Retail volte face confirms India as BRIC that disappoints
Jim O’Neill, the Goldman Sachs banker who coined the term BRICs to capture the fast-growing emerging-markets quartet of Brazil, Russia, India and China, has fingered India as the BRIC that has disappointed the most over the past decade in terms of reforms, FDI and productivity. New Delhi’s latest decision to put on hold a landmark reform of its retail sector will only confirm this view.
The government’s backtracking on plans to allow foreign investment in supermarkets will not surprise those accustomed to New Delhi’s record on key economic reforms. But it means India’s weak performance on FDI receipts will continue and that’s bad news for the worsening balance of payments deficit. Speaking of the retail volte face, O’Neill said: “They shouldn’t raise people’s hopes of FDI and then in a week, say, ‘we’re only joking'”.
Various Indian lobby groups that oppose the reforms contend that foreign giants such as Wal-Mart and Tesco will kill off the livelihoods of millions of small traders.
Not so, according to a study by the Vale Columbia Centre for Sustainable Economic Development, a think-tank that studies FDI trends. The Centre’s Nandita Dasgupta notes that many emerging economies that have allowed 100-percent foreign participation in retail since the early 1990s have seen encouraging results. These include Argentina, Brazil, Chile, Russia, China, Indonesia, Malaysia and Thailand. In China, FDI in retail was permitted 20 years ago. But there is no evidence the huge investments have hurt mom-and-pop operations or domestic retail chains, Dasgupta says. In fact, since 2004 the number of small Chinese outlets has increased to around 2.5 million from 1.9 million. Between 1992 and 2001, employment in retail and wholesale almost doubled to 54 million.
In Indonesia, where FDI to retail was liberalised 10 years ago, 90 percent of the business remains with small traders, Dasgupta points out.
At present, insufficient cold storage, poor transportation and distribution infrastructure allows half of India’s fresh produce to rot. An organised retail sector can create a proper farm-to-fork infrastructure through direct purchase from farmers. India’s 700 million poor are the ones bearing the brunt of double-digit food price inflation — the status quo is the worst option for them.