Why is the UPA government hell bent on introducing 51 per cent FDI in retail when more important reforms in health, education, housing and sanitation have not been undertaken? How will reforms in the retail sector solve the deep and intractable problems in agriculture?
Basically, by doing so, the government is abdicating from its responsibilities for reforming Indian agriculture by making companies like Walmart take charge of solving the problems of irrigation, storage, marketing, and the chain of middlemen between the consumer and the farmer. The problems in agriculture are so immense that it is already plaguing the lives of millions of people. Around 52 per cent of population is engaged in agriculture and around 68 per cent lives in villages. An average farmer today does not want his or her son or daughter to become a farmer as earnings are very low and the result is the unprecedented migratory flow of people from villages to towns and cities. The latest Census ( 2011) reveals that for the first time in India’s history, the absolute increase in population in urban areas is higher than in rural areas.
Agricultural growth has recently come down to 1.2 per cent which is much less than the targeted growth rate of 4 per cent. The slowdown is not because there is an absence of a big retailer buyer in the rural areas but because of the problems related to poor quality of inputs, lack of water availability, storage and marketing facilities. There are 92 million small and marginal farmers with less than 2 hectares of land whose productivity has been declining due to various reasons. Is there any guarantee that the multinational retail companies will rope in the small farmers and pool their small individual produce and pay them adequately? It is the state government which can help small farmers through various cooperatives and pooling of resources that would aid them. Small milk producers were similarly helped by Verghese Kurian in ‘Operation Flood’ making India into the biggest milk producer in the world.
Obviously the pressure for opening up Indian retail sector has come from US and EU-based multinational firms whose own markets are flagging. The Indian retail market is worth $ 450 billion with 14 million outlets. The food sector retail accounts for 70 per cent of Indian retail and organised retail’s share is around 5 per cent. Share in clothing, apparel, home supplies retail has been growing between 20 to 30 per cent per year. Most importantly, 44 million people are involved in retail. When automatic permission was granted to investment in ‘cash and carry’ retail in 2000 and in single brand retail in 2006, $ 66.4 million came as FDI between 2000 and 2010.The hope is that the opening up of multi brand retail will attract huge amounts of investment.
Cold storage is an area in which FDI has been allowed but none has come so far. Perhaps foreign investors have been waiting for the FDI in multibrand retail to open up as only then the investment will be worthwhile with assured movement from cold storage to retail outlets.
In manufactured goods, the giant retailers are likely to source their goods from China which is the biggest and the cheapest manufacturer in the world and which has successfully replicated many Indian products for sale in India like silk sarees, woolen shawls, agarbattis and embroidered household linen. Many micro enterprises and craftspeople, weavers and embroiderers whose main work is to supply products for the local retail market, could be rendered jobless. Minority communities, especially Muslims who are mostly engaged in the informal sector will be badly hit as people will move from local shops to big stores which have everything competitively priced under one roof and their sourcing will be from the organised sector. Even if 30 per cent is sourced from Indian producers, 70 per cent will still be sourced from outside. Can this be good for the current industrial slowdown with industrial growth at 2.5 per cent and manufacturing growth at only 0.8 per cent?
There is also a limit to the jobs that these giant multinational retailers are likely to create. In such retail outlets abroad, one sees few sales persons around and the slick air-conditioned interiors are full of shelves with goods which have prices clearly marked on them. There is hardly any need for sales girls/men to be around. Everything else also is done by machines rather than people.
There is also too much use of plastic and styrofoam and power. All mutinational retailers have capital intensive operations but the productivity of labour in their outlets abroad is much higher than in India. Seeing their slick management techniques abroad, it is hard to believe that multibrand retail will create 10 million jobs in India.
When there are already so many Indian multi-brand retail outlets, what is the purpose of having foreign ones? We the consumers are being tempted because it would be a much better shopping experience. Walmart, Carrefour, Metro, Costco, Tesco, etc. would bring their own management practices, after sales services and inventory management and there will be ample foreign goods to choose from.
Many people think that the small retailers and the corner shops would still survive once the big names come only to the cities. But this is unlikely because of the intense competition the big stores would offer. Women homemakers who are already finding paid assistance hard to find, could end up preferring the cleaned up, often chopped and neatly packed vegetables and other food items at competitive prices. They would also amble around and buy other necessities for the house without having to leave the shop. It would save time and haggling and the quality would be guaranteed.
The multinational retailers have deep pockets and are in no hurry to make big bucks -they know in due course money would start flowing in. They may be able to get their supplies from their contracted agricultural suppliers also at bargain prices once the farmers are committed to supplying the. There would be no leeway for bargaining by farmers and this could yield wide profit margins that would be repatriated abroad.
Despite the retail mania of the growing middle classes, there seems to be quite a lot of dissatisfaction and discontent all around. Small traders are up in arms and their protests will gain momentum which no politician can ignore. How the government is able to manage this dissent is going to be tested in the future. It is still not understandable why opening up of FDI in retail has been made a flagship reform when other huge problems like inflation, current account and fiscal deficits and a sharp GDP slowdown remain unresolved.
(The writer is an economist with Observer Research Foundation and her latest book, The Global Economic Meltdown published by Academic Foundation, New Delhi, is just out)
Source Article from http://www.dailypioneer.com/columnists/item/52970-a-few-decided-for-the-many.html
