Making India a Consumers’ Mecca – Dreams Vs Reality of FDI

‘On 14 September 2012, Government of India allowed FDI in aviation up to 49%, in the broadcast sector up to 74%, in multi-brand retail up to 51% and in single-brand retail up to 100%. The choice of allowing Foreign direct investment in multi-brand retail up to 51% has been left to each state. In its supply chain sector, the government of India had already approved 100% FDI for developing the cold chain.

What are the gains? Significant amount of investment in back-end infrastructure. 50 per cent of the minimum investment of $100 million will be done in such activities. FDI in retail will benefit over 100 crore people.

  • Better cold chain and more efficient food supply systems.
  • The losses:  Make India a consumers’ mecca. Only thirty percent of all products procured by these chains should be from medium and small scale enterprises – (what about the other seventy percent?)

Arun Jaitley:

‘40 million people are directly employed in small retail. Add families to that and the figure of four crore becomes 18-20 crore. When small middlemen get out of the equation, the super-middleman comes in.’

The first area that will be adversely affected will be manufacturing sector jobs when international structured retail comes in.
The major argument is that back-end infrastructure will be strengthened – these stores will not provide irrigation or build roads or provide farmers electricity. ‘‘Estimates place India’s retail market at USD 425 billion (in 2010) and that it would be the 3rd largest retail market in the world in the next decade. From this, currently 61% of this is spent on food products.’ We see this is very big money involved.

The stage is all set for India’s attempt to become the second biggest superpower in the world economically after China in a decade to twenty five years by bringing in huge amounts of foreign investments. While the process is historically irreversible, it will entail massive changes, starting with inflationary trends, loss of jobs and markets for small retailers in both multi -brand retail and food sectors, including the cold chain, creation of new jobs that may or may not match the number of lost jobs and do not take into account a plan to support those who may lose their jobs as yet, hunger markets, a shift in power holders and brokers, a strong presence of transnational corporate in the country whose interests are not national but only profit, greater corruption opportunities and no stringent and efficient investigative checks or procedures or measures or balance in place to make the process both easy and accountable. Such sweeping changes will lead to scenes of untold riches for some on the one hand and untold misery and suffering on the other, turbulent times gone through in the hope that at the end of the tunnel India will emerge prosperous, with no guarantee that it will. Globalization, capitalism, the international market’s demands, consumerism and artificially boosted demand and supply situations will be fought grimly by a country that has only one major resource, a staggeringly huge population it cannot bear as yet. The Congress predicts benefit for a hundred crore people. Even if this comes true in the short run we can expect massive profits, scams, suicides by those who lost their jobs or were laid off or are unemployed, not to mention all kinds of suffering and discrimination later on due to a foreign, heartless, purely business minded presence on our motherland.

We have come a far cry from Nehru’s public and private ownership to foreign and native ownership, using economic models that do not really serve the West well but do not destroy them only because they already have a sound fiscal base, one that we do not yet have. While there is no point in saying anymore this is not the way we should go as global pressures of the market make it impossible for us to stand by and watch and not be involved, except in states that can opt out to as much an extent as possible from the process for now, the question of how to go about it to our best benefit has not really been satisfactorily addressed by the Congress.

What is most frightening is that there is no talk of re-nationalization of manufacture or retail etc., once India becomes a superpower, or of our being global leaders and having a drive into other countries that can help us in a bigger way, because that would involve revamping education etc to produce output for excellence and not fodder for jobs offered by multinational companies. Let me discuss ADAM SMITH’S TRADE THEORY OF ABSOLUTE ADVANTAGE that may be an ideal option; “It may be possible for all the countries to produce all the commodities they need, in spite of resource constraint. But, the cost of production of goods for which a country is deficient in its resources would be exorbitantly high. It is better to import such goods rather than produce them. Most Countries therefore tend to specialise in producing commodities in which they have absolute advantage in cost of pro­duction. Therefore, most countries export goods which they can produce at a lower cost and import what they can produce’ at a higher cost.”

This common sense logic of international division of labour suggested by Adam Smith marks the beginning of modern theories of foreign trade. The theory of absolute advantage states that the basis of trade between the nations is the absolute advantage a country has in producing a commodity over the other countries. In simple words, two countries are able to trade between them because each one of them is able to produce at least one commodity at a comparatively lower cost.

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