Under 3 promises, 2 politics & 1 policy of FDI in retail
The full-page advertisements in the papers on Sunday justifying the government's well-conceived but badly-timed opening up of retail to foreign direct investment on Thursday has three promises for the rest of us. Gautam Chikermane writes.columns Updated: Nov 29, 2011 21:55 IST
The full-page advertisements in the papers on Sunday justifying the government's well-conceived but badly-timed opening up of retail to foreign direct investment on Thursday has three promises for the rest of us - farmers will get higher prices for their produce, consumers will pay lower prices to buy those products, and workers will benefit from more jobs. If all three play out as planned in the spreadsheets of Udyog Bhawan that houses the ministry of commerce, all will be well. But past experience doesn't offer much scope for optimism.
Take farmers. Are they getting a better remuneration for their crop because of organised retailers already in the market? No. And there are two points that policymakers need to address urgently. One, none of the organised retailers have bothered to go beyond a 100 km radius of Delhi and Mumbai. Within that radius too, it is the tyranny of the mandi middlemen that works.
In the hills of Uttarakhand, for instance, I have seen farmers leave their peaches on the road to be picked up by the aadtis (mandi middlemen) at their convenience. In the absence of the farmer, the aadti decides how good the peach is (larger peaches fetch more) and what price to pay the farmer. In an unacceptable power asymmetry, the farmer has no negotiating power - he can either take it or let it rot. The real reform to benefit the farmer lies in the dismantling of the present opaque aadti-based, aadti-run system and replacing it with another that's transparent and genuinely in farmers' interest, not merely political talk.
As a consumer in Delhi, I have bitten into those sweet peaches of Uttarakhand and benefited from prices that are lower than the corner shop or the vendor outside my gate. But here's the difference. When I pay Rs 60 for a kg of peaches, the going rate in the Haldwani mandi is Rs 19 a kg. Remove all expenses of transport, packaging and commission, the farmer gets Rs 11 a kg, if lucky. Which means the farmer pays Rs 42 for every Rs 100 worth of his peaches to reach Haldwani, a price that's beyond the justification of any economics. To put it in perspective, as consumers, we pay 5.5 times what the farmer gets to eat that peach.
On the jobs front, 10 million jobs through retail is a possibility. The question is what sort of jobs. As you walk the streets of Sitla in Uttarakhand, you will see many boys of farmer families not working on their farms but building houses or roads. The NREGA has raised rural wages that is giving farmers an option beyond their farms or to the landless the choice of growing infrastructure rather than crops.
On the non-agricultural front, the argument is the entry of Wal-Mart or a Carrefour will create more businesses and hence jobs. Before we jump to a conclusion either way, two questions. One, how will the government ensure that sourcing is done from small and medium enterprises (SMEs)? And two, how will it ensure that the SMEs are not a front for a larger enterprise?
Around these three promises, there are two politics playing out. The first is from three powerful women leaders. "Some people might support 51% FDI in retail but I do not support it," Congress ally, West Bengal chief minister and Trinamool Congress leader Mamata Banerjee said.
"MNCs will monopolise market, exploit farmers and consumers...40 million people will be uprooted and thrown out of business," Tamil Nadu chief minister and AIADMK chief J Jayalalithaa said. "As the move (to allow FDI in retail) is aimed at benefiting Rahul Gandhi's foreign cronies, any reluctance on UPA's part to roll back the proposal would only strengthen my resolve to take some tough decisions," Uttar Pradesh (UP) chief minister and Bahujan Samajh Party (BSP) chief Mayawati said. These are important as they hold the key that will unlock the door to companies setting up businesses in these three important states. If they say 'no', that's the end of all reforms.
The second politics is at the Centre. Here, the oppositions are two. One, the issue. "We continue to oppose FDI in retail, it will badly affect agriculture," Communist Party of India (Marxist) leader Sitaram Yechury said. "Two Standing Committees have given reports against the FDI in retail sector. But still the government went ahead with FDI. It must be withdrawn," BJP leader SS Ahluwalia said. These must be debated, though I feel with more than 10 years of discussions behind us, it's time to take a decision. The discussion now should move towards execution of policy through strong governance.
And two - ironically one where greater noise is being generated - timing. Or why the issue was not discussed in Parliament. "It (opening FDI in retail) is contempt of the House. They should have discussed this issue in Parliament and taken a decision in accordance with the sense of the House," Leader of the Opposition in Lok Sabha Sushma Swaraj said. "When Parliament is in session, why was this decision taken," Yechury said.
Finally, it would do us good to know that organised retail is an inevitable part of economic development. But what I like about the policy is that the government has looked beyond merely the management of big corporate money while designing this reform. From banking and insurance to airlines and telecom, all discussion around economic reforms has so far has pivoted around increasing FDI, period. For the first time, the government has put conditions that attempt to look beyond shareholding and direct attention to issues such as catalysing half the investment in infrastructure or sourcing 30% of the produce from SMEs. Whether this works out or not is secondary - politics and governance will decide the success of these moves - but a start has been made and it's one in the right direction.