FDI in retail - a second gamble by UPA ?
UPA , during its first term, took a gamble with its move to get
support from its alliance partners and outside supporters for the
Indo-US nuclear pact as most of them were not convinced of the need
for the same. The government was able to get it passed in the
parliament. However, the pile of currency notes put on the table of
the house by the members of the parliament has raised some questions
which have not been answered up to now. During the discussion in the
house, the government told us that this nuclear deal would bring
energy security to India and reduce carbon footprint. All this faded
after Fukushima disaster and the reluctance of suppliers of nuclear
reactors to take liability in case of nuclear disaster. A recent
special report by the Economist on Nuclear Energy was entitled, " The
dream that failed" (March10,2012) and concluded that the role of
nuclear power may never be more than marginal.
This time UPA is taking another gamble on FDI in retail. The majority
of the members are not convinced that it is in the interest of the
country as it is likely to reduce employment in the unorganised trade
sector without bringing in marked improvement in the agricultural
sector - reduce the gap between the farm-gate price and the consumer
price and prevent wastage of fruits and vegetables. Some have
questioned 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 ?
The government expects FDI in retail will bring in a revolution in
food production - fruits and vegetables - which it has failed to do it
in the last 20 years through the Ministry of Agriculture, agricultural
colleges and universities. There is a distrust of foreign capital,
especially in agriculture on which more than 60 percent of our
population depends.The Indians still remember that the British came to
India for trade and stayed here for 200 years. Some have ideological
reason. They believe that private capital and profiteering go
together. Whatever the reasons, the fact remains most of the political
parties do not support FDI in retail. The government is now engaged in
breaking the opposition with carrots and sticks. The government is
seeking support from parties which have opposed Indian big business
entering this sector. Some members of these parties have damaged and
destryed stores run by them in UP, West Bengal and Kerala.
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 power
sector. 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 palnt 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.
The telecommunications and software revolutions in India were ushered
in by Indians. The retail revolution can also be led by Indians. Now
the ruling establishment wants the foreigners to lead it. We seem to
be going from one extreme to another - after Independence, it was
socialist pattern of society where private sector and foreign
investment were look down upon. Now we want everything from foreign
countries. Gandhiji and Nehruji must be turning in their grave!
November 28,2012.
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