Monday, October 1, 2012

For & Against FDI in Indian Retail Market

Arguments for and against FDI in multi-brand retail are flying thick and fast. In the article below I have cited some of the forceful ones adduced by both sides, so that none of the readers may be led blindly by one side alone. Please publish it in our Almaya Sabdam Website. Hope you are keeping well. With regards,
james kottoor
Whom are we to Believe?
There are arguments galore for and against introduction of FDI trotted out by honourable men, all patriotic to the core starting with Mammohan Singh. Others contradict & make fun of without malice or ill-will. Where does truth lie?
James Kottoor
Change alone is the unchanging law of nature. Gita has taught us. Lived experience, personal and universal, confirms it. What is desired is change for the better which necessarily don’t happen even after taking due diligence. Here we are grappling with the question of introducing Foreign Direct Investment (FDI) in India to make our country economically robust and prosperous. What are the arguments for and against in the national interest, setting aside all divisive partisan politics?
Walmart (American), Carrefour(French) and Tesco (British) are three of the World class business Tycoons in this field eager to come in. In his address to the nation Dr. Manmohan Singh said: “The fear that small retailers will be wiped out is completely baseless.... According to the regulations we have introduced, those who bring FDI have to invest 50% of their money in building new warehouses, cold-storages, and modern transport systems. This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down.... will also create millions of good quality new jobs.... But one state (Mamatha?) should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.”
Others supporting him say middle men who lose initially in the turbulence, too will benefit if there is a Walmart or Correfour to compete with. For example writers like S A Ayer in Times of India 23/9/12, ask us to look at the auto industry. “Till 1991, it was dominated by indigenous Ambassador and Premier Cars. These have been replaced by a cavalcade of new brands, some Indian but mostly international. Yet it would be moronic to mourn for the heyday of the Ambassador and Premier as a golden era when foreigners were kept out and all profits were retained in India.” Think also of Tata’s Nano exported in great numbers and any number of new brands which are products of Indian and foreign collaboration.
Millions Stand to Gain
No demise of petty shopkeepers across the country is going to happen, says another writer Jug Surayia. In stead he argues: 1. 600 million farmers and some 1,200 million potential consumers stand to benefit. 2 Both will live in peaceful and prosperous coexistence due to friendly competition providing personalised services that impersonal supermarkets can`t. 3. Small traders extend a line of credit to regular customers, an informal buy now, pay later scheme. 4. They also do home deliveries and generally have a young person to help customers carry heavy packages to their vehicles. Such shops are not only economic but also a needed social institution, a place where, apart from the goods being sold, neighbourhood gossip and information are also exchanged.
For instance, when fast-food chains like Kentucky Fried Chicken and McDonald's came into the country, doomsayers began to write premature obituaries for traditional Indian fast foods like samosas and idli-dosa. However, in robust defiance of such fears, Indian fare has not only survived and thrived but in many cases has literally turned tables on its foreign competition, by making it adapt to local customs and tastes.
As a result McDonald`s is persuaded to make home deliveries and offer pure-veg items. The result is that there are more pizza-eaters in this country than in Italy. Just as English is no longer an `English` language; pizza is no longer an Italian dish. A happy marriage between Indian and foreign know-how often resulted in a more beneficial hybrid to both.
Financial Gain of Billions
Financially FDI is estimated to bring in $16 billion worth of FDI over the next 3 years to help the country bounce back from a debt ridden situation now. According to Rajiv Kumar writing in Hindu sept.15, FDI to the tune of 51% is a long overdue step. Those who entered last few years were from Real Estate sector without its modern inventory management practices, supply chain management, new storage and vending technologies and advanced organisational skills so our retail sector is till in shambles. He asks to bury the myth of becoming slaves to anew version of East India Company. Gandiji opposed Videsi with Swadesi mostly in the political context. The new entrants have to abide by the rule of procuring goods for sale mostly from the country, not from cheaper markets outside.
