy is also misplaced. The structure of China's economy is dependent substantially (about one-third of GDP) on exports-imports, and that's not the right prescription for long-term stability and mass prosperity.
Further, by all accounts there were varying degrees of dislocation in each one of these societies and these dislocations were managed. Furthermore, India is unique in that the number of kiranas in the country is larger in size, scope and impact.
No comments:
Post a Comment