Issue Paper:

FDIinMultibrandRetailsector

Whereistheneed??
Raising political and economic questions seldom discussed.

Mukul Kanitkar Vivekananda Kendra, Trivandrum madhyachal@gmail.com www.uttarapath.wordpress.com

Index
I. II. III. TheContext ThePresentDebate
A.
A. B. The Issues discussed at present: Is Media the right forum of policy debate? : Political issues: 1. 2. 3. C. 1. 2. 3. 4. 5. 6. 7. Domestic politics: Food Security: International Geo-politics: Need of FDI? : What's the bargain? What did India get in return? Technical Upgradation? In Retail?? : Are we Capital starved? : Source of FDI: Is there any economic Rationale for FDI? : Mala-fide? Ignorance?? What's behind the decision??

LetusdiscusstheRealissues

Economic Issues:

IV.

TheMindsetofpolicymakers
A. B. C. D. E. F. G. An Overview of Reforms: Role of domestic Liberalization: 1. Role of foreign capital needs a close look?? Adverse effects of Globalization: Other effects of Reforms: The second Landmark 1998: The Ugly side of Reforms: Blind Followers of the West: Technical input in right areas: Community base micro-capital Generation: Rationalizing the Tax structure: 1. D. E. F. Arthakarnti Proposal. Recovery of Black money stashed abroad: Decentralize Rural Development model: Constitutional reforms:

V.

RealReformsneeded
A. B. C.

VI.

Conclusion

TheContext
The union Cabinet takes a decision to allow 51% FDI in multi-brand retail sector. Though it is an executive decision, as the parliament is in session, naturally it is taken up by all the political parties. The allies of the government take a firm stand. Opposition is united across the ideological boundaries. The government has to bow down. The decision is suspended pending consultation to create broad consensus among the stakeholders. But though the decision is in suspension the issue is far from dead and buried. It is better to discuss it logically in the comparative calm rather than racking up unrelated issues in the political haste. This issue paper aims at discussing the real issues involved in the Policy of inviting FDI in general and in its implications in retail sector in particular. It is an observation that the present debate has bye-passed these real issues and is focused on the side issues. This is an attempt to discuss the wide implications of the mind set that not only invites and welcomes FDI but projects it as the only panacea for all the economic problems of the great country of 120 crores.

ThePresentDebate
The issue of FDI in multi-brand retail sector is much deeper than what meets the eye. It is not just an issue of wrong timing or lack of political consensus. The political parties may support or oppose any issue on popular considerations. One can not blame them for that. The manner of opposition, claims for and against the issue is also sometimes aimed at the gallery rather than being serious matters of policy considerations. We are witnessing all kinds of claims and counter claims on the issue of FDI in retail sector. The Issues discussed at present: Inflation control, Employment generation, Future of Small retailers, Farmers well being- Are these the real issues or side issues given prime attention due to vested interests? The government is not clear on its policy objectives. The 4 page note on which the cabinet took the decision was illusive on the specific aim and objective of the policy. For public consumption some tall claims are being made by the prime minister, finance minister and also the commerce minister. One claim is about controlling price rise. Discussing the logical and

