(Editor’s Note- This is post is part of CRI’s endeavour to provide platform to all strands of opinion on FDI in Retail and does not constitute endorsement of this position)
The cabinet decision to permit 51% FDI in retail could turn to be catastrophic as it potentially undermines our economic sovereignty and is an assault on the livelihood of millions of people engaged in the retail trade. With this decision has Manmohan Singh accomplished task of economically emasculating India? Before approving FDI in retail government should have explained reasons for its decision. What are the deficiencies in Indian retail sector that can only be filled with FDI? What additional advantages FDI will bring to Indian retail? Why didn’t government consider parliament standing committee’s detailed report before making this decision? These are some of the questions UPA is obliged to answer millions of Indians who will face the consequences of its decision on FDI in retail.
What kind of India we want?
Before we get in to the crux of argument on FDI in retail, there is a larger question Indians should ask themselves. Do they want to be a self-reliant & resurgent economic powerhouse or operate as a subservient economic subsidiary? The answer to this will determine our motivation, perception and approach to issues that involve foreign investment in retail sector. If the nation’s economic conception is towards self-reliance, is engaging foreign retail giants in something as basic and fundamental as retail trade right?
The argument that China, Japan, Korea allowed these foreign retail giants and hence India should follow suit is absolutely disingenuous. These countries only allowed when retail giants became an important integral part of their export-oriented economies, not before that. China allowed them, with all necessary restrictions only after 2004 and by this time with the help of these giants, it had captured major share of consumer markets in the home countries of these retail giants.
Given that export-oriented development model itself is fast getting discredited across the globe and major players in global economy facing the heat, why is India, with an economy largely dependent on internal consumption, jumping on the bandwagon now and expose critical areas of its economy to global risks and manipulation? In this global economic crisis India has an opportunity to learn from other’s mistakes and re-evaluate the risk of opening critical areas of economy to global forces, but it seems Indian leadership is insulated to the concerns and interest of Indians.
Effects of FDI on Indian Retail trade
Retail trade, small businesses and manufacturing constitute the core of Indian entrepreneurship class. They include street vendors, kirana merchants, wholesale traders, transporters, commission agents, small agro processing industry owners and small scale product manufacturers. All of them together form a non-homogeneous, decentralized seamless supply chains, trading outlets providing livelihood to millions of Indians, second only to agriculture. It’s a disorganized but an efficient sector that mostly runs on true supply and demand depending on bargaining skills of individual parties. Both ends, at customers and suppliers, we have enough choices of price and quality to buy or sell products.
Going by their track record, global retail giants tend to monopolize supply chains, thereby restrict choice to both customers and product suppliers. Once they occupy and control marketing space, they will have all the scope to manipulate demand and supply. Even in countries with strong government controls they managed to establish and maintain their monopoly. The way Walmart hires and treats its employees on minimum hourly wages is well documented. On an average three cases are filed against Walmart on daily basis.
The so called mom & pop stores in west can’t be compared with Indian Kirana stores. In US they are mostly gas stations that play combined role of Indian pan-shops, tea-outlets, wine-shops along with selling gas in order to achieve some critical mass of business. They sell items at 2-3 times the price of super-markets which is not feasible in Indian conditions. These gas stations fill their inventory with purchases from retail supermarkets that general population goes for retail shopping. Essentially, these retail giants control wholesale as well as retail trade, supply chains and suppliers in the name of retail marketing. Even the gas stations in countries like USA are held as franchises to big oil corporations.
In India retail trade is simply too huge for global retail giants to limit their presence to few metropolitan cities. Eventually they will find their way to dominate the entire consumer economy with their deep pockets and global pressure tactics on vulnerable governments to toe their line. In Indian, given the state of affairs of politics and government, their task will be much easier to accomplish. Once they capture local markets and supply chains, it will be either their way or no way. Their reach will not be limited to retail trade but includes most activities of production. They can dictate manufacturers, agriculture including pricing, marketing and crop patterns. In essence, for all practical purposes agriculture, manufacturing transform from independent sectors to vendors of these giants. Besides they displace millions of Indians from their livelihoods and the employment they create won’t be even one percent of population they displace. Is this desirable for a sovereign country and population that values freedom, fair play and free market?
Effect of FDI in retail on economic Independence and security
The MNC retail giants can source products from across the globe at much cheaper prices compared to Indian imports of the same. Even businesses that rely on imported goods will be affected by their cheap imports. If they have their way, they can cripple even vibrant sectors of economy by dumping cheap goods from global destinations. It’s very easy to destroy any sector, but very difficult to re-build it, If for some unexpected reasons global supply chains for consumer goods and strategic supplies break, can these giants compensate for the loss of indigenous production and supply chains in these areas? Won’t it affect the health of nation and security?
There are some ‘creative’ arguments that these retail giants won’t be successful in India given the huge infrastructure bootlenecks and hence no harm in permitting them.It’s nothing but underestimating their talents to adjust and innovate. They can have different categories of outlets ranging from Super-mart, mega-mart to mini-marts. They already have different categories of outlets serving different customers.
Even presence of desi corporates in retail is undesirable. Why should India allow these giants to make profits in a very basic sector that has no technological requirements at the cost of millions of Indians, reimburse their profits in hard earned foreign exchange and further enslave India to countries that control those currencies?
India can’t afford to look at FDI in retail on par with FDI in other areas. It will have long term implications on the health of country’s economy, employment and overall security. FDI in retail is not a question of consumer benefits, efficiency and enhanced shopping experience; it will have far and wide reaching implications on millions of Indians affecting their livelihoods, social dynamics and finally the idea of self-reliant India. It’s like selling India’s soul
(Image Courtesy- The Hindu)
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