TSR Subramanian
Many
newspapers recently carried a picture of Commerce Minister Anand Sharma meeting
the chairman of Carrefour (a major international retail chain), with the
minister giving an assurance that the Government of India would try to push
through FDI in retail (multi-brand) early, probably in June 2012. To the
puzzled reader, some questions need clarification. Does our Cabinet minister
represent India’s interests,
or does he work for the association of international retail chains—or is he
just an “honest” broker arranging a “deal” between India and international business?
In 2009, the proposal for FDI in retail was thoroughly discussed in the Public
Accounts Committee of the Parliament which clearly recommended that this should
not be implemented in the near future; the attempt by the government to push it
through in February 2012 was met with severe opposition.
Both
retail and agriculture are state subjects; however, the matter is dealt with
cavalierly in the Department of Industrial Promotion and Policy. The subject
relates to rural India,
and on the specious plea that it’s a matter of FDI, this is dealt with in the
industry ministry—how ironical, the tail wagging the dog! FDI is apparently a
mantra to cover all our domestic failures.
Who
are the champions for this policy? Montek Singh Ahluwalia, whose familiarity
with the Indian farmer is from a height of 36,000 ft, while jetting into far-off
countries in the national interest—or shall we say, from the Olympian heights
of neo-Keynsian economic theory as applied to Western economies? The other
proponent is Kaushik Basu, the chief economic adviser, who knows all about the US economy, but
has probably never met a real-life Indian farmer. Surely, the GoI is keen to
usher in major ‘reforms’ to ‘please’ the investor community, to divert
attention from the policy blunders committed in the recent past.
The
major issues are not being discussed on merit. Suffice it to say that all the
arguments in favour of FDI in retail are hollow, fallacious, motivated and
false. First, international experience has shown that the big-ticket foreign
chains have deep pockets—their main weapons are elimination of competition
through predatory pricing, and then enjoying a near-monopoly position in the
urban/small-town markets. Surveys in many countries have established the
pattern that within five years of entry, these agencies cause large-scale
employment loss and distress to agricultural producers. This is a serious
matter in India
where employment generation is likely to be the most severe problem in the
coming decades.
The
other pet theory is that they will create much-needed infrastructure in rural
areas. This is utterly false—indeed the exact opposite is likely to happen. The
fundamental weaknesses in our rural areas include lack of basic
infrastructure—roads, connectivity and power. The retail chains will not invest
in these areas; on the contrary, the existing infrastructure will be exploited
and degraded by 24-wheel trucks. Cold-chain/warehousing is being talked about
as a key area for investment. Indeed, if basic infrastructure is available,
this is one of the easiest things to achieve; Indians have full capability, the
costs are insignificant. There is also glib talk of ‘new marketing
technology’—Indians are among the best marketers in the world.
All
our reform processes till now have not touched rural India, except perhaps telecom. The
banking, foreign exchange and other infrastructure reforms by and large have
left our farmers alone. This is not to argue that reform is not required in
agriculture. Indeed, this is imperative now and not having done it so far is a
measure of the failure of our governance. But it is naïve to expect that
foreign companies, whose only interest is to earn profit, will transform our
rural areas. FDI in retail is not the solution—it will stir up and trigger new
economic forces in our rural areas which will benefit the enlightened farmer, but
destroy the weak and the wretched, who forms the majority. The latter needs to
be uplifted, seriously and most urgently. FDI in retail will destroy the ‘weak’
in the current juncture, unleashing forces which may not be containable. What
centuries of foreign invasion could not achieve in breaking up India, may be
achieved through FDI in retail. While this prognosis may be deemed
Cassandra-like, it will be foolhardy to take a risk without weighing the
consequences. We need to bring in our retailers and farmers (who have no
organised voice today) for a detailed dialogue, before we embark on this
measure. The issue is not one of political jugglery to cobble a majority to
push through the measure—it is far reaching, and needs mature deliberation,
before undue, potentially catastrophic risks are taken in haste.
Clearly,
there is need for massive new international investments in India,
particularly in the core infrastructure sectors. But FDI in retail is not the
answer. Perhaps Mir Jafar and Jai Singh really thought that they were doing
great service to the country by bringing in ‘foreign rule’—there is no shortage
of such policy-makers today.
Subramanian
is a former Cabinet Secretary.
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