Nantoo Banerjee
India is under an unbelievably high Western pressure, particularly from the US and the UK, for fresh reform in the services sector, especially in areas such as multi-brand retailing, banking, insurance, mutual funds, pension funds, civil aviation and legal practice, allowing substantial overseas access, if not full majority control. The reason is purely selfish. It has nothing to do with the desirability of such measures from an Indian perspective and under the present level of the country’s economic development. With industry and jobs shrinking in those countries, they are desperately looking for new growth avenues for their services sector industries with global presence, which generally contribute over 70 per cent of their respective annual GDP numbers.
Therefore, there is nothing to be surprised about the latest orchestration by the western media, business associations, multilateral institutions like the IMF and World Bank, sovereign rating agencies and even powerful heads of states such as America’s Barack Obama and Britain’s David Cameron strongly advocating that India should immediately embark on services sector reform to attract more foreign direct investment and, in the process, arrest its economic slow-down. One only wonders why they always pick up India for giving such unsolicited advice and pressure and not the People’s Republic of China. It may be because it is easy to influence soft India. China, on the contrary, views external advices with strong suspicion and stick to its own policies and programmes. Ironically, India seems to be already buckling under the US pressure. Union Commerce and Industry Minister Anand Sharma’s latest assertion signals that the UPA government is prepared to blink. He said opposition to retail FDI from states, barring West Bengal, is waning.
In reality, the western demand for India’s reform push in the services sector is not only mischievous but also, in most cases, lacks proper understanding of the on-ground situation. Take, for instance, the long-pending demand for foreign investment in multi-brand retail. That the country’s infrastructure is still not geared for it is stated by no other than the German wholesale and retail giant, Metro Cash & Carry, the world’s second largest, which operates out of 30 countries from 544 locations, including 10 in India, the latest one being in New Delhi. Rajeev Bakshi, Metro Cash & Carry’s India managing director, himself says that even if the company is given a retail trade licence now, it will not go for it. The company is happy to serve bulk customers, including small retailers, hotels, restaurants and business outfits.
Almost the entire range of products on display in Metro stores is locally procured. The company promotes local brands. Metro, which has invested around Euro 150 million (Rs. 900 crore), is expanding to new locations in India as its business is doing well. Metro stores are selective about storing perishables, especially green vegetables and fruits. The infrastructure bottleneck, the need for large investment in cold chain, poor access to rural markets, the existing multi-layer agricultural products distribution system, etc. are among the hindrances to the growth and profitability of farm products, which are often sold at retail market at prices which are ten times more than what farmers get from their bulk sales at local village markets. India must improve its roads, rural infrastructure and electricity availability before it embarks on a large scale reform of retail trade in very many products.
Before India goes for any further reform of its services sector, it should strive hard to build a strong manufacturing and industrial base, which it has failed due to the absence of an efficient and integrated infrastructure. The golden quadrilateral, started during the previous NDA government, was the first major move towards this direction. The UPA government’s 1,483-km-long Delhi-Mumbai industrial corridor (DMIC) at a cost of US$ 100 billion is scheduled to be partly ready by 2018. To become an industrialized country, India will require at least 10 such industrial corridors with highly integrated transport structure that will require an investment of US$ 1 trillion at current prices. The two proposed dedicated railway freight corridors from South Bengal to Punjab and Maharashtra to Uttar Pradesh will further strengthen the industrial infrastructure. Funds are not a problem. Land acquisition is. Several countries and multilateral funding agencies are willing to participate in these projects. Simultaneously, India must build adequate power generation capacity and state-of-the-art transmission capability with very low T&D losses to meet the all-hour demands of industry. These projects will provide a long-term push to India’s GDP and not the proposed multi-brand cheap import oriented foreign retail joints.
The Government needs to be concerned more about the creation of a world-class industry base in India, first. And, manufactured export should receive a top priority in the government’s industry policy. Small and medium enterprises (SMEs) must prosper alongside large industrial undertakings. SMEs are backbone to any sustained industrial development. They are also major export earners. Until the time the government is able to address the problem of the huge current account deficit by substantially narrowing down the export-import gap, no wise investor will look at India as a safe, long-term investment destination. India must build a much larger number of efficient, high-performing joint stock companies to move the stock indices and, thus, attract larger FDIs and FIIs on a sustained basis. These measures will create an all-round demand for services – banking, insurance, telecommunication and shipping. The necessary economic reform to attract more domestic and foreign investments to meet the additional demand of services will automatically follow.
Until then let the US and the UK suffer their rogue banks and engineered inter-bank offer rates. Let HSBC suffer the stigma of alleged money laundering and global terror funding and Barkley’s bankers keep manipulating LIBOR in association with more than a dozen banks in the US and EU. Let Wal-Mart, Tesco, Home Depot, Sainsbury, etc. keep dumping cheap imported items on their store racks at the cost of domestic SMEs and lakhs of local jobs.Both the US and UK would do well by better handling their own economic woos caused mainly by services sector mismanagement, corruption and lack of corporate governance before advising India on which areas of its economy need to be reformed — a term actually meant to hide the impact of a sensitive phrase called ‘foreign control’ — and how.
On India’s part, there is no tearing hurry for financial services and retail trade reforms for the sake of larger FDI inflow and higher economic growth. Such thoughtless moves at this stage are more likely to damage the economy by inflicting higher current account deficit and much larger negative balance of payment. They may also cause more sufferings to farmers, industrial workers, small investors, small grocery shops and poor or low-budget consumers. (IPA)
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