'Reform' at nation's cost

Indeed ironical. On the same Friday (September 14) Prime Minister Manmohan Singh rolled out the red carpet for Walmart, New York City, America’s largest, shut Walmart out. Again ironically the very Friday the UPA government handed the FDI bouquet to Walmart and lobbyists assured that small retailers are safe, Atlanticcities, a web-newspaper from the stable of the famous Foreign Affairs magazine, carried a devastating headline news: ‘Radiating Death: How Walmart Displaces Nearby Small Businesses’. Weeks ago, on June 30, over 10,000 people, shouting “Walmart = Poverty”, marched through Los Angeles, America’s richest city, against Walmart stores. On June 1, hundreds protested in Washington DC against Walmart. “Say-No-To-Walmart” is an ongoing movement all over the United States.

Why focus on Walmart? It is world’s most powerful retailer; it has ‘spent’ a lot to get the UPA nod for FDI in retail. Even as lobbyists here celebrate Walmart, it has become untouchable where it was born, in the US. Why is Walmart so hated in the US? “Walmart will devastate local businesses,” say New York trade unions and local communities. The mass protesters at Los Angeles too cited the same reason: “small business will close down”; and screamed “Walmart has no heart and no morals. We don’t want you in Los Angeles.” Politicians in the US, however, seem to be like the UPA’s cousins. In March last, the Los Angeles City Council had put a moratorium on big retailers, but, Walmart got building permits just a day before! Recall the 2G permit cut off date?

Yet, the UPA certifies Walmart and its competitor cousins as compassionate to small retailers and farmers. It promises they will employ millions here. The evidence in the US is to the contrary. According to the Atlanticcities article, Walmart entered in Austin neighbourhood of Chicago in 2006. And by 2008, some 82 of the 306 small shops had closed down. The Economic Development Quarterly study found the closure rate around Walmart location at 35-60 per cent. Walmart radiated closure of 20 per cent of drug stores every mile from its stores; and 15 per cent home furnishing, 18 per cent hardware and 25 per cent toy stores. Studies in the US nail the UPA lie that FDI in retail will not hurt small shops. On job creation, a latest report (January 2010) titled ‘Walmart’s Economic Footprint’ prepared for the New York City Public Advocate says that Walmart kills three local jobs for every two it creates. So the job creation argument too is a lie. The third justification that the ‘farmers will get better prices’ is a clever lie, and so needs a closer look. It suppresses the vital fact that Walmart does not buy, or pay, over the counter. It buys the nation’s next harvest in futures market and fixes farm prices. It also imports cheap goods — from China — and destroy local production like it has done in the US. Take the first case, with the recent experience of the US and the world.

Rice prices in the US and world markets shot up by three times in April 2008 as compared to January 2007. It was then that the US President George W Bush made the funny remark that prices had gone up because the newly prosperous Indians had begun eating more! What was the truth? The USA Today (April 23, 2008) and CNN (April 24, 2008) quoted the California Rice Commission and USA Rice Federation as denying shortage of rice and saying there was enough stock. Why then were prices rising? It was because, said the CNN, Sams Club (Walmart’s wholesale division), holding huge stocks, was pushing up the prices. US farmers accused speculators and futures market for the high prices. It was not farmers who traded in farm futures. Investment funds accounted for 40 per cent of wheat futures trade in the US in January 2008, which rose to 60 per cent by April. Wheat futures that was $4 a bushel in early 2007, rose to $14 per bushel in April 2008. The US farmer, who had sold his harvest in futures market, lost and Walmart, which had bought the futures, gained. Even if some farmers had some stocks Walmart, which had stocked at cheaper prices, refused to buy at higher prices, pointed out the media.

Look at it this way. If the US farmers get remunerative prices from Walmart why does the US, with two per cent farming population, grant annual farming subsidies of $20 billion and the European Union, for its five per cent farming population, gift a subsidy of $74.5 billion annually. The experience of the US and West nail all three justifications for the FDI in retail as lies. Foreign direct investment in retail will incrementally hit the 12 million family retailers in India; it will not help farmers; it will cut jobs. Even more dangerous, it will destroy the rural food security.

Two of UPA government’s reports — of the Planning Commission Working Group on Agriculture for the XI Plan (2007-2012), and the 19th report of the Standing Committee of Parliament on Food (2006-2007) to Parliament — themselves nail the lie that Walmart will link farm-gate to its gate and make Indian farmers rich. The reports describe the farm-gate thus: a total of 59 million of farming families (32 crore rural people) live on subsistence farms of five acres or less (while US farms are 250 times and the Australian, 4000 times, larger); about 60 per cent of food products is barter-exchanged and consumed by farmers and farm labour, and as seed and animal feeds within villages; only 40 per cent move out of villages for commercial marketing. Even if a small part of the large local needs is drawn by an efficient Walmart from the farm gate to its gate, that will mean urban pricing in rural areas that will destroy the food security of two-thirds of Indians in villages.

The Montek Ahluwalia-led Planning Commission report laments that ‘the marginal farmers are certainly going to stay for a long time’ and ‘what happens to them has implications for the entire economy.” However, the small farmer is no waste. He is more efficient. His productivity a third higher, than in large farms. Small farmers use one-third of the total cultivated area and produce 41 per cent of nation’s food and 110 million tonnes of milk. If large ones replace them, the nation’s food production will fall by 7 per cent. The reformers do not know that recent global researches have confirmed that economy of scale that applies to industries does not apply to agriculture, where small ones are more efficient than large ones.

QED: The ‘reformers’ betray illiteracy; clamour for fame as reformers; secure it at nation’s cost. Reformers or deformers?

S Gurumurthy is a well-known commentator on political and economic issues.

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