practical merit of the argument is of no use. The main question is, 'Is inflation in food prices the real motivation for this policy decision?' If so, will the decision be revised if the inflation is not controlled? The other populist claim is, 'This will create millions of jobs.' Again the same question is job creation the main objective then the choice could have been some other sector like manufacturing, IT hardware and infrastructure development which would have created much more jobs for even the unskilled labour. The FDI in retail sector is feared to displace more self employed people than it ever can employ. The difference between the two is very large in-fact multifold. There is a need to refer to the data available on these companies in the west about this crucial factor. Many studies have shown this downward trend in employment opportunities due to entry of big players in retail in US as well as Europe. These two claims about inflation and employment could be explained as responses to the actual fears of the public also articulated by the political parties. But what is the real objective behind the policy? The government must come out with the real aim behind this decision. The opposition is equally superficial in some of its arguments. The fear of large corporations eating up small retailers may be a real threat but is not a convincing economic argument. Politically it is very sound issue as it touches millions of families which are dependant on the retail business directly or indirectly but these threats can be dealt with some regulations. The present policy decision has provision of allowing foreign investors to open outlets only in cities with population in excess of one million. But again the question remains, 'Is the protection of small retailers the main issue in opposing the FDI in multi-brand retail?' Though the studies in the west as also in the East Asian countries show that the big retail chains displace small retailers completely, Indian conditions are not the same. Studies on effect of domestic retail giants like Big Bazaar on the small retail business have shown mixed trends. According to one study Audacious Kiranas vs Organised Retailers by Abhinava S. Singh, Siddharth G. Das and Mamta Mahapatra (published in - http://www.scmsgroup.org/scmsjim/pdf/2008/scms%20journal%20July20Sept.%202008.pdf#page=93), "Although initially there was a mass exodus of consumers (87 percent) shifting to Big Retailers, our findings suggest that a majority of them have come back (68 percent) to the old and reliable Kiranas"

This has cultural reasons also. For us in India human relations are more important than mere impressive mechanization. Another issue raised in this connection is about the relation of retail stores with the farmers. Those opposed to FDI claim that it will ruin the farming community by hard bargain and aggressive policies followed by the large corporate. The government claims that it will benefit the agriculture sector as it will remove the middleman. Direct purchases, efficient supply chains and contract farming will give more returns to the farmers. This will also bring down the food prices claims the government. Again, if the government is serious about farmers plight it can take more direct policy measures like banning speculative trade of farm produce in the commodity market and streamline the agriculture produce markets (mandis). You will not need FDI in retail to give more returns to farmers or bringing down food prices as a side effect. At the same time a detailed study of the practices of multibrand retail giants in direct purchases from farmers and supply chain management adopted by them in the countries of their origin and also in the Asian countries like Thailand and Indonesia where they have operations need to be done before any such claims are entertained.

LetusdiscusstheRealissues
Is Media the right forum of policy debate? : Both political and economic discussion of the issue was taking place in the media, as the highest policy debating forum, the parliament was made dysfunctional by its own custodians. The popular perception deliberately created by the government spokespersons put the blame on the opposition but the real responsibility of running the parliament lies with the ruling combine. It seems the major political partner of the ruling coalition is too arrogant to have much needed flexibility of approach and political honesty. The sad result is -- it has to keep on bargaining on key issues even with its so called allies and external supporters. But that irony is a subject for another detailed discussion.

Political issues: The political debate in the media is centered more around the timing of the decision than the merits and effects of the policy in itself. One can understand the anxiety of political parties and leaders who have to face the people regularly. Their electoral fate depends on the popular perception. Hence it is natural for them to take postures to suit the time. They indulge in shameless u-turns on policy issues depending upon on which side of the Loksabha speaker their benches are. But it is baffling that so called political observers and experts in the media have not discussed the political fall-outs of this important policy decision of the cabinet. Domestic politics: Issues to be debated politically should include the ideological mutations, diversions and even contradictions of the political lot. There is also a policy conflict involved with bill for food security being pushed on one hand by the super cabinet, the NAC and this blatant attack on the food sector on the other. The issue of multi brand retail sector along with the looming danger of introduction of contract, corporate farming is directly related to the food security of the country. This needs serious consideration. Food Security: Even if we accept the economic claims that the FDI will help in ensuring the food security in the rural sector by favorably affecting agriculture marketing, the political question remains, 'Is it sound geo-political move to out-source the food security of the country to foreigners even to a marginal extent?' The experience of the agriculture rich African nations need to be deeply studied in this connection. With influx of Food giants PepsiCo and MacDonald's in contract farming and cattle raising in many African countries like Kenya the results have been far from glossy. Famines followed by political uncertainty in Rwanda, Namibia and Ethiopia also need to be examined from this angle of corporate involvement in agriculture sector and its impact on food security and political stability of these countries. International Geo-politics: Another geo-political issue hardly discussed in this connection is the prudence of opening capital flow in basic sectors. The FDI in Multi brand

