Millennium Post

FDI in retail: A hasty step

The notification by the government of the rules to permit foreign direct investment (FDI) and foreign chains into the multi-brand retail segment as also overseas airlines into the aviation sector is surprising. The government appears to be in an unholy hurry to go ahead with FDI in retail. If it is doing so only to break the widespread perception of policy paralysis, it is making a big mistake. A policy change which is likely to have such a deep impact on the country’s economy should not be initiated so lightly. The government is doing so unilaterally without building up a consensus with allies and partners, which is inexplicable.  Without prejudice to foreign direct investment, the government should have built up a consensus before taking a decision as the issue in one that concerns millions of people and affects their livelihoods. The other parties in the alliance, as well as those outside it, which do not necessarily share the same perspective on FDI have important inputs to make that have the larger interests of the people at heart. FDI is a move that is perceived as only helping foreign retailers and is not necessarily in the interests of small businesses in India. It it became crystal clear that FDI was purely a positive step and not one detrimental to the Indian economy, the government should not have rushed into the decision.

At present, it is not at all clear how FDI in retail will help the Indian population. Moreover, the timing of the decision does not seem right. The government has taken the decision at a time of a hike in diesel prices. The public is already reeling under the impact of rising prices with inflation at an all time high. The introduction of FDI is very likely to further fuel the price hike. Large size stores use machinery, staff and processes that make for large overheads, in addition to other business practices. It is also highly debatable whether FDI is the answer to India’s farming woes. In fact, farmers are more likely to be exploited by these firms which have monopolistic practices. Moreoverm the decision to allow FDI  will affect a very large number of people who are currently employed in trade and local retailing. As giant retailers replace small retailers across the country, there will be huge job losses as people and businesses are rendered jobless. Jobs in the manufacturing sector may be lost as well if many of these giant retailers make purchases internationally instead of locally. At a time when the government should have been concerned about job growth and the creation of self-employment, the goverment has taken a step that may displace millions of people as they lose their foothold in the economy. The larger question is about how much foreign participation should the government allow in the Indian economy, which should largely remain in the hands of the Indian people. Therefore, the government’s move is an ill-considered step that should not have been taken hastily.
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