Ten reasons why FDI in retail is disastrous—II?

Big retails cause big inflation?

By Sanjay Kaul?

That food inflation will be curtailed with FDI in retail is a plain lie. Food inflation has to do with supply side shortages and distribution bottlenecks that have mostly to do with government policy in each case. The advent of big retail will not induce any farmer to grow more food or make any dent in the fossilized mechanisms of food procurement and distribution policies of Government. The truth remains that agriculture has suffered for long, that farmers do not get remunerative prices and that they are unable to pay back what they have borrowed. Food inflation is a derivative of the paralysis of government and states and nothing to do with FDI in retail. We’re talking about FDI in retail for God’s sake, not FDI in agriculture. The other startling aspect of FDI in retail is that it is being sold as the answer to India’s farming woes.

Congress MP, Jyoti Mirdha has pointed out that the FDI introduced in the agriculture sector in 2006 is yet to show any progress, so where is the basis for moving on to FDI in retail? What FDI could not do for agriculture directly, it will do through FDI in retail is a bit of a big joke.

Consumers do not get better prices

Consumers will get lower prices is another figment of the lobbyist’s fertile imagination. Prices never come down. Big bazaar or Walmart, prices never come down. The argument is a facetious assault on the principle of growth and inflation. Big retail can at best sell you cheaper potatoes or five such items carefully selected on seasonal variations or bulk deals with producers cheap for only a week and no more. For everything else you buy from them, you will pay more. That is how big retail works. To qualify this, read this comment from a KPMG expert who was arguing for FDI in retail:  “To draw consumers, [big] retailers squeeze suppliers and ensure efficiencies in categories that drive foot falls. They balance it out by enjoying higher margins in categories where impulse buying is high.” [Anand Ramanathan quoted in Economic Times, 01-12-2011] The reason there is no data on this is because it is not in the interest of big retail or big media to support the idea. Think about infrastructure and overheads. A large format retailer, if it is not within an existing mall and aims to be the size of Walmart stores will have to put up its own air-conditioning plant, parking, galleys, staff, vans, transport, machinery and processes that simply cannot offset any purchasing bulk deals to support the idea of cheaper prices. That prices of food items are cheaper at big retail outlets is also not without a serious caveat. Comparing prices is not the only criterion: you have to compare quality as well.

Has anyone ever bought fresh vegetable produce from a big retailer – nobody will accept that quality from a local vendor. The jargon about cereals and selected stuff being cheaper is sketchy at best and the reason there is no data on this is because nobody wants to reveal the modus operandi of selective discounting by big retailers as a marketing tool rather than any real principle of lower pricing. The surveys published in newspapers do not answer to the most fundamental discrepancy—why does every survey attempt at comparing prices of chosen commodities at kirana stores with big retail outlets: how about comparing one big retail outlet with another and explain why they do not conform to the same price principle across the board?

Big retail kills small jobs

More jobs will be created when big retail comes in is a fallacy and a purposeful falsehood. For an economy where 80 per cent of the population engaged in trade and local retailing is self employed, how do the numbers stack up if you dislodge even 20 per cent of that population. Does any math support the theory that any number of big retailers will be able to support even 5 lakh people who will progressively be thrown out of business due to their advent? For a government that is unable to provide employment in big cities with reasonable opportunities, the impact in smaller ones will be unmanageable. The 30 per cent caveat that is being bandied about as a bulwark against large scale displacement of local producers is also a charade because it does not concern itself with produce but investments that big retailers must make, [as a safeguard, in the Government’s weak words] without explaining that these could be the plywood and the roofing they use to set up their retail stores or the marble tiling and the bathroom fixtures or even the trucks they buy. So what protection is this worth? Then again, even if this were to be reworded to ensure that the 30 per cent limit pertained to produce and not infrastructure, which gigantic micro management agency would pore over their account books to determine this on a daily or monthly basis?

Big retail is relative to real estate

Retail is a first cousin of the real estate industry. Already the calculators are out fantasising about the acreage these new big format retail marts will need and the newer malls that will be coming by design around such anchor stores. Big retail loves big development and vice versa. The upshot is that the already skewed real estate market will only get more out of control and housing for middle classes and the ordinary folks that much farther. Big retail creates the grounds for large scale property price hike throwing up a new spiral of inflation in real estate space – a totally unregulated, unbridled, black money haven. Another reason why the smaller retailer will have to pack up and move is that they can’t afford the real estate.

FDI in retail is a political hot-potato and a non-issue

The political expediency attributed to the opposition on the issue of FDI in retail is actually misdirected and it is the government of the day which should be under a cloud of suspicion for the timing of this move. If this is about proving that there is no paralysis in governance, it is plainly a bravura act which should be set aside for the moment.

On the other hand, if this passes for reform, how about we discuss instead FDI in education, a sector that holds the key to prosperity for this country and its future generations. If this is a sop for the US and the rest of the west, let us learn from their mistakes – profligacy in consumer spend and consolidation of business are dangerous instruments in the economic life of a country.

Let us not bail out those who would take us down the precise route that landed them in hell. India must decide if it wishes to trade its cultural, dietary and social habits for the old western paradigm of conspicuous consumption and whether it can stave off the easy charm of easy money and draw a new plan where the farmers are attended to immediately, incentives woven into their crop cultivation habits, offer remunerative prices which keep him engaged and allows him to prosper. This pandering to the urban consumer with the idea that he will have more choice and better pricing is a charade and its bluff must be called.

All the media support for FDI in retail is connected to their advertising potential and business cross holdings.       (Concluded)

(The writer is a BJP spokesperson in Delhi).?