With the bad showing of the Union government’s party and its coalition partners in the recently concluded Bihar state elections, serious rifts which are evident among many members of the coalition who fought against each other is likely to aggravate during the oncoming winter session of parliament. Amongst the many topics which will test the strength of the coalition, with the Congress party and the Left Front taking opposing view points would be on the issue of Foreign Direct Investment in Retail industry. The government’s indication that it would be in favor of opening up the Indian retail sector to foreign investment has been as expected met with the left’s threats to withdraw support to the UPA government. In the 90’s during the early days of the globalization, with Dr. Manmohan Singh as the union finance minister, the retail trade industry had been opened up for FDI, but later was repealed under pressure from the left by P. Chidambaram during the days of the third front government. It seems that by some funny twist of fate the same two people in similar capacities again have to face the left front on this issue now.
FDI has been opened up in other sector of industry and the number of government approvals has been on the increase steadily. During the 1st seven months of 2004, there has been a net inflow of Rs. 9503 crores which is approximately 80% of total FDI inflow 2003. 2005 has also seen a lot of reform in this sector. With reforms like the increase of FDI cap in aviation from 40% to 49% the overall growth rate in 2005 has also been on similar lines. Press note 18-the restrictive regulation which required a foreign partner in an Indian joint venture to get the Indian partner’s no objection to start a new venture in the same field, has been abolished. In the retail industry however, the picture is not very rosy. According to an A.T. Kearney report, the market in
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The entry of METRO GmbH had sparked of protests from the left wing. The company has been accused of starting retail trading directly at their outlets in the name of wholesale. The propaganda machine has been blaming the government of looking the other way by allowing the company to continue operations even when there have been reports of METRO selling products not essentially meant for resale which is stipulated under norms. The Indian retail industries share a large market, which is mainly unorganized. The entry of these large foreign conglomerates is set to usher in an era of large scale organization in this market with modern strategies and newer technology. The left parties are willing to downplay these constructive features by mooting concerns over the so called predatory pricing regimes followed by such companies sounding a death knell to the smaller Indian retail companies.
Predatory pricing practices have been a common feature in arguments against large retail chains around the world like Wal-Mart. Although companies like Wal-Mart have in the past engaged in such practices, it is a case in point to note that such practices have failed and been the bane of these companies. To further allay such misconceptions it might be worthwhile to look into the rates of inflation which are a key index to the struggle in pricing. In fact trying to decrease rates of inflation by practices like monetary infusion, or increase in the stock of country’s money can prove counterproductive. There has been a debate over this issue in economic circles recently with Ben Bernake, the successor to Alan Greenspan as the chairman of US Federal Reserve being in support of such a policy of monetary infusion. The capitalist frame of thought on this issue propounded by none other than Ludwig Von Mises, the famous economist of yesteryear is that trying to increase the stock of money when the inflation rises above a certain level and decreasing it when there is deflation at a certain level, in other words, inflation targeting, cannot be achieved without misleading economy with an illusory boom. This would in simple common sense mean that, practices like predatory pricing will not be successfully possible if there is no indulgence of the Reserve bank of
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References:
1. Investing in
2. Retail Trading- Why FDI should be allowed: Jayanthi Iyengar in the Hindu Business Line
3. FDI in Retail must be allowed- Dr. Subramainan Swamy, Rediff Business portal.
4. Mises Institute: Why money supply matters- Thorsten Polliet www.mises.org
5. Mises Institute: What does inflation targeting mean- Roger Garrison www.mises.org
6. People’s Democracy, December 14, 2003: FDI threatens 3 crore Indian retailers- weekly organ of CPI(M)
2 comments:
One should have a proper appreciation of the factors involved in global trade policy decisions before recommending that FDI should be allowed in retail.
There are many excellent articles on the web on this.
e.g. see
www.prajatantra.blogspot.com
Thank you for sharing this post.
quesdtial
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