When the Indian Cabinet cleared the deck for Foreign Direct Investment (FDI) in the multi-brand retail sector after years of discussion, there was joy in many quarters. The government called it ‘another revolutionary leap’ after the IT revolution and liberalisation. But the euphoria was not shared by those who saw it as a step that could crush the ‘little guy’

Once the announcement to allow FDI in multi-brand retail was announced, the Opposition Bhartiya Janata Party (BJP), an advocate of FDI in retail when in power between 1999 to 2004, opposed the move and created a ruckus inside and outside the Parliament. Some of the alliance partners of the ruling United Progressive Alliance (UPA) government also went with the Opposition’s argument. Under intense pressure, the government had to put on hold the decision to allow 51 per cent FDI holding in the multi-brand retail trade and raise the FDI ceiling from 51 to 100 per cent in the single-brand retail trade. However, the cap on the cabinet decision has uncapped a new debate about the merits and demerits of FDI in the retail sector. The proponents of FDI claim that it will have a positive impact on farmers, give a fillip to post-harvest infrastructure like modern warehousing and cold storage, and give growers a competitive rate for their products. It would also free farmers from the clutches of middlemen who deprive them of their share of profits. For the believers, FDI in retail is all about rural upliftment and reform in a market-driven manner. It is also claimed that the massive investment in trade and supply chains will reduce and stabilise prices of food grain, thereby taking care of seasonal inflation. The argument goes that FDI provides better choices to consumers in terms of pricing and the experience of shopping. Another persuasive argument put forward is that the entry of big international retailers will create at least one billion jobs. Supporters of the move don’t buy the argument that traditional small retail shop owners, the neighbourhood mom-and-pop stores, will be impacted. But opponents discount these virtues as corporatesponsored propaganda to sell an idea under pressure from multinational companies and the western world. They claim that the presence of the Walmarts et al will eat up traditional grocery shopowners. They fear that farmers with small landholdings will be reduced to penury as big retail houses target only big farmers. On the possibility of food inflation coming down, critics argue that the inflationary phenomenon has to do with shortages on the supply side and distribution bottlenecks, which fall in the government’s domain. Anti-FDI groups counter the ‘increased employment’ factor with the query that when more than 500,000 traders will be displaced in a single metro like Delhi by the advent of big retail houses, how would the creation of a few thousand jobs compensate? Some doubts are valid, like the issue of farmers with small landholdings; around 85 per cent of the farmers have small agricultural lands. But it is also unfounded to think that farmers’ conditions will deteriorate. The farmers in Medak district of Andhra Pradesh have been selling their products to Metro, the German wholesale brand, since 2003. They are happy to be rid of middlemen and glad to have ready customers. Therefore, both opponents and proponents need to debate the issue with an open mind. DW spoke to Dr Rajiv Kumar, Secretary General of the Federation of Indian Chambers of Commerce and Industry and former Director of the Indian Council for Research on International Economic Relations. We also discussed the issue with Devinder Sharma, a food and trade policy analyst.

DR RAJIV KUMAR// Foreign Direct Investment in retail means investment by foreign companies and multinationals, in the retail sector in India, either as single undertakings or in joint ventures with domestic partners. Actually they will have to team up with the Indian partners to build mega stores because only 49 per cent is allowed to foreign partners. FDI will assist in modernising the retail sector in India and help the sector keep pace with growth in the economy. This is the general benefit. The most specific benefit is that big retailers help to reduce the cost of all the products that they bring in, and therefore consumers have to pay a lower price. So there is a direct benefit to the consumers who also get a better shopping experience because of the increased choices in the stores. For the farmers, the benefit is that the big retailers do away with the intermediaries between them and the final consumer. This raises the price of products. With their removal, the farmers can get a better price and consumers pay a lower rate. Moreover, farmers will also benefit from newer varieties of products and technologies that the retailers will bring. This is what happened in the case of Pepsico. It gave newer technologies to farmers. Or in the case of farmers growing potatoes for McDonalds, who also have been given new technologies that have improved yields and, therefore, increased their income. And finally, the big retailers will also make investments in logistics, like transporting the goods from the farm gate to the final consumer without much waste. The airconditioned chain, trucks, warehouses — all of that will reduce wastage of agricultural products, which at the moment is about 30 per cent. Because of this reduction, extra products which in turn will get added in the market, will help food security. With the intermediaries eliminated, prices will be brought down and this will ease the food inflation. The opposition to the move is political. There is no logic behind the strident voices raised against it — it is simply opposition for the sake of opposition. The main resistance is also coming from the small retailers and intermediaries who think that the entry of the big retailers will cut into their profits and reduce their share in the market. This is only to be expected. But as we have tried to explain many times, while the share of the small retailers will go down, since the trade itself will expand rapidly, the overall size will not reduce. Perhaps the real opposition comes because a large part of the retail trade at the moment is in the cash economy, and will be transferred to the organised, bankable economy which will mean a big change for all concerned. The growth in the economy has to permit the entry of large retail stores. You already have Indian retailers like the Big Bazaar, Reliance Fresh, etc., operating in India. German brand Metro is already a player in the wholesale segment. The only difference will be that with Foreign Direct Investment this process will be accelerated and the growth process boosted. Without the FDI the Indian businessmen, who don’t have any experience in this process, will take time to mature. They will get there in any case; it’s only a matter of time. The attempt by small retailers, the mom-and-pop stores, to prevent the entry of large retailers or organisations is bound to fail. The Left parties demand that the government build its own stores without bringing in multinationals. The Left has used this argument to rule West Bengal for 35 years, and I don’t think I need to expand this point and explain any further. The government is not in the business of running retail stores. The government should be in the business of providing law and order, providing security, providing education, and organising healthcare and basic infrastructure. So, to argue that the government should be running retail stores, hotels and restaurants, is stupid. I am simply being honest about this. I am very optimistic and believe that this is an idea whose time has come. It cannot be stopped. Having said that, I don’t know when all this will become a reality — it is tough for me to predict. I do believe that people could be informed better about these reforms. There is no discussion on the need for reforms and about the benefits in any language other than English. That used to be sufficient some 20 years ago because the elite (who read English) were able to undertake the reforms. Now the reforms affect the lives of general people and because of information explosion, the masses are now better organised. We need to have this discussion in all the regional languages and in Hindi, otherwise awareness will not increase.

