An idea whose time has come
Allow FDI in retail to develop India’s cold chain infrastructure and to cut farm losses.Updated: Nov 18, 2011 22:37 IST
Our policy stance towards foreign capital has been easing ever so gradually since India opened up to the world in 1991. This despite the fact that we save less than we invest and import more than we export. These two gaps, adding up to nearly 6% of the gross domestic product, have per force to be bridged by money from abroad. India dips into a $1.5 trillion pool of global foreign direct investment (FDI) and has managed to draw in $132 billion since 2000. By comparison FDI flows into China clocked $105 billion in 2010 alone. A thicket of government restrictions has been damping the ardour of multinationals wanting to enter the second fastest-growing emerging economy.
If India has to grow faster than it is doing now, it needs FDI. It takes an investment of R4 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 even that comes up $60 billion short of needed investment in a $2 trillion economy. 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 and financial services can see a surge in investment if the government floors the reforms pedal. But that has not been the elephant’s style and politically contentious issues are being painfully thrashed out. An ambitious growth target is likely to remain on paper unless backed up by speedy reforms. A business-as-usual approach cannot hope to deliver $1 trillion investment in India’s infrastructure during the Twelfth Five-Year Plan.
The United Progressive Alliance 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 vegetables 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.
First Published: Nov 18, 2011 22:35 IST