retail is not just an economic issue is amply clear by the enthusiasm with which the US ambassador jumped in to promote the decision of Indian government. With banks, International financial forums and multilateral commercial, industrial, and environmental conventions increasingly becoming battlegrounds for regional and global geopolitical diplomacy, the flow of capital across the frontiers does not remain a mere economic issue. This needs to be studied in depth by the political analysts. China with its trade surplus with almost every country except Taiwan and a whopping 3 trillion USD investment in the US is way ahead in this game of financial diplomacy or to express it more alarmingly 'Capital Imperialism'. India with its great domestic savings and surplus capital available unused in the banks has a great potential to put some competition. But it demands a complete overhaul of political point of view of political establishment, diplomatic bureaucracy and political thinkers in the country towards economic issues.

Economic Issues: The national discourse on the economic reforms in general and on the issue of FDI in Retail sector lacks originality and intellectual honesty. The debate is mostly steered by the interested players indulging in a wide spread perception management campaigns. Media understandably is influenced by its sponsors which includes government to a great extent. Government spending on audio- visual and print publicity is one of the main sources of existence for many media establishments. The other major revenue source is the corporate world. So naturally the voice of the large population can be heard only by way of street protests, peaceful or otherwise. The main culprit for the lack of honest debate in the national interest is the 'intellectual class' How many Indian universities have the requisite infrastructure, trained manpower, know-how or even the will power to conduct scientific studies related to policy issues? The result is that we lack an informed debate on policy issues of long term national importance. The present issue of FDI in retail sector is one such issue. It demands not only a political consensus but a thorough national debate on basic economic issues.

Need of FDI: Let us discuss some basic economic questions about FDI. When and why does a country need capital from foreign sources? Simplest of the answer is when you do not have enough domestic capital to be invested in the economy for the growth engine to keep firing. Another reason could be that some sector or area of economy needs impetus in the form of new technology which can come only with an investment attached to it. Third logic could be you need to deal in international trade; hence there will be give and take. You give some and in return get some. The government needs to explain these three points. What's the bargain? What did India get in return? The US has been pressing India for the FDI in retail but before agreeing to it did India get a bargain? They could have got some concessions for their export of agricultural produce or for the textile industry. What's the deal? Let the country know as that can be only one logical reason for the policy decision. The other two possible factors do not count in this case. Technical Upgradation? In Retail?? There certainly is no new technology on offer from the international retail giants. We already have our own multi-brand retail chains. Their technology is as good as any of the international corporate in the field. In fact Vishal Mega mart and Big Bazaar are real management success stories, beginning from scratch growing to a great height with tremendous expansion. Reliance fresh had largest capital to start with but relatively not so successful a venture for Ambanis. It has become a bit of burden on the group. Big Bazaar of Biyanis is also under pressure for extra push in the form of added capital. Hence these big brothers in India are all lobbying hard for the FDI. That will help them survive at this crucial juncture. Are we Capital starved? : In fact India has surplus Capital available. We generate more domestic capital in one year than the whole FDI in 2 decades. As an economy India is not short of capital in the domestic market. In fact we have surplus capital available with our economy in plenty. According to

RBI's annual report the gross domestic Capital generation in 2008 was Rs. 1845513 Crores and is increasing every year. (See the tale below)

(http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1013) There is no official statistic available for the capital surplus with the banks

but the market studies by some agencies give figures for different banks. When we add up the capital surplus figures for 2010-2011 for top ten Indian banks the figure comes to Rs. 17663665 Crore (http://business.mapsofindia.com/india-company/top-10-bankingcompanies.html). The total FDI received last year is just Rs. 113485 Crores. (US$22697 Million to be precise, converted at present rate of 50 Rs approx. would have been quiet less at the time it was invested as Rupee was much higher at that time) This comes to be just 6% of the Gross domestic capital generated and mere 1% of the surplus capital in the top ten Indian banks. This tells the story. We have huge amount of capital unused in our own kitty and yet we are inviting FDI in a sector which is very crucial to our National interest. Source of FDI: There is another very crucial angle to the FDI story. In the last decade total FDI received is Rs 351731 Crore or US$ 81010 million. The largest investor country wise is Mauritius. www.indiaonestop.com providing the data from official source of Union Commerce ministry comments on the country wise chart, "The country wise figures for 200-01 to January 2009 reveal Mauritius

