Retail FDI: Over to the states

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FDI in retail marks the first of a series of policy decisions where the states from now will have to decide how they want to run with the issues. Hitherto, on major policy measures having national implications, the character of India's federal structure has almost always thrust the onus on the Centre to take a final stand, with states largely staying out of the operative decision-making process.

Instead, they have largely confined themselves to the task of implementing the policy decision taken by the Union government. The ongoing debate on allowing FDI in retail, however, marks a clear exception and throws the spotlight on states. The policy decision, by putting the veto power in the hands of the state governments forces each ruling dispensation to come clean on where they stand on the issue. The option of an ambiguous stand is not available any more, thereby accounting for the discomfort of a number of state governments, especially those in the northern hinterland.

Blaming the Centre for the decision will prove an exercise in futility. Assume for instance, that a state changes its Shops and Establishment Act to allow FDI in multi-brand even for towns with less than 1 million people. Vegetable mandis usually have significant presence in these towns and are likely to get hammered but farmers in the surrounding villages will end up better. These are the sort of comparative changes few states have equipped themselves to handle. While the debate in Parliament has largely been an aseptic exercise, mostly in line with the stated ideological stands of the mainstream national political parties, the smaller parties focussed on state level politics will have to sort out these problems with little useful guidance from the Centre.

But just as politics moved to the states in the late eighties as regional parties grew, the balance of economic decision making is now following suit. Reforms in state electricity distribution companies, land acquisition for industry, working of water allocation and finally the biggest of them all, developing urban centres that can hold business interests and act as employment generators will need policy making on a scale that states have never done. Each of them also needs them to take a call on foreign investment.

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