Welcoming global firms

The spread of the Covid-19 pandemic worldwide has caused a considerable re-examination of the nature of globalisation. The lack of resilience of existing global supply chains has been revealed — and, as a consequence, investors, companies, and governments may be willing to invest in new geographies that may add to the sustainability of their trading networks. This has provided an opportunity to India, which Prime Minister Narendra Modi, in his address to the nation on the subject of self-reliance, was quick to highlight. Mr Modi laid stress on the point that India must become part of global supply chains. The fact that India’s failure to do so is an age-old complaint of economists in no way detracts from the continuing relevance of the ambition. Without becoming part of global value chains, in manufacturing in particular, there is little hope of expanding mass employment for those without special high-level skills. So far there is no recipe in economic history for development without mass manufacturing being one of the stages — and, in today’s world, mass manufacturing requires supply chains. India’s own demand, while substantial, is not enough to sustain the size of employment India needs. China would not have developed if it chose to depend purely on domestic demand. Unfortunately, Union Finance Minister Nirmala Sitharaman did not mention India’s inclusion in global supply chains as one of her policy objectives and initiatives. Yet it remains a vital part of “Make in India”, one without which the entire programme will falter.

This praiseworthy ambition from the prime minister will remain unfulfilled without a more welcoming approach to the global corporate sector. It is now widely understood that intra-firm trade is crucial to global trade. In particular, global retail chains serve as a vital and effective entry point into global supply networks. It is unfortunate, therefore, that India’s policy approach to such chains operating in India remains muddled and contradictory, perhaps because of political resistance from local trade bodies, which do not want competition from organised retailers. It is precisely such opposition that creates the large informal sector, and discourages the growth of and employment in organised-sector retailing. It is vital that the government, at this moment of opportunity, rises above such political considerations and takes the long and principled view on the sector.

The finance minister, in an interview with this newspaper, has clarified that India “should be part of the global value chain with greater strength”, and further, accepted that the confusing signals being sent out to firms such as Amazon “is something [that] we have to address”, since “we can’t have uncertainty”. The government should follow up the minister’s intent swiftly and smartly. The contradictions that treat global retailers differently from local ones on matters such as discounting should be swiftly resolved, and corporations like Amazon should be treated as partners rather than as antagonists. The development of global retail in India is an important issue that remains to be addressed, and can serve multiple objectives: These retailers can bring in large investments, develop local volume manufacturing for supplying against large orders from big chains, become part of global supply chains, and create organised-sector employment.

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