in the leading position accounting for about 43.3 percent of total FDI inflows into India. The US and UK is far behind it with 7.72 percent and 6.41 percent respectively. FDI from Mauritius during this period stood at $ 35180 million. In terms of Rs it stood at Rs 1527677 million. FDI by US and UK during this period stood at $ 6171 million and $ 5153 million. In terms of Indian currency it comes to Rs 271491 million and Rs 225415 million respectively." The FDI inflow from Mauritius in the 2009 was US $ 11208 million whereas its GDP (PPP) that year is US $ 16630 million. So the country is investing almost 65% of its GDP in India. Does that sound plausible? But it is a fact. We must study this interesting phenomenon very closely before we jump into any economic calculations about FDI. Why Mauritius? Whose money is this? Is it real Capital from foreign FIIs or corporate coming to India for business? Not much data about the detail of this capital flow through Mauritius is available in the open source. But the experts in international investment investigating the Black money issue have an idea. They tell us it is the dirty money stashed away which is coming back to our market this way. It is not only tax evasion related black money. Most of it is generated by way of dirty and antinational means of corruption, kickbacks in international contracts, drugs, illegal arms, terror money etc. This is transported by the infamous havala transactions and parked in the tax havens. This dirty money is given a chance to come back in Indian market in the form of FDI. The criminal is allowed to enjoy this investment legally without any punishment or even detection. So! Is there any economic Rationale for FDI? : The economics of FDI in retail sector thus fails to convince its need, relevance or even the rationale for the policy decision. No Capital shortage, no technological advancement and nothing in return; this sums up the economic calculus of the cabinet decision taken in an apparent haste without any attempt for political consensus. Their is no urgent need for foreign exchange either. We have a comfortable cushion with total forex reserve as in Mar 2011 at US $ 304,818 million with the balance of payment deficit being at just US $ 13050 million. Further more this discussion on the economic mathematics of FDI with the major share coming from a country like Mauritius also brings back the more important issue of National security. When simple mathematics works out against any necessity for the opening of retail sector to FDI, why the government is bent upon taking this decision?

Mala-fide? Ignorance?? What's behind the decision?? Usually when such illogical decisions are forced on the nation their is either a vested interest working behind the scene or a weak statesman in utter foolishness leading the nation into a hopeless situation. There are interesting revelations when one goes little deep in the FDI analysis. One chart shows the foreign technology transfer approvals from 1991 to 2008 under the FDI.

http://www.indiaonestop.com/FDI/foreigntechnologytransfer.htm Mauritius does not find place in the top five countries is no surprise. The fact that US is topping the list with more than 22% approvals is also not astonishing. What is most curious in is that the 5th place is occupied by Italy with over 6% of the approvals. Very interestingly in the FDI inflow list Italy does not find place in the Top 15 countries. The traditional technological ally of India Russia or the recent world leader China is also not seen in the top 5 countries with technology transfer approvals. One can not say if this throws some light on how decisions are being taken in Indian government, but one thing is clear that there is not much relation in FDI inflow and technology transfer. So the argument that FDI improves the technology in that sector does not hold ground on imperial experience of past 2 decades.

TheMindsetofpolicymakers
Coming back to the discussion on hand, the present Prime minister is tagged weak but not even the strongest of his critiques can dare call him a fool. Not at least in economic matters. So why is he pressing for such a useless

