Focus

FDI In Retail – danger signals for the Indian economy

The decision of the Government of India to permit foreign direct investment (FDI) for multi-brand daily consumable items in the country’s retail market was taken after much thought and consideration. Its purpose is, however, obvious: to quite literally roll out the red carpet for capitalist nations and their corporate entities, who exert considerable influence at the international level, to enter the Indian retail sector. Political parties, farmer’s originations and retailers at large heavily opposed this decision. Functioning of the parliamentary process was disrupted and finally the Government had to with-hold its decision keeping forthcoming assembly elections and huge opposition from various corners of the country. However, the government has not discarded the idea.
It gave the green nod for single brand FDI in the second week of January 2012, after holding long meetings with consumer groups to convince them that FDI will give them opportunity to buy discounted items, they will have lot of choices and they will find all items under one roof. Consumer organisations (who are represented by upper middle and high income class, who largely live a luxurious life and are not much concerned about small vendors, farmers and other producers) are now in government’s court. As the next step, the GOI is planning to deal with farmer leaders and unions. The indication is that very soon the GOI will enter take on the FDI war head on, even if they have to sacrifice the interest of 60 million farmers and 93 million people (around 77% of the total population) who survive by spending less than $ 0.40 per day.

The modus operandi of multinationals
Most of us are by now familiar with the basic modus operandi of these transnational corporate interests. They first make an entry into the manufacturing sector and once they have established their control over industrial production they take the next logical step, which is to capture the natural resources required to produce goods, such as minerals, water, land and forests. The way they achieve their objective is by exerting pressure on national governments to dilute or weaken laws and regulations that stand in their path of consolidation. In the Indian context we have seen such dilution specifically in the case of the Special Industrial Areas (Development) Act as well as the Land Ceiling Act and the Land Acquisition (Industrial Areas) Act.
Once the multinationals have more or less established their supremacy over resources and manufacturing, their next step is to capture the space between the producer and consumer of goods. That’s why they so eagerly eye India’s retail sector. This space is presently occupied by hundreds of thousands of merchants, commission agents and retail traders. Their game-plan is to eliminate these intermediaries, forge direct links with consumers and gain control over the complete trade cycle from production to consumption.

The impending dangers of FDI
The consequences of multinational corporations capturing the retail space in the country are fourfold. First, the profits that small retailers and commission agents presently earn will now flow into the hands of foreign entities. Second, once these giant companies establish their monopoly in the market, they will begin selling goods that fetch them the highest profits. Third, the push for higher profits will encourage them to produce only those goods that meet their economic objectives. And fourth, given their monopolistic position in the market, they can exert pressure on the government to demand land, water and energy at concessional rates to expand their trade base.
The government offers several justifications for permitting FDI in the retail sector. It is important to analyse these reasons if we are to get at the underlying truth. For example, the government claims prices of goods will fall once FDI flows into retail because there will no longer be any middlemen or commission agents. The truth is slightly different. Once large malls and centralised sales distribution centres are established, expenditures on cold chains, storage, warehousing, electricity, and so on will shoot up. This, in turn, will raise the prices of goods reaching the consumer.
This has been the worldwide experience wherever policies to corporatize retail have been implemented, as seen in the following examples:

• In Thailand, supermarkets run by multinationals charge 10 percent more for fruits and vegetables.
• In Russia, costs of goods available in supermarkets are 20 percent higher than in traditional outlets.
• In the US, supermarkets progressively raised the price of tomatoes by 46 percent between 1994 and 2004 even as tomato prices fell 25 percent in traditional retail outlets during the same period.
  The justification that small retailers would remain unaffected by the introduction of such a policy also appears to ring false.
• In Argentina, there was a sharp fall in the number of small retailers over a 10-year period - from 64,198 to around 44,000.
• In Brazil, the share of small retailers in fruit and vegetable trade fell 27.8 percent between 1987 and 1996.

How it will affect farmers and agriculture
Another important consequence of corporatization of retail is the impact on farmers and agriculture. FDI in retail generally benefits only those farmers who collaborate with multinationals and accept their conditions, which means they begin growing only those crops decided upon by their collaborators. Only large farmers have the wherewithal to link up with the sales distribution systems of these corporate entities, who have the monopolistic power to control prices of their goods in their supermarkets.
So what happens to the remaining 90 percent of our farming community, which comprises small and medium farmers with holdings of less than two hectares? They can no longer sell their produce directly in the market because they will be seen as competitors by these major players, who will make all efforts to deny them access to the market. They have the commercial power to do so and no small farmer dare challenge that power.
There is also a question mark about whether the farmers who collaborate with them actually benefit in the long run. According to a study conducted by Oxfam, the prices of apples exported from South Africa fell 33 percent while tomato growers in Florida got 25 percent less for their produce even as consumers paid 46 percent higher prices for the products in supermarkets.
The study revealed several other serious impacts. Farmers began to face mental tensions as pressure mounted on them to keep prices low while improving the quality of their produce. They were also pressurised to grow only certain favoured varieties. Often, arbitrary changes were made in the conditions of their agreement at the crucial stage when their crop was market-ready. They had no say in the matter because their only option was to sell to the multinational since they had no access to the open market.
The government’s argument is that this is exactly how existing malls and department stores in the country function, hence what is the harm in allowing FDI? But it is obvious that the inflow of capital will lead to many more spectacular malls being constructed, with the result that retail trade would see an increase in monopoly control. At present, in the absence of a policy, any person is free to enter the retail trade, but once a policy is formulated even existing retailers will effectively be displaced from the market.
We cannot also overlook the potential impact of corporatization of retail on our culinary culture. Monopoly trade will rob it of its diversity. Branding and packaging of foodstuffs will lead to higher prices and increase the consumption of inputs like electricity and water. Monopolies could also easily and surreptitiously introduce genetically modified (GM) foodstuffs into our diets. This is not all. Supermarkets will need to store products for longer periods of time. This will lead to increased use of preservatives, insecticides and other chemicals to protect fruits, vegetables and other such foodstuffs to ensure greater shelf life.
All in all, it is clear that the proposed FDI policy will pose serious challenges for our country, impoverishing our culinary culture, impairing the physical and mental health of our people, compromising the independence of our farmers, endangering our economic system and jeopardizing the livelihood of 4.5 crore Indians.

