After the December, 2011 hesitant and futile exercise of opening up the $450 billion worth Indian retail sector for Foreign Direct Investment (FDI) that had to be put on hold because of the tumultuous opposition in Parliament, the government has, for the second time on Friday, come with the ?big bang reform? in the words of the Prime Minister, to allow FDI in single brand and multi-brand retail trade, aviation, broadcasting and also to partially disinvest in five public sector undertakings. Despite the earlier decision to defer the implementation of the proposal for political reasons, the Centre?s resolve to carry on the reforms at any cost this time around is evident from what the Prime Minister told his cabinet colleagues, ?if the government goes down, it should go down fighting.? The inevitable necessity of easing the flow of foreign investment into the economy can be felt when almost all the emerging market economies (EMEs) of Asia and SE Asia showed very encouraging flow of foreign investment into their economy, India was lagging behind with a current account deficit much beyond the sustainable level of 3 per cent of GDP during April-December 2010.
Under the circumstances, India needed FDI as the most stable component of capital flow to finance the current account deficit, which could in turn provide investible resources, access to advanced technologies and ensure promotion of exports. Yet admittedly, India?s FDI policy compared with the rest of the EMEs, reveals that though the country?s approach towards foreign investment has been somewhat conservative, it progressively caught up with the more liberalised policy of other EMEs from the early 1990s onwards, that too under stewardship of the present Prime Minister. The progressive liberalisation reflected in the growing size of FDI flows to the country which increased nearly five times during the first decade of the new century. The economy could brave the global economic crisis of 2008-10 successfully with a faster recovery sustaining the FDI flows momentum presumably because of the liberal policy stance and strong fundamentals. But the sudden sagging of the momentum thereafter and moderation of foreign fund inflow still remains inexplicable; it could be due to some institutional discrepancies in the system affecting the investor sentiment which called for remedial actions that are being taken up now.Findings of the various panel exercises, examining FDI trends in ten select EMEs over the last seven years reveal that apart from the fundamentals, institutional factors like the time taken to meet procedural requirements makes significant impact on FDI inflows.
As is apprehended, the Opposition including the UPA ally TMC vehemently opposed the concept of FDI in the sectors and described it as unilateral and hurried action of the UPA. The Left is always strident in opposing it on the grounds that the decision in regard to the retail sectors would destroy the livelihood of 40 million small retailers and lead to monopolisation of the retail sector by the multinationals. The government?s argument is that the liberalisation of the retail sector would create ten million jobs in the sector in the coming three years. Moreover the decision was taken after ten months of intense consultation with all the stakeholders including farmers, consumer federations, chambers of commerce and state governments and the ultimate decision of implementation of the decision will be the prerogative of the states. But he asserted that the enabling policy mechanism has been adopted to protect the interests of Indian farmers, retailers and consumers. The extent of FDI entry into the sectors is fixed at single brand retail ? 100 per cent, multi-brand retail ? 51 per cent, aviation ? 49 per cent and broadcasting ? 74 per cent. Now, it is not the decision alone to allow FDI into the sectors that seems to annoy the opposition despite the inevitable results of such an unalterable decision, but the timing of the action itself what perturbs the people. It is taken at a time when the government is visibly moving in the pall of gloom regarding its safety in the face of successive charges of corruption and scandal like coalgate and 2G. Even the latest diesel and cooking gas event is being interpreted by responsible observers as a similar stratagem to shift the focus from the government?s failures.
Source: http://sevensisterspost.com/business-of-retail/
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