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Mainstream, VOL L, No 41, September 29, 2012

FDI in Retail: A Low-down on the Falsehood over an Exclusionary Policy

Tuesday 2 October 2012, by Kamal Nayan Kabra


Intense and motivated propaganda, powerful national and international diplomatic pressure, verging on pure and simple arms-twisting of the kind the Third World has been facing for decades by means of the active role of the econo-mic hit-men in the policy establishments, huge cash-back lobbying, both in India and abroad, blunt attempts to bamboozle the persons holding key positions in India’s policy establishment through a combination of hissing and kissing have been deployed to make India open up her retail trade for the entry of the global MNCs. Let it not be forgotten that these MNCs com-mand funds that are comparable to the total resources of many Third World countries taken together. Their political clout has been demons-trated in the manner in which the rulers have mustered the political courage or bravado to fling open the doors of the economy to a few dozen mega-MNCs. It was done overriding the vehement domestic civil society and intra-coali-tion opposition as also of the formidable force of nearly the entire political establishment sans some of the ruling parties. Even then the com-bined number of the ruling coalition MPs falls short of a simple majority in the Lok Sabha. Obviously it is a gamble for the ruling Congress party with its declared intention that if it has to go it would go down fighting. And for what ‘a great cause’ is what leaves one astonished!

The outcome, however, would be determined in the coming polls and not in managing the parliamentary majority on the floor. We have seen instances when the neo-liberal minority regimes managed floor majority by a resorting to all kinds of dubious and surely undemocratic and unethical means. With both the major poli-tical combinations committed to market and MNC-friendly ideology, there has been little opposition to the entire package of neo-liberal policies so far. But lately with the pigeons coming home to roost as a result of the fiasco of these policies (references to the 1990 situation by the PM are an indication) and, as we see below, owing to the inherent nature of extension of this process to the most decentra-lised people’s livelihood sector, a powerful wave of determined opposition has become a logical and natural response. What adds additional credibility to the opposition to FDI in retail, besides the non-existence of any credible case for it, is the evaporating legitimacy of the regime itself as it is embroiled in maha-corruption cases and the epidemic of crony equations as the deciding factor in the policy processes gripping it.

The issue of opening up or inviting FDI did not have its origins in any perceived or demons-trated shortcomings of the existing daily shopping facilities provided by our micro-mercantile entrepreneurs in their lakhs and millions catering to the Indian housewives at the micro-household and locality levels. Nor has the retail trade as a class and as a sector as a whole been accused of any macro-level social mischief (for example, the way our corporate sector and political class have been the target of the people’s and scholars’ critiques for the degeneration of our polity and economy) for causing trouble or anti-social behaviour. True, one has come across occasional attempts to make a scapegoat of the retailers for incessant inflation, which in reality is caused essentially by wrong public policies and the government’s inability to rein in the big black money-financed hoarders, including the already present corporate-controlled chain-stores and food-proce-ssing units and certain MNC grain merchants and the FCI which buy large quantities of grains and release them when the prices shoot up. Lack of storage facilities close to villages and accessible to the poor cultivators is another factor that helps hoarders control the stocks.

Thus the FDI route to increase the price paid to the farmers for their output is totally miscon-ceived. Monopolies and oligopolies have never led to better realisation by the small and weak multitude of producers. Unless the farmers are enabled to stagger the sale of their harvest, they cannot get a better price; nor has the state been able to ensure the minimum support price (MSP) to the farmers. Moreover, owing to the cash crunch and the scare over rising subsidies, inability to organise larger storage facilities and corruption in the FCI are additional factors that block better prices to the farmers. The hope that the MNC retailers would do what the state has not been able to do and still obtain a high rate of return on their investment is a misconceived notion.

Similarly adulteration is a menace owing to the uncontrollable greedy business-mafia classes and rampant corruption-ridden administration of the Essential Commodities Act and other laws.

