This is an article which refutes strongly the reasons advocated by the
Government of India for FDI in retail.
In the continuing struggle of Notes versus Votes, presently notes have
triumphed and after some time the votes will also be taken care of. Sad.
Allowing Retail FDI In India: Lies, Lies And Damn Lies By Devinder Sharma
30 November, 2011
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.
