Why I Oppose FDI in Retail in India

Submitted by rajat on Sun, 16-Sep-2012 - 23:43

 

I expressed my displeasure over FDI. Some of my friends disagreed. A couple of them sought my reasons on why I was against the idea of FDI in Indian retail. Please find a long article in which I aim to translate a bit of my thoughts with adequately supported by facts and experiences from our nation as well as from across the globe. FDI is retail is not just about Indian Markets. It's about the whole concept of producer/manufacturer - supplier - consumer relationship. Both the impact of such decisions and the solution to such problems have been witnessed in this land. Here I share them all.

PART 1: The History 

In 1988, the World Bank gave India's seed sector a fourth loan to make it more "market responsive." The US$150 million loan aimed to privatize the seed industry and open India to multinational seed corporations[1]

If you do have patience, please read the following lines from the MOA:

"4.  However, while the growth in the seed industry has been significant, an effective and efficient seed industry has not yet fully evolved in India. The public sector' B  role in the industry is conotrained by:  (a) the failure to develop public corporations along commercial lines; (b) insufficient managerial authority in these corporations; and (c) government intervention in their operations, pricing and marketing decisions. In addition, there is significant  potential for private sector involvement in the industry on a larger scale in an operating environment which has become increasingly favorable for private initiative in recent years.  In order for the industry to perform more effectively there is a clear need for a realignment in its structural and institutional framework, aimed at creating financially strong, independent and business oriented public seed corporations and encouraging an expanded role for the private sector.

5.  Rationale for IDA Involvement. The project reflects the Bank Group's assistance strategy to support the Government of India's (GOI) efforts coimprove the efficiency of key services and to adopt those policies which best contribute to a resilient agricultural production environment in which farmers can efficieatly respond to emerging market opportunities. IDA participation would assist GOI efforts to undertake the significant administrative, institutional and financial reforms needed to improve the management and efficiency of the public sector seed corporations, consolidate earlier investments made under Bank Group assisted projects, enhance private sector involvement, and foster overall competitiveness and efficiency in the industry. Through these efforts, the project would help meet the farmers' requirements throughout the country for good quality seed of suitable varieties."

World Bank's structural adjustment policies forced India to open up its seed sector to global corporations like Cargill, Monsanto and Syngenta. The global corporations changed the input economy overnight. Farm saved seeds were replaced by corporate seeds, which need fertilizers and pesticides and cannot be saved.[2] Companies like Monsanto promoted their new hybrid seed technology. 

Please see this development as it would have been seen in 1988. It almost looked like all agricultural problems were on the verge of being solved.

In the years to come film stars and polititians and even religious deities promoted Monsento and Cargill. All across the soutern states with black soil, the seeds were destributed under government sponsored schemes. Farmers were told that they are getting pest-resistent, higher yielding seeds which will change their fate forever. But as it turned out, the seeds required MORE water, MORE fertilzers and MORE insecticides.  By the time the government support ended, the traditional seeds were gone and the debt cycle was initiated. If this was not all, these seeds came with the 'terminator technology'. Therefore, new seeds must be purchased every year from big seed companies, at the same punitive prices. [3]

Global Research says -"Monsanto offered its GM seeds to the farmers of India with hopes of reaping plentiful crops. Plain and mostly uneducated farmers thought Monsanto had come to provide a “magic” formula that would transform their lives. They had no idea what was coming. Monsanto’s seeds in India did not produce what the company had promised and farmers hoped. The expensive seeds piled up debts and destroyed farming fields. In many instances, the crops simply failed to materialize. The farmers were not aware that the GM seeds required more water than the traditional seeds. And lack of rain in many parts of India exacerbated the crop failure.

With no harvest, the farmers could not pay back the lenders. Burdened with debts and humiliation, the farmers simply took their own lives, some by swallowing poisonous pesticides in front of their families. To date, an estimated 200,000 farmers have committed suicide all over India.

To add to the misery, wives inherited the debts along with the fear of losing their homes and lands. With no money coming in, they also had to pull their kids from the schools. The mass suicide among the Indian farmers is known as the “GM genocide.”

In its company website Monsanto declares that its pledge is “our commitment to how we do business.” And then there are the business philosophies with virtuous words like “integrity” and “transparency.”

Monsanto’s business practices in India quite remarkably live up to the company’s motto. It purposefully leverages its power and influence in government to penetrate farming markets with motive but without morale." [4]

And eventually: There were at least 16,196 farmers' suicides in India in 2008, bringing the total since 1997 to 199,132, according to the National Crime Records Bureau (NCRB).[5]

Introduction of a policy, execution and finally the results - all before you.

PART 2: This is why the government wants to get FDI:[6]. Decoded!

