Monday, 19 December 2011

Simon, Come back!

On October 30, 1928, a group of protesters led by Lala Lajpat Rai waved black flags and shouted 'Simon, Go Back' to protest the arrival of the Simon Commission. What started then still seems to go on as we blindly shout on the top of our voices to brush aside heavy money investors from the west. FDI in retail has been a hugely debated topic on the news and print media for more than a fortnight now and the age old attitude of sending all Simons back isn't perceived too well in the current scheme of things.

Why don't we have Harrods in Delhi? A simple question for a four year old who asked her dad while they came out of a shopping center in London. Though the question might seem simple, the answer to it is a tough nut for the dad to crack as he gapes for reasons. In my opinion, FDI in retail makes a lot of sense especially with a 51% limit to overseas stake. Here are the reasons:

1. With FDI in retail, we are attempting to organize and put in order one of the most unorganized and deeply corrupted sectors in the country.

2. Against a production of 180 million mt a year of fruits, vegetables and perishables, India has a capacity of storing only 23.6 million mt in 5,386 cold storages across the country. With overseas investment, we are moving towards a regime of optimal cold storage and superior logistic capability.

3. India has 1.2 billion consumers, 600 million farmers and 5 million traders. Should we save the penny for the 1.2 billion consumers and improve lifestyles of 600 million farmers by affecting the margins of 5 million traders? YES

4. Cauliflower is sold at the mandi Rs 5. a kg. After travelling a few miles to the vendor, the price goes up by 400% to Rs 25. per kg and what the farmer gets from the sale at the mandi is a meagre Rs. 3. There is something wrong with this system and it has to be addressed at any cost.

5. Naysayers say that FDI capital in multi brand retail has a tendency to multiply itself and could lead to an unthinkable application of 'capital for profit' and in the process deepen the gap between the rich and the poor. But how flawed is that argument? The government promises to keep an eye on the prices and hypermarkets would be introduced in only those cities which have a population of more than 10 lakhs. As of now only 53 cities qualify the aforementioned criteria. With a rural population of 70%, the 53 cities (a fraction of the remaining 30%) cannot contribute as much to a deep divide.

6. The proposal states – 51% stake in multi-brand retail with a minimum investment of $100 million of which about 50% has to be spent on back-end infrastructure.That translates to a good amount of job generation in unprecedented quarters especially in the supply chain arena. 

With so much to speak for the introduction of this long awaited reform, there is only one thing that is worrisome in my opinion. With the amount of capital and the power of foreign investors, it is possible that the ultimate aim of the game is defeated. The hypermarkets could hypothetically beat all competition from small traders and reach a stage of monopoly. With that they could fix prices for all commodities as they wish and book higher profits as they establish themselves in the long run. But as I have already mentioned, even that possibility arises from a hypothetical standpoint. More importantly, as per the proposal, the government promises to keep an eye on the prices.

What stops the reform from being implemented when it has the capability of addressing one of the biggest problems of our economy viz. food wastage? The reason is two pronged : Politics and Corruption. Opposition parties want to make a clear political issue out of this debate in an attempt to derail a government that is already in shambles. Also, the distance between the mandi and the vendor is filled by a well connected gang of goondas who inflate the prices and make undue profits. These goondas don't standalone, they are strongly backed by a nexus of political heavyweights. These political big names (un names) are not ready to forgo their illogical profits for the good of their voters.

Another reason why we are not able to debate this and enforce the reform is the fact that the people who argue against FDI in retail are a well organized group of traders. According to rough data released by the Ministry of Labor, trade unions had a combined membership of 24,601,589 in 2002. Contrastingly, there are too few organized farmer unions in the country that they are not able to raise their voices and stage successful protests.

All said and done, there is one thing to lift our spirits. Amidst complaints of parliament dysfunction and neglect of responsibility by politicians, our prime minister remains confident and positive about implementing this trend-setter bill. At the time of this writing, the Prime Minister spoke to the media from his private aircraft and expressed strong opinions about FDI in retail. He feels that we need to evolve a broad based consensus and he is committed towards it. His strategy is to wait until the elections to state assemblies (in the offing) get over and I believe that his very intent is a positive sign of things to come. I wish the proposal goes through when the time is right as it would help us lay the platform for many more reforms akin to the 1991 globalization.

1 comment:

Anonymous said...

I have a problem with the overall premise of your article but I still think its really informative. I really like your other posts. Keep up the great work. If you can add more video and pictures can be much better. Because they help much clear understanding. :) thanks