FDI in Retail

It is noteworthy that the Indian government decided to open the retail sector to foreign players despite the fact that other countries where this was done had a bad experience with the experiment. The big corporate houses played the role of intermediaries and siphoned off huge profits filling their own coffers with utter disregard for the national interests of the host countries.

The government’s decision to allow Foreign Direct Investment (FDI) in the retail sector has invited widespread criticism. The Opposition too managed to corner the government in Parliament. Faced with such
resistance, the government decision to open up the retail market to foreign companies has hit a pause. The decision to open the retail sector to FDI has been fraught with gross miscalculation as the government had overlooked several important factors.
First, this controversial decision was taken by the government while Parliament was in session without even informing or consulting the other parties or even its own allies, leave aside eliciting public opinion in the matter.
Secondly, though FDI in the retail sector will have huge implications for the States, the Centre took a decision without
consulting the state governments. Thirdly, this decision reflects the UPA Government’s tendency to avoid taking
measures that will address the real issues that concern the people such as rising food prices and increasing rate of unemployment.

It is noteworthy that the government decided to open the retail sector to foreign players despite the fact that other countries where this was done had a bad experience with the experiment. The big corporate houses played the role of intermediaries and siphoned off huge profits filling their own coffers with utter disregard for the national interests of the host countries. Instead of strengthening the public distribution system (PDS) to prevent local speculation in grains and provide it at affordable prices to people, the government constantly blamed the inadequacy of the existing distribution and supply chains. As a matter of fact the mismanagement and corruption that is rampant in the existing PDS, which has led to its near breakdown in recent years, is the by-product of government’s own laxity and lack of transparency. The Food Corporation of India (FCI), which is probably the largest supply chain in Asia, manages the PDS. But the government, instead of empowering the FCI with a better supply chain management system, is criticising it. It is argued that that FDI in the retail sector will reduce wastage in storage and costs of transportation of food items and cut out intermediaries in distribution, thus providing food more efficiently to consumers at lower prices. But if the traditional supply chains in food items are as faulty as described by the government, then it should have resulted in massive food price rise which it did not. The government is of the opinion that by inviting FDI in the retail sector infrastructure such as cold storage facilities and transportation will become much more efficient. However, the government is not considering that by eliminating the traditional intermediaries millions of individuals will be thrown out of employment. Corporate houses like Walmart and Tesco will directly deal with farmers for their agricultural produce. The farmers will get lower prices for their produce as the companies dealing with them will procure commodities at the lowest possible prices. If the farmers are compelled to produce a single crop for prolonged periods of time the produce will be subjected to the rule of diminishing rate of return. As a result, the amount of the produce will go down automatically and the quality of the land will also deteriorate. Corporates like Walmart will also try to maximise their surplus, thus putting extra pressure on the farmers to produce more and more within a short period of time by excessive use of fertilisers which will degrade the quality of the agricultural land.

The government is of the opinion that by inviting FDI in the retail sector infrastructure such as cold storage facilities and transportation will become much more efficient. However, the government is not considering that by eliminating the traditional intermediaries millions of individuals will be thrown out of employment.

Despite several grave drawbacks in the PDS, it is instrumental in moderating the fluctuations of food prices and checking hoarding. As a result the PDS controls food inflation to a certain extent. There is significant reason to believe that the margins accruing due to difference between wholesale and retail prices of many important food items have increased in the recent period. This has been happening in a period of increased corporate involvement in food distribution and food retail. The share of corporate retail in food distribution in the country as a whole is estimated to have tripled in the past 4 years, and has grown even faster in major metros and other large cities. And this is also the period when retail food prices have shown the greatest increase. Retail margins tend to be the lowest in states like Tamil Nadu and Kerala where there is an extensive, well-developed and reasonably efficient system of public distribution that provides a range of food items on a near-universal basis. In regions where such a PDS is weak or non-existent, such as in Uttar Pradesh and Bihar, the margins between retail and wholesale prices tend to be much higher, because corporate food retailing in such regions has expanded.
Corporate involvement in food distribution causes changes in eating habits and farming patterns. This creates not just unsustainable forms of production that are ecologically devastating, but also unhealthy consumption choices. Highly processed food and drinks are also a major cause of increased incidence of lifestyle-related diseases such as obesity, diabetes, heart disease and alcoholism, all of which have been rising rapidly in the developing world.
It needs to be understood that FDI in retail is fundamentally different from Greenfield investment in manufacturing which enhances the economy’s productive base and technological capabilities, and generates employment. In fact the negative effects in terms of lack of employment and displacement of small traders and traditional supply chains by monopolistic multinational retailers far outweigh the supposed benefits accruing to the organised retail sector by way of increased efficiency. Therefore, the case for opening up of retail sector to FDI does not hold ground. What India needs is not FDI but equitable redistribution of its wealth through taxation of the rich and moneyed classes which is now concentrated in the coffers of a few. FDI is an instrument of corporatisation through which it seeks to colonise the people of this country economically.

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Negative Effects of FDI and Entry of Big Giants in the Retail Sector

  •    The indigenous trading community will be adversely affected.
  •    Control of the manufacturing sector and ‘biasing’ the production of goods. This will result in the pricing policy being controlled by corporate houses.
  •     Destruction of cottage industries as they will have no retail outlets to market their products.
  •     Making the middle class credit dependent and thus trying to push them into a debt trap.
  •     The developed countries with a better economy will register for all patents and rights and make the developing countries completely dependent on them.

 

 

 

 

 

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