Friday, October 19, 2012


  After three years of so called economic ‘policy paralysis’, United Progressive Alliance(UPA) has finally started to take some ‘bold’ decisions, which began with FDI in retail and aviation sector, followed by increasing FDI in insurance and pension funds. As usual, opposition and  Bengal Chief minister Mamta Banarjee have opposed the move and congress and other parties which supports the government applauded. Our honourable Prime minister, who usually open his mouth only to bat for petrol price hike, also explained on media the ‘need for FDI’. 

Let us take a few points mentioned by the government and analyse them.As per the government explanation, the advantages of FDI in retail are 

1 : Farmers will get a higher  price for their products,as FDI will squeeze out middlemen between the retailers and farmers.It will also help to reduce the cost of items.

2: It will help to make investments in cold storage, which will help to reduce wastage of products.

3: Employment to more than forty million people. 

4: 30% of products from small and medium enterprises mandatory, which helps Indian industry and farmers.


  It is one of the most beautiful concepts as far as common people are considered. Farmers will get more profit and customers will get products at lower price. But is this really going to happen? Consider the countries where the retail chains are developed. We can see that middlemen are existing and they are the group of people who get a large portion of profits. Names have changed. But they still exist. In US some studies have shown that the net income of farmers has come down from 70% in early 20th century to less than  four percent in 2005.

Another important point to be noted is that United States is spending 20 billion dollars per year to farmers in direct subsidies as "farm income stabilization”. Isn’t it strange that  in a country where the FDI is developed to its best still need the help of government to do farming? Also, European Union spent 57 billion Euros for supporting farmers. This simply means, the argument that farmers will get better price once FDI comes is nothing but a fallacy. But our government is saying that when the companies like Wal-Mart, Carrefour and Tesco come to India, it will help our farmers. How can we expect, companies which doesn’t even serve farmers in their country well, that they will help our farmers?


Another argument put forward by the government is that, FDI in retail will help for investments in cold storage which will help to reduce wastage. This is just another myth put forward by government. How many of us know that 100% FDI is already allowed in cold storage , but till now no large investment is happened  in India!!! 100% FDI is already allowed in cold storage from 2011 itself. But till now, not much farmers got any help because of that. And now it is really childish to say that FDI in retail will bring huge changes.


When government announced FDI policy, one major advantage they explained was the creation of job opportunities in India. Indian retail market is estimated to be around four hundred billion dollars  investment, which will create job to forty million people, with at least ten million getting job in less than five years. At first, it might sound good. But the truth is that forty million job opportunities is nothing but just a gossip or hype created by government to make people support FDI. 

Consider world’s biggest retail chain, Wal-Mart. The annual turnover of Wal-Mart is around 100 billion US dollars ,but they have only 2.1 million people. So how did the government make a statistics that FDI in retail can create more than forty million jobs for 400 billion investment.


 Another tricky point which was put forward by government was that retail chains will have to buy 30% of products from small and medium scale enterprises , which is being put forward as an advantage for Indian enterprises. But what government hid tactically was that , there is no rule that retail chains  should buy it from India. Is there any guarantee that they will buy from farmers in India and not from Vietnam or Indonesia? The answer is NO. All that we can do is that we can pray to god to make them buy from Indian market.

   Now let us consider the case of Argentina, where FDI in retail was implemented in the last decade of 20th century. A study was conducted by Daniel Chudnovsky and Andres Lopez regarding the impact of FDI in Argentina. In the report they mention some important points –
·         FDI impacts depend to a large extent on the capabilities of domestic firms in host countries. Hence, it is a priority to improve the competitiveness of local firms (especially SMEs) in Argentina.
·         policy efforts in the FDI area must focus not only on the quantity of FDI received but also on its quality.
·         There are very few cases of successful TNC-led development strategies (e.g., Singapore, Ireland), and those examples took place under very unusual conditions. Argentina’s large conglomerates shrank as a group in the last ten years.

    We have a live experience already in India.Consider the case of Television Industry and Telecom Industry in India. Today there is no Indian company in television industry which has atleast 10% market share. Japanese companies like Sony, Samsung, L.G etc dominate the section. Now consider telecom Industry. Indian companies are competing well against foreign companies like vodafone.This is because of the technological strength of Indian companies. But in the case of television, they were not able to compete with technology of foreign companies and hence they died out(though a few are still surviving).  When we open retail sector without making our domestic section ready to compete, the result will be same as that of the television Industry.

There was a time, we had FDI in India. But at that time it was not known as FDI, but as colony. Britain had direct Investment in India for more than 200 years. They cultivated tea, coffee, cotton, ginger, pepper, cardamom etc in India and took it at the price that they like. And we had to pay much higher amount to purchase the same back from them. (Isn’t that the same thing that is going to happen in India again in the name of FDI? )Finally a person named Mohandas Karamchand Gandhi, who was practicing as a lawyer in South Africa, had to come to India to tell “QUIT INDIA” to them. Now we roll out red carpet again to them. Of course time has changed and today kings are not ruling our country. But is situation really changed? At that time king supported them, common men opposed. And we know what happened in the end. Today it is happening in a new way. Is this a right move by the Indian Government?

References :
Editorials in Hindu(Devinder Sharma and Rajiv Kumar)