Gurumurthy Kalyanaram - Liberalization of foreign direct investment in retail business in India (to 100 percent in single-brand and to 51 percent in multi-brand retail business) has met with monumental political resistance. The government is expected to announce that it is suspending all decisions and notifications regarding this decision till a greater consensus is achieved.
Intellectuals including many economists have urged the government to stay the course, and not give in to political pressures. The singular argument of the proponents is that the benefts of liberalized policy in retail (e.g., increased infusion of foreign capital, technology and managerial expertise in retail sector; development of modern and sophisticated logistical technologies and attendant infrastructure including food warehousing and transportation approaches; reduction in transit and other costs and hence lower price to consumers; and reduction in the power of intermediaries between farmers and the market) are well documented in many countries including Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, Singapore, and Thailand.
There are two issues with this argument. First, analogies are limited in their usefulness. Each society is different from the other. In size and scope, China is the natural benchmark. But China comparison is incorrect because the structure of China's economy is very different from India's. In China, capital investment, consumer investment and export-import contribute roughly one-third each to the economy. On the other hand, in India consumer spending contributes almost 60 percent to the economy, and the export-import less than 10 percent. When the structures of the economy are so different, analogizing is not correct approach. Further, India is different from China specifically in the retail sector in very specific and substantial manners. For example, there are almost 15 million retailers in India, including hawkers and pavement vendors ii.e about one retailer for every 8 Indians. In contrast, China has just 1.3 million retailers - one for 100 Chinese. In India, one retailer does not stock all needs of all customers, but the composite neighbourhood retailers - hawkers, roadside vendors, bunks and kirana shops - taken together meet the customers' requirements.
Seccond, the scholars apparently seem to wish away shorter-term dislocations and pains not only to million of retailers but also to suppliers and consumers -- in general to the marketplace. There are no efforts to quantify this, and to provide remedial solutions.
So, what is to be done?
Politically, most powerful (and populist) argument is that marginal farmers will benefit from the liberaliation policy because it will almost the middle intermediaries who hold sway over their financial and social life. This fact must be repeated and repeated, and it will soon resonate.
Then, the Government must make an honest assessment of the nature and cost of shorter-term dislocations to individual retailers, suppliers and consumers -- and the marketplace overall, and propose clear-cut solutions and actions to substanitally alleviate, if not completely eliminate, such shorter-term dislocations and pains.
Finally, the political process is working just fine. In a democracy, all the constituencies get to speak, there is debate, there is argument, there is disagreement but over time a majority of the opinion will settle dowm in favor of or against this policy (most likely, in favor of this policy). Such pulls and pressures of democratic polity refine and recalibrate such important policy decisions, and give time to pause and reflect. There is much to be gained in this approach.
Intellectuals including many economists have urged the government to stay the course, and not give in to political pressures. The singular argument of the proponents is that the benefts of liberalized policy in retail (e.g., increased infusion of foreign capital, technology and managerial expertise in retail sector; development of modern and sophisticated logistical technologies and attendant infrastructure including food warehousing and transportation approaches; reduction in transit and other costs and hence lower price to consumers; and reduction in the power of intermediaries between farmers and the market) are well documented in many countries including Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, Singapore, and Thailand.
There are two issues with this argument. First, analogies are limited in their usefulness. Each society is different from the other. In size and scope, China is the natural benchmark. But China comparison is incorrect because the structure of China's economy is very different from India's. In China, capital investment, consumer investment and export-import contribute roughly one-third each to the economy. On the other hand, in India consumer spending contributes almost 60 percent to the economy, and the export-import less than 10 percent. When the structures of the economy are so different, analogizing is not correct approach. Further, India is different from China specifically in the retail sector in very specific and substantial manners. For example, there are almost 15 million retailers in India, including hawkers and pavement vendors ii.e about one retailer for every 8 Indians. In contrast, China has just 1.3 million retailers - one for 100 Chinese. In India, one retailer does not stock all needs of all customers, but the composite neighbourhood retailers - hawkers, roadside vendors, bunks and kirana shops - taken together meet the customers' requirements.
Seccond, the scholars apparently seem to wish away shorter-term dislocations and pains not only to million of retailers but also to suppliers and consumers -- in general to the marketplace. There are no efforts to quantify this, and to provide remedial solutions.
So, what is to be done?
Politically, most powerful (and populist) argument is that marginal farmers will benefit from the liberaliation policy because it will almost the middle intermediaries who hold sway over their financial and social life. This fact must be repeated and repeated, and it will soon resonate.
Then, the Government must make an honest assessment of the nature and cost of shorter-term dislocations to individual retailers, suppliers and consumers -- and the marketplace overall, and propose clear-cut solutions and actions to substanitally alleviate, if not completely eliminate, such shorter-term dislocations and pains.
Finally, the political process is working just fine. In a democracy, all the constituencies get to speak, there is debate, there is argument, there is disagreement but over time a majority of the opinion will settle dowm in favor of or against this policy (most likely, in favor of this policy). Such pulls and pressures of democratic polity refine and recalibrate such important policy decisions, and give time to pause and reflect. There is much to be gained in this approach.
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