FDI in Retail Bad Politics Bad Economics

Lets congratulate the UPA Government for retaining their sense of humour even in a crisis situation. Amongst the first response to FDI protests was a full page advertisement in some “selected” newspapers. This advertisement claims to represent “the real story” behind FDI myths. The funny thing about the advertisements is that they replaced myth with reality and vice versa. It is unfortunate that the UPA Government has tried to mislead the nation by such clandestine methods. Make no mistake. The decision of the Congress to bring FDI in multi-brand retail is anti-people, anti-poor and anti-democratic. It is anti-people because it will render millions of Indians jobless. It is anti-poor because landless and unskilled labour will be the worst hit. It is anti-democratic because on the question of FDI, the Manmohan Singh Government is in a minority. It seems the Congress has lost touch with the art doing good politics.
On 14 September, the Union Cabinet decided to go ahead with FDI in multi-brand retail. The decision evoked angry reactions from Opposition parties as well as the Trinamool Congress and even some of the parties supporting the UPA Government. Bhartiya Janta Party, Left Front and many other political parties called a Bharat Bandh on 20 September. The Trinamool Congress declared that it will quit the UPA on 21 September. On the night of the Bharat Bandh and a day before the submission of the resignations of 6 of UPA’s Ministers, thr UPA government notified its decision to allow global retail giants like Walmart to open stores in India. With Trinamool withdrawal the UPA is technically now in a minority. This is the second time the UPA Government has jeopardised its own survival. Last time the UPA took a similar stubborn stand was on the Nuclear Deal. On both occasions, American interests prevailed over the welfare of aam-admi. In the Nuclear deal, we saw how Members of Parliament were put on sale, but this time round, is it going to be better or worse, only time will tell.
To differentiate between myth and reality, lets start with the economic aspect of FDI. Retail trade can be described as “when a shopkeeper buys goods or products from the market or from the wholesaler and sells it to the final consumer in small amounts”. Retail trade is confined to those goods or products that are directly consumed by us. In daily life we buy goods or products from the grocery stores, boutiques or from the vendors on streets.

Foreign companies are eyeing  India because the retail trade in India is growing faster than any other country in the world. The good news for them is that it is unorganised and scattered. Consequently, billions can be earned by investing less capital. India is a golden bird for companies like Walmart, Carrefour, Tesco, Star Box, Best Buy and Metro.

These shops are around our locality. In recent times, big shopping malls have started opening up in cities. Retail goods began to be sold in super markets like Big Bazaar and Reliance under the same roof. Although it did not have an adverse effect on the traditional retail market a few years ago, the entire framework of the retail market will change with foreign investment. Therefore, it is crucial to understand the changes when big companies enter the retail market.
The foreign companies are much bigger in comparison to the companies that have been working in India till now. They have enormous capital. The Government is claiming that it has restricted the investment to less than 10 crores dollars. But the truth is, this amount is meagre for companies like Walmart, Carrefour, Tesco, Star Box, Best Buy and Metro. This is why, with FDI the character of the retail market is going to change forever in India. The foreign companies are eyeing India because the retail trade in India is growing faster than any other country in the world. The good news for them is that it is unorganised and scattered. Consequently, billions can be earned by investing less capital. India is a golden bird for companies like Walmart, Carrefour, Tesco, Star Box, Best Buy and Metro.
The Government claims that foreign investment in the retail sector will be beneficial for the country. Here are some specific points made by the Government in favour of FDI:
1. The farmers will be benefitted as they will receive better remuneration for their produce.
2. It will end the role of middlemen.
3. It will create one crore new employment opportunities.
4. It will enhance the working capability of the supply chain in the retail market.
5. The companies will buy 30 per cent of the products from the small scale sector that will lead to high production in the country and will increase people’s income and new techniques will be upgraded as well.
6. With FDI the price of retail products will be reduced.
7. Farm produce will reach stores directly thereby reducing wastage.
8. FDI in retail sector will help the government get more sales tax and property tax.
Along with the above mentioned points the Government is also claiming FDI to be favourable by referring to countries like China, Thailand and Indonesia. Government claims that FDI benefitted the retail market in these countries and no harm was seen being done to retail shopkeepers.

Now, let us take a look at what happened when FDI came in retail. The Public Policy Institute of California did extensive research on the impact of Walmart in 2005. The research stated that 4 per cent down fall in employment and 5 per cent loss in income of the people working in this sector was seen after the opening of Walmart. One more thing that needs focus is that the retail market of Europe and America is organised. In India 96 per cent of the retail trade is in the unorganised and unplanned sector. Hence, the danger of unemployment is even worse. The strategy of these big companies is that in the beginning they reduce the price of goods to a level that results leads to low selling by the competitive shops. The immediate effect is that the traditional shopkeepers start to throw out their workers. They lose out to these supermarkets in a couple of years and slowly these shops get closed. Once these companies get

