There have been two blockbuster decisions by different wings of government, one giving the green signal to Reliance Industries Limited selling 30 per cent of its stake to BP for $7.2 billion and the other a proposal to hike the cap on foreign direct investment (FDI) in multi-retail trade to 51 per cent. The decision of the Cabinet
Committee on Economic Affairs to give its “unconditional approval” to the RIL-BP deal was a big surprise. On Thursday the same committee had sent back the note given by the oil ministry, which was pushing the deal, saying the issue of imposing preconditions, as suggested by the finance ministry, had not been adequately answered. But in less than 24 hours, on Friday, the deal was okayed without preconditions. In the case of the committee of secretaries’ proposal for a 51 per cent cap on FDI in multi-brand retail, it was better than what the pro-MNC lobby had expected. There is, however, no clear picture of the riders, if any, that would be put on the giant MNCs in the retail trade, like Walmart, Tesco and Carrefour, to start operations here.
One view is that the two deals were pushed through to burnish the image of the government as one ready to make “tough” decisions on taking the reform process forward. The government has been accused of paralysis on the policy-making front and in recent times both the Prime Minister and the finance minister have been at pains to say there was no paralysis in the decision-making process. The RIL-BP deal and FDI in retail were low-hanging fruits that the government picked to look agile in decision-making.
But could these be the one swallow that does not make a summer? Time will tell, and even the Walmarts in the business have not jumped at the announcement of the FDI cap hike; they have heard this too often. There is tremendous opposition from the political parties who support the vast army of mom-and-pop stores and kirana shops that fear they will be put out of business by MNCs with deep pockets. There is no doubt that the mom-and-pop stores exploit young children and workers, but they too are moving with the times, providing services like home delivery and upgrading the quality of goods. The only people welcoming the decision are the elite, and the big Indian retailers, who will find lucrative opportunities to sell their stakes to MNCs and exit, or stay on as partners.
One fails to see the logic in the argument that we need foreign companies in multi-brand retail when reasons such as setting up cold storages and warehouses, cutting down losses and making goods cheaper by cutting out middlemen are trotted out. Setting up cold storages and warehouses does not require rocket science, nor does cutting losses. These are bogus reasons. What has been the experience in other countries where these MNCs operate? Several experts, globally, have said that neither the farmer not the end-consumer have really benefited from the big boys being in the retail business. They just appropriate the middle-men chain. What is the real nature of the change that they will bring besides giving the Indian elite processed foods not known to them earlier? The Walmart India president has been quoted as advising Indian authorities that foreign investment is important for creating the right infrastructure to supply food to a billion people in India, and without that there could be significant inflation and non-availability of food stocks. Again, one fails to see the logic in this, particularly when farmers both in the US and Europe won’t grow food unless they continue to be heavily subsidised.