The tiger finally roars

Despite being beleaguered by international and national bodies, the Prime Minister of India sticks to the route of reform

BY GAURAV SURATI

If you haven’t had chance to watch Bollywood film Rab Ne Bana Di Jodi, then I recommend you to watch it at least once. The first reason is that it has an interesting storyline and some good acting by Shahrukh Khan (SRK) and Anushka Sharma. The second reason is that the dual role played by SRK in this movie can be compared to the recent actions of India’s Prime Minister Manmohan Singh. SRK is initially portrayed as a simple, bashful man. But when he realizes his partner Taani (Anushka Sharma) is not so comfortable with him as she is a very cheerful and vivacious girl, he starts playing his second role. Manmohan Singh seems to be following the same path. After he was recently lamented by TIME magazine and the Washington Post as an ‘underachiever’ and ‘a dithering ineffectual bureaucrat presiding over a deeply corrupt government’, the UPA government has suddenly sprung into action. People have so far viewed Manmohan Singh as a nonaggressive ‘poodle of Sonia Gandhi’, not fully effective as prime minister. But suddenly now, Singh and the UPA government seem to be showing nerves and guts in leading India further through multiple financial reforms, one being Foreign Direct Investment (FDI) in retail and aviation.

The UPA couldn’t put the reforms issue on the backburner any more, as it was hampering India’s growth story more than ever before

One might wonder why the UPA decided to implement FDI in retail at this point of time. Is it because the government is now concerned about the negative publicity it has gained through multiple corruption scandals like the Coalgate, 2G telecom scandal etc? Is it because many international publications have joined the bandwagon in tarnishing whatever image was left from this government? I believe that the government had no other option – they simply had to take these bold decisions. The UPA couldn’t put the reforms issue on the backburner any more, as it was hampering India’s growth story more than ever before. The current government had tried to implement FDI in retail last year as well, but it backtracked after strong opposition from Mamata Banerjee, the BJP and other parties. Earlier

These stores must source 30 percent of their goods from smaller local industries, and must invest a minimum of $100 million or Rs. 450 crores in the country this year, the ratings agency Standard & Poor’s threatened to further cut India’s rating, as the investment outlook in India didn’t look good anymore. S&P Director for Sovereign Ratings Takahira Ogawa, said in a statement, “We believe that the government’s recent announcement on foreign direct investments is an encouraging development, but at this stage it is still uncertain whether these measures can be implemented or not.” India’s current S&P investment rating is ‘BBB-’, which is considered the lowest by investors for future investment. To maintain credit rating and India’s GDP (currently forecasted to be around 5.5%, the lowest in the past 9 years), the government had no other choice apart from going further – introducing FDI in retail and ignoring the opposition. It was just matter of time and gathering some guts. It needs to be seen what real benefits the FDI in retail can bring to consumers, farmers, the business environment, infrastructure and overall, to India. The policy would let foreign retailers own up to 51 percent of supermarkets and 100 percent of single-brand stores. Currently, only few states are willing to allow FDI in retail and welcome stores like Wal-Mart (USA), Tesco (UK), Carrefour (France) etc. If these companies are allowed in, they won’t have a free run as there are some strings attached. These stores must source 30 percent of their goods from smaller local industries, and must invest a minimum of $100 million or Rs. 450 crores in the country. In addition, half of the FDI amount must go towards backend infrastructure like cold storage and most importantly, individual states can decide whether to allow these stores in their states or not.

FDI in retail for India is a sensitive issue and can affect the livelihood of a billion people if not done in a careful, controlled and systematic manner. The Singh government needs to hold its nerve without coming under any pressure and introduce reform where required, in controlled manner. Investment in cold storage, warehousing etc., will see an improvement in the supply chain and less wastage of fresh produce. As far as how many benefits it can bring to the common man and business environment in terms of cost and competition, well, we will just have to wait and watch. First India needs to at least give it a chance.