- Helps leverage foreign investment in supply chain infrastructure

- Indian farmers realised only 1/3 of the total price paid by the cutomer. sometimes ever lower.

- Brings in experience, technology and management

- Helps bring down food inflation

- 17 lakh jobs in next 5 years

- China, Russia, Indonesia, Brazil, Argentina, Singapore Chili and Thiland have 100% FDI.

- Chief Ministers of Congress rules states approve it

 

I'll try to delve into each one of these.

# Farmers will get a better price #

Organised retail of the degree and nature that is being mooted through FDI creates vendors(corporations) who have very large purchasing power. Globally, they have used this purchasing power to bring down priices. With 'predative pricing'. the practice of placing products below the cost price in order to run the competitor out of business, the corporations have been known for monopolizing buisness.[7] Which corporation in the world has exhibited interest in giving higher prices to producers? 

If we are to understand what Walmart does in order to do it's business let us see what they do elsewhere -  "By gaining access to its supplier's books, the company was in a position to virtually dictate the terms of its contracts on price, volume, delivery schedule, packaging, and quality. And it allowed the giant retailer to set the profit margin each supplier would get. It turned the supplier-retailer relationship upside-down." -always low price (Sam Blower)[9].

If the Govermnet is indicating that middlemen replaced with Walmart will bring in better prices for farmers, it just takes on relook to understand the jargon. It has never happened with business this way. It will never happen that way. Just that the exploitation in the hands of middleman will move it's centre to exploitation in the hands of Corporate!

# 17 lakh jobs in next 5 years #

While showing off the numbers of employment opportunities generated does the government also account for the number fo employment opportunities lost? By it's own claims of FDI bringing in technology, the obvious inference is that much of the manual work today will be replced with more automated systems. Eventually, to move the same sack of rice from the field to the store, no business will choose a route which incurs more cost. Thus, for each bag, jobs will be lost switching from unorganised to organised retail.

While it remains to be debated while the loss of these jobs is an acceptable tradeoff to embrace technology, the fact that the Government is clamining increase in employment opportunities is outrageous. 

Also, please consider this: "Of Wal-Mart's 6,000 global suppliers, experts estimate that as many as 80 percent are based in China." - The Frontline [8]. Does the Goverment have any scheme, any plan to make manufacturing in India competitive with China? If not, Chinese products will be cheaper and Wallmark will sell it here even as Indian manufacturers die.

Employment through FDI: Cruel joke!

# Brings in experience, technology and management #

A Goverment which runs ISRO, a country known for technology outsourcing business claims that the way to usher in technology and management is FDI? I'll talk about this more in Part 3.

# Helps bring down food inflation #

Recently, India allowed export of tomatoes to Pakistan. This was when the price of tomatoes in Pakistan were Rs40/- a kg due to a bad drought. Everyday, the customs allowed truck after truck to move across Wagha border. This created shortage of tomatoes in Indian markets shooting the prices up. The Government stood watching! Though I have no references for this, but some people shomewhere who had it in their power to control exports found it more convenient to have exports even as the flame in the Indian kitchen died out! Mr Sharad Pawar, the man who oversaw, and if I may use the words, architected inflation at times has been served notices for ensuring that the Government policies were all in support of hoarders and importers at the cost of Indian citizens. Read about: 

 - Wheat import in 2007 – Bombay High Court issued notices to Union agriculture minister Sharad Pawar, questioning the decision to import defective red wheat - and to submit details of procurement of the crop from different states and the exact process of importing it.[10]

 - Sugar prices in 2009 – Opposition parties, including the BJP and the CPI(M) accused Sharad Pawar of engineering a steep rise in the price of sugar to the advantage of hoarders and importers.[10]

 - Onion prices in 2010–11 – The opposition have accused him to be responsible on the same issue.[10]

Inflation indeed is a problem. There are several factors. Lack of proper irrigation facilities, policies which change to suit business interest in short term, inadequate security for farmers, inability to prevent black marketing and hoarding of goods by organisations run by policitians themselves (read about Maharashtra Agriculture anywhere you like), uncertain weather pattern, unscientific cultivation also contribute to the inflation part. Just highlighting certain aspects which happen to be the benefits of FDI as the most important contributors is an eyewash. 

# China, Russia, Indonesia, Brazil, Argentina, Singapore Chili and Thiland have 100% FDI. #

Firstly, the list being so short speaks volumes.

Secondly, let us not forget that none of these countries with the exception of Singapore are examples to follow when it comes to the way people are treated here. Singapore has no land to grow. No manufacturing of consumer goods. Really nothing to loose. 

# Chief Ministers of Congress rules states approve it #

Oh yes. That's truly convincing. Is it not?

The Government has tried to mislead the public into the benefits of FDI in retail. While countries like US are reconsidering the benefit of having Walmarts when it compares against the employment, manufacturing and production [8], we are being made to 'bite the bullet'.

