Posted Sunday, Sept. 16, 2012, at 12:32 PM
The Indian government has been involved in some problematic back-and-forths over the idea of relaxing regulatory curbs on foreign chain stores and supermarkets opening in the country, but now with the incumbent government facing increasing economic pressure and scandal criticism reform is back on.
This new policy might be a dud, but it's potentially very important. One reason is simply that needing to shop at low productivity retail outlets is a bummer. But the more important reason is that India's agricultural sector is extremely unproductive. If you haven't read Katherine Boo's Behind The Beautiful Forevers about slum life in Mumbai you really should. Then after reading about how bleak those conditions are, you need to ponder the fact that those slum residents overwhelmingly migrated there from rural India in search of a better life—that's how poor peasant life in rural India is. There's at least some chance that large foreign retailers with scale and expertise will actually have the technical know-how and supply chain savvy to help Indian farmers increase yields and grow more food. That may just prove to be wishful thinking—obviously if people had a guaranteed way to make Indian agriculture more productive they would have done it already—but it seems at least somewhat promising.
More broadly the Indian economy—unlike the American or Spanish economy—very much does seem to be running up against hard supply-side constraints rather than demand side ones. To keep growing, India needs some kind of reforms to fundamentally boost the overall efficiency of its economy and this seems like a good place to start.