Currently, the share of modern retail is a mere 5% in the total retail trade sector worth $500 billion. It should rise to $900 billion in the next 20 years. Now the self-organised ‘mom & pop’ stores or retail sector is worth only $450 billion. Twenty years later it would be more than $650 billion, improved, and not destroyed. It will benefit farmers, small producers and consumers. A by-product will be generation of a large number of ‘semi-skilled’ or skilled jobs for India’s young population. Besides an employ of an International company stands a better chance to get bank loans for educating his children.
According to Rejiv new foreign entrants will help our farmers get new high yield varieties of seeds and better technologies that will help bring down the cost and more yields. They will help farmers produce FMCG (fast moving consumer goods) brands, will give impetus for the growth of MSEs (medium and small enterprises) that will be mobilised by large retailers to produce their own ‘house brand’ across the entire range of FMCG and other consumer products. Hence the bogy that the country will be inundated with cheap imports is misplaced.
The global giants in retail will be allowed entry only in 51 cities with a population of more than one million, (10 Lakhs) based on 2011 Census and the rule is they have to procure 30% of products from small-scale industries and at least 50 per cent of total FDI brought in shall be invested in ‘back-end infrastructure’ within three years of the induction of FDI. Already Chief ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Manipur and Jammu and Kashmir and the Union Territory of Daman & Diu and Dadra and Nagar Haveli expressed support for the policy. So it does not require a rocket scientist to understand the benefits the country stands to gain thanks to steps taken for modernisation, argue the supporters.
Opponents Equally Vehement
Equally strong and outspoken are a line of writers, not less patriotic either and so oppose vehemently what they call a new brand of East India Company to enslave the Swadesi to Videsi. For example Devinder Sharma, a noted food and agricultural policy analyst captioning his article: Made in the United States, in Hindu 15/9/12, starts off: “For U.S. President Barrack Obama there could be nothing more cheering. The ‘underachiever’ now goes to the presidential polls with a lot of confidence — India’s decision to open up FDI in multi-brand retail comes as a shot in the arm for the beleaguered American economy and will obviously boost his poll prospects.”
India tried to persuade Obama not to object to outsourcing with no effect. He instead urged India to start a new wave of reform since he presumes to know what is good for India. “Aided and abetted by TIME magazine and credit rating agencies like Standard & Poor’s, Fitch and Moody’s, India finally buckled under global pressure. What is little known is that India was also under a G-20 obligation to remove all hurdles to the growth of multi-brand retail.
“But is FDI in retail really good for India? Will it improve rural infrastructure, reduce wastage of agricultural produce, and enable farmers to get a better price for their crops? While a lot has been said and written about the virtues of big retail, let me make an attempt to answer some of the big claims.” In substance he says:
Gives Seven Reasons
1. It is not good for farmers. It didn’t help them even in US. What helped them was the big federal boost. In its last Farm Bill in 2008, the U.S. made a provision of $307 billion for agriculture for the next five years to make it profitable, not better prices they got from Walmart. European countries also give huge subsidies to help farmers stay afloat. Despite these subsidies studies have shown that one farmer in Europe quits agriculture every minute.
2. FDI will not squeeze out middle men? Studies have shown net income of farmers has come down from 70% in the early 20th century to less than 4% in 2005. Big retail actually brings in a new battery of middlemen — quality controller, standardiser, certification agency, processor, packaging consultants etc. These middlemen walk away with the profits and the farmer is left to survive on the government subsidy dole.
3. Once the FDI giants enter our markets they gain monopolistic power in few years which enable them to sell at plundering prices higher by 20 to 39 % than what is available in open market. Studies of supermarkets in Latin America, Africa and Asia prove this.
4. Did big retail provide backend grain storage facilities to prevent rotting? No investment is either reported or known according to writer, Sharma.
5. What about new employment opportunities? Indian retail market is worth $400 billion with more than 12 million retailers employing 40 million people. Wal-Mart’s turnover is also around $420 billion, but it employs only 2.1 million people which means a huge work force will be cut down. Instead of creating, Walmart, if it enters, will destroy jobs.
