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FDI and Related Issues
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The UPA Government's announcement of the decision to invite foreign investment in retail trade, has justifiably caused an uproar. While Mamata Banerjee's effort to utilize this issue for narrow political ends may be ignored, it is a matter of concern that some whiz-kid economists, in defense of the decision, has gone on to argue that domestic retailers will be able to coexist happily with foreign controlled retail shops, and that organizations like Wal-Mart will provide employment to many. They say ‘10 million jobs will be created’. A third argument is that farmers will get fair prices for their produce, while consumers will be able to make their purchases at reasonable prices.

These arguments have to be considered one by one. If a big multinational organization is allowed to enter retail trade in some town or countrty, the immediate impact will be the displacement of retailers in its vicinity. The reason is simple enough. The multinational organization will construct sleek, dazzling supermarkets that are sure to produce demonstration effect. By virtue of its superior monetary resources, it may even provide the consumer with goods at somewhat lower prices in order to undersell small retailers. Such sort of gobbling up of small fry by big fish is a common occurrence. Naturally, the advantages they would offer are bound to be short-lived, because such companies' only motivation is to acquire profits, and they would hardly bother if small retailers are destroyed. In all the towns and cities where such supermarkets are formed, retailers and their employees will lose their means of livelihood. Before putting forward the specious claim that small retailers can coexist happily with big corporations, the apologists of Manmohan Singh should have inquired if small retailers have benefited or been harmed by the operation of Indian organizations like Reliance, Spencers or Big Bazaar.

According to one calculation, total retail transactions in India right now are of the order of 4.5 millions of dollars and 44 millions (shop owners and their employees) are employed in retail business. The amount of transactions is more or less of the same order as that of the Wal-Mart. But this corporation provides employment to only 2.1 millions. The Ministry of Commerce claims that FDI in retail trade will create 4 million jobs immediately. What will be the magnitude of the displacement effect? It is anybody's guess.

The claim that farmers will benefit because intermediaries who purchase their produce and sell it to retailers at exorbitant prices will no longer dominate needs a little reflection. First of all intermediaries are not big fish. There are many small intermediaries known as paikars or byaparis in the countryside of West Bengal, who are not hoarders par se, and whose incomes are not above the per capita income of Indians. Secondly, won't such companies serve as middlemen, acting as intermediaries between producer and consumers? Another point is whether in countries like the USA, where the measure of centralization in retail business is significant, the relative earnings of farmers in comparison with other classes have improved at all. The Wal-Mart is a US-based corporate entity. If corporate bodies like the Wal-Mart operate effectively as agents of farmers' welfare, why should the US government go on providing massive doses of subsidies to agriculture every year? According to one report, the amount of government subsidies given to the farm lobby in the USA during 1995-2009 has been of the order of Rs 12.5 trillions. This is one indication of how farmers have benefited by the operations of large corporations. Of course, those intellectuals who are doing well in this era of globalization and liberalization will not try to examine these questions simply because such an examination may go against their worldly interests.

(Acknowledgement : Santanu Dey, New York-e Jhanp Bandha, Deihi-te Lal Carpet—Closure in New York and Red Carpet in Delhi, Deshkal Vabna, Vol 4, No 5)

Frontier
Vol. 45, No. 22, Dec 9-15, 2012

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