Deepankar Basu and Debarshi Das
Introduction
On 14 September, 2012, the Indian government announced a slew of measures to revive the process of “economic reforms” that was initiated in the early 1990s. Quite understandably, the international and Indian financial press has given the announcements an ecstatic reception. Commentators have gone overboard terming it the “big bang reforms” that will finally boost the sagging growth rate of the Indian economy.
Ever since the early 1990s, the thrust of the “economic reforms” process has been to facilitate a closer integration of the Indian economy with global capitalism and increase the weight of the private corporate sector within the domestic economy. The measures announced on September 14, 2012 continue and deepen this process significantly.
What are the key policy changes?
To understand the logic of the government’s announcements, it would be useful to divide the key components of the policy changes into two categories, those that primarily relate to the interests of foreign capital, and those that relate primarily to the interests of domestic big capital.
The policy changes that would be of direct and primary relevance to foreign capital are the following:
1. The government has finally decided to allow up to 51 percent foreign direct investment (FDI) in multi brand retail. This means that now foreign capital will be allowed to hold a majority stake in the multi brand retail sector, a move that will no doubt seem very agreeable to the likes of international retail giants Walmart, and Carrefour. The government has thrown in a largely meaningless caveat that States (and large cities) have the option of opting out if they choose to do so. In the current political and economic climate, the caveat is meaningless because the Central government’s push for foreign capital in multi brand retail (by allowing majority stake) will only unleash a destructive competition between State governments to attract a larger share of the foreign capital that actually comes in. It seems extremely unlikely that any State government will utilize this caveat to stall the further entry of foreign capital into the retail sector in its cities. Indian big capital that is looking to cash in on the basis of this measure by tying up with large foreign firms like Walmart seem to think that this is precisely what will happen: all states will welcome (read: will not be able to oppose) the entry of foreign capital in the retail sector.