FDI in multi-brand retail: A premature idea
After my article last month (Retail FDI Won't Help, ET, July 13), a number of readers called up to ask if I was against FDI in multi-brand retail. However, this was not the intent of that article. My principal point was that FDI in multi-brand retail is an outcome of a general FDI policy and not the policy itself. I further argued that FDI in retail is in any case limited by lack of reforms in agriculture so that even if it was permitted, no FDI would be forthcoming. The general point then was that excessive focus on FDI in multi-brand retail would seem to indicate that it is the principal instrument of reform, which it certainly isn't. The political opposition that would follow (which it has!) would then give greater ammunition to opponents of the reform process.
In other words, FDI in multi-brand retail (at the moment) is bad politics and bad economics. To further argue that it is up to the states to implement the policy begs the question as to why not then let the policy come from the states themselves. Yet, the issue of FDI in multi-brand retail is important enough to merit a closer look at some of the suggested pros and cons of such an outcome. This article is an attempt to do just that.
Argument 1: FDI in multi-brand retail will reduce inflation. The main cause of inflation today is shortage of agricultural production particularly in processed foods and vegetables (though, for some reason, the RBI does not think so. It would seem the RBI governor only visits markets when he wants a haircut!).
Hence, this argument goes that FDI in multi-brand retail will eliminate the 40% wastage of food grain that currently occurs. Apparently, foreign investors will provide the warehouse storage capacity that is currently lacking. In analysing this argument, it must be remembered that, currently, the Indian corporate sector is more or less free to undertake (notified) contractual agreements with farmers for supply of output.
Yet, after almost a decade of domestic organised retail of agricultural products and huge tax breaks for investment in warehouse facilities, such facilities have failed to materialise. Why then have domestic agents not found this investment profitable? And why is it expected that foreign investors would do so? As I argued in this column last month, lack of this investment is more due to the controlled nature of agricultural production than lack of foreign investors.
Argument 2: FDI in multi-brand retail will give more remunerative prices to farmers. About 95% of farmers have small farms of one hectare or less. Presently, the APMC Acts require the sale and purchase of farm produce in government-designated markets. So, we have the peculiar situation where the corporate sector is free to contract with farmers anywhere while farmers tend to sell in regulated markets.
If all of a sudden the donor stops giving arms due to his own fiscal problems, the beggar may claim the alms as a matter of right, claim the alms from donor threaten the donor of dire consequences and ultimately blame the donor for making his life miserable.
Similarly after 2008 subprime crisis which originated from USA and European countries, government of India headed by Great economist Manmohan Singh donated billions and billions of rupees to business men in the name of stimulus package. Several tax concessions, subsidies and interest relief were provided to businessmen, CRR and SLR were reduced to enhance liquidity in the system and extended all types of relaxation to foreign investors to increase Foreign Direct Investment.
As a result of unwarranted stimulus package extended by GOI to corporate sector to give a boost to the economy , businessmen as also bankers are now addicted to same and therefore interested in continuance of all relaxation, reliefs and subsidies and even more enhanced stimulus package notwithstanding the fact that the same has proved to be counterproductive, self destructive and finally suicidal act for majority of Indians in a span of a few years only.
Now when the financial crisis produced by the stimulus package is trying to disturb the economy badly and when government of India is trying to curtail the stimulus package gradually, the same business men community who were addicted of getting alms in way of tax relief, interest relief and subsidies and who were tuned to live lavishly and spend freely are now without any hesitation demanding continuance and increase of alms in the name of stimulus package.
Businessmen who accumulated wealth equivalent to hundreds of crores of rupees in last few years without making hard labour in the same proportion are now demanding same alms from the government, blaming government of policy paralysis and finally accusing government of creating current financial crisis.
It is pity that India which had nourished a dream of becoming number one in the world, the same India after 60 years of freedom has become dependent of FDI for survival of Indian economy. Manmohan Singh led government is so much hungry of FDI that it is ready to discard Mamta led Trinamool Congress and admit corruption ridden Mulayam , Lalu and Mayawati in UPA for survival of not the Indian economy but for survival of Congress Party and UPA government.
Manmohan Singh who is considered as Doctor in Economics has absolutely failed to make India self dependent, self reliant and self sufficient. He failed to increase domestic savings and domestic investment to give a boost to agriculture production, industrialization and in creating employment opportunities in India. It is pity that Indian talent are going abroad to boost up the economy of foreign countries and Indian businessmen are now giving preference to investing in foreign countries to boost their own profits.
Manmohan Singh led government may claim of helping poor by MANREGA but in fact it failed completely to create permanent source of income for rural or urban poor at their location. It failed to provide quality education and quality medical treatment at affordable price to economically backward Indians. It failed to provide even pure drinking water, permanent electricity and sanitary arrangement to 100 billion Indians. It is ridiculous the policies which are solely responsible for growing sickness in the economy are being prescribed as medicine to cure the sickness. It is bad luck that still MMS is proud of his policy of reformation and ready to provide the same as medicine to critically sick economy
Poor and rich both are now addicted of getting subsidy, one for their survival and other for their growth. Government is however hungry of FDI not for upliftment of standard of living of Indian poor or to boost up the profitability of Indian businessmen community but to strike at the root of middle class families whose survival depends on retail business . After all it is only middle class who has to bear the brunt of fiscal crisis , price rise, inflation, corruption and all negative features of Indian economic system. Obviously the great economist MMS is bent upon adding fuel to fire , he is neither bothered of pitiable position of Indian poor nor frustration growing in Indian youth due to shrinking employment opportunities.
The government accused of rampant corruption, policy paralysis and of being anti poor is unfortunately busy in dividing Indians by extending favour to some caste or community and depriving some others by using economic powers invested in it. Government uses secular card or quota maha-mantra to keep best performer like Nitish Kumar, Narendra Modi like persons out of power. Government talks of secularism when people of India talk of price rise, employment opportunities, safety, and corruption free administration and real development.
It is pity that even opposition political parties due to their historical ego and conflicts are divided on petty issues and hence fail to stop present government taking anti national and anti people decisions.
No solution is as such possible in near future from the present government so far the problem of price rise, inflation , fiscal deficit , unemployment ,corruption etc are concerned.