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HDI & FDI – Barking up the wrong tree!

On 30th Nov., newspapers carried extensive reports on the happenings in the parliament on the debate in Foreign Direct Investment (FDI) in the multi brand retail sector. Reportedly our Prime Minister Dr Manmohan Singh was attending a political convention of his party’s youth wing along with the ‘Prime Minister in Waiting’ and his mother, the UPA chairperson in attendance. Speaking to this high profile youth wing, our economist Prime Minister ‘left no one in doubt that the FDI is indeed one of the best thing to happen to the country, if allowed to happen, and vigorously defended his cabinet’s approval for 51% FDI in the multi-brand retail sector’. This was reportedly a sequel to what happened in the parliament earlier on the day. Reportedly, opposition parties, who were opposing this particular invitation to foreigners to invest in retail sector, asked the Finance Minister Pranab Mukherjee, who was leading the treasury benches in the absence of Prime Minister, ‘What are the compelling reasons, which prompted the govt. to give the approval to the FDI in retail sector, at a juncture when the Parliament was very much engaged over several contentious issues?’ Reportedly FM had no answer. Indeed, there are too many issues, which are far more important than this FDI in retailing. Doesn’t this present a picture of dichotomy in our body politic? It is another matter, that opposition parties too are dishonest in their seriousness to issues facing the nation. Their’s could be a politics of opportunism, as Montek Singh Ahluwalia of Planning commission reportedly observed "opposition to FDI is bogus and politically motivated".
It is indeed true that except communist China, the proletarian ideology as a political doctrine has been dumped into the history’s dustbin. This was mainly because of the negation of individual liberty and initiative to expand his materialistic and spiritual horizon. That was how USSR collapsed. But then US, the torch bearer of individual freedom, and promoter of freedom of thought and action, too have failed to keep the flame burning. Thereby sending the message that both ideologies have its own inherent problems.
In college, in our English language lessons, there was this essay by Robert Lynd. ‘A Sermon on Shaving’. He theorises that, to have a perfect shave, you should not only have a perfect razor, but also a perfect brush and an equally perfect lather. He extends this theory to the domain of political ideology. Thus to have a perfect government you must have the best from different ideologies to make a cohesive unit. Doesn’t this mean that there should be a marriage of principles of not just communism and democracy but also of socialism for welfare orientation of national policies, to bring about a perfect ideology of political governance?
Foreign Direct Investment (FDI) in wholesale and retail is one of the concession that India had to extend to foreign companies under WTO regime and India is signatory to GATS. But any such concession that could leave the door open for foreign players in our domestic market cannot be at the detriment of India and Indians. But it must be admitted that FDI per se, has many advantages to the host country, and we have experienced the tremendous growth due to this financial liberalization. Since 1991, when the liberalization started, there has been an upward swing in the standard of life of a very good % of Indians. Look back to the days when there were only two brands of automobiles. Ambassador and Fiat. One had to wait, for months-on, for taking the delivery, after even full payment. And look at the scene now. There are over 15 brands available OTC (over the counter). Look at the airlines. Indian Airlines was lording it over in the domestic sky and see the sea-change that has come-by since the liberalization. Now it’s the traveller who is lording it over. Look at white goods – Fridges, A.Cs and similar fixtures. Or look at Television and electronic products there is revolution out there. Since 1991, there has been steady improvement in the GDP of the country. In 10 years flat, India appeared to be shining. Shining, it certainly did. This ‘India shining’ led us to think that we are within the cusp of being a SUPER POWER. Yes we do indeed have the capability to become a Super Power. We may become one day. But certainly not in 2020, just 9 years from now, as envisioned by our former president APJ Abdul Kalam. Yes, our shining is only in patches. Increased income of a section of Indians increased the general price levels of all commodities. Those who got higher prices also got higher profits and therefore they had more money to spare. Money circulation increased. Inflation had to be the end result. Of course those who had increased income didn’t much complain. But out there, a section, a huge one at that, whose economics either remained stagnant or deteriorated, they became slowly and inexorably worse off. Inflation ate into their very vitals and purchasing power became less and less. No wonder Mani Shankar Aiyar, a Congress MP and Rajeev Gandhi’s blue eyed politician, only the other day, took a pot-shot at his own party, while addressing a gathering in New Delhi. Aiyar had reportedly told "The fact of the matter is that India is prospering but Indians are not".
It is true that a vast majority of Indians remained either unaffected by this growth or were rendered poorer. The liberalized economic regime did not make much difference to the life of marginalized or the poorer sections of our society.
