Wednesday, December 28, 2011

No Black and White, Only Grey!!

Amidst the debate of lokpal bill, food security bill and so on...i would like to take a break from it and talk about the much hyped news regarding FDI in retail!!

The government's obsession with this policy can be interpreted as symbolic declaration of the commitment to neoliberal reforms of a govt. paralysed by charges of abetting corruption and shielding black money and failures ranging from persisting inflation to faltering industrial growth!! It can also be interpreted as a desire to please international investors and govts. ...But... Without deviating much from the issue (about which i am genuinely interested and worried too) and delve into further interpretations i want to put forth my views regarding the sudden revelation (pun intended) of the policy that is believed to have a "unique Indian imprint"

Govt may believe that the policy of FDI will serve good for the economy of India as well as its ppl!! But they also must be familiar with d arguments who r critical of this. Considering their arguments, they begin wid the view that once the doors to foreign investment in the retail sector are opened, giant international retailers such as Walmart, Carrefour will use the opportunity to get a share of the large Indian market. While domestic conglomeration had played a role in the rapid development of organised retail in China, Malaysia and Thailand, the presence of foreign firms had grown substantially. The debate on FDI in retail revolves around the consequences of the growing presence and rising market share of these global giants. These chains, with international sourcing capabilities, tend to exploit economies in storage and distribution to outcompete and displace domestic intermediaries in the supply chain. Once the smaller middlemen are displaced there are large firms and their agents dealing with the producers on one side and consumers on the other.

With this proposal their also arises issues of concern. The first is the impact that the transformation in retail wud hv on small producers, espcly in the farm sector. Though large, organised retail outlets tend to attract consumers by offering a diverse range of products at a single location, there is a tendency to standardise each of the products on offer. This results in the subordination of the producer to the buyer, transactions are no more arm's length in nature. It is of course true that agriculture is not a homogeneous sector, with farmers of different types engaged in production. It is true to some extent that farmers will benefit from the transformation in retail. But they are by no means the majority, and not all of them are likely to experience an improvement in their daily lives. Moreover, since global chains are allowed to and are equipped to source supplies from anywhere in the world, these farmers will be subject to competition from the cheapest global sources!!
The second concern is that even when farmers' earning are under pressure, consumers may not benefit from the promised reduction in prices resulting from cost economies and the benefits of scale accruing to large intermediaries. Lower prices for consumers may be the initial fallout when existing intermediaries are being competed out to provide space for large retailers. But once the retail trade is concentrated in a few firms, retail margins themselves could rise, especially in years when domestic supply falls short!!
Finally, within the supply chain itself, a range of pre-existing operators (street vendors, kirana stores. wholesale dealers) would be displaced. The immediate effect would be a substantial loss of employment in the unorganised retail trade as well as segments of the wholesale trade displaced by the big retail chains.

Sections in the govt have been pushing ahead with the FDI agenda blindly ignoring the fact that the retail sector is central to the livelihoods of crores of families! In my view it will just add to the platter of investors and govt officials who already have their "domestic economies" prospering vis-a-vis black money and scams!! 

4 comments:

kaustubh said...

quite interesting view point.....cn change the mindset....nd tittle too is very innovative nd unique......

deepti said...

yeah...the topic was on my mind for quite a long time so, thought of writing about it....

self discovery said...

you have covered most of the important issues regarding fdi.. And yes unless the public distribution system is not enhanced, this laudable initiative of the government will not be of much use.. Kudos 4 bringing such an important topic to light!!!

Prafull said...

Well, it's an important issue indeed. I feel, as a nation we must see what are we really going to gain by allowing FDI in retail? It's a trading basically & the bottomline is Profit.Foreign MNC's usually have high cost of doing business & they never compromise with their profits. As a result someone must pay the price. Initially they will offer very attractive prices/offers to both consumers as well as producers. but over the time producers will become dependent & then the real game will start.... We must see a long term perspective ..