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Punjab needs it to go hi-tech on agri front

With regard to foreign direct investment (FDI) in multi-brand trade, the avalanche of words on both sides of the aisle is indeed overwhelming, if not altogether deafening. The loud chorus of support by the reform enthusiasts and blind opposition by the Cassandras requires to be moderated and modulated. KR Lakhanpal @ HT DEBATE: Can Punjab afford to miss the FDI bus?

chandigarh Updated: Oct 01, 2012 11:14 IST

With regard to foreign direct investment (FDI) in multi-brand trade, the avalanche of words on both sides of the aisle is indeed overwhelming, if not altogether deafening. The loud chorus of support by the reform enthusiasts and blind opposition by the Cassandras requires to be moderated and modulated.

Both will do well to heed to the advice of the great statesman, Winston Churchill, who said, "We are masters of the unsaid words, but slaves of those we let slip out". It would be observed that the noise on both sides is embedded either in policy orthodoxy or opposition-for-the-sake-of-opposition, rather than in objective research.

Recently, Kaushik Basu, former chief economic adviser, was quoted to have said, "According to studies, a left and a right-wing person made to read the same set of facts will feel even more confirmed in his or her original views." This underscores the need to view the economic policy sans ideological blinkers and political expediency.

Allowing FDI in multi-brand retail, per se, will not suffice to achieve its cherished objectives of modernising Indian retail, diversification of agriculture, attracting back-end investment, integrating the farm with the fork by cutting long and inefficient supply chains, and thereby, sharing the efficiency gains with producers and consumers. For all that to happen will take a lot more than just a notification allowing FDI in retail. In other words, it may be necessary, but not sufficient, to achieve the larger objective. In the specific context of Punjab, the imperative of allowing FDI in multi-brand retail needs to be viewed in the context of the current state of its economy.

Firstly, the growth imperative. Up to the 1990s, the state's economy was one of the fastest growing among all states. Post-1990s, the rate of growth decelerated and the state is now one of the slowest growing states. This is because of the moribund state of the industry and trade due to a variety of man-made and God-made reasons and setting in of the law of diminishing returns in agriculture.

Not only the agricultural growth has trended around an average of 2.5% per annum, but the additional output has also come about with ever-increasing marginal costs. In the meantime, other states have been catching up and making an ever-increasing contribution to the central grain pool.

In this context, where is the market for Punjab's agri produce? For long, Punjab cannot depend upon the central procurement and ever-increasing minimum support price (MSP), which, at best, is a short-term luxury. Therefore, Punjab cannot regain its high-growth trajectory, unless it breaks away from the high costs, low productivity and mono-crop agriculture into modern and hi-tech agriculture, fully integrated with national and international industry and commerce. It may not come about by FDI in multi-brand retail alone, but without it, it may well be impossible.

Secondly, the investment imperative. Breaking out from traditional agriculture into hi-tech and modern agriculture would require a humongous amount of investment in back-end infrastructure, cold chains, processing and front-end marketing. What to speak of individual farmers, even the private domestic capital and the government may not be able to meet the investment requirements of this magnitude.

Thirdly, the income and employment imperative. Up to the 1980s, India grew at a trend rate of growth of 3.5% per annum, the so-called Hindu rate of growth. However, in the past two decades, the annual growth has averaged around 7% per annum. Paradoxically, the agriculture growth is stubbornly stuck at 2.5% per annum.

This hiatus between the urban and rural India was not that pronounced, when the country itself was growing at a rate not significantly higher than the agriculture growth. Rural incomes and employment are expected to receive the desired boost with a shift from low-value-addition primary produce to the high-value-addition processing. Organised retail trade also has a huge potential for creating better quality off-farm, new jobs, thus narrowing the rural-urban gap.

Fourthly, the techno-managerial imperative. Allowing FDI in retail is not only for boosting investment. It will be accompanied by cutting-edge technologies and best management practices for fully reaping the gains from the economies of scale. Our domestic companies' forays into organised retail has not been as successful as we had expected, not only due to lack of investible funds, but more because of their inability to work out a world-class business model.

And lastly, the economic integration imperative. India's and Punjab's economy is stacked up in tight silos, with very tenuous linkages between urban and rural on the one hand, and agriculture and industry on the other. Punjabis are the most globalised citizens of India, but its economy is more closed even than that of Myanmar. It is hoped that FDI in multi-brand trade will help open up the economy and generate spatial and sectoral synergies.

The forgoing analysis makes a compelling case for allowing FDI in multi-brand retail. Besides, the union government has more than adequately addressed over-exaggerated concerns about shutting down of 'karyana' stores and dumping Indian markets with foreign goods by (a) restricting it to only 53 cities in the country, with a population of 10 lakh or more; (b) prescribing investment of $100 million; (c) stipulating 30% local sourcing and making; (d) 50% of investment in back-end infrastructure compulsory.

It is a very restrictive policy regime which will beg for liberalisation as we go along. However, despite all this, the Punjab government's flip-flop on this issue proves, in the words of illustrious Prof Raj Krishna, that, "the government has become knowledge-proof." Or, to borrow a catch phrase from the irrepressible Swaminathan S Anklesaria Aiyar, "The government has chosen 'aam bania' over 'aam aadmi'."

First Published: Oct 01, 2012 11:08 IST