“Progress” has not led to equitable growth
Twenty years after the introduction of policies to reform, liberalise and open up our economy we are once again passing through financial and economic uncertainty. These policies have been hotly debated for these past 20 years and today’s crisis can be traced to the reference points that underpin them. The most significant of these reference points is the growth rate of our economy, which is used as a measure of our development and is seen as being synonymous with progress. So every percentage point increase in our gross domestic product (GDP) is interpreted as a sign that we are entering a high growth phase. But GDP calculations disguise one significant fact – that this progress is not evenly spread and is not benefiting the majority of our people. Nor do they factor in the reckless exploitation of our resources, the despoliation of our environment, the ruthless suppression of community rights and the quiet burial of all human values.
GDP-based development has divided our society into two antagonistic sections – one of people who create our society by the sweat of their brow (who constitute the overwhelming majority but are deprived and exploited) and the second of people who control our resources, or seek to control them (who are in a minority yet retain control of power). India’s GDP is in the region of `78 lakh crores yet a mere 8,000 people in the country control 73 percent of this output. So is it any surprise that our government and the policies it formulates are heavily influenced by this miniscule yet powerful segment?
The process of economic reforms may have been introduced in 1991. But the groundwork for market liberalisation was laid several years earlier when India became a signatory of the General Agreement on Tariffs and Trade (GATT), the precursor of the World Trade Organisation (WTO) agreement. (In this context, it is pertinent to recall the Bombay Plan, worked out even earlier in 1944, which had a similar agenda.) Under the provisions of this agreement all participating nations agreed to open up their countries to trade, reduce taxes and levies, formulate policies to encourage foreign and private investment (which today include policies that grant forests, land, water, energy and security to multinational companies). It was also decided at the time that governments would encourage private sector participation by withdrawing from sectors such as agriculture, social security, health, education, energy and transport.
The 1991 reforms were ushered in within the purview of this agreement. This was followed up in 2011 with the policy permitting 100 percent FDI in the agricultural sector for research, trading in seeds and fertilisers, and all other areas that impact upon the country’s agricultural system. This policy change, adopted by the government without debate, de-emphasised research conducted by our farmers and signified that their economic security were no longer of any importance.
The next step was taken in November 2011, when the government sought to permit 100 percent FDI in retail. But the ensuing public outcry forced it to place the proposal on the back burner. India has 1.21 crore retail outlets that conduct an annual trade in the vicinity of US$350 billion (`17.5 trillion), contributing 14 percent of our GDP. Now gigantic global players like Walmart, Carrefour and Metro are slated to enter this trade.

The Walmart story
Let us examine the example of Walmart in greater detail. The global retailer has a trading empire encompassing 85 crore sq ft of retail space around the world. Retailers in India use an average of 150 sq ft of retail space. If this is taken as a standard retail unit, we see that Walmart controls retail space equal to 56 lakh average retailers. It accounts for 40 percent of the retail trade in 20 countries yet gives employment to a mere 800,000 people. It buys its products directly from large manufacturers, bypassing the chain of wholesale and retail traders. So small local traders are completely wiped out wherever it establishes its presence. And once its monopoly is established, it encourages only its preferred brands.
The government has made every conceivable effort to bring in FDI in retail to benefit giant retailers such as Walmart. This company sells $421 billion (`21.05 trillion) worth of goods, which means it is so powerful it can twist the arms of the government at any time it wishes to influence the country’s agricultural and consumer policies. Even though it is not in retail trade in India at the moment, it has spent 85 crore in lobbying over the past four years.
Opening the doors to entities like Walmart through FDI in retail will endanger the livelihoods of 4.5 crore people, majority of them small traders like milkmen, hawkers, sweetmeat makers and others.
Another policy change in the offing is linked to the fertiliser subsidy. From April 2012, the subsidy presently given to producers of fertilisers and pesticides will be paid directly into the accounts of the beneficiaries – the farmers. Until now fertiliser prices were linked to these concessions. Once the subsidy is paid directly to farmers, producers will have the freedom to fix the selling price of fertilisers. However, the subsidy paid out to farmers will remain unchanged regardless of the market price they will have to pay. If we look at the fate of petrol prices following their deregulation, we see that they have risen 100 percent over the past two years. This will be the fate of fertilisers as well.
Attempts are also being made to end the subsidy for the public distribution system (PDS).
To sum up, our society is at the mercy of the market today. Multinational companies are being given ownership rights to our resources and the people are being viewed as nothing better than captive consumers. That’s the hidden implications of the policy reforms we are witnessing today.

The writer is a Social Researcher, Food rights activist and also works as State Advisor to the Supreme Court Commissioners in Right to Food Case.

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