To be sure, reforms have increased economic freedom by a very large degree. For instance, the set of choices of desirable jobs for a young graduate has expanded vastly from medicine, engineering and government services earlier to working in a coffee bar to a retail superstore now. Yet, as Raghuram G Rajan, India’s chief economic advisor-designate and professor at the University of Chicago has pointed out in a paper, in order for an adult to be able to take advantage of expanded opportunities in a market economy, she has to have been a child with access to reasonable nutrition, healthcare, and education. Moreover, going forward, she has to have access to finance so that the lack of wealth does not hamper her.
A modern, competitive economy will have to offer its citizens an abundance of options to positively exploit a plethora of opportunities. I cannot agree more with Rajan. In fact, I would like to extend the logic of freedom of choice a step further. What applies to individuals is also true of governments.
I am particularly happy to learn that India is readying plans to allow global supermarkets such as Wal-Mart, Tesco and Carrefour to set up deep-discount stores in a new policy framework that will empower state governments to define their own set of rules for the foreign retail giants’ entry into their respective geographical territories.
This, if I understand correctly, will be distinct from the existing national policy on foreign direct investment (FDI) that prohibits FDI in multi-brand retail anywhere in India. Thus, if the Delhi government favours FDI in multi-brand retail, it will be given the rights to decide on allowing such stores within the national capital territory.
This is a marked, and welcome, shift that fits perfectly into the overall philosophy of freedom of choice that I had talked about earlier. It rests on the simple premise: can I bully you into not shopping from a particular mall against your wishes? The answer is simple: I can’t. The argument applies equally for states. Last year, political compulsions had coerced the government to quickly bottle up the move to allow FDI in multi-brand retail.
More than the endless wait of global superstores to set up their first retail store in Asia’s third largest economy, I am more worried about how the policy of a national ban is limiting the freedom of choice of millions of shoppers, farmers and small entrepreneurs. I agree with the strand of thought that allowing FDI in organised retail will free up supply lines and help farmers get better prices. A farmer whom I met during a recent visit to Pune, told me that he used to travel up to 20 km to sell his produce to intermediaries at a price that is half the final retail price, often cheated on weight and quality and had to do without the option of extension services and cheaper credit.
Over the last few years, however, he has been selling his vegetables and fruits at a much higher price at farm collection centres, within three km of his village. Besides higher income, electronic weights, pre-defined quality specifications, farm inputs, knowledge on practices and training to improve yield quality, he also gets an insurance cover. A World Bank study has demonstrated that the average price an Indian farmer receives for fruits and vegetables is barely 12-15% of what is paid at the retail outlet.
I understand that chief ministers of several states, including Delhi, Uttarakhand and Rajasthan, have written to the Centre that they favour granting entry to foreign retail giants to India. The framework of granting states the rights to decide on opening the shutters for large foreign retail stores, in my view, offers a wonderful opportunity to the Centre to usher in a new paradigm in the economic reforms debate. The Centre’s role should be limited to approving foreign investment proposals and cracking down on possible violations of laid down conditions.
Co-opting, rather than a hand-me-down approach, will, in the final analysis, give a strong sense of empowerment to state governments, allowing them the right to tailor policies to suit local political, cultural and social conditions. We need to appreciate, and fast, that the doubts have been left behind by a generation born after 1991 for whom the fruits of economic liberalisation are available in the nearest mall.