policy? The answer to this puzzle lies in the Paradigm that governs the economic thinking in the establishment. We are the victim of following the alien models, which have failed miserably in their own land of birth. Till 1991 we followed the socialist model and after that we are trying hard to ape the US led western model of free market economics. We will not go into the current state of affairs in the western economies but instead would look within. The policy decision about the FDI in retail sector is being touted as second generation reforms by the government and the economic analysts alike. It will be interesting to take an overview of our national experience of the 'Reforms' post 1991. An Overview of Reforms: The first generation reforms were initiated by a minority government in 1991. That it was a politically weak government without clear majority in parliament is not a mere coincidence. Facing the challenge of communal tension the political genius of PM Narasimha Rao gave full freedom to his world-bank pensioner, finance minister. This proved an unintended blessing. Dr Manmohan Singh aggressively advocated economic reforms but cautiously implemented the same bit by bit. The first part of the first generation reforms was labeled liberalization, other two being termed as Privatization and Globalization. Though very difficult to bring about, when proposed, liberalization was well received across the political and ideological frontiers. In fact except the adamant left everyone welcomed this much awaited move. The country paralyzed by license, permit and inspector raj heaved a sigh of relief. The legal dismantling and the restructuring of almost all the government departments was not done in a day. Laws were changed to make things easier. Technology was used to make the permits, chalan and reporting in tax departments and others more accessible to the public. Single window interface with the public was introduced in many departments. Except for the changes in labour laws other things were smooth and well appreciated equally by the business world and people at large. Role of domestic Liberalization: Liberalization of policies had another effect. The Indian potential was unleashed. The barriers between states were also raised. Inter state trade was fully opened. The quality Basmati Rice from Punjab can now be sold in the rice eating states like Tamilnadu and Bengal. This was not possible before 1991. This openness of the market gave a great opportunity to hence

marginalized innovators in the Indian economy. This domestic intra national phenomenon is yet not explored fully. A deeper study as to the rise of domestic players in the economy as a result of 1991 reforms is long overdue. Role of foreign capital needs a close look?? One of the reasons why such study is not taken up is that the mainstream economist and policymakers are convinced that the entry of foreign capital as well as competition offered by the multinationals is the only cause behind the great Indian story. This needs to be researched carefully. There are obvious sectors like automobile where we see the influence of international players. The competition not only gave a boost to quality in this field but also gave a wide range of choice to the customers. To think that the aggressive loan marketing was behind the automobile boom would be a wild jump inspired by the very visible advertisement explosion. It would be interesting to know the exact share of financed vehicle compared to the cash purchases, especially in the two-wheeler category. Nevertheless, this was globalization in action. The opening of market for foreign brands in the consumer goods section had a very visible impact. The market as was known in the 1980s changed completely. It was a pleasant shock for the middle class consumer. To go to the market and purchase whatever one wishes was a dream come true to this generation used to long waitlists and scarcity in almost every thing. Adverse effects of Globalization: But has the international competition tonic worked similar wonders in all the sectors of our economy? Certainly not. The very prospering textile industry got a jolt after the signing of WTO. Though the then commerce minister fought a great deal to extract a better deal for India than what the developed countries then were ready to give, the textile sector was one of the many casualties of this historical blunder. Still Indian textile industry is a force to recon with, but the diversified, decentralized nature of the production was hit sharply by the change in policy. Surat and Ahmadabad saw thousands of looms going out of work. Gwalior, once known for the textile mills, even today the audio tape in the shatabdi train tells it as one of the features Gwalior was known for, now hardly has 1-2 units functioning. More than 1.5 crore families were affected by this. Globalization effect needs to be studied more objectively than the advertizing market reviews or the

