FDI in retail: check what’s being sold
If you look hard enough at the newspapers, you might be able to make some sense of the debate over FDI in retail. But if you are stuck with the mainstream news channels, then the issues may not seem much clearer.It is almost an article of faith with much of the mainstream media that FDI in retail is a good thing. To support this view, the arguments that are used tend to be borrowed from Chambers of Commerce, the Government of India, or even, the Government of America. The centre-piece of the case for FDI is that it will create more jobs. Commerce minister Anand Sharma has even provided a figure of 10 million jobs, which has been reproduced uncritically in some of the media. The problem with Sharma’s argument is that nobody knows how these jobs will be created.
Even at an intuitive level, the argument is not immediately obvious. Yes, Walmart, Tesco and the rest will open many big stores. But the big chains employ relatively few people (in Indian terms) in the West and rely on mechanisation. On the other hand, it is likely that the opening of large supermarkets will lead to the closure of existing shops. You could conceivably argue that the people displaced by the closure of shops will find new employment at Walmart. But it is hard to see how 10 million new jobs will be created out of nowhere.
Small wonder then that Sharma’s argument about job creation is not being bought by the rest of the government. The Planning Commission has distanced itself from his 10 million figure. Only the media seem convinced.
The second argument is that the opening of huge retail operations will not lead to the closure of small neighbourhood shops. This is nonsense. You need only look at the West where the dominance of huge chains has meant the closure of local grocery shops, neighbourhood butchers, small bookshops and traditional chemists. It is possible to argue that this is not a bad thing. The big chains prosper because of economies of scale and often provide goods to consumers at lower prices. But this is not the argument that the supporters of FDI in retail are making. Their claim is that the kirana shops will be unaffected. And logic and global experience both suggest that this cannot be true.
The third claim advanced for supporting FDI in retail is that farmers will benefit. First of all, this is not a claim that advances the cause of FDI in retail. It merely supports the case for foreign investment in the grocery shop sector. But nobody can deny that farmers get a bad deal. When you buy a potato in the market today, you pay several times more than the price that was paid out to the poor farmer. The argument for corporate involvement in food retailing is that it cuts out the middle man and delivers a better return to the farmer.
Unfortunately, nobody bothers to tell us why foreign investment is required to do this. Such large Indian corporate houses as Godrej, Reliance and the RPG Group have all entered the food retail sector. The advantages to farmers can easily be derived from Indian groups. Why do we need to invite the Americans in?
For all this, the case for foreign investment in retail is not a bad one. The entry of foreigners will spruce up and expand the sector. It has worked in many other Asian countries and it is worth giving it a try in India. But the media do their viewers and readers no favours when they uncritically reproduce illogical arguments in favour of the FDI position without bothering to understand the issues involved.
So it is with the opposition to FDI. There is an entirely legitimate, if slightly outdated, Swadeshi position which states that the less foreign involvement we have in the Indian economy, the better it is for all of us. This is the position of the Swadeshi Jagran Manch, of the CPM (at least in those states where it is not in power itself), the RSS and intriguingly enough, Anna Hazare, whose views on Swadeshi economics, it now turns out, are virtually indistinguishable from those of the RSS.
But there is also a very real reason why the BJP – which is generally pro-liberalisation – is opposing the move and it has nothing to do with the RSS. Ever since the Jan Sangh was founded, it has been a party driven by donations from small shopkeepers and medium-sized traders. Every Jan Sangh/BJP corporator or MLA has traditionally gone to small shopkeepers to ask for money to finance his or her political campaigns. Because these proposals will adversely affect small shopkeepers, the corporators and the MLAs are under tremendous pressure from their campaign contributors to oppose them. At a national level, the BJP can go and find funds from the corporate sector. But at the district level, it is the traders and shopkeepers who call the shots.
Even the BJP knows that FDI in retail is not going to be the sort of issue on which elections are won or lost. And many of its national leaders are ideologically pro-foreign investment as is much of its urban middle-class base. But faced with this kind of opposition from the districts and the small towns where the party draws its support from, the BJP has no choice but to oppose FDI in retail.
So, the issues are more complex than the media may have led us to believe. If you watch TV, then you will believe that the government is trying to pass a proposal that will uniformly benefit millions of Indians and that the BJP, which has always supported this move, is simply being bloody-minded.
This kind of over-simplification has occurred before. When Manmohan Singh first pushed for the nuclear deal, he told us that it would transform India’s economy. Billions of dollars of foreign investment would come flooding in. He assured us that our energy problems would soon be over. And he guaranteed that we could count on US support for all our foreign policy initiatives.
Then, too, the media uncritically bought the government’s position. On the day that the Congress mustered enough support to win the no-confidence motion that had resulted from Manmohan’s obsession with the nuclear deal, one TV channel went so far as to compare this achievement with the liberalisation of 1991.
We know now that Manmohan’s promises amounted to nothing. Even though the nuclear deal was passed, nothing has really changed. There have been no improvements in the energy sector, no investment has come flooding in, and US foreign policy towards India has not significantly altered. Worse still, nobody in the media asks why this should be so. We have simply moved on to the next story.
The same sort of thing is happening with FDI in retail. I supported the nuclear deal even though I did not believe the exaggerated claims made for it. Similarly, I support FDI in retail. But I believe that many of the arguments advanced in its support are hollow.
And I think that once again the media are doing a disservice to our viewers and our readers by caricaturing the issues. Nothing about FDI is simple or uncomplicated. There is no room for black and white positions, no matter what the media might say.
Ultimately, it comes down to which shade of grey you prefer. But the media do not like grey. Their broadcasts may be in colour. But their world is still black and white.