Pioneer, 25 September 2012
India’s freshly-minted millionaire club lost a whopping 18% of its membership as the economic slowdown coincided with the exposure of multiple scams that tripped the gravy train of our crony capitalists. Most citizens would be shocked to learn that despite the global financial crisis ruining millions worldwide, the number of high net-worth individuals in India rose from 84,000 in 2008-09 to 126,700 by 2010 in the halcyon UPA years.
India’s top 100 richest are collectively worth $276 billion, whereas China’s total just $170 billion; also, India’s richest three surpass China’s top 24 billionaires. Amidst a manufacturing slump, economic slowdown and rising unemployment, one wonders how such staggering wealth accumulated in the hands of a chosen few.
As the Supreme Court noted while dealing with Coal-gate, the well-connected in the UPA regime have benefitted unduly from privatisation of public assets. Should the Hon’ble Court take a broader view, it may discern a link between the earlier privatisation of electricity distribution in several cities, which enabled private firms to make massive profits at public expense while taking over public assets for free, and the subsequent allotment of captive coal mines to the same and similar crony firms for sale of power at commercial rates!
The cussed refusal of some firms to redress customer grievances is now upsetting the Delhi chief minister, who thrust electricity privatisation on the capital and championed steeper tariffs without public audit or justification, because state elections are due. It is pertinent that when the British Raj delegated power to Indians, it first gave them charge of municipal services. Surely we must ask if regimes that cannot handle schools, sanitation, water and electric supply are at all legitimate.
Coalmine squatting by private capitalists stunted the growth of the power sector and the economy and denied mines to Coal India Ltd., forcing it to lay off over four lakh skilled workers, ruining their families. CIL is now likely to supervise extraction at the cancelled coal blocks. Government must expedite clearances needed by CIL for its own mines, and scuttle the mischief of subsidizing imported coal for private players.
Last week, the UPA imposed FDI in multi-brand retail, causing Trinamool Congress to quit the Government, and serenading the unpredictable UP stalwarts Mulayam Singh Yadav and Mayawati for survival. Perhaps the Rs. 60 cr spent by Wal-Mart on lobbying in India, as per its disclosure to the US Senate, impacted the decision.
Yet the centre cannot claim that state governments can decide whether or not to allow FDI in their respective states. As several opposition members have argued, under the Bilateral Investment Promotion and Protection Agreements (BIPAs) that India has signed, it will have to offer national treatment to investors. This means states will have to permit big retail, or face court cases.
News reports suggest Wal-Mart may come to India within 12 to 18 months. It is notable that its chief Michael Duke may soon be charged under America’s Foreign Corrupt Practices Act for hundreds of illegal bribes paid by its Mexico division from September 2005 to May 2006, and the subsequent cover-up by successive executives. ANew York Times report says Wal-Mart captured nearly 50 per cent of Mexico’s retail market in 10 years in this manner.
Currently, India’s retail market is estimated at around $400 billion, with over 12 million retailers employing 40 million people. Wal-Mart has a matching turnover of approx. $420 billion, but employs just 2.1 million people. This means 38 million people (families) plus related ancillary traders face disaster.
Executives at Amul, India’s largest dairy cooperative, say FDI will hurt both farmers and retailers. Citing the International Farm Comparison Network, Managing Director R.S. Sodhi says milk producers in America received only 38 per cent share of the consumer’s dollar spent on milk; UK milk producers got 36 per cent. But Indian milk producers get over 70 per cent of the consumer’s rupee; those linked to cooperatives get over 80 per cent.
Worldwide, foreign retail hurts local shopkeepers, farmers and consumers. Farm incomes decline because big retail creates a formidable chain of middlemen – quality controller, certification agency, packaging consultant, who cut into the profits. Consumers are wooed with cheaper rates, but prices rise once the local competition is driven out.
FDI in multi-brand retail does not create backend infrastructure like cold storages to save food grains from rotting. FDI is already allowed in storage, but no investment has been made, even by Indian brands. The Planning Commission has noted that lack of capital forces farmers to ignore cold storage facilities even where they are available, mainly because of high rentals.
The transport of goods from farm to mandi and local markets or processing centres is critical to retail trade. The road transport sector handles nearly 73 per cent of the goods traded and contributes nearly 5 per cent of the GDP. It is an unorganized sector managed with small capital; roughly 18 crore population directly or indirectly depends on it. Big retail always monopolizes transportation of goods and could crush this entire sector.
Then, over 70% of the revenue of big retail stores derives from non-food items; the nature of sourcing and pricing of these items deserves wider study. Also, the UPA has totally ignored the fact that in recent years small retailers have vastly improved their shops and customer services.
In food processing, big retail forces farmers to alter crop selection. Thus, to service potato chip companies, farmers may skip the Dal season, which indirectly affects the prices of Dal, cereals and vegetables. Big buyers often force farmers to reduce prices, face contract cancellation on grounds of ‘quality’, face last minute changes in contracts, and so on. Then, over 90% of India’s farmers have less than 2 hectares of land; 79% are landless or own less than 1 hectare. Large corporates do not like doing business with small producers; they focus on few large farmers and compel the others to submit to a larger contractor or sell the land and quit.
With FDI in retail notified, fresh dangers loom in the form of increased foreign ownership of Indian public sector banks (currently capped at 20 percent); FDI in pensions, insurance, and so on. The very aspects of the Indian economy that gave confidence to the middle class and the poor are set to be undermined.
The author is Editor, www.vijayvaani.com