protestor's exaggerations. What we need is a pure disinterested academic exercise. The soft drink market is again an example where the domestic players are totally wiped out. There were many local soft drinks in the market before 1991. Campa-cola and fanta being the largest of the local brands. Parle and Godrej had a very prospering beverage business. But most of it was taken over or simply purchased by the two giants Pepsi and coke. The whole market has changed thereafter. In other FMCG products the competition has become increasingly lopsided. The more diverse and localized products are finding it very difficult to stand on their own. We are not talking about the likes of Nirama or Ghadi in detergents. But the smaller manufacturers in almost all the districts. Many are still surviving on sheer quality advantage and loyalty of their consumers. It again is a relationship for us. Other effects of Reforms: The liberalization part of the reforms was thus very effective. The globalization part has mixed results. There are many other things in the story. The exponential growth of services sector is one very important factor. The BPO and other out sourcing opportunities were cashed by many Indian entrepreneurs. There was phenomenal jump in the salary structure of the private sector followed by the 5th and 6th pay commissions in the government also. This increase in purchasing power led to real estate boom. As the rates of property skyrocketed the NRIs from Middle East and other parts of the world jumped on the bogie. Soon in major cities the property prices went out of reach of the common man. The native of the land could only be the seller. Many did not mind selling their land in exchange of fat amount and a small flat in the complex. As such the concept of real estate is a very notional thing. Land prices go up with every transaction in the neighbourhood. But the bubble had to burst. It has in some metros and a slump has come in many other big cities. In relatively smaller urban cluster the real estate is still on the rise. The second Landmark 1998: Pokaran changed the psyche of the nation. 1991 is considered to be a landmark in the shift. But there is another date to be remembered-- 11th may 1998, the Pokaran day. This changed the psyche of every Indian whether in India or abroad. The confidence was palpable. We could feel it in the coffee shop discussion same evening. Every one was

thrilled. The professional efficiency, complete secrecy and precise execution shown by the nuclear test was told and retold like an epic. It was not just a pride for the strategic ability. It was more like, "Yes! We can do it." India can do it was the message. The scientific or technological achievement was not as great as the Integrated missile programme, Space technology achievements or the super computer but the patriotic fervor attached to the nuclear test was unmatched. This changed the whole out look of Indians to look at themselves as a nation. Apart from this psychological and strategic impact there was an economic fall-out. Economic Sanctions were imposed by US, followed by all the developed countries including Japan. Japan was major donor to India in urban infrastructure development. It was said by an economic observer that the bomb was exploded in Pokaran in Rajasthan but the tremors were felt in the North block. The Finance ministry officials termed the decision as suicide. It was felt that the nation on course of economic reforms had been derailed. But the result was something unimaginable. The whole nation geared up. There was hardly any impact felt except for technological block-out. But there also we developed many indigenous technologies during that period in Space and defence sector. IRSO and DRDO became icons of Indian capability in research. Immediate crisis was of balance of payments. With the stoppage of even the aid funds and loans from outside the challenge was on the foreign exchange reserve. But the RBI declared the India Development bond and later the resurgent bonds for the NRIs. The Diaspora responded with renewed enthusiasm. Financial prudence mingled with nationalistic pride motivated the NRI's to invest in the bonds. The bonds received overwhelming response many times the initial target set by the government. The average Indian started taking pride in the achievements of their fellow countrymen. The NRIs have been achieving great things in scientific and economic field all over the world but there was hardly any mention of these achievements back home. But post 1998 it all changed. We started believing in ourselves. Hotmail fame Sabeer Bhatia and Intel's Vinod Dham became household names. This coincided with two major reform related activities. The disinvestment was in full swing. Government was off-loading all its non paying assets. This brought in a lot of capital in the domestic market. The PSUs were also restructured and made more corporate in management. Many government companies were formed like Department of telecommunications commercial activities were made into a company -BSNL. Even the state electricity boards

were trifurcated into companies. This coincided with the great infrastructure building projects of linking the Highways, the golden quadrilateral along with Pradhanmantri Sadak yojana to link Lakhs of villages. These gave impetus to the steel and cement production and had cascading effect on the domestic market. The Sanctions were lifted within three years. The world came to recon India as an emerging power. The Elephant was moving. The basics of Indian economy gave it a sound platform. Population which was seen as a burden was now called demographic dividend. The whole perspective changed. The Ugly side of Reforms: The story is not all glossy. There are many hiccups. Rationalizing subsidies was a great challenge. The political scene had also changed almost parallel to the reforms. The days of single party rule were over. The era of coalition politics had its own dynamics. This acted as a break for many reform as many policy decisions had to be postponed, hold back or even completely given up for political considerations. In the hind sight many of these breaks seem to have done good to the economy. Rather than getting on to the roller coaster of reforms and completely turning into a western economy India progressed cautiously at its own typical Indian pace. There are other questions about the fruits of growth reaching to the masses equitably. The statistical data suggests that the gap between the poor and the rich has been widening. Poor have become poorer. Their number has gone up substantially. This shows that blindly following the global financial model may not suit Indian conditions. Blind Followers of the West: Now we have 20 years of experience of this reformed economic model. We are told we have not ripped all the fruits because we have not done enough. Look at China we are told. But have we learnt the correct lessons is the real question. As pointed out earlier due to lack of impartial, objective academic study we really do not know the real movers of our robust economy. If we go by the set rules and follow the Free market model of the west there is all the possibility that we would also end up in the same soup. Some things are taken for granted by our economic intellectuals while talking about the reforms. We have not checked their validity. The first and foremost is about the foreign investment. We are told more of it the better. Hence increase the sectors, increase the percentage and roll out red carpets. All state are organizing big festivals to attract foreign investments. We are told you have

