Mr PM, time to ride on retail

This is an opportunity for the central government to redeem itself by carrying out significant economic reforms.

 |  4-minute read |   01-08-2015
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Has BJP finally given up on its resistance to the most significant liberalisation of the Indian market? Has Prime Minister Narendra Modi gathered enough courage to awaken the tiger of retail business, which is fortified by 125 crore consumers and the potential strength of $600 billion business? If the decision to allow Foreign Portfolio Investment (FPI) up to 49 per cent in multi-brand retail through the automatic route holds, it will definitely be a major reform, albeit silently. Going by the recently released DIPP notification, mega retailers like Walmart and Carrefour can invest in India's multi-brand retail in the form of FPI up to 49 per cent without government approval.

The change of heart on multi-brand retail has come probably from the lessons learnt from land acquisition fiasco. While pursuing a more liberalised land acquisition policy, Modi admitted that supporting the UPA's land acquisition law while in opposition was BJP's mistake. Opposing FDI in retail was also a blunder in similar fashion. It was only the BJP's orthodox obstinacy which prevented the light of modernity from reaching the vast retail market of India, which can benefit the country's infrastructure, agriculture, employment and common consumers. The liberalisation of retail was a non-starter. The last government allowed 51 per cent foreign investment in multi-brand retail, but following massive opposition from the BJP, the decision to allow investment was left with the states. So much politics was involved that none of the states showed the courage to move forward.

The UPA's decision to open multi-brand retail for FDI was taken amid challenges similar to those Modi government is facing now. Plagued by an economic slowdown and joblessness, the UPA wanted FDI in retail business to fuel growth. In the first year of its rule, the Modi government has failed to generate large-scale jobs to boost the economy and carry out significant reforms. But opportunity is knocking at the door. According to a recent document of the ministry of commerce & industry, the NDA and Congress have agreed to allow foreign companies in multi-brand retail in 12 states, including Rajasthan, Maharashtra, Karnataka and Andhra Pradesh. Such support was never available at any time in the past. This is the best time to show courage and kick-start India's most promising liberalisation.

India's consumer market is the engine of the economy, which fuelled growth from 2004-09. Retail is the third largest source of employment in India, which employs nearly four crore people. According to the skill development ministry, by 2022, as many as five crore people will be employed in the retail industry. This estimate does not factor in growth to accruing from foreign investment. A recent report from Boston Consulting says that India's retail business will be of the order of one trillion dollars by 2020, which currently stands at $600 billion. Modernisation of retail business could become major source of jobs befitting of the vision of Skill India.

Fresh investment in retail can revive construction, which is trapped in deep recession. It is the second largest source of employment and demand after agriculture. Retail consumer product creates new markets for industries and dozen other services, which is part of Make in India. Sixty per cent of retail is based on food, drinks and grocery and these are directly linked to agriculture. Modern retail is best positioned to invigorate farming and small industries as well.

Some new facts about retail suggest why the government must ride on it to fuel growth. The spurt in GDP from five per cent to 7.5 per cent via the new calculation method can be solely credited to growth in trading (retail and wholesale) business. The earlier methodology evaluating GDP figures could not gauge the comprehensive dimensions of this stream of economic activity. According to the older measures, for determining the contribution of wholesale and retail business to GDP, the employment survey of the NSSO was used. However, when sales tax figures were made the basis of the new calculations, it was learnt that retail constitutes 20 per cent of the economy and this segment's growth rate is double that of GDP.

If the decision to allow 49 per cent foreign portfolio investment in multi-brand retail business is backed by the entire Union government, the BJP and its allies in the states, then it should be taken as the most courageous gift from the Modi government. The retail saga in India is on the threshold. E-retail is already on the upswing, and the bold opening of multi-brand retail can change the shape and content of the beleaguered economy, eagerly awaiting critical pick-up.

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Anshuman Tiwari Anshuman Tiwari @anshuman1tiwari

Editor, economic analyst, columnist, author

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