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Mainstream, Vol XLVIII, No 41, October 2, 2010

Post Master’s Office for FDI in Retail

Wednesday 6 October 2010, by Kamal Nayan Kabra


Just a few weeks ago, the Economist (London) flashed a story highly critical of the GoI and its leaders for their lacklustre performance. Among the major steps it advocated for putting the governance process back on rails were a slew of measures to complete the agenda of what is misleadingly described as reforms. Among them a star place was assigned to the permission to global retail majors to invade the Indian retail market space. This, as is well known, is a segment occupied still largely by the small men who often take to this easy entry activity owing to the tightening shortage of viable livelihood opportunities, especially in the organised sector. Now, shortly after the Economist story we see our financial press headlines that “Foreign Investment in multi-brand retail gets PMO push”. What might have happened, it seems, is that the earlier report of the move by the nodal Ministry to set up a panel (as reported in The Hindu “to give further impetus to the government’s efforts to open up the sector in near future”) to evaluate the response to the discussion on FDI in retail trade has been given up in order to expedite the implementation of a long-standing demand of foreign capital. After all, good press for the regime and its leaders in the West is a USP of the present regime. How responsive indeed!

It is no secret that on the last occasion during the UPA-I Government this move was snubbed by the Party which responded to the public outcry against the move, but this time over they seem to believe that this last hurdle too is likely to be crossed successfully. Does the Economist story have anything to do with the anticipated change in favour of FDI n retail? This is something we would perhaps never come to know. What is known, however, is that the recent permission for single-brand retailing to the FDI companies and cash-and-carry stores to the global retailing majors seem have whetted the appetite for the Indian market.

Meanwhile there are reports that the companies that have set up shops for sales to only registered wholesale customers are merrily issuing cards to anyone who cares to obtain it and are happily breaching the conditions under which they were permitted to enter the Indian market. Under the garb of cash-and-carry wholesale outlets, virtual retailing seems to be going on. Actually the display and physical arrangements of trading space for these cash-and-carry stores are just like the normal retail outlets while for wholesale trade there is hardly any need for such display and physical arrangement of the shops. It may also be noted that not much investment has been attracted so far as the hopes are high that ultimately the neo-liberals, keen to complete the agenda of ‘reforms’, would open the gates fully before the innings of the present generation of liberalisers is over. One may recall how the advice, similar to that given by the London Economist, was also given to the Indian policy establishment by James Lamont in the Financial Times on February 4, 2010.

The fact of the matter is that the position of the neighbourhood retailer still carries a lot of weight both politically in terms of votes and for spreading a favourable word among the innumerable shoppers who pay daily visits to their friendly street-corner shops and economically for discharging the societal function of equipping people with the wherewithal for survival. Actually, despite the big-ticket forays by nearly all the major local corporate houses and their organised lobbying through an all-India forum with its periodic meetings, their presence has not made them a darling of small-time local shoppers in most parts of India as the presence of these big stores is still largely an urban and mega-city phenomenon. In fact, most of the Indian companies that entered retail fared badly for themselves financially, as shown by the data published by the Centre for Monitoring Indian Economy and quoted by the GoI’s Discussion Paper on the question of FDI in retail. Thus it is understandable that the Indian corporate lobbies’ response to the Discussion Paper was to demand a process of hastening slowly with the initial move to place a 49-51 per cent cap on FDI in retail. It seems the investment the companies have made is more for selling the retail ventures to the foreign companies trying to enter the Indian retail space and make good gains in the process of sale to or merger with these new retailing outfits by the foreign companies.

It may be noted that the paper was released as a part of the drama of public debate and a process of wide consultation for a decision that has already been made and was thus enacted for winning some kind of democratic legitimacy for a patently anti-people undemocratic step of forcing extremely uneven competition on some eight crore people at the margins of the economy who have no option but to continue in their present small occupation. After all, far more critical areas have been opened up for the FDI companies without such rigmarole. As a part of such management of public opposition and just anger, a number of so-called reseach studies too were carried out in the run-up to the entry of the giant FDI companies. For example, how touching has been the concern for the small retailers by a so-called think-tank (virtually a lobby arm of the foreign capital in India) to suggest that in order to equip the retailers threatened by big foreign capital the banks should make credit available to the retailers liberally in order to enable them to face the competition of the likes of Wall Mart and so on. A report in The Times of India from Chandigarh on August 9 pointed to reports that under the guise of a cash-and-carry store the Wall Mart and its Indian collaborator were retailing under the garb of wholesale. Is this not in line with the widely prevalent practice of the global Transnational Corporations to blatantly flout the laws of the host country governments?

