Economic Highlights

New Delhi, 25 November 2011

FDI In Retail

PAWNING AAM AADMI’s FUTURE

By Shivaji Sarkar

There has been a surfeit of onslaughts on the nation and its aam aadmi this week. The FDI in retail, opening doors to giant retail MNCs, was finally given the green signal on Thursday last. Alongside, a new Company Law with many anti-people clauses got the go ahead. Also, the Land Acquisition, Rehabilitation and Resettlement ensuring an edge to corporates at the cost of the farmers is being pressed to become law.

Obviously, a result of the so-called India Economic Summit that wanted the Government to expedite “reforms”. Did the Government do this to “create pressure” to expedite decisions that affect millions of people but benefit a handful of corporates? Clearly, what was supposed to be the Government’s strength of delaying a decision on the issue now appears to be a skewed move.

The decision to raise 100 per cent FDI in single brand retail and 51 per cent in multi-brand retail has been taken at a crucial time. The $ 28 billion Indian market size is expected to rise almost ten-fold to $ 260 billion by 2020. Remember, the earlier decision to allow FDI in single brand retail was also taken at a similar crucial, shortly before the 2009 general elections.

Now it has been taken at a time when five States including the politically significant Uttar Pradesh go to polls early next year. Notwithstanding, the decision may play havoc with millions of poor retail traders but is certain to boost the coffers of some political parties and corporates. Shockingly, this has been done against the advice of experts and vociferous protests from the four crores unorganised retailers.

The new Company Law Bill faces the worst criticism as it wants every business to be incorporated as a company. Thus, creating an uneven playing field for small businesses which would not like to get into its fold as it entails larger establishment costs. Plainly, these entities would have to sell merchandise at a higher cost causing unfair competition between the small, medium and the giant retailers.

The Land Acquisition Bill also has many ambiguities and is pitched against the farmer, agricultural growth and pro corporates. It is a legislation that virtually aims at emasculating the vociferous rural population depended on farming. If enacted, the law could virtually eliminate independent farmers and create massive corporate zamindaris.

Significantly, the decision has come at the most inopportune time. Our policy framers do not seem to have learnt from the failure of Europe and US. Whereby, not only were their economies monopolised by corporates but also respective Governments’ decision were made at the corporates behest for decades. The corporates forced Governments to mount a number of wars on the world --- Word War I and II, Cold War and NATO’s onslaughts on Iraq, Libya, Afghanistan and threat to Iran.

Pertinently, the balance sheets of the companies improved with each of these wars though Governments and the people suffered heavy losses in Europe and US. The corporates also managed a Lehman Brothers type crisis, manipulated the New York and other stock exchanges, siphoned off public funds and even now sit over very large funds though the US and European Governments are on the verge of bankruptcy.

Importantly, India should have realised this before taking such blatant pro-corporates decisions. It is not that corporates per se are bad or exploitative but in the pursuit of profits many just ignore their responsibilities. That is why social responsibility, to the extent of two per cent of their expenditure, has to be made legally binding in the new Companies Bill.

Moreover, one has to see how much the Bill really binds large corporates globally given that they talk about it, spend large sums on advertising yet are negligent on the social responsibility front. Therefore, it is futile to expect that the corporates would behave differently in India. In corprorate parlance, social responsibility is considered a burden and drain on company resources leading to balance sheets being fudged.

True, the Government might feel happy about taking this decision and corporates too glad because auditing accounts world-wide are not a transparent affair. Wherein, social responsibility could be easily managed on the books. Also correct, the Government has shut its allies and critics like Mamata’s Trinamool Congress, which has been opposing FDI in multi-brand retail as it would hurt small retailers.

According to the Government, corporates would have to invest a minimum of $ 100 million to start business and open shops only in towns with population of one million or more. At least 50 per cent of the investment has to be in spent on back-end infrastructure like warehouses and cold chains and the States would have the final say as stores would have to comply with local legislation.

Needless to say, for corporates flush with funds $ 100 million is not an obstacle. It also virtually opens up the entire country. With towns with population of one million being opened there are very few townships left inaccessible to MNCs. Stated Bharti-Walmart CEO Raj Jain, “This is a bold and significant move”.

Even as the Government stats that the farmers would get 10 to 30 per cent higher remuneration, critics allege it would result in cartelisation whereby the retail chains would exploit farmers more. The promises of opening up 30 to 40 lakh jobs sounds highly unrealistic as retail chains do not employ large numbers.

Crucially, what would happen to the 3.6 crores people who would be displaced from retail business? Undoubtedly, the losses to the nation outweigh the euphemistic gains. It would also open the floodgates of cheap imports as buyers hunt for discounted bargains. Large retailers also are known to be poor pay masters and flout labour laws with impunity.

There is another threat. The Government says the retail chains would check the prices. In reality, they would be free to set prices and the Government would have little control over them. The MNCs would insist on functioning through a regulatory mechanism. And it is well known that regulators the world over have a soft corner for defaulting companies.

In sum, the aam aadmi and the Opposition parties like the BJP and Left must take up cudgels to protest this draconian move. It is not “reform” but a retrograde step. Let us not pawn the future of our children to exploitative retailers. ----- INFA

(Copyright, India News and Feature Alliance)