Scorched earth hypocrisy..

    A vicious blowback to opening of FDI in multi brand retail has started in earnest:

Speaking on the all-party meeting called by the PM to resolve the crisis in Parliament, Leader of Opposition in the Lok Sabha Sushma Swaraj said: “The government should roll back its decision tonight, so that Parliament can function from tomorrow.”

    The outrageous part is that NDA and some of it's allies were pushing for a similar policy change when they were in power until 2004. Perhaps, they are relying on a short public memory.

    Yours truly a few months ago.

As prospects of FDI in multi-brand retail have brightened in recent days, BJP has come out in opposition to the reform. Here is their take:

“We will oppose the decision of the government both at the Centre and by the state governments. The decision of the government would not only affect our domestic retail sector but would also destroy domestic manufacture because the foreign companies would be able to buy products from other countries and flood our markets with imported goods made available at these retail chains,” said a senior BJP leader who is among the policy makers in the party.

    This struck me as odd. If memory served me right, NDA was in favour of allowing FDI in retail during their term in Office(1999 to 2004). In April 2004, when they were still in power, this was Finance minister Jaswant Singh:

Dismissing notions that foreign retail brands would dislodge Indian brands from the market, Singh said the NDA was considering only 26 per cent FDI and not handing over the entire retail trade. “The Indian sherbeth is still there despite Coca-Cola and Pepsi. Our experience is that the Indian brand has great strength,” he said.

    It is hard to explain this shift in position. If anything, supply constraints and food wastage seen year after year make the need for reform even more pressing. This just seems to be opposition to a policy for the sake of it.

    This reminds you of their opposition to the Nuclear deal during UPA-1's term in office. Having suffered the electoral debacle in 2009, some would have hoped that BJP and NDA would be a bit more constructive in their opposition to public policy initiatives. Apparently, those lessons have not been learnt. Voters should not overlook this.

FDI in retail- more 'boldness' warranted

    This week's announcement to allow FDI in multi-brand retail has been greeted with opposition and some guarded optimism. The idea of allowing global majors like Wal-Mart, Tesco, Carrefour into retail has been on the back burner for several years owing to lack of political support. With stubborn high inflation and a perception of policy paralysis, concerns were being raised about the ability of UPA-2 making any progress. This is a good move towards allaying those fears.

    Some of the opposition to FDI in retail stems from fears that it could lead to job losses among small traders. Traditional mom and pop(kirana) stores would be affected most. However, these jobs are protected at an unsustainable cost. Several studies have shown that up to 40% of India's fruits and vegetables are lost because of inadequate storage and transportation facilities. Besides,many of these stores still operate under the tax radar. It is not uncommon for store cashiers to ask customers if the bill should be prepared with or without Value added tax(VAT).

    Yet, optimism surrounding the change may be premature. Most parts of India suffer from deficiencies in the transport network and electricity supplies. Acquisition of land for industrial development is very tricky. Even if a company such as Wal-mart overcomes these hurdles, there are threats by unruly elements to derail businesses that do not fit their ideology.

    For the know-how and technology of modern retail industry to produce results, several areas of India's moribund business environment need drastic improvement. A clear law for acquisition of land needs to be put in place so that new projects get off the ground at a reasonable time frame. Reform of police and judiciary is needed to ensure credible rule of law. Agriculture sector needs more investments and modernization to raise productivity.

    Without reliable physical infrastructure of global standards, retail operations will remain uncompetitive. Potential savings gained by streamlining the supply side are lost in covering for inadequacies of the underlying system

    By opening up FDI in multi-brand retail, UPA-2 has taken a bold new step in moving India's economy forward. They should sustain this momentum by making operating conditions more transparent and efficient with additional reforms. A severe political backlash is bound to erupt. Someday,their grandchildren will be grateful to them for showing courage to do the right thing.

How to lose a billion dollars

    By starting an airline in India. I am merely paraphrasing a popular quote from Richard Branson:

"The easiest way to become a millionaire is to start out a billionaire and go into the airline business."

     Kingfisher airlines' struggle for survival highlights the challenges facing the airline Industry in India. Adding to longstanding problems of congestion in major airports, high taxes on aviation fuel and steep fees charged by metro airports is the cannibalistic competition among airlines. It is not all about private enterprises striving for market dominance. You have a taxpayer funded spectacle in the name of Air India further distorting the playing field. After several years of steep losses and a half-hearted backing from the Government, Air India is still adding capacity in the market and competing for passengers, thereby putting downward pressure on ticket prices.

    Some of the private airlines that were launched in the last few years are either openly backed by relatives of politicians or are rumoured to have financial links to them. Many of these businesses were started during the boom years of 2005-07. Most of them were willing to stay in the market for the stipulated 5 years in order to start flying on lucrative international routes.

    Since 2008, things have gone from bad to worse for the new entrants. The unprecedented spike in oil prices in 2008 followed the sharp slowdown in the economy in 2009. Just as the business cycle was recovering in the last 18 months, oil prices are climbing back up. At the best of times, this is a tough business to be in. It requires huge capital investments, it is highly sensitive to external factors(oil prices, volcanic ash eruptions, communicable diseases) and margins are wafer thin.

    In the last week following the turmoil at Kingfisher, it is strange to hear that one of the solutions being proposed is to allow FDI into the sector. By all means, it is great to have more investments and fresh thinking. But, seasoned foreign airline operators who understand the industry in India are reluctant to take up on that offer.

    Perhaps, the biggest favour the government can do to the industry is to excuse itself from the business of running an airline and liquidate Air India. That would save some precious tax payer resources and destroy some capacity on the more profitable routes. The approach to pricing Aviation Turbine Fuel(ATF) needs to be reviewed carefully. Tax rates levied on ATF give you a distinct impression that the government still thinks commercial aviation is only for the rich elite.
   
    The process of granting bilateral rights to foreign airlines needs to be made more transparent. The stubborn refusal to let Lufthansa operate the A380 to Delhi and the rapid proliferation of gulf based carriers into major Indian cities are two cases in point. Some of the metro airports still suffer serious delays because of congestion throughout the year and especially during the winter due to fog. Despite rapid improvements,infrastructure at some of the airports is still not up to snuff.

    Above all, there should not be any knee-jerk policy changes in order to help any ailing airline. Bring in long term structural reforms and get out of the way so that badly run airlines collapse under their own weight. Until that happens, vain billionaires will continue to fancy their chances in this difficult industry and risk being reduced to millionaires.