It's been a forgettable fiscal year for reforms so far. With the end of the current financial year looming and the Budget around the corner, the reform calendar has barely two-and-a-half entries.

On the credit side, we can tot up allowing 100 per cent foreign direct investment in single brand retail, allowing foreign investors to buy directly into Indian equities, and a tentative ‘all clear' for allowing foreign airlines to acquire up to 49 per cent stake in domestic airlines. Precious little to show for a year's worth of thunder and lightning, and Parliamentary rasta rokos . In fact, the last entry shouldn't really be there, since the ‘reform' is being made possible by a bizarre perversion of logic which put that particular roadblock in the rulebook in the first place!

There is even less to show on the outcome front for these reforms. The Government might make a song and dance about the fact that India has finally opened the gates to one set of foreign investors or the other. But that doesn't mean that investors are beating a path to our door.

Take the opening up of the markets, for instance. If they had done it in 2007, we would have seen a gold rush of unparalleled proportions. Now, with India one of the worst performing markets in the world, and investors everywhere retreating to safety from the mayhem in bond and currency markets, asking foreign individual investors to put their bets on a sinking Sensex will evoke a response cooler than the current winter temperature in the capital.

Ditto for retail reforms. After funking it on the issue of allowing FDI in multi-brand retail, the Government is keenly hoping that it will be able to showcase at least a few big-ticket names in single brand retail. That's looking pretty unlikely at the moment, because of the 30 per cent local sourcing from SMEs clause. Most single brand retailers looking to enter India at the moment happen to be either luxury or high-end lifestyle product retailers. They are understandably chary of sourcing from sources they are not sure of in terms of quality, workmanship, etc.

Bureaucratic deviation

This kind of unexpected bureaucratic deviation has been the bane of the reform process. While the wish list is impressive and the vision grandiose, when it comes to actual implementation, there are too many unexpected little twists and sly speed bumps introduced, often at the behest of vested interests.

Of course, this is not presented as taking care of one particular interest group or the other. Instead, such policies are often attempted to be sold to the voting public in terms of social impact or welfare. One only wishes that this were indeed so. But there are any number of examples of how the rules have changed, but the game has not.

Earlier, we simply withheld a permit or a licence. Now, we tweak the ‘rules' so that some people get past the gate, while others don't. Not that one is advocating unbridled free markets. Not for a moment. As an emerging market with high income and developmental inequalities within the economy, policy should, and must, be used as a tool to even out these bumps.

From handicap to advantage

We must tailor our policies to drive foreign investments into areas and sectors providing the greatest advantage to the economy — while ensuring that the same policy also leaves enough on the plate for the investor. We also need to understand our position in the world economic order, and leverage our relative strengths to best effect.

Take this local sourcing clause introduced in the retail FDI policy, for instance. Though limited to single brand retail at the moment, this will undoubtedly be a part of multi-brand retail policy when it happens. As things stand, although it promises much on paper, SMEs can expect little improvement in actual business on the ground, since global investors will base sourcing decisions for their own businesses purely on business considerations.

But with a few pragmatic tweaks, such a clause can actually be used to solve one of the biggest problems faced by SMEs in India — market access. Along with lack of access to finance, this is the single biggest grouse of SMEs. The finance problem is getting addressed, albeit slowly. But there has been no progress on improving market access to SMEs.

If one were to ask global investors — not just in retail, but all sectors — to use their global networks and market knowledge to help SMEs tap markets worldwide — and not insist on a constricting supplier-buyer relationship — one could transform the market scenario for SMEs.

The appeal of access

Large MNCs have the resources, the detailed knowledge of various markets and also the bandwidth to mentor Indian SMEs. Besides, having a global biggie fronting for you evens out the biggest problem faced by SMEs while pitching for business — the staggering difference in size and scale, and consequently, bargaining power, between suppliers and buyers.

On its own, any individual SME will not be able to negotiate reasonable terms with a buyer many times bigger and stronger financially. The interface with a large global corporation might mean the difference between a contract that helps the SME grow and one that actually ends up ruining it. Why should foreign investors do this? They will not do this out of charity or even a sense of corporate social responsibility. But if such work is given due credit and offset against their sourcing requirement, they will do it in order to have unfettered access to the Indian market.

To have an offset policy that actually works, the government needs to realise that India — and the Indian market — now offers sufficient attraction for most global businesses. They need to keep this strength in mind while developing policies to leverage this market attractiveness effectively, while at the same time ensuring that too many roadblocks are not placed in the way of actually doing business in this country.

It's not such an impossible task. Indians have always been great bargainers. All our policymakers need to do is to build on this innate ability.

>blfeedback@thehindu.co.in

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