FDI in retail would achieve what foreign invasion could not

Many newspapers recently carried a picture of Commerce Minister Anand Sharma meeting the chairman of Carrefour (a major international retail chain), with the minister giving an assurance that the Government of India would try to push through FDI in retail (multi-brand) early, probably in June 2012. To the puzzled reader, some questions need clarification. Does our Cabinet minister represent India’s interests, or does he work for the association of international retail chains—or is he just an “honest” broker arranging a “deal” between India and international business? In 2009, the proposal for FDI in retail was thoroughly discussed in the Public Accounts Committee of the Parliament which clearly recommended that this should not be implemented in the near future; the attempt by the government to push it through in February 2012 was met with severe opposition.

Both retail and agriculture are state subjects; however, the matter is dealt with cavalierly in the Department of Industrial Promotion and Policy. The subject relates to rural India, and on the specious plea that it’s a matter of FDI, this is dealt with in the industry ministry—how ironical, the tail wagging the dog! FDI is apparently a mantra to cover all our domestic failures.

Who are the champions for this policy? Montek Singh Ahluwalia, whose familiarity with the Indian farmer is from a height of 36,000 ft, while jetting into far-off countries in the national interest—or shall we say, from the Olympian heights of neo-Keynsian economic theory as applied to Western economies? The other proponent is Kaushik Basu, the chief economic adviser, who knows all about the US economy, but has probably never met a real-life Indian farmer. Surely, the GoI is keen to usher in major ‘reforms’ to ‘please’ the investor community, to divert attention from the policy blunders committed in the recent past.

The major issues are not being discussed on merit. Suffice it to say that all the arguments in favour of FDI in retail are hollow, fallacious, motivated and false. First, international experience has shown that the big-ticket foreign chains have deep pockets—their main weapons are elimination of competition through predatory pricing, and then enjoying a near-monopoly position in the urban/small-town markets. Surveys in many countries have established the pattern that within five years of entry, these agencies cause large-scale employment loss and distress to agricultural producers. This is a serious matter in India where employment generation is likely to be the most severe problem in the coming decades.

The other pet theory is that they will create much-needed infrastructure in rural areas. This is utterly false—indeed the exact opposite is likely to happen. The fundamental weaknesses in our rural areas include lack of basic infrastructure—roads, connectivity and power. The retail chains will not invest in these areas; on the contrary, the existing infrastructure will be exploited and degraded by 24-wheel trucks. Cold-chain/warehousing is being talked about as a key area for investment. Indeed, if basic infrastructure is available, this is one of the easiest things to achieve; Indians have full capability, the costs are insignificant. There is also glib talk of ‘new marketing technology’—Indians are among the best marketers in the world.

All our reform processes till now have not touched rural India, except perhaps telecom. The banking, foreign exchange and other infrastructure reforms by and large have left our farmers alone. This is not to argue that reform is not required in agriculture. Indeed, this is imperative now and not having done it so far is a measure of the failure of our governance. But it is naïve to expect that foreign companies, whose only interest is to earn profit, will transform our rural areas. FDI in retail is not the solution—it will stir up and trigger new economic forces in our rural areas which will benefit the enlightened farmer, but destroy the weak and the wretched, who forms the majority. The latter needs to be uplifted, seriously and most urgently. FDI in retail will destroy the ‘weak’ in the current juncture, unleashing forces which may not be containable. What centuries of foreign invasion could not achieve in breaking up India, may be achieved through FDI in retail. While this prognosis may be deemed Cassandra-like, it will be foolhardy to take a risk without weighing the consequences. We need to bring in our retailers and farmers (who have no organised voice today) for a detailed dialogue, before we embark on this measure. The issue is not one of political jugglery to cobble a majority to push through the measure—it is far reaching, and needs mature deliberation, before undue, potentially catastrophic risks are taken in haste. 

Clearly, there is need for massive new international investments in India, particularly in the core infrastructure sectors. But FDI in retail is not the answer. Perhaps Mir Jafar and Jai Singh really thought that they were doing great service to the country by bringing in ‘foreign rule’—there is no shortage of such policy-makers today.

(Subramanian is a former Cabinet Secretary.

E-mail the writer at tsrsubramanian@gmail.com.

The opinions expressed in this column are the author’s own)