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The Government backs down on FDI – a flawed approach




The Congress has done it again. For many months now, the Government has been publicly criticized for not taking any initiatives, for causing a paralysis that is slowing the process for reform in the country and combined with the harsh interest rates being set by the RBI (in order to try and fight inflation, without taking any measures on the supply side front), slowly bringing the rate of growth in the economy down. Recent reports speak of reduction in growth rates of industrial production, along with an outflow of money as major Indian businesses invest abroad in light of a reduced level of confidence in the Indian economy. This is combined with a higher level of revenue and decreased tax receipts which are causing Pranab Mukherjee to increase deficit levels and run out of money for the various welfare schemes that the Congress believes is necessary for its survival.
No Government can continue like this for very long, and when combined with the reduced public confidence following the agitation over the Lokpal Bill, the Government has to show it is dedicated to growth; and for this, some steps of reform are needed to be advocated. So, the Government decided to show that it is focused on reform and not stuck on any paralysis, and thus came the Cabinet decision to allow FDI in multi-brand retail to 51%, effectively allowing the major international retailers to come into the country. This is a decision that has been contested for a long time, since the fear of letting large retailers such as Walmart into the country is that they will be so powerful that they will put the local retailers out of business, and there are a large number of retailers and people dependent on them, which in turn means that there is a political cost.

As expected, there was a large burst of opposition. The Left, and to some surprise the BJP, opposed the decision vehemently. States that are more farm based such as Punjab initially welcomed the move since such large retailers set up their own logistics, working with farmers, which in turn increases the amount of money that the farmers get after the middleman is cut out from the system, and they even work to setup storage and transportation systems that reduce the amount of waste. There was some surprise about the vehement opposition from the BJP, with the Congress trying to get some sort of schism in the opposition from the BJP by invoking the support of Narendra Modi, but this did not succeed. The BJP gets a lot of support from the small retailer class, and it would be pretty harmful for the party to support the move for this level of FDI.
And finally, it was left to Mamta Banerjee to announce that the move has been killed off for now (and for quite some time probably). She announced that the Government will not notify the move for FDI, effectively killing it. Even the Government would not have seen such a shameful reversal of its actions, and this will only increase the amount of pressure on the Government in the future, since the allies will have seen that they have a chance of causing the Congress lots of pinpricks and are likely to continue on this approach. We would like to say that this opposition was a bad move, since allowing FDI in multi-brand retail is a positive move for farmers and for the middle class, since it is normally associated with an increase in backend logistics, reduction in the retail price as well as increase in the amount that farmers get (with the removal of the various levels of middlemen in the picture).
The reason for this dismal rollback remains the bad planning on behalf of the Congress and the Government. Either the Congress was unaware of the potential opposition to this move, or thought that it could somehow move ahead with this opposition. However, not getting the allies on board is almost like a criminal move, since that meant that the Government was not even prepared to deal with adjournment motion in Parliament on this issue, where it would have been defeated. Mamta Banerjee remains a partner who can be unpredictable, and the DMK is still very angry for the many months that Kanimozhi spent in jail without the Government doing anything significant to get her out of jail. Normally, for such a move, the Government should have spent far more time in educating the political class, or atleast doing the dealings that would have allowed it get any motion on this passed in Parliament. But its conduct, which seems so surprising, is almost being equated to the Congress wanting the winter session of Parliament to go waste, since that would allow it to avoid bringing in contentious issues such as the Lokpal Bill (which is a fight that is likely to resume in the next few days).




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