The reform related to foreign direct investment had, just like most other reforms, turned into a political circus. In Parliament, though, it is turning into a farce, thanks to petty and opportunistic politics.
It has been almost a year since the Union Cabinet announced its decision to go ahead with FDI reform, and yet, there is no clarity as to where it is headed because federalism has raised its ugly head and those states governed by Opposition parties have already said that they will not allow foreign retail chains to set up shop.
There have been several arguments back and forth on this topic, and both sides have been quite vocal about their convictions. While there is merit in many of the arguments put forward by proponents and opponents of FDI, it will be politics and not economics that may finally trump, whatever the fate of the Bill is.
Who exactly on the ground is opposed to the Bill? Is it the farmers? Is it the manufacturers? It is mostly the traders who worry that a Wal-mart like operation may gobble up their business, and those rent-seeking lobbies that thrive upon the inefficiencies of the market and in the supply chain that are raising their voice. The irony is that there are Indian retail chains doing exactly the same thing: buying directly from cheaper alternatives to provide better and cheaper choice to the consumer.
Indian retail chains have not killed the local kirana shop. Instead, they have forced the kirana shops to provide better service; free home delivery and below-MRP rates, for instance. It is a win-win for consumers. A badly managed kirana shop will go out of business regardless of a huge multinational being present in the city.
Therefore, the suggestion by opposing political parties that the world will come to an end if retail FDI is allowed in India is not only vacuous, it also reflects economic illiteracy.
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