The Hindu Business Line : Reforms at the periphery

THE GOVERNMENT HAS done its reformist credentials, such as they are, no harm with its announcement on Tuesday of a further liberalisation of foreign direct investment norms across a range of sectors. With cabinet ministers, state chief ministers and a virtual who's who of India's corporate sector out to paint India as an attractive investment destination before the global CEOs gathering at the Swiss resort town of Davos this week, the latest policy announcement should help counter to some extent the widely held perception that the political will to sustain the process of economic reforms is weakening in the country.

The Government is now saying that prior foreign investment approval is no longer required for 100 per cent foreign ownership in new airport projects, pipeline network for natural gas and trading in electricity. Then there is the promise of liberalising captive consumption norms for coal mining. But by far the most significant announcement has been the decision to permit foreign direct investment in retail trade in "single brand' products. The Government is evidently quite nervous about the political repercussions of opening up retail trade to the likes of Wal-Mart. At the same time, it views even a diluted policy framework for this sector as holding considerable potential for showcasing India as an investment destination.

What the `single brand' norm would perhaps do, or so the Government seems to think, is to counter the criticism that opening up the retail trade to foreign investments hurts the fortunes of small grocery stores while leaving enough flexibility for allowing in the `large format' stores, if not immediately, at least at a later date. Even in the short run, there is some room for manoeuvre since many chain stores do sell an assortment of goods under their own brand. The fact that these stores are also perceived as having an identity of their own — a Wal-Mart, after all, is a brand in its own right — wouldn't also hurt. The present policy has the added merit of leaving the Government with enough elbow room to broad-base the concept of the `single brand' to accommodate a whole range of extensions. This was the route perfected back in the 1980s, when the policy of industrial licensing was diluted through such devices as automatic capacity expansion, broad-banding of products under one licence, etc. The proposal on coal mining for captive consumption is sought to be loosened up with a concept of `eligible users' with just the hint of expanding on the notion of a captive consumer as something beyond a coalescing of the twin identities of producer and consumer into one.

Clearly, the Government is feeling its way around the contentious policy issues. The emphasis is still on reform at the periphery rather than at the core to forestall any possible criticism. The irony is that neither the entry of foreign-owned `chain stores' nor greater competition in the coal sector are inimical to public interest, yet must forever remain a hostage to the compulsions of realpolitik.