FDI in retail

The haste shows government insensitivity?

By Dr Ashwini Mahajan?

Nationwide opposition, stalemate in the Parliament continuously for ten days; stiff and unrelenting opposition from all parties whether in government or outside, except Congress and NCP, against the decision of the Union Cabinet on November 24, 2011 to open up multi brand retail sector for FDI to the extent of 51 per cent, all shows that the nation has outrightly rejected the anti-people decision of the government to allow multinational retail giants to open their stores in the country. 

Though the government has put on hold this decision under pressure from its allies partners, opposition parties, traders, labour and other social organisations, it seems that the government is not relenting from this anti-people decision. Sponsored lopsided articles in print and other programmes in visual media clearly demonstrate that the government and multinational corporations are hand in gloves with each other and wish to implement this decision at any cost. Nothing changed between November 14 and December 6, 2011, except the fact that the government used all its weapons during this period to take along its allies and failed miserably. The government owes an explanation for wasting valuable time of the Parliament for ten days.

This decision to open retail sector for FDI is going to affect those 3.5 crore people who run their small shops or working there as employees, or are engaged in petty retailing in the form of rehri, patri, khoncha, etc.; and another 1.5 crore people who are engaged in wholesale trade, transportation, warehousing, etc. In all five crore people get their employment in these activities related to retail sector and their approximately 20 crore family members are dependent on this sector for their livelihood.

We understand that owing to recession in the developed world, profits of these multinational retail companies are continuously getting eroded in USA and Europe, etc. Growing size of middle class is attracting them to the emerging developing economies like India as their new pasture grounds. Over the years there has been a significant growth in the size of retail market of India, which is now around Rs. 22 lakh crore. This decision (which is now put on hold) of the government is clearly aimed at handing over this huge market for the benefit the multinational corporations. According to the latest data published by Central Statistical Organisation, share of retail sector in GDP is eight per cent, whereas that of wholesale trade transport and warehousing is another seven per cent. Therefore over all contribution of the domestic trade, which is being handed over to the multinational corporation is nearly 15 per cent.

Now coming to the chain of events in this decision of the government, we find that government had given permission to multinational corporations to open their stores in single brand, that is, FDI in single brand retailing, on January 24, 2006. Since then multinational retail companies have been making their plans to enter into multi brand retailing by starting joint ventures with Indian companies, in the name of back end operations. One such major joint venture is Bharti-Walmart. We find a significant number of outlets have been opened by Walmart in the guise of wholesale trade, on which there was no restriction with regard to foreign investment. On November 24, 2011 Union Cabinet opened multi brand retailing also for MNCs by allowing 51 per cent FDI.

Dr. Manmohan Singh in his earlier tenure as Finance Minister in Narsimha Rao’s Prime Ministership had opened this sector for FDI. But the successive government had cancelled the same. For the last 15 years, despite all efforts made by these companies and the policy makers supporting them, they were not successful because of the opposition from all over the country. Even the parliamentary committee had clearly said that opening up of this sector for multinational companies would be highly disastrous and government should refrain from this policy.

Global Experience

Multinational corporations entered into retail trade in 1960s. In just four decades these companies have established their stranglehold on this sector in many countries, especially developed and emerging economies. Businesses of these giant corporations, such as Walmart, Tesco and Carrefour, etc. have surpassed even the national incomes of various countries. 90 per cent retail trade of USA, 80 per cent retail trade of most of the European countries, 50-60 per cent retail trade of South-East Asian Countries have been taken over by these companies. Even in China 30 per cent of the retail trade has gone into the hands of these multinational companies. Most of the retail traders have lost their employment, as they have gone out of competition. Therefore decision to open up this sector for MNCs is endangering the existence of small retailers.
These multinational corporations mostly make their purchases at the global level. Therefore the next sector which would get affected is small scale and cottage industries sector. If Walmart opens its stores in India, its first choice for procurement of products would be China and not India. It’s an open secret that today Walmart is the largest buyer of Chinese products in the world. Due to large scale import of consumer products by these companies, most of over small scale, cottage and even large scale industries would get adversely affected. After the advent of Walmart in USA, most of the American consumer goods industries have actually closed down. USA’s world renowned shoe industry no longer exists; as these MNCs retail companies do not procure American shoes any more. England’s famous cloth manufacture ‘Coats’ company no longer is in the business because these companies do not procure cloth from England. In the retail stores of England now Chinese products are sold instead of English products.

Retail sector is integral part of social fabric of the nation. Today our policy makers are not in position to provide employment to our vast army of unemployed youth. Under these circumstances the government does not have a moral right to displace already employed (mostly self employed) people in this sector. Today the government is finding itself in a total helpless situation on price front. And now the government is giving a totally illogical argument that FDI in retail would help fighting inflation. Apart from this argument the government is trying to advance various other totally false and baseless arguments in favour of FDI in retail sector, including employment, benefits to farmers and consumers, boost to infrastructure, etc. There is an emergent need to expose the evil designs of the government and educate the people on this issue.

(The writer is Associate Professor, PGDAV College, University of Delhi, ashwanimahajan@rediffmail.com)?