The small retailers, the front-end entity marke-ting the output of the producers, operate basi-cally as a perfectly competitive market, a major specimen of the textbook model. Day in and day out it is the tribe of market apologists and theo-rists keen on completing the exogenous marketi-sation agenda in India, who have become the advocates of the global oligopolies and thus go against their own professed market model. Adam Smith must be turning in his grave at the way those who justify their creed in his name are out and out advocates of turning our retail market into an oligopolistic market. More so as the proposed model of multinationalised retail trade is to allow import of as much as 70 per cent of their merchandise from external supply chains.

A country, suffering from chronic and growing trade and current account deficit and forced to rely upon capital account inflows enticed by sacrificing a good measure of regard for the popular and long term national interests, or to put it in the way the government leaders put it, to be able to prevent a recurrence of the 1990 kind of situation (that is, just in order to prevent the neo-liberal balloon from bursting), has perplexingly taken recourse to a measure that would add to the forex shortage. More so as the total annual turnover of these MNC retailers, financed by the Indian bank credit and other supply credits, would be huge compared to the initial capital inflow in forex. Increasingly growing leakages of foreign exchange through illegitimate but well-established channels and regular annual repatriation of the profits made on the huge Indian turnover would make the initial forex contribution pale into insignificance. The well-perfected devices like consultancy fees, trade-mark fees, managerial fees and mis-pricing and the deals with related firms and so on would also intensify the forex drain by these companies. It may over time turn the net forex gain negative and add to our worries, nay nightmare, of the recurrence of 1990.

In any case the 1990 liquidity, confidence and solvency crisis also was a result of our own excessive dependence on foreign debt, similarly for pushing up the growth of the economy and using growth as the engine of development and employment generation. It is forgotten that this kind of a thing has never worked anywhere leading to an inclusive society—see the 0.1 per cent versus the rest Occupy Wall Street camp-aigns in the models of development our mimetic internationalists are trying to sale as a panacea. In fact, even the initial inflow may well be more for acquiring existing but faltering Indian organised retail companies, with many of them having been put up for clearance sale. Thus the net additional fixed capital formation may remain a fraction of the total and the rest would take the character of portfolio investment. In any case the foreign capital part of our total investment is so tiny a proportion of our total capital formation, that the addition of one more avenue would hardly suffice to meet our ever rising forex shortage which is essentially a result of one-sided opening up. As the JPC on Harshad Mehta scam concluded, liberalisation without adequate safeguards and internal capa-city building by the state to monitor, regulate and discipline the market players was our undoing then and remains so even now. This is reflected in the form of the daily exposure of scandals after scandals. We have not set up the capacity to control the tax havens routes, money laundering and benami investment practices and round-tripping of the black wealth. FDI in such a framework cannot lead to national viability on the external account. The close fusion of top business-political-men operating the markets and the political-businessmen doing politics as the most lucrative money-spinning venture ensure the predominance of the negative outcomes of the policies we adopt.

Thus justification for letting the MNCs invade our retail space has also been couched in some abstract terms. For example, one has seen some talk of modernisation of this sector in some Planning Commission documents which never went beyond a bland assertion; though it has also been mentioned that this decision has prevented an un-rated credit-rating agency from downgrading India’s credit-rating! Anyone familiar with the modernisation discourse, at least after the 1960s, knows how it is but a thin end of the wedge of mindless, inappropriate and disequalising, environmentally destructive/polluting and volatility-causing imitation of a decadent civilisation suffering from the malaise of affluenza. India, or rather the overwhelming majority of her people, is already suffering the exclusionary ill-effects of this modernisation-based growth. As a result of the imposition of such a consumerism-enhancing pattern of heavy power-guzzling, culturally polluting pattern of external capital-dominated retail trade, some seriously dangerous socio-psychological forces and tendencies are going to enhance their presence. It seems to be an invitation to replace communities by a crowd of shoppers. They would be engaged in the race for keeping up with the Joneses. Their life has one meaning only insofar as they are able to crowd the shopping plazas, spending most precious hours of their daily life in the virtual world of knick-knacks, blazing neon lights yearning for highly and falsely advertised wares of dubious utility. Let us examine some of the misleading and preposterous claims about how milk and honey would start flowing once the ajar doors to foreign retailers are fully thrown open.

