Events & Issues

New Delhi, 17 December 2012 

Walmart Lobbying

FDI DEBATE FAR FROM OVER

By Dhurjati Mukherjee

India’s tryst with FDI in multi-brand retail may well have been sealed, but the debate is far from over. With reports of Walmart having spent $25 million (Rs 125 crores) since 2008 on its lobbying activities, including issues related to “enhanced market access for investment in India” and the Government bowing to the Opposition’s demand for a judicial probe, the whole issue of opening up multi-brand retail so hurriedly and with many stakeholders against it, has got a fresh impetus. Whether the Government likes it or not, its arguments in favour require further scrutiny.  

Reforms are, no doubt, necessary at this juncture but there are more important areas in education, housing, water and sanitation, insurance etc. where the focus should have been. Moreover, questions have been raised by experts, and quite justifiably, whether reforms in the retail sector would solve the deep and intractable problems of the agricultural sector and help the poor as also the small farmers and small traders.

The problems in agriculture are well known. Around 53-55 per cent of the population is engaged in agriculture and around 68 to 70 per cent still live in villages. The earnings of the small farmers have been dwindling because of truncated land holdings, inadequate water availability, lack of irrigation facilities, soil pollution and other related factors. There are 92 million small and marginal farmers with less than 2 hectares of land, whose productivity has been declining or is stagnant.

There is no guarantee that the multinationals will help these small farmers by building storage facilities, help form cooperatives or solving the problems of irrigation as there is no clear directive of the Government in this regard. It may be mentioned here that cold storage is an area in which FDI was allowed but none has come so far. Hundreds of crores of fruits and vegetables are lost every year due to lack of refrigerated cold chains and these are urgently needed. Only now there are expectations that when FDI in multi-brand retail has been allowed, that some cold storages may come up.

The retail giants have come to India to cash in on the ever-growing retail sector which is worth $ 500 billion and expected to reach one trillion dollars by the year 2020. The food sector retail accounts for 70 per cent of Indian retail and organized retail’s share is around 5 per cent. Share in clothing, apparel, home supplies retail has been growing between 20 and 30 per cent per annum.

More than 44 million people are involved in retail. It is not known from where the multinationals will source their products and the pricing factor will be the deciding factor. Experts believe that giant retailers are likely to source their goods from China, which is decidedly the biggest and cheapest manufacturer in the world and has been successfully replicating products in the most cost-effective manner.

Thus, it is quite obvious that craftspeople, weavers, embroiders and the like, whose main work is to supply products for the local retail market, could be rendered jobless. In fact, the informal sector will be badly hit as the giant retailers would like to source their products mostly from the organized sector.  Even if 30 to 40 per cent is sourced from Indian suppliers, 60 to 70 per cent will come from outside the country.

In big metro cities, we are all familiar with the small retailers selling their products on the pavements or in the make shift shops at various places in the colonies. If the big retailers can offer the same price – even for ‘seconds’, the consumer would be attracted to these big shops and these retailers would be severely affected.

It is not known whether the Government has taken into consideration all these factors, specially the nature and functioning of the informal sector, and whether any judicious and economic analysis of the benefits of FDI in retain has been carried out. Moreover, one can easily question when there are so many multi-brand retail outlets, what is the necessity for foreign ones?

On the question of opening up employment opportunities, it is well-known that these foreign retail outlets have very few sales girls/boys as everything is done by machines. It is thus hard to believe that multi-brand retail will create 10 million jobs in the country, as is being forecast, even considering that slowly and steadily retail outlets are set up in middle level towns.  

Some analysts have been talking of better technology, management and the need for a modern, formal, tax paying sector. But they fail to realize that this tax-paying sector will finish off small traders and their families. One can easily question whether we have been capable of providing basic necessities such as power, drinking water, and even health facilities to the villagers that we talk of modernism. Does our health sector in the villages have modern technology and proper management?

There are also a section of urban economists and intellectuals who are talking about the need for professionalism in the retail sector. One may question here how professionalized are we in various sectors that we need to professionalize the retail sector on priority basis. Does this not mean eliminating the informal sector which serves the economically weaker sections and the middle income groups, and which forms a mind-boggling over 70 per cent of the work force in the country?

It is but common sense that the giant multinationals are coming here to encash on the retail market and the consideration is purely for profit, as is the thumb rule for any business. Either this has not been understood by the Government or it is willfully not interested to understand or simply accept this. In the name of reforms or modernization, the Government should have treaded carefully and taken along all stakeholders in the true sense of the word, and not gone by the numbers it managed.   

 More importantly, it should have given top priority to what is in the best interest of the poor and weaker sections and not the MNCs. To say that it is up to the States to decide whether to allow FDI in multi-brand retail or not is no justification for going ahead with it. While the judicial probe will not go into the merits of the decision, one hopes it does a thorough job and unravels the incentives behind it. --INFA

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