Sunday, September 23, 2012

Why FDI in retail is a game changer for India?

At last Indian government has decided to bite the bullet. Now the ball is in the court of the opposition. This is a master stroke in terms of economic and political strategy. I would even suggest that this is a great political strategy.
What does FDI policy states?
The federal government has allowed investment in Indian retail industry by multinational firms such as Wal-Mart. Does it lead to job creation? Does it affect employment prospects? For me, they are immaterial. I am going to explain my argument. This is a brilliant political strategy. Till recently, the government did not take this measure. Why? The fear of Mamata. Now Mamata can be replaced by some other party from UP. So, political situation has changed, and not economic situation.
This is the right time to introduce reforms. Election is in sight, and in the election, Congress needs an issue. The opposition also obtained an issue. The point is : can opposition parties like BJP cash in on this. Not likely, particularly because BJP has been inconsistent in its policies. It has opposed special status to Kashmir, but demands similar status in Goa. This is a contradiction of sorts. Congress has won the first round. This is because states are given the autonomy to decide regarding this issue. As far as politics is concerned, I support MMS. The timing is perfect, because Anna Hazare is likely to concentrate on social activism. He will go back to his roots, and this will affect movement against Congress. Who knows, Congress may win again, particularly because BJP is not a strong contender.
What is the economic argument? Will it kill Indian kirana merchants? The advantage with Wal-Mart is that it benefits consumers and producers. Farmer is likely to obtain better deal. Wal-Mart insists on environment friendly products. One can assume that it has learnt lessons from its operation in other countries of the world. So, FDI is likely to create jobs, and this is likely to create jobs, instead of destroying jobs.
India needs to enhance its competitive spirit, and I am sure that we can compete with the best. Let us create, companies than can challenge Wal-Mart. We need to adjust with new situations. FDI is allowed only in mostly populated areas. If Wal-Mart fails to satisfy consumers, it will fail in India. There are different customers for kirana stores, which can offer personalized and customized services. Kirana stores have come to stay, and they will not fall.
FDI has only symbolic value. It shows the intent of the country to introduce reforms. This will send strong signals to investors. The stock market has responded positively. In the long term, this decision is likely to be beneficial. 

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