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How FDI in retail affects the “Mango Man”

FDI in retail is an example of deregulation, devoid of any safety net for its after-effects. Would the government consider the Parliament Committee report or treat Parliament with disdain? 

 
Here is a simplified explanation, sans economic jargon, to help understand FDI (foreign direct investment) in retail and what it has in store for the aam aadmi—“The Mango Man”. Let us start with an analogy.When a falling stone hits the ground its energy is converted and dissipated as heat. However, if the same stone lying on the ground is heated, it does not take off. What is the relevance of the falling stone to FDI in retail? 
 
What is FDI in retail? It means “Foreign Direct Investment” of 51%, a controlling stake is permitted to any foreign company to set up retail trade in India. Simply put, a number of foreign-owned supermarkets would sprout all over the country. At a political party rally in Delhi, the leaders extolled the virtues of FDI in retail as symbolic of the party’s reforms agenda. The phrase, “economic reform” has many different meanings depending on ideological and political leanings. 
 
One view is that between 1875 and 1975 it meant more government and since then it means less government intervention or free run for market forces. A Wall Street view says that it means, “Change for the better as a result of correcting (economic) abuses”. “Better for whom?” and “whose abuses would the reforms correct?” Did the post 1975-reforms in USA correct the abuses by financial wizards that led to the 2007–08 meltdown? A third view holds that economic reform refers to policies directed to achieve improvements in economic efficiency. Which of these did the rally leaders have in mind when they toasted the FDI reform push? 
 
Those in favour of FDI in retail painted rosy pictures of benefits such as better prices for farmers, more jobs, better shopping experience and so forth. Those against it predicted the opposite. Few had hard facts to back their arguments. It is strange that neither the government nor the opposition referred to the report of the Parliament Committee which examined FDI in retail. The Committee seems to have done a comprehensive study, examining a number of witnesses, individuals, NGOs and trade bodies, travelling around the country, studying reports and experiences of other nations and asking questions of government departments. The Committee concluded that more people would lose jobs that the number that would find work. They said that FDI in retail would destroy large numbers of small and marginal farmers. They cautioned against the probable monopolistic behaviour, predatory pricing and attendant consequences. The Committee found that unorganized retail provides livelihoods for 40 million people, that is, for about 8% of the country’s workforce. Referring to the projection of FDI in retail creating 2 million jobs, the Committee said that this was exaggerated and that this ignores 200 million people who depended on retail trade for a living. The Committee was not only critical of FDI in retail, but also of any large corporate in retail business. The Committee drew a dismal picture of the effect of FDI in retail on the “Mango Man”.
With FDI in retail, shops like this will disappear. How sad.

ICRIER (Indian Council for Research on International Economic Relations) carried out two studies, one in 2008 and the other in 2011. The 2011 study predicts a great shopping experience for consumers. ICRIER surveyed 300 consumers, in high and middle income groups. Evidently, the government relied on the ICRIER recommendations, rather than on the Parliament Committee report. Does the reliance on a private organisation’s recommendations in opposition to Parliament, have anything to do with the chairperson of ICRIER bearing the same surname as the Deputy Chairperson of the Planning Commission?
 
ICRIER’s sample of 300, from high and middle income brackets, for a population of 1.2 billion with over 40% poor, for recommending foreign investment, is questionable. In reply to a RTI (Right to Information) query on whether the government had done any study on FDI in retail, the commerce ministry replied that it had not done any such study. The reply referred to the ICRIER report and not the Parliament Committee report. The Committee’s report was not discussed in Parliament. Rejecting the Parliamentary panel study and accepting a private study report, does not augur well for Parliamentary democracy. ICRIER says consumerism promotes economic growth. The earlier study (2008) surveyed 2020 unorganized small retailers out of 6 million shops. None of the studies addressed the issue “why India requires FDI in retail?” Would it lead to a net increase in foreign currency earnings, improve India’s balance of trade? Stiglitz’s views on FDI in retail are significant. He asks, “Why India needs foreign entrepreneurs in any sector, particularly the retail?” He then talks of the power of Wal-Mart to drive down prices and suggests that they will use that power to have Chinese goods displace Indian goods. Next, he draws attention to Wal-Mart’s abusive labour practices. He asks, “Why would you want to import such practices into India?” Why indeed? The foreign retail lobby reportedly spent over Rs52 crore in India. Could that be the reason why? He also talked about increasing inequality that Indian reforms are ushering in, accompanied by corruption. 
 
