At a time when Prime Minister Manmohan Singh is refusing to
rollback the decision to open the retail sector to foreign direct investment
saying it will benefit our country, the American President Obama thinks
otherwise. In a tweet on Saturday (Nov 26), President Obama wrote: “support
small businesses in your community by shopping at your favourite local store.”
While President Obama is talking of what is good for America ,
Manmohan Singh too is adamant on protecting American interests. It is primarily
for this reason that Manmohan Singh’s assertion that retail FDI will benefit
our country and ‘improve rural infrastructure, reduce wastage of agricultural
produce and enable our farmers to get better prices for their crops’ is not
borne on facts. In the midst of the rhetorical contests in the TV studios, the
real facts have been sacrificed for the sake of political partisanship.
A lot has been said and written about the virtues of
allowing FDI in retail into India .
Let me make an attempt to answer some of the bigger claims that Commerce
Minister Anand Sharma as well as the Prime Minister have repeatedly made. Frankly,
their arguments seem to be driven more by political expediency rather than any
economic understanding, and that is more worrying. It only shows how economic
facts can be twisted, tailored and manipulated to justify the political agenda
of the ruling party. There can be nothing more damaging for the future of a
country.
First, the
biggest argument in favour of multi-brand retail is that it will create 10
million jobs by the year 2010. There is no justification for this claim. In the
United States ,
Wal-Mart dominates big retail. It has a turnover of US $ 400 billion, and
employs 2.1 million people. Ironically, the Indian retail sector too has a
turnover of US $ 400 billion, but has 12 million shops and employs 44 million
people. It is the Indian retail which is a much-bigger employer, and any effort
to allow retail FDI will only destroy millions of livelihoods.
Take the case of England . The two big retail giants
are Tesco and Sainsbury. Both had committed to create 24,000 jobs between them,
in the past two years. A British government enquiry found out that instead of
creating any additional job, these two big retail companies had actually thrown
out 850 people from existing jobs. The big retail units which failed to create
jobs in their own countries cannot be expected to create additional employment
in India .
Second, Anand
Sharma says that retail FDI will provide 30 per cent more income to farmers. There
can be no bigger lie than this. In the US, for instance, if Wal-Mart was able
to enhance farm incomes there was no reason why the America government would
dole out a massive subsidy of US $ 307 billion under the US Farm Bill 2008,
which basically makes a budgetary subsidy provision for the next five years. Most
of these subsidies are clubbed in the category of Green Box under the WTO. And
as per an UNCTAD-India study, if the Green Box subsidies are withdrawn,
American agriculture faces a collapse.
Agriculture in America is therefore sustained with
agricultural subsidies. In OECD countries, a group comprising 30 riches
countries, the situation is no different. A latest 2010 report states
explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent
in 2008. In just one year in 2009, these industrialised countries provided a
subsidy of Rs 12.60 lakh crore to agriculture. Despite this, every minute one
farmer quits agriculture in Europe . This is
happening at a time when farmer’s incomes are dwindling. In France alone,
farmer’s income has fallen by 39 per cent in 2009.
Third, big retail
helps remove the middlemen and therefore provides a better price to farmers.
Again, it is a flawed argument and is not borne on any evidence. Studies show
that in America
in the first half of 20th century, for every dollar worth of produce
a farmer sold, 70 cents was his income. In 2005, farmer’s income had fallen to
4 per cent. This is despite the presence of Wal-mart and other big retailers in
America .
In other words, the middlemen are not squeezed out as is the
general understanding but in reality their number actually increases. A new
battery of middlemen – quality controller, standardiser, certification agency,
processor, packaging consultant etc – now operate under the same retail hub and
have been walking away with farmer’s income. Moreover, due to the sheer size
and buying power, big retail generally depresses producer prices. In England , Tesco
for example paid 4 per cent less to producers. Low supermarket prices in Scotland have
forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better
price for their farm produce.
Fourth, retail
FDI will source 30 per cent from the small and medium enterprises and therefore
will benefit Indian manufacturers. This is an afterthought, especially after a
section of the media highlighted the discrepancy. Even though Anand Sharma says
30 per cent products would be sources from within the country, the facts
remains that under the WTO agreements, India cannot limit the big retail from
outsourcing its products from anywhere in the world. This is against the WTO
norms, wherein no member country can apply any investment restriction that is
inconsistent with the provisions of Article III or Article XI of GATT 1994.
Using the WTO provisions, multi-brand retail will flood the
Indian market with cheaper Chinese manufactured goods thereby wiping out the
domestic SME sector. At the same time, the ‘Indian Stamp’ on multi-brand retail
that Anand Sharma claims will have at least 60 per cent investment on ‘back
end’ systems is also not based on facts. As per the definition of ‘back-end’,
anything that is not ‘front-end’ becomes ‘back-end’ and has to be
self-certified. Which means even the expenses on the corporate headquarter
becomes ‘back-end’ investment. In any case, 51 per cent FDI in cold storages
etc is already provided and yet no investment has come. Let us be very clear, big
retail is not coming to India
to provide a network of food storage silos and cold chains.
Fifth, more
importantly, in an eye-opening study entitled “Wal-Mart and Poverty”, Pennsylvania State
University in the United States
has clearly brought out that those American states that had more Wal-Mart
stores in 1987, had higher poverty rates by 1999 than the states where fewer
stores were set up. This is something that the government is not talking about
but should ring an alarm bell for a country which is reeling in poverty, hunger
and squalor.
