Ado About FDI in Retail Or Is There More To It Than Meets The Eye

Retail FDI, the buzz word of this parliamentary session. Forget the aviation crisis, inflation, black money, graft, our lovely neighbours in the east and west. Short lived is the promise of our wonderful leader LK Advani who was to have got each BJP MP to, very conveniently, say they had no black-money abroad. Mark the qualifier. And it isn't just the near orphan, BJP, but also the ever so childish Congress. How about the flip-flops of all party meets as always, after the issue. Just like the Indian Police in our movies, Congress wakes up a nice bit late to do lip-service to issues of importance.

It's quite easy for me to get off on a trajectory, but the thought running through mind all day today and yesterday was the much ado about 100% FDI in Retail. Just like in anything there are pros and cons to each policy. No doubt there are the benefits of access to world-class processes and products; an overhaul of the supply chain (leading to a definite reduction in black-money); greater employment; much needed foreign exchange inflow in to the country (not just the stock market); boost to production; and the list could be endless.

The pros are many and easy to grasp; but a critical analysis of the cons is where the crux of FDI lies. This of course is different from the political opportunism of our opposition; which in my opinion leverages on the insecurity of the middle class towards greater competition and an inflection point in our economy that much needs secondary-sector based growth. This political tango is best left to our politicians.

Lesser said about our leadership, the government in power or the opposition, the better it is. It is deplorable to have a government where fuel prices have increase by almost 100% during its rule, essential commodities such as milk have shown a 70% growth; the markets show a daily volatility of 5-7% and a quarterly volatility of 20-25%. A 7.5% growth with 11% inflation, do we see -3.5% growth? There is definitely much more to this than what meets the eye.

For a moment, lets forget the cynicism, and assume that this is a perfectly elastic market with no hidden parameters affecting it. Then what else could make us a country with amongst the highest GDP growth in the world and yet with the 3rd worst currency in the world?

To me, the problem lies not in regulation, or the lack of it. But in the non-thoroughness of our policies. My experience has been with the recent Telecom Commercial Communications Customer Preference Policy (or in other words the nuisance calls and sms policy). This since it directly affects our business. Such a policy and controls are no doubt important and is a step in the positive direction; however, the ambiguity and frequent changes in the policy is what cause problems. There needs to be more thoroughness around policy building. I have a half written article on my 24cents (its a better currency to be in today) regarding TCCCP streamlining; this I shall post later. But the bigger concern is the fine print behind each policy.

Some questions that come to my mind when I read this policy are what are the control parameters to ensure that:

1. The poor or non-unioned farmers are not exploited by this policy?
2. Only those with strategic interests for growing the sector are permitted into this sector?
3. There is a lock-in to build a sustainable business and not just a bubble for the sake of investment and valuation?
4. There is no downward spiraling of costs and therefore a repeat of the woes of the telecom and aviation industries just to gain market share?
5. Significant revenues generated are to be kept within India? Also, this should not be for a period of x years, but sine die.

Maybe some questions that time will tell. Definitely our babus are amongst the most competent in the world; but have the taken lessons from the recent growth sectors of pharmaceuticals, aviation and telecom while building our retail policy? Only the greatest teach of all will tell. Time.