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complete dominance on the markets, they suddenly increase the rates. This is a common pattern across the world. When multinational companies entered the retail market, the number of retail shops drastically got reduced to half within 10 years. India will face such a situation in the very first year as the retail sector is unorganised. According to an estimate, unorganised retail trade employs nearly 3.95 crores people who will be directly affected. They may either lose their jobs or be forced to work on low wages. It means that FDI will create new jobs but at the same time the number people losing jobs will surpass the number of people getting jobs. Manmohan Singh claimed that it will create 1 crore new jobs, but did not provide any convincing logic for it. Is this lollypop of 1 crore new jobs another lie or a figment of the imagination?
The effect of FDI will be adverse on the supply chain. Supply chain means the methods and course of bringing goods from the farms to the market. The farmers produce grains and raw goods on their farms. These reach the district level markets by going through different hands where sorting and packing is done. From here they are taken to bigger markets. Industries and wholesalers buy products from these markets. The finished products are then sent to the market and small shops after going through several hands. Goods taken to the industry from bigger markets reach the market in a different way. Crores of people are engaged in the entire process. But once big foreign companies start their operations then they will collect the produce directly from the farms or the producers. They have their own processing and packaging units. It is natural that the current supply chain will be totally ruined. There is another threat of farmer’s total dependence on these companies. The Government says that FDI in retail will increase competition. But the truth is that this will end the competition. Foreign companies will dominate the retail market.

The Public Policy Institute of California did extensive research on the impact of Walmart in 2005. The research stated that 4 per cent down fall in employment and 5 per cent loss in income of the people working in this sector was seen after the opening of Walmart. One more thing that needs focus is that the retail market of Europe and America is organised. In India 96 per cent of the retail trade is in the unorganised and unplanned sector. Hence, the danger of unemployment is even worse.

Usually these companies buy goods at reasonable prices from every corner of the world and then sell these goods where they get more profit. Just imagine, if these companies will start selling the goods that are brought from China and other countries, then what will happen to Indian farmers and small scale industry or even big industry. The government claims that the farmers will get the advantage and they will also get more profit from their produce. They will get rid of rotten grains and produce. The question is that if this is the truth, then what the treatment is? Isn’t it the Government responsibility to establish cold storage chains and store houses in the country? Do we need FDI to build cold storages in India? If this is the reality then Prime Minister Manmohan Singh should also tell us who is responsible for such a pathetic situation.
It is totally a myth that the farmers will get high rates of their produce.
These companies do not buy goods from the ‘normal’ farmers. Their model is of contract farming. At first they make direct contact with the farmers and then convince them to produce only those goods that they need. Initially these companies give higher remuneration to farmers. The traditional buyers fail to compete so they stop buying the goods. The effect is that the traditional supply chain is ruined and the farmers become dependent on these companies. For instance, here is an example of what happened to the farmers of Mehsana in Gujarat. In Mehsana, the McDonald Company asked the farmers to produce a unique type of potato for French fries. This year the crops were ruined because of rain. Where will these farmers go? Who will compensate for the loss? This affects the health as well. This is the reason why a large section of the population in America buys organic produce by paying high prices. To invest in India, these companies have started to close their retail shops in other countries because India has a bigger market. Foreign investment in retail sector not only affects the economy but it hits the society and the culture of a country as well.
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. The indigenous trading community will be adversely affected. This will result in the pricing policy being controlled by corporate houses. This will also lead to destruction of cottage industries as they will have no retail outlets to market their products. It will make the middle class credit dependent and push them into a debt trap.
Without any doubt, FDI in retail is detrimental to India. Congress was completely isolated on this issue but once again Mulayam Singh Yadav became the saviour of the Congress Party. Mulayam Singh once again proved that he is the best chameleon of Indian politics. It has become the character of the socialist leader to do summersaults at crucial junctures. Mulayam Singh Yadav participated along with the Left parties in the protests with left parties against FDI on the one hand and on the other asked Ram Gopal Yadav to tell the media that the Samajwadi Party is with Congress. When his opportunistic politics was exposed then he had to come forward to declare that he will support the UPA. He does not understand that it is 2012 and people cannot be fooled.
Lastly, Prime Minister Manmohan Singh addressed the nation to explain why he had to take such a decision. His speech was an emotional appeal that lacked confidence. People have seen and heard such appeals from him before. He has been proved wrong every time he made such promises. The impact of the market on society is not hidden that has happened in the past 20 years. Manmohan Singh’s claims have been proved wrong. Since 1991, the rate of farmer suicides has increased and in the case of malnutrition, India is at the bottom of the world along with countries like Angola, Cameroon, Congo and Yemen. And as far as the child mortality rate is concerned, India’s toll is higher than the deaths in Nigeria, Democratic Republic of Congo and Pakistan put together.
The last time UPA had assured the Parliament that the decision on FDI in multi-brand retail would be taken only after evolving a consensus among all political parties. But, once again it turned out be a lie. Ironically, this is happening when an economist is the Prime Minister of the country. Now, once again the Congress Government is attempting to glamorise a dream call “FDI in Retail”. It is a certainty that Prime Minister Dr. Manmohan Singh will be remembered in history for two things: Bad Politics and Bad Economics. n

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