India’s government is backtracking on retail reforms. That’s a poor deal for everyone
Nine days. That’s how long plans to open up India to foreign retailers have survived. The finance minister announced yesterday that the reforms, which would have allowed foreign multi-brand retailers to invest up to 51 per cent in the country, and single-brand outlets to be 100 per cent owned by investors from overseas, would be suspended until a ‘consensus’ is reached.
With the opposition calling for a full roll-back of the proposed plans - and its most vocal state governors threatening to set new foreign outlets on fire - the reform’s ‘suspension’ is a euphemism for its proper shelving. And along with it, the prime minister’s last-ditch atempt to regain a modicum of political credibility.
Mr Sing’s administration was already in poor shape. Severely hit by a series of multi-billion dollar corruption scandals, and paralyzed by bickering among its unruly members, the ruling Congress is suffering historic lows in popularity across all sectors of the electorate. By caving in to the opposition’s pressure so quickly - a year before key regional elections - the party leader has demonstrated exactly where his weakness lies: in a lack of leadership.
And, now more than ever, the country needs a leader. The world’s largest democracy is in trouble: its Parliament is mired by a toxic deadlock, with 31 bills awaiting approval and unhelpful debates about Internet censorship on-going. But the really bad stuff is on the economic side. India’s economy is cooling down, with the ambition of matching China’s double digit growth rate now a distant dream (it is now beneath 7 per cent). The rupee is going downhill, as disgruntled investors take their money out of the country (the currency has lost 13 per cent since January). And while most other Central Banks are either easing or considering doing so, so as to make the most of moderating inflationary pressures within their economies, inflation continues to flirt with double digits in India - a dangerous statistic in a country where 800 million survive on $2 a day or less.
In this context the proposed retail reforms were a boon. And not only for Tesco, Carrefour, Ikea, and the handful of foreign groups willing to battle for a share of India’s $450bn retail market. Foreign competition, many argued, would push down food prices, as would getting rid of the stack of middle men standing between farmers and producers. New investment would also modernise India’s dysfunctional supply chain: every year half of the fresh produce is lost before hitting the shelves, due to poor refrigeration and distribution networks. And most important of all, the reform would signal to the world that India is now a good place to set up shop - triggering a new wave of foreign investment, much needed to modernise and liberalise its flagging economy.
Yet opposition to the plans is very real - and vocal. The Bharatiya Janata Party claims that the entry of foreign retailers would not only put small shopkeepers out of business, leaving millions jobless, but that it would also destroy small farms and industries. This argument sounds a bit rich for a party that, in its 2004 manifesto, advocated for retail reforms. And it also sounds wrong: most farmers back the gouvernment’s stance, anticipating benefits by way of better storage facilities, easier market access, and higher prices for their produce; small businesses say the much-needed scale multinational retailers bring can help them survive. Customers, finally, were set to benefit most, and with them prospects of building up a domestically driven economy - a laudable objective when the rest of world is at a standstill.
Of course the proposed reforms woud come at a cost. The unavoidable consolidation it would force on the retail, farming, and manufacturing industries would disrupt the livelihood of millions of workers. But Mr Singh, who oversaw India’s economic liberalisation back in 1991, knows the benefits outweigh the risks - especially at a time of stalling global growth and flagging domestic momentum. He also knows the proposed changes are not enough: land reforms, unification of the internal market, and a strengthened welfare state are also needed if India is to initiate its home-grown take-off.
Yet once again he’s flip-flopping. True, he’s been the victim of legislative obstruction by the political opposition: the BJP has been threatening to paralyse the lower house of Parliament if the decision was not reversed. But the very fact that such blackmail has proven successful underscores how little authority Mr Singh enjoys. Had he been a more consistent promoter of liberalizing reforms, he might have found more support among the population - and eager buyers for his retail plans.