There is this Indo-US CEO’s association up beat about India wanting to open FDI in retail. They have been making overtures to the power that be in New Delhi. Multinational Corporations are very keen to make their foray into the life of Indian multitudes. This is not to suggest that those foreign investors are in love with India. They are in love with their bottom line and nothing else. In a world where might-is-right, there are always dangers that these mega corporations could leave the host country and countrymen poorer.
"Of the worlds 100 largest economies, 51 are now corporations, only 49 are nation-states. The sales of General Motors and Ford are greater than the gross domestic product of the whole of sub-Saharan Africa, and Wal-Mart now has a turnover higher than the revenues of most of the states of Eastern Europe. Yet not many of us understand fully the growing dominance of big business" writes Dr Noreena Hertz, a director at the Centre for International Business, of University of Cambridge. In her critically acclaimed book the ‘Silent Takeover’, she brilliantly reveals how corporations across the world manipulate and pressure governments by means both legal and illegal, how corporations are taking over from the state, the responsibility of everything from providing technology for schools to healthcare for the community. She rightly asks us to recognise the growing contradictions of a world divided between haves and have nots, of gated communities next to ghettos, of extreme poverty and unbelievable wealth. These are faces of unacceptable extremes.
Isn’t she so right that despite the near double digit growth constantly for many years, the Human Development Index (HDI) developed by the United Nations Development Programme (UNDP) showing that the development of humans in India is clearly slipping. This exercise covering 187 countries has ranked India at a lowly 134 in the group of countries with Low Human Development, with both Sri Lanka and Maldives in the Medium Development group at 97 and 109. And both these countries are being rendered development assistance of billions of $ by India. This is another dimension of the dichotomy of ‘India is Rich and Indians are Poor’.
This exercise of HDI is generally in the areas of Health, Education, Income and Gender Equality. If Life Expectancy represents the health of a person Australia is at the top at 81.9 years and Indians' average lifespan is 65.4 years below the world average of 69.8 years. When it comes to schooling or education it’s the U.S with 12.4 mean years at school for every U.S. citizen and Indian sadly are in the school for an average length of just 4.4 years when you take the entire population of school starters, with both Pakistan and Bangladesh better at 4.9 years and 4.8 years. World average mean years of schooling being 7.4 years. Coming to per-capita-income, while the highest is UAE at $: 59993 and Singapore with $: 52569 is at second with India at just U.S $: 3468, lower than Sri Lanka at $ 4963 and Maldives at $ 5276, both of whom we are trying to fund with development assistance. The world average per-capita-income is US $: 10082. In the gender equality or inequality ratio, maternal mortality ratio, India is having 230 deaths per 10,000, where as Italy is having just 5 for every 10,000, the world average being 176. Similarly in education of males in India it is 50.4% whereas for females it is 26.6%, where as in the U.S. its 94.5% for males and 95.3% for females. In Australia 97.2% for males and 95.1% for females, with both Pakistan and Bangladesh being lower than India. But in Sri Lanka gender equality is better in education at 57.6% for males and 56% for females.
These are very disturbing indicators which the powers that be, the policy makers, policy executors and the whole system need to take note of. These indicators do not disturb our political representatives, elected and unelected, who keep disturbing the parliament and assemblies all over India, all in the name of serving ‘aam aadmi’. There is a serious lack of seriousness to understand the malaise that India is afflicted with.
Of course we cannot blame the FDI for our problems. The current debate on FDI in multi brand retailing has thrown up many aspects of the issue, both in favour of it and against it. We all know, that Indian retail trade is highly fragmented and unorganised. With only few huge malls and Super Markets in cities and large towns, over 90% of the trade is single person owned/operated or family owned and operated. But there is indeed a huge market. According to market sources the retail business is in the region of over US $400 billion with only around less than 5% being in organised sector. A latest study by CII and Boston Consulting Group (BCG) informs that the current size of organised retail in the country stands at close to US $: 28 billion. But the market is estimated to grow to US $: 1250 billion by 2020. Hence big names in retailing like Wal Mart, Harrods and other giants in the trade are eyeing this huge market. The latest Economic Survey 2010-11, reportedly says "Permitting retail in a phased manner beginning with metros and incentivising the existing retail shops to modernise could help address the concerns of farmers and consumers. FDI in retail may also help bring in technical know how to set up efficient supply chains which could act as models of development."
