Ever since the union cabinet has announced its decision to allow 51% FDI in multi-brand retail, on the one hand, certain sections of the political class have levelled serious charges as if the drawbacks far outweigh the perceived advantages, while at the same time, there is a muted celebration for it is a step in the right direction. Let us look at the criticisms first.
The principal arguments against FDI in retail are that (i) small retailers will be adversely affected, (ii) it will not help small farmers, and that (iii) it will adversely impact consumers due to 'cartelisation' and predatory pricing by big multi-brand retailers. These allegations have been studied by leading national institutions in the past few years, and have been addressed by the government during consultations with state governments and political parties prior to the decision.
As regards the fear for small retailers, domestic multi-brand retail outlets have been operating in cities in India for some time, and there is no evidence that kirana stores have been crowded out due to their presence. On the contrary, the global experience indicates that in countries such as Brazil and Indonesia, 50-70% of trade in groceries, fruits and vegetables continues to take place through small neighbourhood stores, even when FDI was allowed. Even in European countries and Japan, the small store has flourished despite the presence of big retail outlets.
This is one of the reasons why, I believe, Shri Arun Shourie, breaking ranks with his party (BJP), recently welcomed the government's decision.
As for FDI retail not actually helping small farmers, one of the leading agricultural scientists of our country, Dr MS Swaminathan, favours FDI in retail as it could help solve problems in post-harvest production, such as storage, transportation and marketing. He notes that today, post-harvest losses are as much as 25-30% of production. Dr MS Swaminathan has, however, asked states to devise their own safeguards while allowing FDI in retail to protect the interests of their farmers. 'The Indian agriculture sector is crying for investment. Any investment from home or abroad is welcome. It all depends on how you administer the investments,' he told the media recently at Hyderabad.
The present system of agriculture markets is not helping the cause of farmers, making it imperative for the government to introduce agricultural reforms on priority. This is particularly true for small farmers, who are exploited by middlemen. While it is equally true that small and ignorant farmers run the risk of being exploited by agents of big retailers, domestic and foreign, a more equitable system of farmer-centric safeguards can be developed by state governments.
Here, I must remind people like S. Sukhbir Singh Badal, the deputy chief minister of Punjab, not to indulge in doublespeak. On the one hand, he writes a letter to the union commerce minister offering complete support considering benefits that accrue to the farmers, while on the other hand, he says that the Centre should build a consensus and address the fears of farmers. It is a dangerous example of running with the hare and hunting with the hound.
Why did the Punjab government support the FDI in retail then and is opposing it now? Is the deputy CM not aware that reform of the agrarian sector, if not held hostage to opportunistic politics, would benefit the farmers and consumers alike? It is ironic that the Shiromani Akali Dal (SAD), which swears by federalism, is now fighting shy of taking a call on the FDI issue on which the Centre has left it to the states to decide whether they want multi-national retailers or not.
What did the Punjab Farmers' Commission in its report in 2006 say? Did the commission not underscore the dire need for greater investments into the rural economy so as to benefit small and marginal farmers with landholdings of up to five acres? The report highlights the need for diversifying towards high-value crops by Punjab's 3 lakh small farmers, which could only come about through better marketing and higher prices for fruits and vegetables.
Just look at the statement of S. Ajmer Singh Lakhowal, the president of the Bhartiya Kissan Union (BKU) and chairman of the Punjab Mandi Board, who feels: 'Punjab should not miss the opportunity provided by FDI in retail as the state lacks post-harvest facilities and a food processing industry. Nearly 35% of what Punjab produces goes waste. If farmers can get better prices and consumers cheaper food, why should an agrarian state like Punjab not avail the opportunity?"
What further emphasis do we need to stress a fundamental point?
Now, the third criticism, that the FDI in retail will harm consumers due to predatory pricing. This charge could apply to big domestic retailers as well. If the government does not exercise sufficient vigilance, both domestic and foreign retailers may adopt questionable and unfair pricing practices, or form anti-competition cartels. The Competition Commission of India, which was established a few years ago, has taken action against questionable practices. Undoubtedly, any such abuse of dominance indulged in by big retailers will certainly attract the attention of the commission, thanks to the ever-vigilant media in our country.
To conclude, let us not be afraid of foreigners or their capital. Fear does not solve the structural economic and social problems we face. India has successfully faced and overcome similar challenges earlier. Are Indian restaurateurs or consumers afraid anymore of McDonald's or KFC? They co-exist with our neighbourhood bhelpuri-wallahs, and small restaurants which mushroom all over our cities. Not a week passes in our metros where a new Indian restaurant does not open. Isn't Indian cuisine getting increasingly popular worldwide? Isn't the produce of our farmers reaching dining tables of Indian restaurants across the world?
The challenge is to seek greater business opportunities to link the farm and the fork, in a manner that is equitable, fair, just and remunerative to consumers as well as farmers. With the elimination of the middlemen, food inflation can also be brought under control. Our economy needs huge investments in infrastructure that includes retailing, cold storages and supply chains. That can only be brought about by welcoming FDI in retail, through global firms who possess the necessary experience, skills and technology.