One may recall how the days of plentiful and cheap power supply were marketed following the Indo-US nuclear deal! What we obtained is acute power shortage, coal-related massive scan-dals and the rising price of irregularly supplied electricity. Similarly we are reminded of the boon computerisation has been belying initial opposition. What is ignored in this misplaced comparison is the critical difference between mega-foreign chain stores and computers. As against a major technological advance represen-ted by computers, the chain stores are but a commercial-organisational innovation, replacing one set of small and local dealers by thousands and lakhs of times larger corporate entities coming to the land in search of super-high profits no longer available in their own home countries. The backward and forward linkages of the mega-foreign stores are, unlike computer-isation, negative and would surely worsen the socio-economic balance in India. It may also be noted that the elctricity requirements of a single big store may well exceed the total made avail-able to an entire block. Thus FDI in retail would intensify our electricity shortage.

It may be mentioned as an irony lost on the FDI-happy policy-makers that by making a case for the yet to arrive FDI retailers they are admi-tting in so many words and so loudly from the rooftops that insofar as ensuring remunerative prices and prompt and no-wastage supply of fresh vegetables and foods are concerned, they have wasted over six-and-a-half decades and are now constrained to call upon the mega-MNCs to come and oblige them for correcting their incorrigible inadequacies and failures!

It might be noticed that a claim is advanced that instead of loss of business and livelihood by the existing mass of over four crore traders and hawkers (own account traders, often with-out premises and, as the Fifth Economic Census shows, with little access to any institutional finance), the country would become flush with more plentiful supply of employment opportu-nities. We have seen FDI inflows cumulatively of the order of billions of dollars during the last two decades: these inflows have been rather plentiful to please the optimists as well. Thus the worsening employment scenario (creation of just about 30 lakh jobs during the period in our organised sector with so much of formal secor investment) and famine of work opportu-nities would continue to deteriorate and the frustrated small shopkeepers too in course of time would join the expanding army of job-seekers. The small, informal shops, owned and operated largely with family labour, run in large numbers by the relatively worse-off social groups, are a sort of our self-provisioned social safety-valve that allows people to face adversity and hope for and prepare for better days.

The survival, livelihood and social security segments of our economy, such as the petty traders and friendly and understanding street pedlars, fill the huge and persistent inadequa-cies of the state-pampered and propped up cor-porate and corruption-ridden public and private sector-led growth. These high-tech, well-managed modernised leading sectors—in terms of power, wealth and access to state resources (over five lakh crore rupees of tax-expenditure on them each year does not remind anyone that money does not grow on trees, otherwise our globalisation-happy internationalists would have imported such money-growing trees too!)—provide livelihood to about eight per cent of the economy and heavily exploit a larger number by way of hiring them as casual workers. The latter do the same work that the small number of formally employed ones do but are paid paltry remuneration (so much regard for the laws of the host country and humane labour relations). This formal sector socially and economically excludes about 92 per cent of our 52 crore strong workforce.

