Goodbye to reform?

The to-do over retail FDI signals that the political class is anti-reform

The political drama over the opening up of the retail sector to foreign investment is significant, not on account of whatever might happen to the immediate issue, but for what it says about the prospects of any kind of economic reform. In and of itself, the opening up of the retail sector is not hugely important, except as a signal that the government is still capable of taking decisions. This is not a time when businesses in the West is looking to make large investments anywhere. Retailers in many countries (like France’s Carrefour, which so far has opened all of one outlet in India) have troubles in their home markets, which are not buoyant.

The conditions for entry into India are onerous — you cannot go in step by step but have to commit the equivalent of Rs 500 crore up front, invest half of it in backend facilities, buy 30 per cent of throughput from small and medium enterprises, and have access to only half of the large cities in the country, where real estate costs are unnaturally high. Single-brand retailers like Ikea may be more likely to take the plunge. In short, anyone who thinks that Walmart, Tesco, Metro and the others are about to throw millions out of jobs and shut down thousands of small retail outlets is indulging in scare scenarios far removed from reality. Bata, please remember, has been in existence for decades but most Indians buy their shoes elsewhere. Reliance, Bharti, Birla and Tata are all in the retail business already, and they don’t have the restrictions stipulated for foreign retailers who might want to come in; so why don’t these Indian corporate giants pose a threat to small retailers? The blunt truth is there is a lot of humbug being dished out, not least by the duplicitous Bharatiya Janata Party, which was in favour of opening it up in 2004 (when it saw itself as the party of government). In 2009, after it had become the party in opposition, it reversed its position.

The real message is that it has become impossible to reform India. If an innocuous decision on retail creates near-unanimous opposition, including from members of the ruling alliance and important people in the Congress itself, what prospects can there possibly be for labour reform, or cutting out the waste in all the government boondoggles dished out in the name of poverty alleviation? Jairam Ramesh as the minister for rural development may target Uttar Pradesh for waste and scams in government programmes, but everyone knows that the problem is not confined to one state; yet, without reforming delivery systems, the government is busy thinking up yet more boondoggles. The result is a fiscal mess that cannot be cleaned up, in part because every economic issue becomes the subject of competitive political posturing, and long-overdue initiatives like the goods and services tax are stuck in Centre-state parleys. The larger message is that India’s political class has no time for economic reform, and no understanding of the need for it in an uncertain world where China becomes more powerful day by day on the strength of its superior economic performance. Talk of short-sighted political elites.