While everyone is talking about the impact of FDI on consumer market, they are failing to think about the impact of FDI on Indian poor. 

The fact that the Goverment is stating that FDI is coming only in 52 cities is hardly convincing. It clearly is a tactic to make the job to folling a billion people into 'biting the bullet' easier. Since 2005, Mr Manmohan Singh has been consistently moving towards handling off the Indian markets to FDI.

And most importantly, is the vision, as shown to us, complete? Was FDI the only option, the most suitable option?

PART 3: The Cooperative Way

So far, I was trying to bringout my interpretation of the impact of FDI. I wont tell you this story. I will only refer to it. The Amul story. The cooperativve story. One must understand that India is different. It has people - lot's of them. Decisions have to be inclusive. The last man down the chain must benefit directly and surely. If not, the disparity will increase and annihilate our structure sooner or later. When milk supply was at an all time low and condition of milk producers bad, cooperative milk federations were born and the future for 3 crore Indian rural folk changed forever even as the entire country experienced operation White Flood!

The cooperatives did being in immense technology, quality, storage, processing and at the same time, fair share of profits for the producers. They were run not to benfit the shareholder, but the stakeholder. They were inclusive. They never reduced the price of milk for better profits. They never compromised on technology and quality for the larger good. They spread. And eventually, the country of a billion people found an indigeneous solution to a problem.

Having proved itself as a success model in almost every state in India (with the exception of Maharashtra where the giants of exploitations ensured continuous Goverment and labour issues), why is it that the Government never foresaw and encouraged coperative horticulture?

Hopcoms! Rings bells?(The Horticultural Producers’ Co-operative Marketing and Processing Society Ltd. or HOPCOMS was established with the principal objective of establishing a proper system for the marketing of fruits and vegetables; one that benefits both the farming community and the consumers. Prior to the establishment of HOPCOMS, no proper system existed in Karnataka for the marketing of horticultural produce. Farmers were in the clutches of the middlemen and the system benefited neither the farmers nor the consumers)

Hopcoms in Karnataka showed how organised horticulture can be run. How technology could be brought in. how the interest of all 16703 members can be safeguarded together as a unit.[11]

Conclusion

It is not just the impact on smal time retailers which comes under question with FDI. It is the whole economics of movement of materials from producers to consumers. While consumer interests are important, the producers cannot be neglected. While modernisation and technology is utmost important, FDI is not the only way. While middlemen are bad, the companies have never proven to be any better. We have seen what the candy of Monsento did for our people. You and me have a voice, a strong one. Almost 60% of our folks don't. Please do listen to the ghosts from the past and the weeping from the fields in the backgorund of our urban buzz. Please see the fact that the Government eventually is washing away it's hands from one responsibility to the other. Please realise that Indian farmer has been wronged all the while! He needs protection and safety - minimum support prices, better policies, better irrigation, better transport, and buyers who are not keen on lynching the last bit of flesh from his bones! 

References: 

[1]: World Bank: http://www-wds.worldbank.org/servlet/WDSContentServer/IW3P/IB/1988/08/0…

[2]: http://www.huffingtonpost.com/vandana-shiva/from-seeds-of-suicide-to_b_…

[3]: http://articles.mercola.com/sites/articles/archive/2012/04/03/gmo-crops…

[4]: http://www.globalresearch.ca/killer-seeds-the-devastating-impacts-of-mo…

[5]: http://www.indiatogether.org/2010/jan/psa-suicides.htm

[6]: http://pib.nic.in/newsite/erelease.aspx?relid=87768

[7]: http://en.wikipedia.org/wiki/Criticism_of_Wal-Mart#Allegations_of_preda…;

[8]: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/

[9]: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets/pricing.h…

[10]: http://en.wikipedia.org/wiki/Sharad_Pawar

[11]: http://www.hopcoms.kar.nic.in/(S(vcsvpk3cz30ock45cuxw3i55))/Default.aspx

Comments

Submitted by rajkhandelwal on Wed, 19-Sep-2012 - 21:06

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Another Fact " How Indian business sector won't be able to compete with foreign corporates via FDI " 

The foreign corporate giant will bring foreign capital to invest in our country, So looking at the interest rate levied on them, they take the loan from their country bank at a rate of about 2% interest where as an Indian corporate has to pay 12 % interest on the loan he takes from the country owned bank ( mostly nationalized bank). So a disparity lies in it. With less profit and more tax to pay at the initial stage, will leave the firm vulnerable to other foreign giant market retailer called Wallmart or Tesco Via FDI !!!!!

Rules should be same for all the market player then we can decide whether its Good or Bad, But for now, Its totally bad, Indian market is not ready for FDI !!