FDI in retail and the 21st century ‘drain of wealth’
by Sandhya Jain on 30 Dec 2011 10 Comments

In an address to the Congress parliamentary party on Dec. 8, Union Finance Minister Pranab Mukherjee lamented that the UPA coalition was forced to suspend the cabinet decision to allow 51% foreign direct investment in multi-brand retail (like Wal-Mart, Tesco, Carrefour and others) in order to avert a mid-term poll.

Mukherjee mourned this ‘progressive’ measure – which would please Western governments pushing for FDI in the Indian retail sector – had to be sacrificed because of the resistance of opposition parties and key allies of the ruling coalition. Had these parties united to vote in favour of an adjournment motion, the government could have been in peril. The UPA, he said, would now strive to develop a consensus on FDI.

After this fiasco, the UPA quickly permitted 100% FDI in single brand retail, partly because the opposition had not directly attacked this proposal, and partly to appease the Western lobby that the regime holds in thrall. It seems reasonable, therefore, be remain vigilant on the issue, as journalist Paranjoy Thakurta Guha recently exposed that rules were quietly tweaked to allow foreign players a backdoor entry into the real estate sector.

Mukherjee’s speech must be one of the most surreal statements by an Indian finance minister. Two decades of liberalization has seen the rise of several new sectors, along with the paradox of non-creation of jobs with salaries and benefits. Today, thousands of youth across the country work on short-term contracts, or on the basis of small incentives, while struggling to rake in customers and profits for large corporates, in conditions that are highly exploitative.

Liberalization has reinforced the Rich-Poor divide, making the creamy layer of society richer, and the lower rungs poorer. To stabilize this injustice, for a brief period the upper and mid-level middle class was allowed a bout of unprecedented prosperity, blinded with expectations of unending affluence, and tacitly encouraged to turn its face away from the poor. The Indian middle class began to believe that its handsome pay packages were an entitlement, while the poor were poor because they were unworthy.

It is no coincidence that the sharp spurt in cases of brutality against domestic servants has occurred in these last two decades, something virtually unheard of in previous decades when the police would be less responsive to such crimes.

Now, amidst the fading illusion of linear growth, the middle class is waking up to the grim reality of the economic downturn, with vanishing jobs and opportunities, shrinking pay packages, and a government indifferent to its plight. Worse, Government pretends the economy is an autonomous entity that operates independently. It also tries to outsource responsibility for providing citizens with clean water and electricity, health care, affordable housing and housing loans, quality education, and affordable foodstuffs.

As for jobs – the foundation of family security – government extends huge loans from public sector banks to private corporates that do not provide permanent jobs to the millions who toil for them. Recall how a highly successful airline shut the doors on hundreds of new recruits on Diwali eve some years ago, until public outrage forced government to intervene and resolve the crisis. Currently, another airline, whose top bosses are known only for their profligate lifestyles, is demanding a bailout, which government would happily provide, if only it could get the media to turn the spotlight elsewhere. There is no explanation why that airline has failed, no assurance that bailout could make it viable. Above all, there is no guarantee that this is not an elaborate hoax to help government permit FDI in aviation, which some Indian corporates are keen on.

The key question – why did these airlines fail when public sector carriers were taken off profitable routes to allow them to succeed – is unaddressed. So is the corollary – if private airlines cannot succeed even after public sector airlines are compromised for their sake, why don’t they just fold up?

Currently, Rs. 40,000/- crores of loans from public sector banks are in default, and banks are not even pursuing most cases. This is an outright gift of taxpayer money to persons whose permanent assets should be legally seized and auctioned to realize the arrears. But they are protected by the same cussed secrecy that veils felons with illicit funds in overseas tax havens from public scrutiny.

For the first time in independent India we have a Planning Commission with the audacity to say a
person can survive on Rs. 32/day in urban areas [one litre of milk + one banana], and even less in rural areas. For six decades we failed the make the requisite investments to ensure sustainable development in rural areas, and allowed Brain Dead Economists to assert that forced migration from rural areas – where honest rainwater harvesting alone would have ensured sustainable agriculture and a well-fed populace – would translate into industrial growth and urban development. We pushed them into urban slums and did not even make honest efforts to empower
them through education.

Despite the bleak economic scenario facing us today, few intellectuals and analysts care to admit that India evaded the worst of the global financial crisis of 2008 because our banking sector was not opened up.

Today, when food security, like water security, is emerging as a major national challenge, and the much-maligned retail sector/middleman provides crucial self-employment, it is unconscionable that Government should dabble with half-baked notions like FDI in multi-brand retail. Western corporates disguised as philanthropists are trying to push Genetically Modified foods to kill the rich diversity of the Indian food spectrum and monopolize the food chain from farm to kitchen table by controlling seed supply and retail. Yet Government peddles the canard that foreign retailers will benefit farmer and consumer.

