ANALYSIS ON FDI IN INDIA by Devinder Sharma.

 HERE IS A BRILLIANT ANALYSIS ON FDI IN INDIA.

 

 

Allowing Retail FDI In India: Lies, Lies And Damn Lies

By Devinder Sharma

Ground Reality

At a time when Prime Minister Manmohan Singh is refusing to rollback the decision to open the retail sector to foreign direct investment saying it will benefit our country, the American President Obama thinks otherwise. In a tweet on Saturday (Nov 26), President Obama wrote: “support small businesses in your community by shopping at your favourite local store.”

While President Obama is talking of what is good for America, Manmohan Singh too is adamant on protecting American interests. It is primarily for this reason that Manmohan Singh’s assertion that retail FDI will benefit our country and ‘improve rural infrastructure, reduce wastage of agricultural produce and enable our farmers to get better prices for their crops’ is not borne on facts. In the midst of the rhetorical contests in the TV studios, the real facts have been sacrificed for the sake of political partisanship.

A lot has been said and written about the virtues of allowing FDI in retail into India.

Let me make an attempt to answer some of the bigger claims that Commerce Minister Anand Sharma as well as the Prime Minister have repeatedly made. Frankly, their arguments seem to be driven more by political expediency rather than any economic understanding, and that is more worrying. It only shows how economic facts can be twisted, tailored and manipulated to justify the political agenda of the ruling party. There can be nothing more damaging for the future of a country.

First, the biggest argument in favour of multi-brand retail is that it will create 10 million jobs by the year 2010. There is no justification for this claim. In the United States, Wal-Mart dominates big retail. It has a turnover of US $ 400 billion, and employs 2.1 million people. Ironically, the Indian retail sector too has a turnover of US $ 400 billion, but has 12 million shops and employs 44 million people. It is the Indian retail which is a much-bigger employer, and any effort to allow retail FDI will only destroy millions of livelihoods.

Take the case of England. The two big retail giants are Tesco and Sainsbury. Both had committed to create 24,000 jobs between them, in the past two years. A British government enquiry found out that instead of creating any additional job, these two big retail companies had actually thrown out 850 people from existing jobs. The big retail units which failed to create jobs in their own countries cannot be expected to create additional employment in India.

Second, Anand Sharma says that retail FDI will provide 30 per cent more income to farmers. There can be no bigger lie than this. In the US, for instance, if Wal-Mart was able to enhance farm incomes there was no reason why the America government would dole out a massive subsidy of US $ 307 billion under the US Farm Bill 2008, which basically makes a budgetary subsidy provision for the next five years. Most of these subsidies are clubbed in the category of Green Box under the WTO. And as per an UNCTAD-India study, if the Green Box subsidies are withdrawn, American agriculture faces a collapse.

Agriculture in America is therefore sustained with agricultural subsidies. In OECD countries, a group comprising 30 riches countries, the situation is no different. A latest 2010 report states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. Despite this, every minute one farmer quits agriculture in Europe. This is happening at a time when farmer’s incomes are dwindling. In France alone, farmer’s income has fallen by 39 per cent in 2009.

Third, big retail helps remove the middlemen and therefore provides a better price to farmers. Again, it is a flawed argument and is not borne on any evidence. Studies show that in America in the first half of 20th century, for every dollar worth of produce a farmer sold, 70 cents was his income. In 2005, farmer’s income had fallen to 4 per cent. This is despite the presence of Wal-mart and other big retailers in America.

In other words, the middlemen are not squeezed out as is the general understanding but in reality their number actually increases. A new battery of middlemen – quality controller, standardiser, certification agency, processor, packaging consultant etc – now operate under the same retail hub and have been walking away with farmer’s income. Moreover, due to the sheer size and buying power, big retail generally depresses producer prices. In England, Tesco for example paid 4 per cent less to producers. Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce.

Fourth, retail FDI will source 30 per cent from the small and medium enterprises and therefore will benefit Indian manufacturers. This is an afterthought, especially after a section of the media highlighted the discrepancy. Even though Anand Sharma says 30 per cent products would be sources from within the country, the facts remains that under the WTO agreements, India cannot limit the big retail from outsourcing its products from anywhere in the world. This is against the WTO norms, wherein no member country can apply any investment restriction that is inconsistent with the provisions of Article III or Article XI of GATT 1994.

Using the WTO provisions, multi-brand retail will flood the Indian market with cheaper Chinese manufactured goods thereby wiping out the domestic SME sector. At the same time, the ‘Indian Stamp’ on multi-brand retail that Anand Sharma claims will have at least 60 per cent investment on ‘back end’ systems is also not based on facts. As per the definition of ‘back-end’, anything that is not ‘front-end’ becomes ‘back-end’ and has to be self-certified. Which means even the expenses on the corporate headquarter becomes ‘back-end’ investment. In any case, 51 per cent FDI in cold storages etc is already provided and yet no investment has come.

Let us be very clear, big retail is not coming to India to provide a network of food storage silos and cold chains.

Fifth, more importantly, in an eye-opening study entitled “Wal-Mart and Poverty”, Pennsylvania State University in the United States has clearly brought out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up. This is something that the government is not talking about but should ring an alarm bell for a country which is reeling in poverty, hunger and squalor.

Devinder Sharma is a food and agriculture policy analyst. His writings focus on the links between biotechnology, intellectual property rights, food trade and poverty. His blog is Ground Reality