Opinion FDI in retail

While we mull over that,food price inflation may have two desirable effects. First,we may finally get an unambiguous handle on BPL (below the poverty line) numbers. At an all-India level,the Tendulkar numbers seem to have been accepted. States may,and will,protest that these are under-estimates,because central doles are conditional on these numbers. Other than that,the key is now apportioning those numbers between states and within states.

Second,some movement on FDI in retail is doing the gossip circuits. The distinction between FDI in wholesale,FDI in single-brand retail and FDI in multi-brand retail is at best artificial,and is bound to be circumvented. The point isn’t quantitative importance of such circumvention. The point is one shouldn’t have policies that are difficult to enforce.

The pros and cons of opening FDI in retail have been debated ad nauseam. In the short term,small corner shops are bound to suffer. Anyone who argues to the contrary is being hopelessly naïve.

But in the medium term,the plusses outweigh the minuses,including for small corner shops. The best recent study on this is still the September 2008 ICRIER one,’Impact of Organized Retailing on the Unorganized Sector’. ‘Opening up’ can mean opening up to FDI or opening up to domestic investments. The latter is open,subject to some state-level problems,while the former is closed. Does the government have a sense that partial opening to domestic investments has increased food prices and lengthened distribution chains,a counter-intuitive but plausible possibility?

As is inevitable with protectionism,entrenched domestic players will resist opening up,though a few may welcome access to funds this brings in. But the UPA is unlikely to announce dramatic and overnight liberalization,with 100% FDI in multi-brand retail. At best,there will be an equity cap. Perhaps the cap on FDI in single-brand retail will be increased from 51% to 74% and perhaps FDI in multi-brand retail will be allowed up to 51%.