It is appropriate to now look at the falling stone analogy. To see the relevance of it look at two economic philosophies prevalent today. One is the “Trickle-down” variety. Subscribers to this believe in less and less of government. The market would correct itself. De-regulation is the key. Concessions to the rich would lead to investments and economic growth. This would trickle down to the poor. The second view holds that left to itself, unregulated market economies, would become so disorderly that the human costs would be enormous. FDI in retail is integral to “Trickle-down” economics. It is part of the reforms’ cry for deregulation. 
No lessons have been learned from the deregulation induced meltdown. That is why the government and proponents of FDI in retail do not bother about its effect on 6 million small shop-owners or the 50% of the farming-dependent population who would lose their livelihoods. Some of these dispossessed may find jobs in the retail supermarkets, as shop assistants or labourers. Does deregulation help them? The stone does not take off when heated because heating causes disorder. The heat energy is random, disorderly; the stone’s molecules jostle each other randomly. Hence, they cannot lead to orderly motion of the stone. The natural propensity of things is to move towards chaos. Markets are no exception. Without regulation the result is disorder. FDI in retail is an example of deregulation—thinking devoid of any safety net for its after-effects. Would the government consider the Parliament Committee report or treat Parliament with disdain? 
 
 
 

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COMMENTS

Ravi Patnaik

4 years ago

1.Consumers will suffer as the MNC shopping malls will will store high cost items to maximise their yield per sq.ft. of shelf space. Cheaper alternatives will find difficulty in competing and will gradually increase their prices. Ultimate loser is Consumer.
2. Farm products will be procured through mega suppliers, who will hold monopoly over farmers/ producers. Mega suppliers in India, will most likely be cronies of politicians, against whom the Mango Man will have no recourse.
3. Importing manufactured goods from low cost/ efficient economies (viz. China, Thailand)will export jobs, adding to unemployment.
4. Profit generated will be repatriated. Also over/under invoicing thru foreign suppliers will be prevalent.
5. Black money from India will be round tripped as FDI through cross-investments in MNC brands.
6. Cartelisation of prices will be easy with few large players whose transactions will be out side Indian jurisdiction.
7. As mentioned the labour practices will be as per home country of MNCs for unskilled labour. High level of mechanisation will reduce employment potential on a progressive basis.

Ravi Patnaik

4 years ago

1.Consumers will suffer as the MNC shopping malls will will store high cost items to maximise their yield per sq.ft. of shelf space. Cheaper alternatives will find difficulty in competing and will gradually increase their prices. Ultimate loser is Consumer.
2. Farm products will be procured through mega suppliers, who will hold monopoly over farmers/ producers. Mega suppliers in India, will most likely be cronies of politicians, against whom the Mango Man will have no recourse.
3. Importing manufactured goods from low cost/ efficient economies (viz. China, Thailand)will export jobs, adding to unemployment.
4. Profit generated will be repatriated. Also over/under invoicing thru foreign suppliers will be prevalent.
5. Black money from India will be round tripped as FDI through cross-investments in MNC brands.
6. Cartelisation of prices will be easy with few large players whose transactions will be out side Indian jurisdiction.
7. As mentioned the labour practices will be as per home country of MNCs for unskilled labour. High level of mechanisation will reduce employment potential on a progressive basis.

L&T IDPL achieves financial closure for two projects in Maharashtra

L&T Infrastructure Development Projects said ICICI Bank-led consortium would fund its two road projects in Maharashtra

 
Mumbai: L&T Infrastructure Development Projects (L&T IDPL) on Friday said it has achieved financial closure for two of its road projects in Maharashtra, reports PTI.
 
The financial closure for the projects, which will be funded by an ICICI Bank-led consortium, was achieved on 30th November, the company said in a statement.
 
