Recovery from Paralysis

It is often stated that the Indian Government has been suffering from a “policy paralysis”.

The Government has been held hostage these couple of years to its allies who have a different world view. It could not get itself out of this untenable and unsustainable but convenient arrangement to survive their term and avoid mid-term elections.

Apart from this rather uneasy arrangement under which the Government was forced to roll back its most ambitious reforms, it was also very unfortunate that there were a series of scandals affecting the image of the Government and India as such. Further, the GDP growth rate tempered down to an anemic 5.1% in the previous quarter which finally managed to bring the message to the Government that it better move forward on its reform agenda despite the political costs.

India needs greater than 8% GDP growth rate year after year, and lots of employment, especially for the rural youth. Period.

If there are opposing views, they revolve around the fact that the multi-brand retail Foreign Direct Investment would eliminate the small grocery shops, and affect farmers. Both are wrong messages and incorrect.

The nearby “kirana” or small shops would never go away, because these are so conveniently located next door to any apartment complex all over India. The argument that they will go out of business once Walmart and Carrefour open their super markets is not tenable – for one, these hyper marts would be located mostly outside city limits because they need huge space, which cities like Mumbai cannot provide. Even if Walmart opens a mini super market, it is not going to be open 24 x 7 like in the U.S., as the malls here would not be allowed to operate in such a manner.

The second argument pertaining to farmers is again specious – farmers would actually benefit and their output quality would go up once they start servicing Walmart or Carrefour. How will they be affected – because Walmart is going to fly in perishable vegetables from the U.S. or the Philippines ? No way.

There are many other arguments for and against the reform measures announced by the Government yesterday, but I believe that these reforms are in the positive direction and send a strong message to overseas investors waiting in the wings to tap India’s market.

The Government should not now roll back these measures in the face of the onslaught by its allies and the opposition parties. I cannot understand why the main opposition party is not supporting the reform measures, because I thought they would have taken these crucial steps had they been running the government.

We can also see increased competition and service levels in the aviation sector which has now been liberalized.

I believe that these are sustainable, good measures coming finally from a struggling government. The Government needs to be praised for taking these bold steps.

Let us see how they now implement these much-needed reforms.


Vijay Srinivasan
15th September 2012


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