to change your laws to suit them. We are told the tax structure is to be widened then only we can reduce the fiscal deficit. Competition is the only solution. Look at the automobile sector where the foreign competitors have forced our own manufacturers to improve etc. This is the mind set under which the decision to allow FDI in the retail sector is taken. It may be the genuine opinion of the decision makers that it is for the good of the country. Giving them this benefit of doubt we can still logically proceed to analyze the need and texture of next generation of reforms. It is not always true that increasing the dose of the same medicine will give a better result. We have to diagnose the patient and then give the medicine according to the ailment.

RealReformsneeded
We definitely need reforms, but what are they. Do we need more capital? Do we need more competition? or is it something else that we need. Following are few points on the type of reforms urgently needed for India to be able to sustain the growth and convert its potential into reality. Technical inputs in right areas: Taking the home conditions into account not the needs of the investor. We need to understand the lay of the land. We have to look at India from its own eyes. We have to take into consideration its own strengths and weaknesses. Like population we may be on the wrong footing in assessing our own strengths. Population can be used as strength if we have labour intensive policies. Educating our masses is not a one year programme so in addition to that we must have opportunities for the uneducated and unskilled labour. If this national perspective is taken into consideration we will know we have more prospect of employment generation in IT hardware sector than the software. We need FDI and technological support from friends like Taiwan in this sector. Community base micro-capital Generation: Cooperative has been a successful model in some regions. Our community based capital generation has proved to be a great boon. More than 1200 such community based commercial and industrial clusters have been identified by researchers. The great Noble prize winning experiment of Mohammad Yunus of Bangladesh in micro-financing has been in practice in India for centuries. The community based entrepreneurship can

be an innovation in micro capital generation. Co-operative is another successful model in this field. Amool in Gujarat and sugar and cotton cooperatives in Maharashtra have proved to be better suited for Indian environment. There is ample scope of improvement in this sector. But the great strength of this model is that it is participatory, everyone involved is a stake holder. This gives opportunity for more equitable growth. This is just one aspect of our very rich social capital waiting to be cultivated and harvested by the society free from governmental intervention. We do not need any policy to promote these communities to produce and trade. What we need is to give them complete freedom from the limitations of the state machinery which is the legacy of the colonial rule. It was the British Raj which in the first place had deprived the community life of its economic creativity and freedom to express it in a suitable economic activity. After independence we have done little to revive this spirit of our masses. The liberalization has given a limited scope and many of these traditional communities have worked wonder. Rationalizing the Tax structure: Minimum tax from maximum people and no multiple taxing of economic activity. The tax structure demands rationalization. Just by tightening the rules and forceful recovery we may raise the revenue of the government but that won't address the issue. There is no study of un-taxed economic activity in India. We are not talking about illegal tax evasion. But most of the trading activity in India is not in the Government radar. We are running a parallel economy which is estimated of the same size of the GDP if not more. This is not necessarily black money. No doubt most of it is born out of tax evasion practices. But there is legitimate, diversified, small-scale economic activity which can not be taxed. It is so un-organized that to try to tax it will break down the whole machinery. Hence we conveniently ignore it. On the other hand we tax the organized activity over and again. The same thing is taxed so many times. This illogical taxing promotes evasive practices. This can be cured with a very simple innovation. Arthakarnti Proposal. It was first suggested by a small scale industrialist and has now evolved into a movement by name Arthkarnti. The proposal is so simple that the modern economist used to complexity is baffled. Arthakranti proposes a single tax model. It advocates that all the taxes except customs be replace with one tax. They have named it transaction tax. It has to be a small fraction, say

