Speed up the reforms cycle
Open up the retail sector because India needs foreign capital to keep growing.india Updated: Jul 24, 2011 21:29 IST
India is now a couple of steps away from allowing foreign retail chains to set up shop in India. The world's second-largest producer of fruits and vegetables loses a quarter of its produce between the farm and the table. Likewise, nearly 7% of Indian grain rots in fields and granaries. The refrigeration that would preserve all this food is non-existent, only one in seven tonnes of our veggies goes through cold storage. Foreign investment in cold chains has not materialised because India denies their developers access to retail sales. The most immediate way to raise farm productivity would involve allowing the Wal-Marts and Carrefours to open their vends with deep back-end infrastructure that can contain this horrible waste. The buyer benefits from lower prices - food inflation has been on a tear for quite a while now. The farmer benefits from higher realisation - Indian farmers get a mere third of the price the consumer pays in contrast to two-thirds of the final value earned by their counterparts in countries that have big buyers. And the global retail chains get access to a $450 billion market that is growing at nearly 9% a year.
Indian farming needs to pull itself out of a cycle of low productivity. The next Green Revolution is waiting to happen if we can stop 1% of our GDP from spoiling before it reaches the dinner plate. The question is why we don't have organised large format retailing already? The 33 million people engaged in delivering the food from the farm and into the kitchen, who stand to be displaced, constitute a powerful argument against an organised industry. The committee of secretaries that has cleared the proposal has pushed for majority holding by an Indian partner, a minimum investment and restricted their operations to cities with more than a million people. Obligations on committing a part of investment to supply chains, hiring workers from the countryside and selling a part of the wares to local grocers would all have diluted the business logic of supermarkets.
If India has to grow faster than it is doing now, it needs foreign capital. It takes an investment of Rs4 in India to produce every extra rupee of income. A 10% growth rate for the gross domestic product requires Indians to invest $800 billion in a year, up from the $720 billion it would need if it were to grow at 9%. The highest India has saved in any year is 36.9% of its GDP, and that comes $60 billion short of needed investment in a $2 trillion economy assuming our savings rate climbs up from 33.7% now. Foreign capital has been bridging India's savings-investment gap and our policymakers must heed it when it seeks greater access to our economy. Areas marked off-limits for foreigners like retailing can see a surge in capital flow if the government floors the reforms pedal.