The big bang was long due
The decision to allow FDI is good news for the cash-starved aviation and retail sectors.india Updated: Sep 16, 2012 22:46 IST
India has opened itself to foreign supermarkets and airlines despite intense pressure against either decision. Last week's Cabinet decisions will help two of the country's vital sectors that are in dire need of capital, and more importantly, restructuring. They were long overdue.
Even a partial rollout of multi-brand global retailing is better than none. The 7% of India's workforce employed in retailing are an extension of the immense disguised unemployment in agriculture. The pushcart seller ekes out a marginal existence because he did not have a factory job waiting when he left the farm. Unless manufacturing can absorb a larger chunk of the population moving out of agriculture, retailing will remain India's unhappy hunting ground. Life here is not pretty. India has one shop for a hundred people. The atomisation of the industry robs shopkeepers of any pricing power that would allow them to scale up. Operating in the informal sector, 98% of the trade has no access to the institutional supports of business like credit. As it exists today, India's retail business has hardly any hope of acquiring the efficiencies of a modern industry. Despite this, there has been no widespread reaction to large-format selling. The cash-and-carry wholesale trade was opened up to foreigners nearly a decade ago, and Metro and Carrefour have expanded their footprint. Walmart has set up back-end infrastructure for big-box stores after the government opened up this side of the business to international players. Meanwhile, India's corporate retailers have also come up with the proof of theory as well as proof of execution.
Indian aviation faces challenges from a deteriorating external environment as well as the teething problems of a young industry. The losses they pile amounts a major chunk of the money that goes down the tube for the industry worldwide. Huge for a country that flies less than 5% of the global air traffic. At the heart of the problem is a business plan gone wrong. Indian airlines have in the recent past been on a reckless shopping spree for aircraft that are flying empty now. Private airlines have a point when they complain taxes on fuel and airport fees bump up the cost of flying in India by 60%. Alongside a policy that did not allow foreign airlines to buy into Indian carriers, this exerts an enormous cash squeeze. Of late the government has bestirred itself, taking up piecemeal aviation reforms. Airlines flying abroad can now import cheaper fuel, but the logistics are daunting. Bilateral route agreements with other countries are open to private Indian carriers. With the ban on foreign airlines buying into local ones lifted, the industry could see some consolidation.