Modern retail will create new jobs, improve consumer and farmer welfare

The government’s decision to open up foreign direct investment ( FDI) in multi-brand retail and relax rules for single-brand stores is heartening. It is a useful reform in itself and, more importantly, serves as a symbol of the government’s ability to stand up to populist opposition to reform.

Allowing foreign retailers management control in multi-brand retail would ensure a well-capitalised industry and induce foreign retailers to invest in back-end operations and infrastructure.

Nine states have already backed the reform that is expected to create millions of jobs and help tame inflation by reducing wastage. Nevertheless, Mamata Banerjee, the BJP and Left parties have demanded a rollback.

The government must stand firm. However, merely opening up multi-brand retail will not suffice. Other complementary state-level reforms are needed. States should scrap the Agricultural Produce Marketing Committee (APMC) Act that denies farmers the freedom to buy and sell freely and only empowers middlemen.

Alternatively, the Act can be amended to exclude perishables from its fold. Two, organised structures are needed for farmers to enhance their bargaining power vis-a-vis big retail chains.

Amul is a successful example of how farmers have enhanced their capacity to negotiate prices with big buyers. Its organised supply chain links farmers with consumers, raises income for producers and lowers retail prices.

Political parties should get into the act and organise farmers into larger collectives, companies or producer cooperatives. This, in turn, will ensure a vibrant and functional futures market for commodities.

For single-brand retail stores, the government has diluted a rule that requires them to source 30% of what they sell from Indian vendors whose investment in plant and machinery is less than $1 million.

This is welcome as the rule was irrational. It has also scrapped a rule that mandated that the foreign investor should also be the owner of the brand. This makes eminent sense, given that single-brand stores adopt various business models. It will attract more foreign investment.