Should this move have succeeded (the threat lingers), the giant corporates would enslave farmers through contract farming or other devices, and push mono-cultivation in place of crop diversity. As the 21st century witnesses a new wave of western colonialism and its rush to grab the resources of other nations, we should recall the lessons of our colonial past.

In Champaran, Bihar, barely a century ago, the British forced poor farmers to grow indigo instead of food crops, and monopolized the production, marketing and profits of the expensive dye. Despite the movement launched by the Indian National Congress, the exploitation ended only when the invention of an inexpensive chemical dye ended the need for the indigo crop. In 1759, the East India Company and later the British Crown monopolized the salt trade, imposing tax on this humble but basic ingredient that affected every homestead. Again, the Indian National Congress failed to tame the imperial power, and the Salt Tax was abolished only by the Interim Government in 1946, when the British were on the way out. That is the meaning of independence – control over the polity and the economy, for the good of the people.

FDI in retail will put farmers at the mercy of MNCs who will dictate the crop to be sown, possibly the seed used, the fertiliser and pesticide [which can affect long-term soil fertility]. MNCs often force farmers to switch to cash crops, which can endanger their livelihoods - recall the debt-driven cotton farmer suicides - even as the need to buy their own food affects the family’s nutritional and financial status. Also, corporates tend to favour certain types of crops for commercial viability, such as staples like rice and wheat, and shun nutritious grains like ragi, maize, millet, bajra, affecting crop diversity.

MNCs dictate the price at which the harvest is purchased, and seek complete domination over the food chain from the farm end. Long-term contracts ensure that farmers cannot sell to other buyers – recall the East India Company’s opium contracts with Bihar farmers and you can see that contract farming is another name for bonded farming.

Ostensibly, contract farming is supposed to guarantee the purchase of the produce and ensure quality, but experience in many countries shows that MNCs retain clauses that permit them to reject produce in the name of ‘quality’, or otherwise depress prices on some pretext, leaving individual farmers no choice but to fall in line.

This dictating of the terms of ‘free trade’ is the essence of colonialism. Libya’s Muammar Gaddafi lost his power and his life only because he wouldn’t sell his nation’s oil at the price determined by western multinationals in order to maximize their gains at the expense of the Libyan people. Saddam Hussain of Iraq met the same fate for the same reason.

Farmers’ interests are protected only when there are multiple buyers, who cannot dictate prices. What is needed is lifting restrictions on the sale, purchase, storage and movement of agricultural goods across the country (something government will do for foreign players but not for Indians), so farmers can sell to whoever pays best. For this, farmers need good roads to connect to multiple markets, and adequate cold storages, which should be built at village level with solar/alternate energy to be viable. Above all, government should ban futures trading in commodities, which triggers price rise and benefits only speculators.

Coming to retail, there is a chant about ‘elimination of middlemen,’ as though that ensures value addition and lower prices, and as if middlemen perform no genuine role in bringing remote farm items to city tables. Recall the nutritious blue potato of South America that the monopoly plantations hounded out of farm and palate, only to later revere surviving patches of the crop as a ‘rare delicacy’. Now recall our own festival specials like ‘kuttu ka atta’ and the tiny grains of festival rice and realize what we could be in danger of losing forever.

It is not true that FDI or large corporates alone can bring better technology and inputs through contract farming; how much did the old zamindars invest in agriculture; what did they leave the farmer; what has Indian big retail done for Indian agriculture? Equally specious is the argument that corporates will reduce wastage by investing in infrastructure; if they do build cold storages it will only be to tighten control over national food supply.

There is another aspect to so-called wastage. In the ages when India was rich and prosperous, society did not try to eat the whole produce. A portion of the harvest – edible to man – was shared with cattle that worked on the farm, or produced milk. This share has long been denied to our cattle, and this fall in their nutritional standards is generally ignored when we talk about the low milk yields from native breeds of cow. Perhaps we should view surplus produce as cattle share, and not as a loss of cash.  

Big Retail will eliminate 44 million local retailers to establish monopoly power; buy at the lowest prices and sell at the highest; in short, emerge as sole ‘middleman.’ Thus, Indian retailers will lose their livelihoods and foreign retailers will take the profits home to their own countries!

This is a replay of the classic Drain of Wealth scenario cogently outlined by our Grand Old Man, Dadabhai Naoroji. As the French say, the more things change, the more they remain the same…

The author is
Editor, www.vijayvaani.com; the article was written for the Mainstream Annual 2011 number
User Comments Post a Comment

Back to Top