Based on the survey, the UPA government had decided to take it up in the winter session of the parliament, but as usual, the opposition has opposed it, tooth and nail. But unfortunately for Dr Manmohan Singh even his allies in UPA opposed it. Politics over economics or development is a regularly happening thamasha or drama in the Indian context. Of course, there are any number of issues that the ruling dispensation could have taken up, besides the currently debated issues like Black Money, unchecked price rise, humongous corruption in high places. Instead the government rushed through this FDI in multi-brand retail. Could this be to divert the attention as alleged by opposition? Or why has so suddenly out of the blue, the FDI in retail became important for the Prime Minister? It was totally an unilateral decision without other political parties on board. Was he under any pressure from ‘friends’ in U.S.? Or some corporate honchos who backed the PM in the press? Of course, in the event, the government had to beat a hasty retreat, in the face of all round stiff opposition. Despite the government claiming that the opening of retail for foreigners shall help farmers, benefit consumers and create some 10 million new jobs, there were no takers, except a part of the ruling combine. Of course, the claim of 10 million jobs is a huge bunkum. We are all privy to the knowledge, how many jobs these Special Economic Zones (SEZ) have created? The very basis of SEZ permission and development has been the creation of massive employment opportunities. But what is the reality? Probably not even 1/10 of the promise has been fulfilled.
Thus the fear that all these advantages that government is talking about, due to the entry of FDI in retail, may be far from truth. It is indeed true that FDI, which happened after the liberalisation of 1991 and after, did change the domestic economic and social scenario. It has created a huge middle class, found no-where in the world. Millions of people moved upward above the poverty line. But it is also true that there still exists over 400 million Indians still struggling to make ends meet.
The opposition reasoning to oppose this FDI in retail has many arguable points. It is feared that it would lead to unfair competition and result in large-scale exit of domestic retailers, especially the family owned and managed outlets, leading to large scale displacement of persons employed in the retail sector. Another concern is that the Indian retail sector, particularly organised retail is still in nascent stage and therefore it is important that the retail sector is allowed to grow and consolidate first, before opening to foreign investors.
'FKCCI, Bangalore is opposed to FDI in Multi Brand retailing', informed the media. It has urged the government to help the unorganised sector reorganise itself with appropriate technology and financial support.
Opposition to FDI in retail is also on many other grounds like, that the entry of large global retailers such as Wal Mart, Harrods would kill local shops and those dependent on it for livelihood. There is an enormous % of Indians employed in retail sectors after agriculture. Besides, these multinationals giants could conspire and exercise monopolistic power to raise prices, as visible in pharmaceutical products. They could also use monopolistic power to reduce prices while buying from suppliers. Thus from both sides they could fleece consumers to increase their margins. This situation can lead to uneven growth leading to discontent and social tension, where both consumers and suppliers would suffer loss and only the profit margins of these retail groups would go up.
Thus the opposition to the FDI in multi brand retail is rational. But the opportunity for growth also should not be exaggerated. Therefore what may be required could be the calibration of both plus and minus of the proposal for the greatest good of all. It is an ideal situation. But in the market place it is the strength of the party that shall see the day through. Without regulation it is always the consumer who shall lose.
There may have to be checks and balance, some inbuilt safety valves have to be put in place. For example, writes Paulkit Agarwal "FDI in multi-brand retailing can be allowed in a calibrated manner with social safeguards so that effect of possible labour dislocation can be analysed and policy fine tuned accordingly. To ensure that foreign investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated that a % of FDI should be spent towards building up back-end infrastructure, logistics or agro processing units. Reconstituting the poverty stricken and stagnant rural sphere into a foreward moving and prosperous rural sphere, can be one of the favourable aspect for introducing FDI in multi brand retailing."
The President of Wal Mart India Raj Jain, reportedly said, it is willing to invest in back-end infrastructure that will help reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply side inflation.
Agarwal further continues "to actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain amount of farm produce be procured from the poor farmers. Similarly to develop our small and medium enterprise (SME), it can also be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India. PDS is still in many ways the life line of the people living below the poverty line. To ensure that the system is not weakened the government may reserve the right to procure a certain amount of food grains for replenishing the buffer. To protect the interest of small retailers the government may also put in place an exclusive regulatory framework. It will ensure that the retailing giants do not resort to predatory pricing or do not acquire monopolistic tendencies. Besides, the government and RBI need to evolve suitable policies to enable the retailers in the unorganised sector to expand and improve their efficiencies. If Government is allowing FDI, it must do it in a calibrated fashion because it is politically sensitive and link it up with legal provisions for creating some back-end infrastructure" he concludes.
Thus, what is imperative is the attention to the social need and adequate redressal of these needs. In this direction, a preliminary rider for any opening of retail sector in the new proposed bill is the condition that – ‘only those foreign retailers who first invest in the back-end supply chain and infrastructure would be allowed to set up multi-brand retail outlets in the country, which should essentially create jobs for rural India, before starting their business'.
In conclusion it can be said that, if the issues raised by opposition to the, FDI-in-retail entry, it may well be a very promising development. The experience of countries like Thailand and China is reportedly extremely gratifying. The opening of multi-brand retail to foreign investors led, not only to high level of employment but also led to enormous development of the country’s GDP.

J. Shriyan

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