THERE seems to be much more than meets the eye in the government’s recent controversial decisions on raising the foreign direct investment (FDI) limit to 51 per cent for multi-brand retail, the diesel prices and a cap of six cooking gas cylinders in a year for every household. The most plausible explanation given by the government regarding the urgency in these decisions flies in the face of the fact that consultations have never been done with either the opposition parties as promised by then Union Finance Minister Pranab Mukherjee in the floor of the Parliament not have the UPA allies been taken into confidence.
The UPA-2 government, which prides itself for doddering from one crisis to another seems to be facing the end-game as the latest reports coming even as we to press, suggest that Samajwadi Party chief Mulayam Singh Yadav in a show of unusual gusto accused the UPA government of malfeasance. Till now the UPA government has brazenly used the Central Bureau of Investigation (CBI) criminal inquiries to tame wayward political allies, and quite successfully.
Bharatiya Janata Party (BJP) spokespersons have repeatedly said that Congress’ most faithful political ally during any crisis is the CBI, but even that trump card seems to be failing. Trinamool Congress party members don’t lose a chance to reiterate that CBI can be used against other political allies of the UPA-2 but not against Mamata Banerjee as she has nothing to hide.
Mulayam Singh Yadav during the Bharat Bandh on September 20 said, “If the government does not roll back its decisions (on FDI in multi-brand retail and diesel price hike), then we will have to announce an alternative.” Though the ‘alternative’ is yet to be spelt out clearly it is anybody’s guess what that would mean.
The surprising aspect of the recent cabinet decisions on FDI in multi-brand retail and a cap on cooking gas for each household comes at a time when the Congress is absolutely sure that the allies will not let it get away without their pound of flesh. And political debates have revolved around the murkiness of decision-making by the government as the track record of several Union cabinet members has been mired in sweet-heart deals, be it the Commonwealth Games, the 2G or the coalgate scandals.
As expected the crisis does not seem to be ebbing even though the arrogance with which the Congress power brokers treated Mamata Banerjee till the end of her honeymoon with the UPA gave enough reasons to believe that the power behind the decision to raise the FDI in multi-brand retail was so strong that even the high cost of surrendering the government did not dissuade the cabinet from taking such a decision.
There are two major issues arising out current political imbroglio. One, several research reports on the ill-effects of allowing multinational brands into retail sector have been bandied about by various opposition parties. Second, the government could have taken so many other reform measures especially to do with agriculture that could help farmers in better price realisation of farm produce. But strangely it chose FDI in multi-brand retail.
West Bangal Finance Minister Amit Mitra has quoted from a Swiss research report, which states quite clearly that the wages of people working in malls are much lesser than in the retail industry. Farm incomes are also squeezed with no recourse to alternatives as the supply chain is dominated by the hegemonistic international retail chains.
According to a research paper published by US-based National Bureau of Economic Research, Openness and Industrial Responses in Wal-Mart World: A Case study of Mexican Soaps, Detergents And Surfactant Producers by Beata Smarzynska Javorcik, Wolfgang Keller and James Tybout, “the long run effect of a new Wal-Mart in a region is to drive down retail prices by 1-13 per cent, depending upon the product”. Most of the suppliers of detergents, food products and other items of daily use are supplied by the SMEs. In case of detergents the impact was about 9 per cent. Thus the entry of big retail into India could lower producers’ margins, said the international research paper.
The reason for such market behaviour is not far to find. Retail chain majors such as Wal-Mart exercise their bargaining power to squeeze producer margins on products as they buy in very large volumes. The large volumes with lowering margins do not necessarily mean the returns are huge for the producers. The negotiating skills employed by such international large retail chains can strangle the SMEs.
BJP leader Smriti Irani explained during a political debate that research done in the US revealed that the effects of retail malls can even lead to many of the smaller mom-and-pop shops running out of business around the vicinity of the malls. And even the employment generation in kirana shops is much larger than retail malls.
The moot point in all these discussions on FDI in organised retail is lost in the fury of debates. What is needed is large scale investments in the back-end warehousing and logistics support to retail. That is where the foreign direct investments can help if done in a public-private-partnership (PPP) model. The need for such investments is not being denied by any of the parties or the farming community. The agriculturists anywhere in the country are losing out largely on account lack of cold chain, especially for perishable goods like vegetables and fruits. For instance, India is the second largest producer of bananas in the world after Brazil, but not even 5 per cent of the total produce is exported owing to lack of warehousing and cold chain facilities.
There is a dire need for investments, both domestic as well as foreign, in the warehousing facilities closer to the place of farm production all over the country. Also, the recent decision by the government to set up speed corridors at several stretches of hinterland demand quick and robust warehousing facilities to complement the emerging transport systems. But to couple that with the need for FDI in front-end retail is to make a clever excuse for government’s own agenda.
In the larger picture of what has been happening in the business of politics in the country is that the Congress party has not only failed to take opposition parties on board but also its own allies. The sanctity of such a promise made by then Union Finance Minister Pranab Mukherjee has been given a go-by and that has alienated most of the political parties. It is yet to be known what Mayawati’s BSP would do in the given circumstances, but given the trend shown by most other political big-wigs, including UPA allies like the DMK, it is difficult to foresee even hardcore fence-sitters making a beeline of support for the Congress in the current crisis.