FDI with an expert’s eye

Have you heard about the story of an elephant, which reached to a village where no one had ever heard or seen an elephant before and they had not seen it because all the residents of that particular village were literarily blind. Therefore, when the residents found that an unknown creature is Fruitswandering around in their vicinity, they decided to depute four intelligent people of the village to asses the exact situation. Four of them reached to conclusion after inspecting elephant from different angles and submitted their report-

1- The creature has legs like tree trunks -  As our leaders thought that the foreign companies would have their roots deep like big trees 

2- The creature seems to have too big teeth- which may prove dangerous for the residents of this village- Like our leaders thought that foreign companies would chew every thing on show

3- The creature has too small a tail therefore may not be powerful – as our leaders though that foreign companies would do nothing substantial 

4- The creature has too big arm (the trunk) that can swallow every thing- As our leaders thought that foreign companies are coming to loot our assets

The case of FDI has taken almost the same way that our wise men sitting in parliament are trying to solve with their wise point of views. There are far too many questions which are yet to find answers but the way our law makers are trying to solve them brings no ray of hope whatsoever. For them FDI would boost or destroy our economy is a big matter of discussion with un realistic attacks and counter attacks on party line basis which has nothing to do with real agenda of the subject related to foreign investment in our country. Actually, the matter is complex as long as it is related to farmers, mediators and industry where every parliamentarian is a party in a way or other with their own interest and relations to concerned parties stop them to reach to a firm decision besides the party lines, which stop them to express themselves clearly. However, we shall have to look into the matter to decide for ourselves the realities of the pending matter which is not as complex as opposition made it or as satisfactory as the government projecting it, we must go deeper into the matter to asses the situation on ground realities.

Mediator farmers and crops

The government thought that 40% production of fruits and vegetable that is wasted before reaching to the market for not having an effective network of organized retailers. For them the mediators were only exploiting farmers with unreasonable prices whereas the opposition thought that mediators were like ATM for formers from where they could withdraw cash at their will. Opposition had a report prepared by center for post harvester engineering of Punjab, which said that there was wastage in the range of 6-18% of fruits and vegetables due to unavailability of proper storage facilities in India. The opposition thought that what the organized sector of retailers would do the government itself is capable to do that therefore the need to bring foreign companies was not acceptable by opposition parties.

Consumer was nowhere in the scene

The governmental stand that FDI would provide cheaper rates to consumer although, they had nothing to prove their point. Even if this could be true but they were not well prepared because there was nothing on factual basis in the house. They were fighting a political war in the parliament in place of producing facts and that was from both sides. However, the war saw the points of debate vanishing into thin air and hollow words thrown on to both sides to reach nowhere. The opposition was trying to relate the issue of FDI with farmers and foreign companies but no party was bringing forward the actual matter of FDI making difference on Indian retail sector. No one from either side was interested to bring to notice an average consumer’s needs of good quality, packing, lower prices and facilities provided by organized sector but it took an ugly war of words with no facts coming on the fore.

Employment Versus unemployment 

There was another point that was discussed widely but without any proper reasoning. Parties opposing FDI thought that bringing retail sector would close smaller shops making people unemployed where as the parties in favor thought that organized sector would provide employment to unemployed youth on a big scale. However this particular point has a very wide scope of debate as it has direct and indirect impacts besides we shall have to consider the industrial sector also that would be involved in supplying material to the retailers. There is another possibility, as the parties favoring FDI who think that demand for smaller industrial sector would increase but must look into the cheaper material coming from countries like China that would definitely affect the local industry adversely.

Let us look at the facts- storage facility 

I must clear it here that 100% storage of agricultural produce is already allowed to foreign companies and not only that but government of India provides subsidy for making cold storages. However, the fact remains that most of these cold storage utilize the facilities limited to potato, jaggery or fruits to a limited level. The fruits or potato as they say go to the same market where the big dealers/mediators take full advantage of products in off season or while the rates are favorable. There is another fact that storage of fruits and vegetables goes well where there is industry to process these items since we do not have enough food processing units in our country therefore this is obvious that retailer would use these storage facilities for their advantage. India has a bigger problem to solve and that is related to farmers point of view, we shall have to provide protection to our farmers because retail sector does not provide any such protection to them. The most the organized retailers can provide to the farmers is refrigerated transportation to their produce and time bound payment, which would be a big help to them. The mediators take the full advantage of farmers for such services that costs the consumer in Delhi up to five times when he buys the onion coming from Maharastra and potato from UP.

We have mainly three sectors in retail business

1- Purchases related to milk, eggs, vegetables and other related where the small shopkeeper is the main source of supply and where organized retail has very little share because they cannot reach in this particular sector in most Indian towns

2- Then comes top up sale, which covers tea, sugar, pulses, spices and other grocery items, this sector is mainly attracting the organized retail sector as these items are easy to store and the sale is reasonably substantial to attract them into that sector. This sector is giving a tough competition to conventional shopkeepers 

3- Finally the consumer is going to organized retail for their monthly shopping as this sector is attracting consumers by their marketing strategies and lower prices also offering different schemes and this is going to be the main sector where the conventional business is going to face most competition.  

