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A Nuanced Approach To FDI In Retail

Updated: December 24, 2011 10:56 am

Much has been written about FDI in retail during the last few days, and political parties across the spectrum have aired their views in a polemical style. The arguments have not taken into account the fact that over the last decade, most big cities have seen supermarkets, shopping malls and tele-marketing services make their presence felt like never before. We are now fixated with 51 per cent FDI as if this one single step will bring about the great Indian transformation.

However, it is felt that given the political posturing from both sides, it may not be a bad idea to suggest that instead of moving the FDI from 26 per cent to 51 per cent as is being proposed, why not propose an upper limit of 50 per cent as an interim measure. One has to recall that opposition to new ideas, and the fear of uncertainty does have a major impact on the psyche of people, and because the debate is not nuanced, most commentators are taking an either /or position on FDI in retail. The fact is that like any intervention, there will be positive gains for the farmers and most of the consumers and many intermediaries and small shop owners will not have the same growth trajectory as before. Some may even have to close shop, and look for alternate employment. But this has been happening all the time. Remember the debate on the introduction of computers in banks. it may be recalled that the nightmare of getting even salary cheques withdrawn from banks before the tellers were introduced, and even this was considered to be a revolutionary step. For younger readers, it may be of interest to note that till the early eighties, one had to join a queue to deposit your cheque, get a token, and wait for your turn to be called. Then you faced a sultry bank clerk with a thick ledger who would examine if you had the money in your account, and the process took at least forty minutes, but could easily stretch to an hour. Bank tellers gave you money, up to a particular amount on trust. If you knew the bank manager or anyone else in the bank, your payment was expedited. Outstation cheques could take up to a week or ten days. Likewise with railway tickets. It was a nightmare.

Let us now look at the different interest groups, and everyone is of course primarily concerned with the farmer. From this perspective, FDI in retail is good because it reduces the number of intermediaries between the producer and the final consumer. It also gives the option of planning production cycle, getting a fair assessment of the likely realisation and a premium for quality production. Many have argued that without the reform in the APMC Act, the FDI will not be able to operate. This is only a half truth—because in several states, contact farming and partnership farming, especially with FPOs and primary co-operatives has been allowed. More importantly the new technologies and systems that will be introduced will also ensure that the overall standards improve. McDonalds and KFCs have not led to the closure of Dhabas on the National Highway. In fact, the Haldirams, Cheetals, Café Coffee Days and Nathus are giving these MNCs a good run for their money, and the public has better choice and amenities.

FDI will invest for profit. Yes. But, is the intermediary in business for charity? Both want to make profits: the former can do so only by increasing volumes and introducing technology, the latter by cartelisation. In any case, even when technologies for cold chain logistics were available, what has been the extent of penetration by the existing intermediaries? How many reefer vans have been introduced by the traders of Azadpur to get apples from Himachal and J&K? How many cold storages have been installed to enhance the shelf life of the produce? For the intermediary, it does not matter whether the produce is from Himachal or from China. However, if infrastructure for collection has been created at production centres, then it is imperative for those who have created the infrastructure to source the produce from these areas.

Having said this, I would also like to mention that even with FDI in retail, a lot will need to be done by the Agriculture, Rural Development and PWD departments to get public infrastructure in place for the farmers to get the benefits of moving the produce from farm to fork. Rural Roads, weigh bridges, aggregation centres and intermediate cold storages (with an assured power supply), provision for soil and fertiliser tests, Tissue culture labs and accredited nurseries for quality planting material will not be created by the FDI investors. This is not their mandate. However, if all these are created, it will bring down the cost of production, increase the volume and improve the quality—all of which will help the farmer.

What can be the arguments against FDI? First and foremost: there is a feeling that it would compel the farmer to grow what the ‘corporate’ wants the farmer to grow, at prices which the corporate will dictate. The fact of the matter is that the position is far worse today. Today the farmer is not even aware of what price the produce will fetch— and the recent experience with a wide range of crops—from onions to potatoes, to turmeric to tomatoes suggests that what the farmer needs most is not higher prices, but stable and assured prices. And on this front at least, FDI will be good for the farmers!


(The views expressed in the article are personal, not of Government of India)

By Sanjeev Chopra

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