How logic and facts are disregarded by the advocates of the retail MNCs can be seen from the argument that they would not push out any retailer. If they are coming here to do business and not simply bail out a regime suffering nightmares about the recurrence of 1990, surely they would take hold of a slice of the existing market from the extant traders and also a part of the increased market of a growing economy. In their absence this market would not surely have remained without suppliers nor the growth of the market would have been slower. But any-one can see that whatever slice of the market the MNCs take away is ipso facto a reduction in the slice going to the existing retailers. Thus the share that goes to the new FDI stores is ipso facto a loss of the existing and expanding potential market of our millions upon millions of traders. It is the small and medium traders who have made this sector contribute about 15 per cent of our GDP and enable over eight crore persons to take care of their families. If such an effect is not called displacement and disruption, what else can it be called? Next to agriculture, it is our trade that meets the livelihoods of our peo-ple. The suggestion that the competition provided by FDI to the domestic players in any particular field would enhance efficiency simply closes its eyes to the sky-high differences in capabilities and command over resources, access to high quality managers and so on. The corporatised retailers would become junior partners with under 49 per cent shares and the question of competition simply does not arise. These worthies are for FDI simply because the new external entrants are likely to provide them with a lucrative escape route to salvage their hurried mega-investments in retailing.

This makes one ask: would not the FDI stores themselves employ a good number of persons with so much of investment, each one would have to bring in at least $ 500 million? The capacity of these stores with high capital and equipment intensity, stocking a large quantity of imported goods of well-known brands, long-term supply agreements with large producers with highly capital and import-intensive methods of production, automatic handling equipments and even contract farming favouring farm mechanisation are indications of the low level of additional employment likely to be provided by the FDI companies. Their experience the world over shows that they have a rather limited job potential, especially in comparison to the unbelievably large joblessness India has. Surely it could not become any match for the massive backlog and unfinished agenda of creating adequate and constantly available livelihoods to the annual addition of over 10 million new livelihood-seekers.

Hence it would be naive to expect these stores to absorb all those who would like to leave retailing with thinning turnover and diversion of the well-heeled customers in the cities (in which the per capita incomes are nearly three times those found in our villages and are the hubs for wealth and habitat for the wealthy). Would not even the rural rich like to patronise these ‘firang’ stores with all their glitte-ring exterior and interior, the shopping pleasure of the foreign-looking stores without going abroad especially for satisfying the craze for imported goods? In any case the powerful advertising blitzkering and false discounts would indeed be attractions for the deep-pocket shoppers that would lead to loss of livelihoods for the poor without any alternative to fall back upon and hence their continued pauperisation and exclusion.

As a result of the processes and consequences likely to flow from the FDI entry, as discussed above, the most undesirable outcome would be the tremendous spurt in the growth of multi-faceted inequalities. The manner and extent to which the neo-liberalisers have entered into a conspiracy of silence on this most unhealthy outcome speaks volumes for the real social character and sympathies of these advocates of FDI and unregulated markets. This most obvious and non-contestable outcome has become the least talked about one! We already have a highly skewed economy which is becoming worse on this score by the policies that expand opportunities such as created by daily shopping for the deployment of huge accumulations by a tiny minority at the cost of reduced ones for the persons of small means and their labour power. This would be accentuated by the import of the merchandise and long-term supply agree-ments for our big business. The fact that 30 per cent sourcing from the local SMEs sector has been imposed as a condition can hardly be a solace as the remaining slice is large enough to undo the flimsy gains, especially owing to the big companies starting small and medium enterprises, as has been happening for long. That concentrated wealth and purchasing power creates a pattern of demand that is inimical to labour-intensive techniques of production along with the goods which are weak on labour absorption has been the curse of our industrial growth till now, can be seen in the low labour absorption so far in our industries. It is clear that the slogan of inclusive growth, rather neo-liberal inclusive growth, has been devised mainly in order to hide the ugly face of worse-ning inequalities and social exclusion as the hallmarks of the neo-liberal policies.

There Are Alternatives

Socially desirable policies always take a back seat when the policy-initiatives and ownership are exported. Actually the externally lobbied options block the search for domestic alterna-tives, particularly those in which the central concern is that of the voiceless rural, small-town inhabitants and poor masses, be they engaged in farming, trade, traditional crafts and other personal services. Here below we present the outline of an alternative that addresses nearly all the concerns sought to be caused and heightened by the invitation to the FDI to occupy the retail space of Indian markets.

