Magic wand – FDI in Retail

Photo: ,Srikanth Kolari/ActionAid

Foreign Direct Investment has slowly but surely made its way into the area of retail trade. There has been so much brouhaha about this in the mainstream media and for anyone who does not have a direct, grass roots experience and understanding of how the agricultural sector works, it is difficult to decide whether this decision is good or bad for people at large.

Edward Bono’s How to have a beautiful mind, has taught me to not take any one sided stand on any issue just like that; even if my gut clamored to support a particular side.

My instant reaction was therefore, to refer to as many of reports and analyses floating around on the issue, to make sense of it all. Sooner than I anticipated & maybe because of the sheer volume of (and kind of) data available on public domain, I realized (to my surprise) that I was riding the horse on the side of those who favored the worm being in the area of Retail. I was almost conclusive about the insensibility of the clamor to roll back a measure like this. This was after all a master stroke, a magic wand. I was convinced about the stars and boon this Magic wand would bring. But hold on.

Going back to my childhood, I just loved the magic wands. My world was comic books and cartoon movies, where power of such magic wand was a great source of solace to me. It assured me that world and people around me were fine and I never had the need to probe anything deeper. Do not worry, Think less; world is doing great with the magic wand!

F.D.I. worm snuggling into the Retail area was such good news just like the Magic wand. The boons are undeniable:

  • It would bring efficiency into the retail chain.
  • It would benefit farmers as they would get better prices.
  • It would benefit farmers and nation with more of farm storage and less of wastage.
  • It would provide millions (and some said billions) of jobs.
  • Consumer would get things cheaper.

That fellow Edward Bono spoilt it all. My vow overrode my childhood belief about the magic wand. I started to deconstruct the meaning and claims made in favor of the worm. It was as if Bono was whispering a warning; “Hold your horses; take out your magic lens. Maybe that could help”.

So I took out the magic lens this time and looked closely. And this close scrutiny was letting some unkind truths tumble out of the closet this time.

To begin with, I discovered the true meaning of “efficiency”. The word efficiency essentially means “ruthless cost cutting” in the world of organized retail giants. This cost cutting essentially comes from cutting people cost, procurement cost, transport cost and storage cost.

All this is meant to increase market share of the giants. The ruthlessness is not designed to help customers. It is basically designed to kill competition; so that lesser, inconsequential and foolhardy competitors are not able to woo any customers from them.

In a study carried over a time line of 10 years titled  “Increasing Understanding of Public Problems and Policies – 1997 “ by Farm Foundation, Chicago, Illinois in U.S.A, it has been conclusively shown that the competitors of a retail giant like Wal-Mart are reduced to being inconsequential as time progressed. This in conclusion meant near obliteration of non Wal-Mart outlets.

In fact, not only the outlets suffer obliteration but complete economy and way of life of smaller towns takes a beating. The economic life of smaller town gravitates towards the larger town where companies like Wal-Mart wriggles in. For example, it has been shown that Food, Fun and Entertainment industry of smaller town suffers as people gravitate towards the cities where Wal-Mart wriggles in.

Lower prices achieved through cost cutting acts like morphine for consumers.

They make actual spending on fun, food and entertainment in cities where outlets like Wal-Mart’s wriggle themselves in while seeking the high of the morphine called low price.

Left behind are the dilapidated economy of small towns with shutters down on streets of restaurants, cinemas, and fun places. These businesses constitute a major portion of Service Industry of small town, where scores are employed. They are soon rendered unemployed.

Today in India, a grocery shop of even small size at least gives full time occupation for one member of a family. India is estimated to have 40 million people employed in 14 million outlets. This arithmetically actually comes out to be 3 persons per outlet. This is not to speak of dependents on a single shop.

One outlet carries burden of existence for 3 families. This would make 15 individual lives depending on a single outlet.

Wal-Mart deploys only 2.2 Million lives, that too, worldwide. Claim of millions of job being created by Retail giants falls on its face. More importantly while speaking of employment generation or rather degeneration becomes stark when we consider the dependence factor mentioned above.

 

Thinking on a broader scale, retail, contributes 15% of Indian G.D.P. whereas it contributes far lesser to the G.D.P. of developed countries like U.S. where its contribution is only 7-8%. Just by combining the dependency of a family on a single outlet and national dependency on the contribution of the sector, we can easily understand that this upheaval would bring tormenting times for the people and the nation. With a single swing of magic wand, comes peril for 40 million.