The projects involve four laning of contiguous stretches on NH-6 including Amravati to Jalgaon (275 km) and Jalgaon to Gujarat-Maharashtra border (209 km), on design, build, finance, operate and transfer (DBFOT) basis, it said.
 
The estimated cost of the projects are Rs2,537.81 crore for the Amravati-Jalgaon stretch and Rs1,968.37 crore for the Jalgaon to Gujarat-Maharashtra border stretch.
 
The concession period for the Amravati-Jalgaon and the Jalgaon to Gujarat-Maharashtra projects are 19 years and 20 years, respectively, which includes the construction period of 2.5 years, the release said.
 
Both the projects are a part of the east-west connector, linking hubs of economic activity in Gujarat and Maharashtra to the mineral-rich states of Odisha and Chhattisgarh, it said.
 
L&T IDPL has been a major player in public private partnership (PPP) projects with interests in roads and bridges, ports, metro rail and emerging sectors such as transmission lines, water and railways.
 
The company currently handles a portfolio of infrastructure assets worth Rs40,000 crore comprising 17 road projects, three ports and a metro rail project, the release said.
 

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AIBA suspends Indian Boxing Federation over political links and election

AIBA said it will investigate the IBAF election and especially a potential political link between IOA President Abhay Singh Chautala, as former Chairman of the IABF

 
Lausanne/New Delhi: In a massive jolt to boxing in India, the International Boxing Association (AIBA) has suspended the Indian Amateur Boxing Federation (IABF) alleging "possible manipulation" in its recent elections but the body has denied the charge, insisting that the process was "transparent", reports PTI.
 
The development which has left the IABF "stunned" comes within a few days of the International Olympic Committee (IOC) suspending the Indian Olympic Association (IOA).
 
"Further to the International Olympic Committee's suspension imposed on the Indian Olympic Association, the AIBA Executive Committee Bureau has decided today 6th December to provisionally suspend the IABF," the AIBA said in a statement.
 
"This provisional suspension is also due to the fact that AIBA had learned about possible manipulation of the recent IABF's election.
 
"AIBA will now investigate this election and especially a potential political link between IOA President, as former Chairman of the IABF, and the IABF election," it added.
 
During the September elections, outgoing President Abhay Singh Chautala, who was elected IOA President despite IOC's suspension, was retained in the body as nominated Chairman of the body.
 
The development now also puts a question mark over Chautala's election as IOA President since he came into the fray as an IABF representative. Interestingly, his brother-in-law and BJP MLA from Rajasthan, Abhishek Matoria, was elected as the new IABF President.
 
Stunned by the suspension, Matoria said that the world body had been apprised of the election process in detail.
 
"AIBA had specific queries about the election process and we had explained to them that there was no manipulation. Those who got elected were unanimous choices and just because there was unanimity, the AIBA cannot allege manipulation," Matoria told PTI.
 
"This is a provisional suspension and I am sure it would be lifted soon after we explain our stand to AIBA. If need be, I will personally go and speak to AIBA officials in Lausanne," Matoria said.
 
"Our boxers are not threatened by any repercussions for the time being because the next major AIBA event is quite far and the matter will be resolved by then," he added.
 
The next AIBA event is the Junior World Championships in August next year, followed by the senior World Championships in October.
 
A senior IABF functionary told PTI that there might be a re-election.
 
"Let's wait and see. Maybe there would have to be a re-election in a proper manner with AIBA Observer being present," he said.
 
In the September IABF elections, the body had been left in a fix after the Sports Ministry barred it from making constitutional changes that could have facilitated continuation of the incumbent set of office-bearers.
 
Meanwhile, the AIBA's decision came as a bolt from the blue for the boxers, many of whom are in the national camp in Patiala.
 
"It is a sad day for Indian boxing and I can't understand how such a development can take place. I don't understand why the matter was not explained to AIBA," India's first Olympic medallist in the sport, Vijender Singh, said.
 
The Beijing Olympics bronze-medallist was, however, hopeful that the issue would be resolved soon.
 
"The next AIBA event is quite far but hopefully we would not sit on it for too long and get the suspension revoked as soon as possible," he said.
 

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