We need not elaborate how the farmers are forced by their circumstances to sell their harvest over a very short period following the harvest. This bunched-sale becomes the basis for poor returns the farmers are able to get and also at the same time how the control over food-stocks passes into the hands of agencies whose interest demands and creates rising food prices. It is also the undoing of the public agencies set up for procurement as they are short of finances, physical facilities, farmer-friendly officers, mini-mum levels of integrity and lack of purchasing power in the hands of the food-insecure families forced to suffer the pangs of hunger and go under and malnourished. They all join hands to capitalise on the dire need of the poor farmers for immediate cash as also safe custody of their produce for the remaining months after the harvest.

We suggest that each village panchayat should be enabled by whatever inputs and support they need to supplement their MNREGA labour supply and village land to quickly put up a network of godowns in and around their villages all over the country. Farmers can go to these and deposit their surplus produce against a pucca warehouse receipt issued at the MSP prices minus the rental for storage. These fully negotiable warehouse receipts should be treated as guaranteed security against which the banks and co-operatives can lend up to, say, 90 per cent of the price of the foodgrains stored there.

These stocks can be sold by the farmers and procured by the pubic agencies as and when they need cash and the others need the food-stocks after meeting their repayment obligations to the banks. The availability of grains in a decentralised manner all over and the supply from them to the PDS outlets would save on transport cost, cross-movements, reduce and even stop pilferage while in transit and assure regular supply to the PDS at a lower cost than is the case presently. These godowns would effectively reduce wastage. Even for vegetables and fruits cold storages can be set up under the block panchayats. Of course, measures to supplement supplies from the surplus areas as and when required through the existing food-management arrangements would have to be continued but on a reduced scale owing to the decentralisation we have suggested. The idea is simply to demonstrate that many alternatives can be prepared if the foreign capital and source obsession does not close/vitiate our vision. The value of these arrangements for reducing food subsidy and keeping prices under control cannot be gainsaid. Of course such arrangements would have a positive impact on food prices all over, including the urban centres.

These measures need to be supplemented by reserving retail trade for the small sector and giving them support of public shop spaces (say, by constructing shopping complexes under the block panchayats and renting them out at reaso-nable rates, bank credit against the security of stocks and mandatory stocking of standardised BIS-certified goods. This is not the place to go into the nitty-gritty of the alternatives. Simply a broad idea has been presented to indicate that there are superior and desirable options to the FDI route.

In this context let us see how far the conditions imposed on the FDI inflows in retail can answer the rural and popular concerns. The enforcement of the conditions after their entry seems to have slim chances of becoming a rea-lity and answer the rural and popular concerns. In any case so many regular back-end urban activities with little relationship with the farm sector have been listed as a part of the 50 per cent investment spread over three years that their implemen-tation would remain pro-blematic in the absence of an empowered watch-dog agency, which is something hardly likely to be acceptable to the FDI giants. In any case these conditions are loosely framed and are a matter of self-certifi-cation and without any monitoring and supervisory arrangements. They seem to be a token to weaken the opposition to the entry of FDI in retail and are not capable of answering our concerns or likely to make any difference to the rural scene.

In sum, the tricks played for fulfilling the agenda of foreign capital and our neo-liberal obsession are a serious threat to the right to life and development and, instead of moving towards its realisation, are going to turn the clock back-wards.

To claim that the growth of the economy, irrespective of its composition, sharing of the costs and benefits and long-term social and environmental impact, is the key to inclusive growth is neither theoretically defensible nor empirically verified. Growth as a result of socially desirable outcomes, even though slow (not necessarily), is thousand times superior to a growth that disempowers, disequalises and robs people of their livelihoods in order to be an instrument of pandering to the insatiable greed of a few. The FDI entry into our retail trade is nothing but an instrument of this kind of negative growth.

The author is a Professor, Malcolm S. Adiseshiah Chair, Economic Development and Decentralised Planning, Institute of Social Sciences, New Delhi.

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