One also needs to consider the alternative sector available for employment in an economy. This is critical to absorb the resulting displacement from the outlets. As a less developed economy, India has limited avenues to absorb the displaced persons from their outlet.

Meanwhile, cost cutting also means squeezing out on person power deployed and the remuneration paid. Wal-Mart is known to pay extremely low wages in U.S., lesser than average remuneration.

Those who buy the idea of farmer’s benefit are in for greater shock.

Retail giants do not exist because they love farmers. They exist because they love to buy cheap. They love to buy cheap because they love to sell cheap. They love to sell cheap because they love to kill completion totally and absolutely.

Thus, retail giants would show interest in farm produce where we can supply cheap produce compared worldwide.

Our farmers do not make it to top grades when compared worldwide on farm production costs.

With distorted cropping systems, skewed infrastructure supporting farm production, and limp Agrarian policies followed for years, we would not be producing cheap farm produce for a long time to come.

Our farming sector suffers from structural problems starting from the field. 76-90% (Figures variably quoted around) of Indian farmers are small and marginal. They do not have access to farm loans, irrigation water never reaches them, farm extension worker avoids them, and government schemes never reach the last mile where marginal farmer resides. Farming cost goes up as the land holding goes down. Not to speak of social impediments and social sharks, very unfortunately unique to India.

Wal-Mart and likes would not and are not capable of addressing these structural issues.

Only those farmers, who have large landholdings, would be able to produce relatively cheap. Still they have to be world beater in terms of cost to hold their fort.

Developed countries with huge land holdings per farmer, astronomical subsidies, and cutting edge technology are the cheapest source of farm produce. If not in their own country, they are buying in, large tracts of fertile land in African countries, which have the least resistive power to such dominant forces.

You now know where Wal-Mart would buy from; don’t you, since we are talking about efficiencies here. Likes of Wal-Mart can conveniently look forward to import 70% of the stuff whereas we feel safe with the provision of 30% sourcing from domestic market.

Where would the smaller farmers go? One can recall the National Geographic pictures of smaller fishes travelling straight to the shark’s gut. They would be obliterated by competition and this time ruthless and unjust global competition.

Of course, these big corporations would run farmer training for small and marginal farmers and publish it in company newsletters, C.S.R reports and would garner gleaming trophies for the effort.

But before one applauds, one should look at number of farmers who have benefitted from these programs. In country like China, where Wal-Mart has been for longer duration, it is only 7 lakhs, a paltry figure. If one still feels that these are big numbers consider number of marginal farmers in India, it is near about 560 Million. That would put things in perspective. These programs are good P.R. & brand building exercises but not genuine stakeholder capacity building, which farmers in India can dependably look forward to.

Then whose magic wand is this and for whom would it bring stars and boons? At least not for the people it is being sold on.

I am bit selfish, so I desist from mentioning that we might see some greater choice of consumer items imported from cheapest sources like China. To let a secret out, I would no longer be visiting the neighboring Kirana store. They still carry Indian items which are much costlier than the Chinese stuff.

Well, I am selfish because I am a consumer and I am going to get things cheap. As I get ready to take morphine of low priced items, I must finish my work in the company where I am part of producing something. Whether what we produce is the cheapest or not is another matter!

This Foreign Devious Investment is good till a low cost import hits my job.

(Kalyan Satpathy is Senior Manager, Fund Raising. The views expressed here are personal and do not necessarily reflect the views of the organisation. You can email him to Kalyan.Satpathy@actionaid.org)

 

 

References

“Increasing Understanding of Public Problems and Policies – 1997 “ by Farm Foundation, Chicago, Illinois ( source web)

How to have beautiful mind: Edward De Bono.

http://www.walmartfacts.com/FactSheets/7… ( Number of people it employees)

www.indiafdiwatch.org/fileadmin/India…/10-FDI-Retail-more-bad.p…( Retail contribution to Indian GDP)

http://www.countercurrents.org/shiva300407.htm ( Small and Marginal farmers)

http://www.chinadaily.com.cn/business/2010-06/30/content_10042008.htm (Chinese paper quotation)

http://www.naandi.org/strategy_papers/livelihoods_13b.aspx

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