THE reported decision to rush through the FDI in retail trade is a powerful pointer to the character of the present policy establishment that it refuses to see the writing on the wall insofar as it is clear beyond a shadow of doubt that it is a step that would inevitably either displace millions and millions from their source of livelihood or at least cause a reduction in the turnover of these shopkeepers without a remote chance of making good the unavoidable loss on account of the customers who would be attracted by the FDI companies and thus reduce annual turnover of the small traditional shop-keepers. The very basis of the earnings of the small retailers is the trade margin multiplied by the turnover as their operating costs are very low and they hardly have any option to explore more attractive alternative avenues. In fact, it is well known that as turnover dips the margins go up and thus the consumers who would still have to fall back upon the traditional retailers would have to face higher prices because the retailers have to make the two ends meet even after the entry of foreign mega companies and lower turnover left for them. It may be noted that big organised retailing by the foreign companies does not in any sense represent technological advancement, much less appropriate technological innovation or an improvement that is possible only when FDI is permitted or that the Indian public are dying for the so-called modernised shopping pleasure. After all, similar marketing practices have been and can be adopted by the small retailers if the normal economic pressures make such demands. In fact there is ample evidence that the modern small retailers too are making their stores a swanky, neat and clean lace that gives the buyer a lot of convenience with the invaluable advantage of personal touch.

As far as foreign capital in retailing goes, one may recall that this decision was sought to be steamrolled under UPA-I but was blocked by a variety of forces, both within the ruling block and outside. However, it has never disappeared from the wish-list of either the global giants eyeing the vast and growing Indian retail market. Then from among the remaining goodies the Indian neo-liberal establishment is yearning to deliver to its foreign corporate constituents, retailing seems to rank high. After the publication of the Discussion Paper there was a strong nationwide grassroot opposition to this move with some all-India protest action as well. If the case of FDI is so strong let the political process organise any show of strength in favour of this move and show popular endorsement of it and move out of the hush-hush seminars and conferences organised by the corporate lobby arms. It is hoped that the reports of the response evoked by the opponents of the opening-up of retail for big foreign capital, especially by the small traders, must have reached the official and political quarters. One hopes they are alive to the people’s concerns, particularly when the proposal has no merit and everything negative about it.

It has to be realised that we are not in the period when crores of acres of land of millions of farmers were taken over for a pittance for so-called public purposes and many times more people, many times more vulnerable and excluded people, were deprived of their livelihood and a permanent source of livelihood, basis for citizenship and community linkages and bonds for a long time not a leaf stirred in protest during that period of growth induced somnambulence. It is only relatively recently that public outrage against such atrocious measures to deprive the common citizens of their occupation and property for the greed and super profits of a few elites has come out in the open in a strident manner to wake up the growth-worshippers to the hard reality of people’s rights and well-being. The UPA and other ruling combines are still at the stage of making well-meaning noises and hard action to protect the rural and tribal people’s land rights, except for the bold decision of the UP Government in this respect. It is time that in the interest of millions of small and peripatetic traders and street hawkers similar concern is expressed and mobilisation oganised and given concrete shape before the FDI lobby succeeds in snatching away their sole means of livelihood without even the pretence of any compensation.

The decision to impose the mega foreign companies on the Indian scene may be welcomed by a tiny minority of highly de-Indianised middle income and upper income groups for the flimsy shopping pleasure of the type the Westerns are believed to be enjoying, but even they would have to pay heavily for their cocoon mentality, myopia and entanglement in consumerism. Whatever turnover the mega foreign companies win is a straight forward reduction in the livelihood sources of millions and millions of common men. In the face of such anti-community and anti-common person measures, no amount of money and muscle power and carefully crafted publicity campaign for the youth leadership can convince the people who lose their basic wherewithal that the government means well by them, MNREGA or no MNREGA.

The main point is that the proposed opening up of the retail trade segment (one seems to have forgotten that the wholesale segment was opened up for foreign capital right in the early phase of the present policy regime in the early 1990s) is something for which there is absolutely no logical and practical justification from the Indian point of view. In fact the Discussion Paper showed how totally meaningless and contrived artificial grounds were advanced in support of throwing open the Indian retail to the foreign companies who are facing tough times in their home and other traditional locations. Thus a number of spurious grounds were invented for the hard sale of a totally flimsy idea, such as the hoped-for huge investment in back-room services for the farm produce (the products that would hardly exceed 15 to 20 per cent of the trade volume these big foreign retailers would ever attain and is so uncertain that some wings of the government want to make such investments a precondition for granting permission to them to enter the Indian market) in order to reduce wastage of the farm produce and give a better part of the consumers’ rupee to the farmers! As if the back-end services, if at all they materialise, would be affordable by the highly beleaguered farmers whose plight during the neo-liberalisation era has broken all earlier records.

