India’s governance crisis

We asked our readers last week about whether India’s failure of governance is redeemable.

Of all the daily injustices that Indian citizens face, the availability of meatballs at Ikea is probably low on their list of concerns.

Bigger problems include the worst slowdown in economic growth for a decade, stubbornly high inflation and, as in so many other countries, a debate over debts and deficits that has divided lawmakers and the country.

Even so, that hasn’t stopped the government’s most senior branches from thumbing through the Ikea catalogue to see which items the Swedish retailer should be allowed to sell in India.

It is not a trivial matter, to be sure. Ikea will be the first major international store to test a new rule that allows 100% ownership for foreign single-brand retailers. Ikea has said it plans to open 25 stores and invest around $2 billion, though it has yet to formally respond to the government’s proposed restrictions.

Multi-brand retailers such as Wal-Mart are also watching Ikea’s progress after another rule change in September that allows them to own up to 51% of joint ventures in the country.

They may not like what they are seeing. According to the Business Standard, Ikea submitted a list of 30 product lines to India’s foreign investment promotion board, a powerful arm of the finance ministry, which approved just 12 of them — mostly from its core product lines, such as flat-pack furniture and kitchenware.

The government’s industrial policy unit had already reviewed Ikea’s application before it moved to the finance ministry, and it went from there to the cabinet committee on economic affairs, which is headed by the prime minister and comprises 13 of the most senior ministers in the government, including those for defence, agriculture and finance.

Still, if any company is suited to negotiating an endless maze of confusion and disorientation, it is Ikea, which has built a global empire on inflicting just such a punishment on its customers. But at least they offer you a hot dog at the end.

Attracting foreign investment dollars could be easy pickings for India’s cash-strapped government, given the queue of international companies keen to enter the market, but India’s parliament has become so fractious that it is now almost impossible to get anything done.

The two traditional parties of power, the governing Indian National Congress and the opposition Bharatiya Janata Party, survive for their existence on broad and uneasy coalitions, and both also face interference from a breakaway group of Communists and Marxists, not to mention a cast of fickle regional power brokers.

The result is a new low in parliamentary productivity, with foreign investors once again frustrated over the slow pace of change — particularly compared to the ambitious reforms in China.

India is proudly the world’s biggest democracy, and rightly so, but it is also possibly one of the most dysfunctional. In light of the frustrations, we asked our readers last week if India is governable.

Almost a quarter said no and a fifth said not as a democracy, while the top answer was that India could be governed only with considerable reforms. The straight yes vote was the smallest.

More Ikeas and Wal-Marts are certainly not the answer to India’s problems, but less government meddling may free politicians to spend more time on real issues — while leaving consumers to decide what products they want to buy.

¬ Haymarket Media Limited. All rights reserved.

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