FDI in retail: Govt in tight corner, Parliament paralysed again

The most important argument by the government in favour of FDI in retail trade is that it will lead to deceleration of inflation in the country. It is surprising to note that the government headed by a leading economist is pinning its hope on FDI in retail for containing inflation, especially food inflation. Historically there are no evidences to show that foreign investment, especially FDI, has acted as an enabling factor for controlling inflationary pressure. On the contrary, there are ample evidences of foreign investment causing inflationary pressure in many countries, including India. Moreover, the government has not explained how and in what manner FDI in retail trade will lead to fall in prices; and how long the fall in prices, if any, will be sustained. Is there any guarantee that prices will be stabilised and thereby the real income of the people will increase on a long-term basis? Therefore, the contention that it be possible to bring down inflation by allowing FDI in retail has no credibility and validity. In fact, the FDI proposal was initiated long before food inflation became an issue. Thus, unmistakably it has been pushed through because of considerations other than rising prices. 2) The argument that the primary producers are expected to get better prices is unfounded. Experiences show that nowhere in the world have the farmers who supply goods to big retail chains benefitted. It is difficult to understand how they would benefit, when the big retail players like Wal-Mart look for the cheapest possible suppliers. To begin with, they might offer better remuneration, but that would be only until they are able to eliminate traditional channels of supply. Ultimately the farmers will have no choice but to sell to big players -- at any price. This has been the experience of all countries which allowed FDI in multi-brand retailing. A detailed examination of information available on the impact of allowing mutlti-brand global biggies including Wal-Mart, Carrefour and Tesco into countries such as Indonesia, Thailand, Brazil, Canada, Germany, etc., indicates that they will ultimately eliminate competition and will indulge in monopolistic practices. 3) The government's contention that FDI in multi-brand retail will also create 10 million jobs is unfounded and unrealistic. For argument sake, if the decision to allow FDI in multi-band retail become a reality and four or five big retail giants decide to open stores and each one of them set up 20 shops on the average in each of the 53 million plus cities, on the whole 5300 shops will be opened by them. If each of the retail shop employ on the average about 50 persons directly, the 5300 shops put together will employ only 0.26 million persons. And equal number of persons might be employed indirectly. On the whole, around 0.52 million persons will be able to get employment at the best scenario. 4) The retail trade in India is largely unorganised (informal).It accounts for over 40 million jobs and 97 per cent of the total trade. It is informal, with credit traditionally extended on trust and based on an intricate web of relationships. Hundreds of thousands of people who earn their livelihood from the millions of existing retail outlets may be put out of business by the retail biggies. As employment generation in the formal sector in India has been very sluggish in recent years, many unemployed youth all over the country have taken to self-employment, particularly in the retail sector. These informal retail sector establishments are successful, to a certain extent, only in the big cities. In the smaller towns and villages retail units have a precarious existence. These tiny entrepreneurs find it difficult to earn enough income from their business to meet even the bare necessities of life. So, many of them migrate to big cities in search better pastures. But only a small proportion of them become successful after migrating to the city. The tiny entrepreneurs suffer from various bottlenecks, particularly lack of finance. Since the scheduled commercial banks do not come forward to render financial assistance, they are forced to borrow at high rates of interest from private lenders and run the business and earn a meager income. But, most of the tiny units/vendors have regular customers, including upper-middle class and rich people. If FDI is allowed in the retail sector, it will wipe out many of the smaller Indian retailer chains and the small retailers like the small provision shops and the push cart vendors, who thrive largely in the residential areas around upper-middle class and richer sections of the society. These tiny entrepreneurs will not only lose their source of income and livelihood, but also their honour and prestige. 5) Moreover, the majority of consumers, who buy essentials from their neighbourhood stores on credit and pay bills on a monthly basis, will also suffer with the disruption of the traditional system of neighbourhood retail stores. Therefore, we demand the Congress-led UPA government to reverses the ill-advised move to allow 51 % FDI in retail trade.                                      Dr. C. Murukadas,Hindustan Times, Nov 28, 2011