It's all icing, no cake
We are in the midst of one of the most elevating debates ever in the media on a serious subject - FDI in retail sector. However, the focus appears a bit misplaced. It looks like this is that tempting hour in history when the whole mankind is about to board a bus to unheard-of future prosperity and bliss, but Punjab is somehow refusing to take a seat kept vacant for it by the generous 'FDI bus' owners! Harcharan Bains@ HT DEBATE: Can Punjab afford to miss the FDI bus?chandigarh Updated: Sep 30, 2012 11:33 IST
We are in the midst of one of the most elevating debates ever in the media on a serious subject - FDI in retail sector. However, the focus appears a bit misplaced. It looks like this is that tempting hour in history when the whole mankind is about to board a bus to unheard-of future prosperity and bliss, but Punjab is somehow refusing to take a seat kept vacant for it by the generous 'FDI bus' owners!
Consider this argument: 'FDI stores will pay the farmer more for his produce and charge less from the consumer for the same product - and that too by not displacing the existing network of traders.' As a matter of fact, we are told, the new dispensation will create more jobs in retail stores than the middlemen and traders it would eliminate! Surely, you cannot buy costlier and sell cheaper, and that too by bringing more people in the retail chain than there are now - except if FDI stores are in the business of providing an alternative to the Welfare State! Are they?
A key question has not even been addressed: How will the highly capital-intensive, organised retail sector suddenly provide more jobs than the existing labour-intensive system?
Ditto for the creation of the back-end infrastructure. We are told that the new traders will not indulge in greedily making profit on low-quality goods, but would create infrastructure to encourage high-quality products, especially perishable products, by creating cold chains and new linkages. Should the back-end infrastructure not precede rather than follow retail?
The whole debate is also blurred because it refuses to touch the dynamics of retailing before jumping to its presumed final benefits. Typically, the crucial question on the very need for FDI in a sector that is already flourishing with domestic investment and local talent is conveniently bypassed.
Every country needs and encourages FDI, but no country does so by overlooking sectors where it needs FDI the most. Is retail really the sector where we need most help? And in India's and, even more specifically, in Punjab's case, do we need FDI in retail trading so much as we need it in national capacity-building in production and manufacturing sectors?
A core question is: Do we need foreign players for our markets or do we need foreign markets for our players? Do we need to import know-how and export goods, or the other way around?
Considering that FDI puts a bare 30% cap on selling local products, it seems the government of India believes that we need to import goods. And all this is being done in the name of providing markets for our local produce. Any sound economic planning would seek capital - foreign or domestic - for strengthening the base of our economy, rather than for dressing up its windows for shopping. It's a case of the icing taking precedence over the cake.
Also, it would be instructive to have a look at the international experience of roughly comparative economies with the FDI. China - unlike the Soviet glasnost and perestroika -- did not plunge headlong into FDI, but prepared a roadmap to strengthen its local base. Then, too, it allowed FDI in roughly three stages: gradual and extremely restricted opening; promotion and preferential treatment to 'select areas; and, and above all, prioritising. So, FDI was allowed in energy, transportation, telecommunications, and high-technology industries. In agriculture, before retailing, they opted for FDI in technology and research. That's the way to go.
Here, we are allowing FDI in retail and presuming that foreign players would invest in farm technology and research in their own interest! Pious hope, but not entirely market-driven!
A study suggests that 'the spectacular performance of China in attracting large amount of FDI could be attributed to its proactive FDI policy comprising setting up of SEZs particularly exports catering to the international market…'
Interestingly, America had a taste of this sound Chinese policy on FDI when the Central Kingdom virtually swamped the US of A with mass-produced cheap ware, sending the American economy into a tailspin from which it still hasn't recovered. All that America had done was what we are about to do: open retail sector to FDI. Can we withstand what America couldn't?
And then, India's, especially Punjab's, position in agriculture is drastically different from the 'commune'-based Chinese farm scenario. With landholdings fragmented and small farmers dependent on regular and immediate incomes for survival, how many of them would actually be in a position to negotiate prices with big business houses that can afford to 'dump' things merely to destroy competition?
The UPA's thinking seems to focus on the presumption that the FDI store-owners would sell only the products offered to them by the domestic producers/farmers. Why would they?
Why would the store-owner, for instance, buy maize from the Indian farmer if he can get it cheaper from across the border? Or flowers from Holland, which even with transport costs, would be cheaper in bulk and better in quality than those available in the local market?
Under the present policy, an FDI retailer is free to import 70% of his goods for sale from abroad. Looked at from the other angle, that means only 30% of the goods on display on FDI stores would be from local producers. Are we heading towards an era when a local farmer would walk past his rotting potatoes only to see superior potatoes from abroad on sale at a high-end FDI store? Is this merely a morbid nightmare?
And we are not unfamiliar with market strategies of these big players who would even buy costlier from foreign markets and sell cheaper here for some time to kill local competition, and make the local producer entirely dependent on them in the long run. Surely, the local farmer would not be able to demand a minimum support price (MSP) on any of his products?
The Shiromani Akali Dal (SAD) is not opposing FDI in retail simply because it dislikes the term. Sukhbir Singh Badal's thinking seems to be in line with that of eminent farm economists who 'want definite caveats such as increased sourcing of farm produces locally by the retailers'.
He also advocates investment in heavier doses of back-end infrastructure, farm mechanisation and post-harvest technologies to make the local farmer globally competitive before forcing him to compete on the world stage. The union government's thinking is based merely on the 'hope' that these issues would automatically be addressed by the FDI retailer. Why would he do so, if he can get the same product cheaper elsewhere?