FDI in Retails: My Worries

I don’t know if the present political rumblings about the issue of FDI in multi-brand retail that had kept the government worrying and all the TV channels engaged for quite some time now will end soon.

I would have loved to be supporting FDI in multi-brands retail sector. I don’t think that it will mean much of a loss to the small retailers or the kirana shops But I have some apprehensions as some other distinguished persons are also having.

I will like to have any system in place including the FDi that must improve the earnings of the farmers of the low self- life produce such as vegetables and fruits which is very poor today, while the middlemen are flourishing with almost no value addition from them.

As reported, according to the research of Professors Jagdish Bhagwati and Rajeev Kohli, ‘Indian farmers earn typically a third — instead of the international norm of two-thirds — of the final price of their produce because of the greater waste and less efficient distribution.” Further, according to the 40 years long research of Shreekant Sambrani, ‘the farm-gate vegetable price is only about 20 per cent of the final consumer or 25 per cent of the semi-wholesale price.’

I shall be the happiest when I get assured that with FDI reform the farmers get significantly benefited. It has not come even after the entry of organized retail companies owned by Ambani, Goenka and even Mother Dairy. For example let us look at the price the consumers pay for the wheat flour (Atta) of Ashirbaad brand distributed by ITC Ltd. The MRP for 5 kgs is Rs 145- it means Rs 29 for a kilogram. How much does the ITC pay to the farmers? It must not be anything more than Rs 1299 a quintal or 100 kgs.

My second concern is about the Chinese invasion through these global retail MNCs. MNCs entering in FDI in multi-brands must not promote the import of cheap Chinese goods of low technology and household use. US may afford it but not India that must have its own manufacturing sector to cater to these low priority items.

Nobel Laureate Joseph Stiglitz , the Columbia University professor, one of the few economists who predicted the financial crisis of 2008, and who also credited with starting the “1% versus 99%” debate, was recently in India also had the same fear: “The advocates of FDI have probably put too much emphasis on it. India is in a different position than a small, developing country. You have a large pool of entrepreneurs. They are globally savvy, have access to global technology and they have a lot of wealth. So, if there were large returns to large-scale supermarkets, the domestic industry would have supplied it. Not having access to FDI is not an impediment in India. Wal-Mart is able to procure many goods at lower prices than others because of the huge buying power they have and will use that power to bring Chinese goods to India to displace Indian production. So the worry is not so much about the displacement of the small retail store but displacement further down the supply chain.”

Why shouldn’t Wal-Mart and other MNCs enter India retail markets with Indian products and produces only? Did they not start in the same way at the initial stage of the business, as China had not emerged by that time as the global factory? Why shouldn’t they develop Indian source as they did from China?

Further, while thinking about the employment creation by these MNCs in retails, I got reminded of my sons comment in 2005 while I was trying to study some case studies on Wal-Mart. They said the same thing what American intellectuals had expressed and what Arun Jaitley repeated: India will become a nation of ‘salesboys and salesgirls’.

One more point relates to their investment by construction of cold storages, warehouses and other facilities to cut down the wastages in the areas where the vegetables and fruits are grown. I don’t think it to come up without the availability of grid electricity. Running a cold storage based on diesel generators will hardly be viable…

Can the government of India ensure against the maladies in working of the MNCs in retails in India?

If the answer is yes, please go ahead.

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