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Our Bureau

Chennai , Aug 25

THE Prime Minister, Dr Manmohan Singh, is confident of being able to permit foreign direct investment in the retail industry as well as go ahead with labour reforms.

In an interview to The McKinsey Quarterly, a publication of the management consultancy firm McKinsey, Dr Singh has said that he proposes to engage himself in convincing his political colleagues and building a consensus on the need for both.

To a specific question on the pace of FDI and about FDI in retail, the Prime Minister said "I do believe that India needs a lot more foreign direct investment than we have got, and we should have the ambition to move in the same league many other countries in our neighbourhood are moving."

On retail trade, Dr Singh said he was convinced that "we can work out a package that is fair, that entry of foreign enterprises into the retail trade will not hurt our small shopkeepers, but will create a lot more employment."

"We have to carry conviction with our political colleagues. I am confident that over a period of time we can do that," he said. For the time being, however, the task was to carry conviction with "our political colleagues" that this was a way to move India's economy to a higher growth path - to create new employment opportunities - and that this was not a strategy to hurt the small shopkeepers in the country.

"So I have my task cut out. In the next four or five months, I propose to engage myself in this task," he said.

On labour reforms, the Prime Minister said this covered about the 10 per cent of labour force in the organised sector. For the remaining 90 per cent, it was a completely flexible labour market and the normal laws of the market took precedence.

Even within the organised sector, the problem was most acute in the public sector. The private sector had been able to find ways of working out voluntary agreements with trade unions whereby necessary labour flexibility could be introduced.

Dr Singh said it would not be possible to move to the Western or the American model of hire and fire. "I don't see that there is today a climate of opinion which will go to that extreme. We have to look at the Southeast Asian example, and probably the Japanese. The Japanese for a long period had a different labour-management system," he said.

The Prime Minister told the questioner, Mr Rajat K. Gupta, a past Managing Director of McKinsey and a director in the Stamford office, that extreme rigidities in the labour market were not consistent with achieving the goals in a world where demand conditions and technological conditions were changing so fast.

He admitted that there were limitations for the time being. "We don't have a broad-based consensus in our coalition for me to assert that I can move forward in a big way. But I do recognise that we should take credible action."

He pointed out that "our colleagues" who were in government in West Bengal did appreciate the need for labour market flexibility. "It is my task to carry conviction to our Left colleagues in Delhi. I haven't given up, and I am confident that when all things are considered I think the reform will have more broad-based support."

He added that the coalition represented nearly 70 per cent of the Indian electorate, "So we may be slow moving, but if we build a consensus, that will be far more durable than any other mechanism that I know of."

Pointing out that the Left Front Government in West Bengal was moving forward in the area of privatisation also, the Left parties had to be convinced that what was good for West Bengal could also be good for the rest of the country.

"I haven't given up hope. I have full confidence in the patriotism of our Left colleagues to believe that in the final analysis of what is good for India, they will also be on board."

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