The latest act of the Indian government led by Dr. Manmohan Singh to allow FDI in retail sector has caused a huge uproar in India and this may be a beginning of new tussle between the government and opposition. Beyond the race for votebank politics, however, the long term implications of the new policy may be very ominous.
In 1991, the then finance minister of India, Dr. Manmohan Sing, under PM P. V . Narasimha Rao spearheaded a campaign to liberalize the Indian economy. Those reforms carried out over the period of 1991-1996 resulted in the eventual end of the Licence Raj system, helping to open the Indian economy to greater international trade and investment.
Over the tumultuous period between 1996 and 2004, India saw as many as four different governments with particular instability over the first four years although the pace of reform, having already gained momentum, continued.
It was after the surprising victory of the Congress-led United Progressive Alliance (UPA) in 2004 with Dr. Singh as PM that the environment became more conducive for a renewed push at further liberalizing the economy. But there was one more hurdle: the Left alliance holding a significant constituency of the UPA I which was vociferous on opposing any such moves.
Finally in 2009 came the thumping victory of the UPA II from which the leftists had separated following their objection to civilian nuclear deal with the US. With resurgent congress and impeccable performance of the alliance, there were now no hindrances to what Dr. Singh wished to do according to his vision.
But over the past year, the UPA in India has seen pretty bad days and the period has become far more humiliating and disgraceful for the once-revered PM of the country. After exposure of one scandal after another of mammoth scale, it has become very hard for the alliance to hold the ground. With humiliating defeat of one of the allies of Congress in the southern state of Tamil Nadu in the backdrop of infamous 2G scam and subsequent defeat of the Congress candidates in bypolls in the aftermath of a debilitating agitation against corruption by social activist Anna Hazare, the troubles for Congress, UPA as well as for Dr Singh personally seem to only grow with time.
Even in this shaky background, the SIngh government surprised many by taking a bold cabinet decision to allow Foreign Direct Investment in retail sales, a highly sensitive and controversial issue impacting the lives of millions of retail traders throughout the country. Despite the argument of the supporters of the move that there is no need to panic as the market is so big that everyone can accomodate, that may hold true for the short term.
And while the concerns of many in the opposition may be their compulsion to appease the votebank through popular rhetoric, there are other genuine concerns that the government or the PM have not bothered to address. In a country of billion plus population with as many as 37% of people under poverty line, the move to force millions of poorly organized and ill-equipped retail sellers to compete with the highly capable and mighty MNCs may be equivalent to asking them to gradually withdraw from the field so that the MNCs can increase their share in the market eventually controlling whole of it.
While the fiery rhetoric of the opposition leaders like "I'll set Walmart Store afire" are sporadic and meant at definite political gains, the justifications given by the government ministers in the issue are also patchy at best. The claims that the entry of highly efficient corporations would improve supply chain contributing to reduce the inflation seem to have merit but that speaks nothing about how the problem of potential loss of livelihoods of millions of people will be dealt with.
With even one of the important allies in the UPA joining the opposition on the issue, this may prove a hard pill to swallow for the government and the PM. But going by the trend, the legend of liberalization of India is all set to defend his latest act and to proceed as he has always done, despite all kinds of objections and obstructions. The full implications of the step in the long term, however, still remain to be seen.