Cheaper import and employment

Indian market imports most of the cheaper products from China through unorganized sector, which would only increase once organized sector become involved. Here this is an important factor to consider that our law binds organized sector to prioritize small industries of this country but the problem is that most of our small manufacturing units have no branded products. Therefore the benefit would go to the companies those are making branded products, already in the market and doing comparatively better with  a minor difference that they would have to compromise with organized retailers price wise.

As far increase in employment is concerned, most employment would come in the manufacturing units due to increased demand of products. The employment would go up to certain extent in retail sector as well but limited to semi skilled sales persons because the scope for employment is in that particular category only. The chances for higher salaried group in retail sector are limited same as in conventional retail where an owner employs salesmen as per his needs. However, the chances of employment are not that encouraging because bigger number of people would loose their business with no education as most small traders in our country are from that category.

There are different versions

Most people put forward the example of Bharti Wallmart that pays Rs 8 per Kg for baby corn and sales it for Rs 100/Kg to retailers who in turn sell the product to consumers @ 200/Kg , this is one example that shows that a farmer gets merely 4% for his yield. There is another example of exploitation by big retailers in organized sector like the number of farmers in America which has come down to less than one percent of their population despite the fact that US government gives substantial subsidies to their farmers. There is also the same scene in Europe where the data shows that at least one farmer is exiting out of farming every minute. In Europe, farmers are provided enough subsidies and if the subsidies removed, the agricultural sector has no chances to survive whatsoever. 

Mediators are part of the business 

We must understand one of the main points about mediators as they are part of retail business whether in organized or in unorganized sector, you cannot imagine business in retail sector without them. If they are present as whole sellers or agents in unorganized sector they are there in organized sector as quality controllers, certification agencies or processors but they are present for sure. You can put even Walmart in the category of a big mediator who negotiates with different companies to bring prices down according to their choice and put a price tag as per their own liking. We can see the difference in big malls where they put a different price tag for compared to local markets with changed wrappers for the same products. In addition, the fact remains that big retailers can help built a better infrastructure in rural areas for development of the area is not true. Even in U.S., the network developed in rural areas is with the help of government with almost no share of private sector in that field. As far organized sector helping in the wastage reduction that too is not true because even in America almost 40 to 50% food, fruits and vegetables thrown on the garbage unutilized in the super stores.

There is so much to ponder upon

To make every thing related to organized sector entirely depends on the laws and bylaws those would come in to effect once the green signal is given to go on. We shall have to see that retailers do not force farmers to sell on cheap rates. The FDI should not only be used for opening stores but making a cold chain as well because that would be the ultimate help. Interests of consumers should remain intact by effectively keeping anti dumping act. There is another important point to keep in mind that to make their business a monopoly they usually try to capture the smaller business by different methods, there is a need to keep a strict vigil on that tactics but that would purely depend on how we apply the formula of investment in retail sector. However, that is going to be a tough task as the retail sector is under state governments and there is no regulatory in this particular field.

FDI is having two-way impact on our economy; if it may prove fruitful in some cases, it may also prove a bouquet of flowers that has thorns with them. If governments have to stop retail sector from taking unnecessary advantage then they shall have to make strict rules and give its controlling bodies enough rights to keep situation under control. Good governance can bring even situations not so favorable under control and if there is no willingness or the controlling authorities have their stakes involved which we see in every field in our country the chances are we shall be neither here nor there. FDI is neither good nor bad but this is all in hands of our government as how they make it for commoner as well as farmers.

Let us look at some more points 

First- With the farmer’s point of view- Farmer should get more prices by selling their produce direct to retailers, which should bring them 50 to 60% extra income also the organized sector should bring a better supply chain with advanced transportation facilities for them. As the present retail sector buys from wholesalers this should give a boost to backend facilities to rural areas if implemented with proper planning. Our governments can improve the situation only with an effective regulatory that works in favor of consumers and suppliers.

Second- With consumer’s point of view- Consumer would be benefited, as the prices would go down besides the quality of products would improve however this all would depend on distance of such a store and quantity of products purchased by consumers because they do not have the facility of haggling, which Indian consumer is so used to.  

Finally

There are hundreds of thousands local shops and smaller industrial units might get effected if a proper regulatory to watch their interests is not established with full control over the foreign companies although this is not possible with applicable rules of WTO which restrict any country to impose their own rules in this matter. Our government is talking about a mandatory rule, that would bound retail sector to buy at least 30% from MSME (Micro, small and medium enterprises). But there is a serious doubt about its implementation as they have not specified or drawn a line in between to differentiate in between big and small industries in India.