2%. That is all the tax that will be levied on the transaction once for all. On every deposit in the bank 2% will be deducted by the bank. 0.65% on behalf of Union Government, 0.65% for the state 0.35% for the local body like Panchayat or Municipal Corporation and remaining 0.35 % for the banks administrative expenses. With total computerization of the bank operation this is just a matter of developing the relevant software. The calculations made by the experts show that this small amount will fetch more revenue to the government than what it gets at present. To promote maximum transactions to be done through bank, Arthakranti proposes a parallel step to stop the big currency notes. These two steps taken simultaneously will widen the tax net to almost all the transactions and will also curb the generation of Black money in the economy. Recovery of Black money stashed abroad: Legal options under present laws, New laws, Check on Hawala, Banning the Participatory notes. Another major reform demands the recovery of Black money stashed abroad. The legal avenues under the existing national and international laws or need for legislating, amalgamating new laws/ordinances can be discussed. But there can be no two opinions that the huge amount parked unutilized in the tax havens must be brought back into the legal economic machinery. This may eliminate the need for any foreign investment. Instead we will be in a position to bail out the crisis ridden European nations. We have to start with banning the participatory note completely and immediately. They have proved to be the dark horses in the stock exchange. Their flow has been controlling the bullish and bearish trends in the share market robbing the small genuine investor of hard earned money. Decentralize Rural Development model: A decentralized development model is the need of the hour. Rather than following the international standards of development which demand urbanization of majority rural population, we need to evolve our own modus operandi to suit our realities. It will be easier to for us to equip our villages to be centers of vibrant economic activity rather than displacing majority of rural population to the cities converting them into a big slum. Constitutional reforms: A political system rooted in the national historical and cultural moorings. There is a dying need for reform in our political structure. The Westminster model of democracy needs a revamp. Taking the vastness of the land,

enormity of population and inherent diversities into account we need a model of our own. The present constitution has served us well, better than many of our contemporaries for last 6 decades but that is no reason to continue the same, unchanged. It is high time we constitute a fresh constitution draft committee and then debate and approve it in specifically elected constitutional convention. We the people of Bharat need to give unto ourselves a fresh Constitution. Thus, we need to prioritize our national reform agenda. One can not say that first do the above then only other reforms can be taken up. A Country as large and as complex as ours will definitely have to work on many fronts. As the scope of this paper was limited to FDI related reforms we have not discussed many required reforms in many other fields of national life such as education primary and higher, natural resource management, Energy security etc. But definitely the above listed reforms must be taken up on priority. They are obviously more important than the FDI. In fact without these reforms FDI is useless and even counterproductive. Conclusion In conclusion it can be said that FDI policy in general and FDI in multi-brand retail in particular need to be looked into from more fundamental point of view. The geo-political issues, threats and challenges must be studied thoroughly. The economic alternatives also need to be explored. There is no doubt that India needs to continue the reforms and next generation of reforms are urgently needed, but the context and content of such reforms need to be rooted in the soil and should cater to the realities of the land rather than the theories of the international cartels. Indian society has an economic potential to regain its past glory. As was expressed by William Dalrymple in article titled, "Empire strikes back" in the Telegraph, UK in 2007 "Extraordinary as it is, seen from the wider perspective the rise of India and China is merely nothing more than a return to the ancient equilibrium of world trade. Today, we Europeans are no longer the gun-toting, gunboatriding colonial masters we once were, but instead are reverting to our more traditional role: that of eager consumers of the much celebrated luxuries and services of the East." The basic foundation of Indian economy is very sound but we need to build a suitable edifice on this foundation to realize its full potential.