It is true that the retail trade as it exists is no paragon of virtue and does not hesitate to take advantage of any situation that emerges. But which segment of business and well-heeled sections of our society do not do that very kind of action? The answer is not to make their already none-too-happy position in socio-economic terns worse still and punish them by throwing them on the street. One must remedy the ills and shortcomings of our retail but throwing them to the mighty wolves is no solution. One may wonder before the pressure for changing the map of Indian retailing by the entry of foreign capital surfaced, why was no concern shown for the problems the retailers create for the consumers?

Moreover, a country with nearly 40 per cent rate of investment does not have to pay such a huge prices loaded on the small men and women for such a notional and flimsy ‘gain’. The way we have neglected encouraging priority investments for storing foodgrains at decentralised locations and by enticing domestic trading capital into an associated activity (potentially a really purposeful PPP model but that does not interest the corporate entities) of stocking and safe upkeep of the anti-emergency food stocks makes a mockery of the claims of seriousness about food security. It may be recalled that the practice of huge buffer and operational stocks, piling mainly on public account, was started way back in the mid-1960s but we still allow precious food stocks to rot and become a bonanza for the rats (including the two-legged ones). It clearly shows how the blind pursuit of pushing up the overall rate of investment and thereby the rate of growth of GDP seem to have become the mistaken guiding stars of our policies. It is such elementary failures that are now being used for completing the agenda of foreign capital to enter the Indian retail market. What is shocking is the unimaginable social and economic costs that such moves would impose on the ordinary traders and her/his customers, that is, the iconic common man.

WHAT comes out in bold relief is that any agency that is pushing for the entry of the foreign retail majors shows scant consideration for equity or social justice or the misallocation of our scarce energy resources owing to the huge draft on electricity inherent in big retail stores is doing tremendous dis-service to our national interests. The turnover that the FDI companies would gain would be a direct loss to the existing small retailer and one does not have to be an accomplished economist to discover that. Similarly the tremendous capital and energy-intensity of mega retail stores would be an unnecessary diversion of resources from many high priority areas. In fact the quest for massive lowest cost sourcing that is typical of the big retailers operating on the global scale would deal a further blow to the Indian small scale industries which would be in no position to execute such massive orders. Thus the imports of manufactured goods would increase by leaps and bounds, further adding to the second wave of de-industrialisation already under way as our manufactured goods imports exceed the domestic production of manufactured goods by nearly 40 per cent in recent times.

The loss of employment thus caused would further aggravate our painful lack of livelihood opportunities for the army of young people who form the largest age-group of the Indian population. It seems coming on top of unprecedented reduction in the purchasing power of the Rupee on account of inflation(the Rupee is now about worth 25 paise only compared to its 1993-94 value) such massive displacement, partial or full, as entailed by the entry of foreign retail majors would surely aggravate the people’s disenchantment with UPA-II. One wonders whether the executive wing of the Congress is becoming increasingly reconciled to such changes as might follow such anti-people policies.

In a world that has been globalised (made more inter-connected and inter-dependent but according to the asymmetric world economic and geo-political power equations), it is clear the policy-making processes are no longer insulated from external influence and the writ of the stronger ones runs. But there are nations
and leaders, as the current US leadership shows, who decide to forget their theoretical and ideological preferences and even global commitments and try to checkmate external competition that costs their middle income groups, the largest social entity in rich countries, the ability to pay their monthly bills or force them into a situation of losing their houses and joblessness. They, in these cases, decide to forget the neo-liberal noises and go back to crass nationalist protectionist and beggar thy neighbour policies. The USA under Obama is doing just a that, more particularly vis-a-vis India.

Why is it it that we in India care more for our image abroad (like the way we have done by going to absurd lengths in hosting the Commonwealth Games) rather than promote hard palpable interests of our vulnerable sections at least. It is sad indeed to be left with just a post master’s office for delivering whatever is received for making prompt delivery.

A prominent economist, Dr Kabra is a former Professor (now retired), Indian Institute of Public Administration, New Delhi.

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