6. But is not the choice to allow entry left to States? It is a ploy to douse protest, says Sharma. Being a signatory to Bilateral Investment promotion and Protection Agreements (BIPAs), with more than 70 countries, India has to provide national treatment to foreign investors. This legal option will be used to force reluctant States to comply and open up.
7. In major cities with 10 lakhs only? According to New York Times expose Wal-Mart had captured nearly 50 per cent of Mexico’s retail market in 10 years giving bribes to 431 subsidiary stores of Walmart in 2011. In India Walmart already spent Rs.52 crore in two years to lobby, as per a disclosure statement made in the U.S.
Another Writer Argues
Another writer S Gurumurthy writing under the caption 'Reform' at Nation's Cost’ in Indian Express 20th Sept. 2012 says: “Famous Foreign Affairs magazine, Atlanticcities, carried a devastating headline news: ‘Radiating Death: How Walmart Displaces nearby Small Businesses’. Weeks ago, on June 30, over 10,000 people, shouting “Walmart = Poverty”, marched through Los Angeles, America’s richest city, against Walmart stores. On June 1, hundreds protested in Washington DC against Walmart. “Say-No-To-Walmart” is an ongoing movement all over the United States.
Why is Walmart so hated in the US? “Walmart will devastate local businesses,” say New York trade unions and local communities. The mass protesters at Los Angeles too cited the same reason: “small business will close down”; and screamed “Walmart has no heart and no morals. We don’t want you in Los Angeles.” Politicians in the US, however, seem to be like the UPA’s cousins says Gurumurthy.
According to the Atlanticcities article, “Walmart entered in Austin neighbourhood of Chicago in 2006. And by 2008, some 82 of the 306 small shops had closed down. The Economic Development Quarterly study found the closure rate around Walmart location at 35-60 per cent. Walmart radiated closure of 20 per cent of drug stores every mile from its stores; and 15 per cent home furnishing, 18 per cent hardware and 25 per cent toy stores.
Walmart Rejected in US
Studies in the US nail the UPA lie that FDI in retail will not hurt small shops. On job creation, a latest report (January 2010) titled ‘Walmart’s Economic Footprint’ prepared for the New York City Public Advocate says that Walmart kills three local jobs for every two it creates. So the job creation argument too is a lie. The third justification that the ‘farmers will get better prices’ is a clever lie, and so needs a closer look. It suppresses the vital fact that Walmart does not buy, or pay, over the counter. It buys the nation’s next harvest in futures market and fixes farm prices. It also imports cheap goods — from China — and destroys local production like it has done in the US.”
“If the US farmers get remunerative prices from Walmart why does the US, with two per cent farming population, grant annual farming subsidies of $20 billion and the European Union, for its five per cent farming population, gift a subsidy of $74.5 billion annually? The experience of the US and West nail all three justifications for the FDI in retail as lies. Foreign direct investment in retail will incrementally hit the 12 million family retailers in India; it will not help farmers; it will cut jobs. Even more dangerous, it will destroy the rural food security.” Gurumurthy concludes asking: ”The ‘reformers’ betray illiteracy; clamour for fame as reformers; secure it at nation’s cost. Reformers or deformers?”
So who is to be trusted? Our esteemed and gentlemanly PM who asks us to trust him, reminds me of France’s D’Gaul reportedly praying: “Sacred Heart of Jesus Trust in me”. I am also reminded of Mamatha of W.Bengal who is seen as the solitary corruption free politician. She stands for the cause of the exploited in word, deed, body language and ordinary life style, a most striking CM walking dusty roads with people. At times she cuts a sorry figure due to her mercurial outbursts and even undemocratic rustic ways. Some wonder if she was doing a historic blunder like Karat quitting UPA on nuclear deal.
What will happen if a Walmart is allowed to run riot in India? Our politicians are least concerned about strict enforcing of rules. Instead they are all concerned about who can shell out huge amounts (Walmart surely can) to bend rules to suit one's private interests. That being the case, suggest ways to help the Aaam Admi not to get trapped by tricky arguments for or against FDI in Retail in India. In the light of facts presented above we have to study the pros and cons to make the best of the worst situation we are in. This challenge has to meet head on by all of us concerned.
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