Implementing the cabinet decision taken on November 24, 2011, to allow 51% foreign direct investment in the multi-brand retail trade is one of the biggest challenges to confront the Manmohan Singh-led United Progressive Alliance (UPA) government in its two terms in office in India.
The long-overdue reform is bitterly opposed by allies of the UPA government and the entire spectrum of political opposition.
The reform has disrupted parliament for nine days in a row. The spearhead of the opposition is the Hindu majoritarian Bharatiya Jana Party (BJP), which wants to sponsor an adjournment motion and a vote in parliament.
Nothing symbolises the intensity of political opposition to allow FDI in multi-brand retail more than the vow of a BJP leader to,“set fire to the first Wal-Mart store, wherever it opens in the country”. BJP’s stance is opportunistic as it is opposing the very reform that it mooted nine years ago when it was in power. Its flip-flop on FDI in retail is being justified by its argument that such a measure will allow global retailing giants such as Wal-Mart and Tesco to threaten the livelihood of millions of so-called ‘mom-and-pop’ retail stores around the country.
The political left shares these fears. UPA is opposed to a vote on the floor of parliament as it may not have the numbers to prevail over the opposition. It is facing intense pressure to rescind the decision, which would then risk sending the wrong signals to the world that it is not ready to do business. The Indian economy is slowing down and food inflation is raging. The government is already being accused of policy drift that is impacting investments, including FDI, and badly hurts growth. Rolling back its retail policy would risk its credibility and standing in the world as a rising power.
Indications are that the government might save face by delaying the roll-out of FDI in retail until there is a wider consensus, and accordingly defer the notification to operationalise this decision. This could cause problems elsewhere in the country, however, as the reform will benefit farmers, reduce farm wastage through better supply chain management, create jobs and ultimately reduce food inflation. But all of this does not dispel the fears of the political opposition that the likes of Wal-Mart, whose sales turnover is equal to India’s retail trade, will dominate this business at the expense of 12.5 million smaller neighbourhood stores.