Recently, the PM Dr.Manmohan Singh announced the new FDI policies in retail, airlines, power exchanges and broadcast sector as a big bang reform initiatives to push the Indian economy faster.The two analytical pieces (India Abroad, Sept.28) by Shreekant Sambrani and M.R.Venkatesh provides the other side of the FDI coin. In his analysis, Shreekant Sambrani rightly says that the policy predictability, fast project clearances, encouragement to investment, containing inflation, fiscal consolidation and improving current account deficit are far more important than FDI itself. Venkatesh has some pertinent questions - How FDI in retail can set up cold storage chain when there is power shortage all over the country ? How can there be job increase when efficiency requires automation ? How 30 percent local procurement from small scale industries go with quality of goods ?
The government expects FDI in retail will bring in a revolution in industry and agriculture which it has failed to do it in the last 20 years, if not 60 years. There is a distrust of foreign capital in India due to historical reasons ( The British came to India for trade) and also ideological reasons ( socialist mind-set promoted since Independence). The new initiatives of the PM have brought most of the political parties together against the UPA hastening the general election earlier than its scheduled time in 2014. It appears that the PM wants to go down on an economic issue rather than on the many scams which have been exposed under his watch.
Foreign investment in India has been a mixed blessing. FDI in automobile industry has expanded the choice to the Indian consumer and strengthened ancillary industry. However, it has failed in electricity. Enron produced most expensive electricity in the country and had to sell its operations to the state. The PM told Indians that nuclear power would help in solving the power shortage. But not a single nuclear power plant has come up in India as people are afraid of radiation ( the Japanese experience is fresh in the minds of many) and have opposed proposed plants in Ratnagiri in Maharashtra. Monsanto's cotton Bt seeds increased the cotton yield immediately but now the farmers have to use more pesticides. Another report states that declining yields, higher input costs, and crop failure caused by delayed monsoon pushed farmers into debt and suicide.
As far as FDI in retail is concerned, there are conflicting assessments. It can reduce wastage and the number of intermediaries between the farmer and the consumer benefiting the both. However, it can also eliminate neighborhood stores and will not lead to employment generation. The critics have pointed out that if the multi-brand retail has not helped even the American farmers as they are being given massive subsidy of US $ 307 billion under the US Farm Bill 2008 for five years. It is the same in the OECD countries. Farmer's income has fallen down everywhere. Farmers in Scotland have formed " Fair Deal Food" to seek higher price for their produce. They have also pointed out that these stores pay lower salaries and lower benefits to their employees. These stores are accused of 'squeezing' the farmers and 'predatory' pricing.
India has more than 1.2 million retail outlets with a turnover of US$ 400 billion, it employs 7.2 percent of workers and provides jobs to 33.1 million. Wall-Mart also has a turnover of US$400 billion but employs only 2.1 million. Multi-brand retail may be good for the middle class but not to the people in general.
India should find its own solution to meet its needs which is integrative and inclusive. Here is an example.The Gujarat Co-operative Milk Federation ( GCMMF) which processes 10 million liters of milk from 3 million farmers across 15,000 villages. " We didn't need any foreign capital or expertise to accomplish this. Besides, we involved the community instead of excluding it" says R.S.Sodhi, managing director of GCMMF which popularized the Amul brand. He says 80 percent of the money consumers pay for milk goes back to the dairy farmers as against 30-35 percent in the US and EU.
India has to encourage Indian entrepreneurs to launch similar enterprises which makes use of the present retail outlets. Let the associations of retailers access fruits and vegetables directly from the farmers, refrigerate it and distribute it. There are many experts in all these fields in the country. The government has to formulate a comprehensive plan and create a conducive tax regime. The GCMMF and other similar co-operatives could be mandated to enter this field as they have direct contact with the farmers. In five to ten years there would be a new model of development - inclusive of farmers and the retailers.
There is no magic wand. It is a long haul. Politicians have no time for that as the next election is coming.
September 27,2012.
