Exaggerated fears

| Updated on December 15, 2011

Foreign retailers will serve the interests of farmers and consumers. However, the Government should ensure that they do not shut out competition in the long run.

In 2008, Dr Manmohan Singh took a huge political bet pushing for the Indo-US nuclear deal in the face of opposition from the Left parties, on whose support his own Government's survival rested. The gamble paid off. Not only did the deal go through; his Government survived and even came back to power with more number of seats in the 2009 Parliament elections. Today, the ruling Congress-led dispensation faces similar political resistance to its decision allowing foreign retailers to set up shop — literally — in India to hawk regular merchandise, branded or otherwise. But unlike in 2008, there are no serious threats of the government falling or the need to adopt dubious means for cobbling up numbers to remain in office. Yet, this week is going to be crucial, with the Parliament's ongoing winter session — already a virtual washout so far — providing just the right platform for the Opposition to harangue the Government into withdrawing its decision. Whether it succumbs or sticks to its guns would certainly impact investor perception, especially in an environment where Indian stocks and the rupee have slid more than most other emerging country markets and currencies this year. Opening up retail would go some way in refurbishing the Government's reformist credentials and restoring investor confidence.

The Government, moreover, has little reason to be defensive about permitting foreign retail chains to open stores in the country. It can actually turn the tables on the Opposition by projecting it as a pro-farmer move, and the ones not wanting it as representing entrenched trading interests. It can buttress the claims by pointing to the handsome support price increases for crops and the farm loan waivers granted in recent times — and how organised retail takes these a step forward by eliminating the layers of intermediaries standing now between producers and customers. The current brouhaha over Walmart's or Tesco's entry can even be converted into a debate on the Agricultural Produce Marketing Committee (APMC) laws of States. They bar anyone from directly buying from farmers without an APMC licence, which is seldom given. Isn't the opposition to opening up retail coming primarily from those who have successfully blocked APMC reforms?

That raises the real issue, which is about promoting competition for the benefit of producers and consumers. If the entry of foreign retailers enables that, they should not be stopped. The Government's focus should, instead, be to ensure they do not engage in predatory practices that might potentially shut out competition in the long run. This cannot be ruled out, considering the deep pockets of multinational chains, giving them the leeway to invest a few billions without seeking any immediate returns. That is a luxury few domestic corporates, leave alone corner shop owners, have. Farmer and consumer interests are, ultimately, best served from having a multiplicity of players at the opposite end of the transaction.

Published on November 27, 2011

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