Long-run effects of FDI in India’s multi-brand retail trade: Lessons from cross-country economic history

Abstract

In view of the recent debate on the entry of FDI in India’s multi-brand trade, this article seeks to analyse the long-run effects of this policy-options on the formation of industrial capital and entrepreneurs. To do so, we look into the economic history of two of the presently developed countries, the United Kingdom in Europe and Japan in Asia. Their historical sequences suggest that the industrialisation process in an economy should obtain capital and entrepreneurs from the agricultural and tertiary sectors, and that a congenial policy-environment is imperative to these ends. Also, we deal with the economic history of India during the early colonial period, and learn that, owing to hostile governance, the period witnessed a reverse flow of those critical factors of production from industries and trade to agriculture. This article, therefore, concludes that FDI in multi-brand trade, which is expected to hard-hit tiny and small traders in the long run, may jeopardise India’s prospect of domestic capital formation and entrepreneurs for industries. This will be very harmful for our future course of industrialisation.