FDI in Retail Makes Sense Only With 51% Overseas Stake Close.

Prime Minister Manmohan Singh has said that he expects to push through measures to open up multi-brand retail to overseas investors by March-end , after state elections get over. This is heartening. The Indian economy will gain as these investors will bring technology and management practices to build modern supply chains and connect producers directly to markets.

However, some Congress politicians have said that the way to wangle a consensus from allied parties would be to first allow only 26% foreign direct investment in multibrand instead of 51%. This is a bad idea. Foreign retailers will not find it attractive to invest without management control. Domestic organised retail has been in India for years now. But they lack investment in backend operations, storage and transport infrastructure. Overseas investors have the financial muscle to make these investments and build a strong distribution network.

To ensure a well-capitalised industry, the government must allow foreign investors to own 51% in multi-brand retail. Other harmonising reforms should be in place for FDI in multi-brand to succeed on the ground. States should scrap the Agriculture Produce Marketing Committee (APMC) Act that hurts farmers and allows middlemen to thrive. Farmers should have the freedom to buy and sell their produce directly.

They should also organise themselves into producer companies to enhance their bargaining power vis-a-vis big retail. These reform measures need not wait till the government allows FDI in multi-brand retail. The Prime Minister admitted that there was inadequate preparation to push the policy through. He believes that the long-term democratic path is the most credible one.

The government should not sleep at the wheel. It must start talking to doomsayers within the Congress, its allies, the Trinamool Congress and the Dravida Munnetra Kazhagam, and the opposition BJP. Surely, the reform that is expected to create 10 million jobs and help tame inflation by reducing wastage in fruit and vegetables needs better marketing.

Source : economictimes.indiatimes.com