DEVINDER SHARMA// There is a misconception that this move will uplift the condition of the farmers. This is a failed model elsewhere and can’t be successful in India. If the idea is to just get involved because it involves big corporate houses, then I think such an idea is not in the larger interest of the country. If socialism or communism could not do any good to the world, then why replicate a failed model in such a big and complex country like India? The government is under tremendous pressure politically. The first head of the state to visit India after the 2009 elections was the British Prime Minister, followed by the heads of states of Germany, France, America, Canada and so on. And all of them have been pressurising India to open up the retail sector. The other thing which is little known in India is that the G20 has also, under an agreement at the last meeting in Toronto, made it mandatory for all member countries to open up to FDI in retail and remove all obstacles. At the same time, they are also to report the development to the International Monetary Fund (IMF), which is coordinating this process. India is one of those members of the G20 which has not been able to comply, so is under tremendous pressure. Unfortunately, the Indian government is preparing a fake analysis to justify the entry of FDI into India. That is why there was protest on this by the Opposition, some parties of the ruling alliance and the general public.Secondly, the argument that it will help in the development of agriculture is certainly not based on facts — it is based on biased studies done by the government to justify the move. Let’s try to analyse where it has been helpful, if at all. If you look at the original paper which has been produced by the department of Industrial Promotion and Policy and the subsequent studies done by the Indian Council for Research on International Economic Relations (ICRIER) and so on, these are basically faulty studies. Let me question a couple of assertions. The first is that it will create employment. Walmart is the world’s biggest retail company now and its total turnover is around $420 bn; it employs 20 lakh people. In India, ironically, the total turnover of the retail industry is also about $420 bn. There are 120 mn shops and it employs 40 million people. Now the question is, how will they create more jobs by destroying such a big market and rendering so many people useless? When you look at British firms like Sainsbury’s and others, they were supposed to create 24,000 jobs between themselves in the last two years, which is what they promised to the government. Instead, they have actually offloaded 820 people. So if they have not created jobs in the UK, how can you think that they can come and create employment for us? So the employment creation has to be seen in the light of how many jobs are being displaced. In the final analysis there would be more victims and less survivors. The other argument is that this will help farmers get a better price. This is again a flawed thesis based on wrong analysis. When you talk about farmers’ welfare people think, “why oppose it?” But look at America — the birthplace of Walmart and grooming ground for Tesco and other big retailers. In America, the farmers definitely benefited because on the one hand you have Walmart and on the other hand you have the commodity exchanges. Commodity trading is a popular practice there. Despite all this, USA is providing farm subsidies, which include direct income support to farmers. A recent study shows that if the Green Box subsidies or farm subsidies are withdrawn in America, there would be a fall of 42 to 45 per cent in agricultural production. So is the income of farmers going up because of Walmart or because of factors like commodity trading and subsidies? In the past five years the American government has pumped in more than $300 bn in subsidies. In Europe, too, despite the presence of all these multinational retailers, governments provide huge agricultural subsidies. And even then one farmer quits agriculture every minute there. If you look at the Latin American countries, where over 65 per cent of the retail industry is in the hands of FDI, a large number of farmers are being forced to leave agriculture. So what kind of model are we bringing to India? The third argument is that it will help in removing middlemen, and therefore, provide more income to farmers. But look at things in perspective. If Walmart, for instance, is really squeezing out the middleman, it is also becoming one. It is not a consumer, it is a retail giant and the definition of middle-man is somebody who is between the producer and the consumer. The only difference is that it is a very big middleman and it keeps small middlemen out of the process. The impression we have in India is that the traditional middleman is somebody who gobbles up lots of profit. This is true. But with multinationals come a battery of other people which include the standardiser, the quality controller, the processor, the retailer, the packaging man and so on. That is why a number of studies show that in America the farm income has come down over the years, since the number of middlemen actually multiplies when the supermarket comes into a country. So where is the advatage? Allowing FDI in retail is going to be suicidal for Indian agriculture. Nowadays anything that comes with bags of money is an idea whose time has come. Business bodies are not concerned with national interest — their only motive is profit. They are concerned about their own collaborations and joint agreements. According to a disclosure, Walmart alone invested `52 crore between 2007-2009 in India on lobbying. That money has gone somewhere. The revelation is only about the money spent by Walmart; what about the expenses by the other 10 big retail giants? This is a passing phase where all political parties’ popular agenda is driven by corporate interests. But it will be tragic if we allow this because we are actually destroying our own capabilities and letting things go into the hands of foreign companies which will repack the profits to their own countries. It is basically a system of recolonisation of the country. I think we need to improve infrastructure and provide farm incomes. To borrow these failed models and then think that we are trying to help Indian farmers is not going to help them.