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Should We Or Should We Not?

By bringing in FDI in retail in the teeth of opposition, the PM wanted to indicate that he is no pushover…

There are more questions that can be raised than answers to be found in the Union Cabinet’s decision to allow foreign firms to hold a majority equity stake in multi-brand retail companies in India, a decision that had reportedly been held in abeyance at the time of writing this column. Why allow it at this juncture when the government has been deliberating on this issue for over a year?

This decision does not technically need the approval of Parliament. But when such an important policy initiative is taken when Parliament is in session, the government could surely have anticipated that its move would be resisted not just by the political opposition but by important constituents of the ruling United Progressive Alliance (UPA) coalition, notably the Trinamool Congress. When Minister for Railways Dinesh Trivedi belonging to the TMC opposed the decision during a Cabinet meeting, the writing on the wall should have been clear. Still, the government persisted before backtracking.

One view is that sections within the government deliberately decided to allow it in order to paralyze the proceedings of Parliament so that its functionaries would not have to discuss contentious issues like the government’s inability to check food inflation, control corruption, arrive at a consensus on the proposed new Lokpal law or probe deeper into the involvement of ministers in the scandal relating to under-pricing and misallocation of 2G telecommunications spectrum. In order words, the hue and cry raised could be the opportunity to blame the Opposition for not allowing Parliament to function.

The other view is that the PM was irked that industrialists were accusing him of “policy paralysis” and of going slow on economic “reforms”. Further, he wanted to prove to the Americans that his government indeed had the “guts” to allow the likes of Walmart entry into India. Walmart is the world’s largest corporate entity when ranked by revenue, the largest retailer in the world and the biggest private employer with over 2 million employees. However, its track record as an employer that provides decent work is hardly edifying.

The UPA government claims that Walmart and similar multinational retailers like Carrefour and Tesco would be able to resolve many of India’s problems. Such problems notably include the wide gap between the prices received by farmers for their produce and those paid by consumers in urban markets and the high quantum of wastage of food due to inadequate storage, preservation and processing facilities.

True, large retailers with deep pockets are able to provide agriculturists more remunerative prices, buy in bulk, cut profit margins of intermediaries and sell cheaper to consumers. This happens during the initial stages of their entry when their primarily goal is to gain market share - often by driving out of business, small mom-and-pop stores and street vendors - and not maximize profits. The idea behind what is often called “predatory pricing” is simple: sacrifice profits in the immediate future to reap much bigger gains in the long run.

By bringing in FDI in multi-brand retail companies in the teeth of opposition (even from sections within the Congress), the PM presumably wanted to indicate that he is no pushover. Hence, this decision has been compared to the nuclear deal India signed with the US in 2008 which at one stage almost jeopardized the very existence of the first UPA government. The government survived and in 2009, the Congress-led coalition returned to power with a more comfortable majority. But history does not always repeat itself. And when it does, it’s not necessarily as a farce but sometimes as tragedy —to turn an old adage on its head.