ECONOMIC REFORMS IN THE INTEREST OF OUR COUNTRY FDI IN RETAIL TRADE The current issue of FDI in Retail Sector has raised questions in the minds of common people. Several political parties have undertaken a course of misinformation drive to confuse and mislead common people. To explain the actual ground situation and the implications of FDI in retail trade, this booklet has been prepared with facts & figures. It is a simple text for anyone or everyone. It will help to understand the issue in real perspectives. Preface Post 1989 parliamentary election there were two consecutive unstable, coalition governments – the first was led by Shri Viswanath Pratap Singh and second was led by Shri Chadra Sekhar. Both of such hotch-potch, opportunistic coalition governments did not last long. But in the process of experimentations they have caused irrevocable harm to the economy of the country – the backbone of our economy was damaged. Position became so dire that country had to mortgage gold (20 ton to Union Bank of Switzerland and 47 ton to Bank of England) to keep the Country’s commitments in the international monitory forums. In 1991 Congress came back to power with P.V. Narasimha Rao as the prime minister. At that point of time the economy of our country was at the verge of bankruptcy – to say the least. The new government had decided to reform the economy with bold historic decisions. The finance minister Dr. Manmohon Singh was responsible for the much waited reform process. The historic initiatives of economic reforms carried out by the Congress government had not only revolutionised Indian economy but also helped to achieve an unprecedented economic turn-around. Congress had introduced the economic reform process because there was no other alternative to save the country from looming economic disasters. Congress was also committed to the development of the country and the people – was determined to make a strong India ready for the challenges of 21st century. Unfortunately several political parties including BJP and CPM, had strongly opposed the initiatives of economic reforms. They had carried out protests, armed with orthodox and backward economic theories. While India was facing the “agnipariksha” of survival and trying to re-establish its esteem in the world, those short-sighted political parties were spreading misinformation and were trying to mislead common people – like they try it today. West Bengal Pradesh Congress Committee 2012 2 | P a g e But in all counts, it has been proved beyond any doubt that the opposition made by those political parties were more to do with motivated political rhetoric than actual concern for the country. It is now a historic truth that due to the economic reforms of Congress government initiated during 1991-96, India got back its place of respect in the world economy. The people of India had started re-defining their life and the country had started a new journey of growth, prosperity and development. Thus the history of last twenty years is the history of the newfound confidence to face the challenges of economic revival and growth – basics of which was laid down by Congress in early nineties. During last twenty years besides Congress governments, there have been several other governments in power led by other political parties. Most importantly it should be noted that none of these governments could veered away from path of economic reforms initiated by Dr. Manmohan Singh in early nineties. BJP led NDA government did not dared to reverse the process of economic reforms. Rather while in government BJP had adopted the course of reforms with a renewed zeal – just opposite of their posture while they are in opposition. During this period of last twenty years all the state governments also have adopted the path of economic reforms - wherever their part of participation was required. This was done simply because other than economic reforms there was no other alternative. This was only course to bring developments in the life of common people – only way to achieve sustainable growth. During the last phase of 20th century the communist system of governance was collapsing around the world – mainly due to their unproductive economic systems. Communist superpowers like Russia, China, East European countries have adopted market economy and went for severe economic reforms. During the new age of globalization, world economy got integrated like never before. 1997 saw the infamous South Asian Financial Crisis – due to which several countries called “Asian Tigers” like Thailand, Malaysia, Indonesia, South Korea, Singapore etc. were in deep economic trouble. Surprisingly India could avoid the heat of the problem rather easily – thanks to the strong base of Indian economic foundation which was by then well established due to Dr. Manmohan Singh led economic reforms. India has become a success story of economic revival. 1998 saw Shri Atal Behari Bajpayee as the prime minister of the country – leading the NDA government. The fact is he never tried to push away the reform processes initiated by Narasimha Rao government. Rather he had joined the reform process earnestly and took several important decisions. He was instrumental in paving the way for Foreign Direct Investment (FDI) in several fields of our economy. During his time the insurance sector was made open for foreign investors and the Pension sector was de-regularized. During his time the NPS (New Pension Scheme) was introduced with market linked investments of pension funds. NDA government in 1992 first proposed 100% FDI in multi brand retail sector. Shri Yashwant Sinha was the finance minister at that time and Ms. Mamata Banerjee was part & parcel of West Bengal Pradesh Congress Committee 2012 3 | P a g e NDA government. This says adequately about the original stand of BJP or Trinamul Congress on FDI in retail issue. On the other hand one must not forget the double standard and inherent dichotomy of Leftist parties in India – whether one considers pre-independence or post-independence era. Their ruthless but self-destructive opposition to computerisation (automation) had forced the country to move backward by decades. Rajiv Gandhi’s dream to make our country advanced and self-reliant has faced opposition from these left forces. They did not learn lessons from the collapse of communist regimes around the world – they always wanted to impose restrictions on the path of Indian advancements. Using useless, expired economic theory they wanted to stop the development and progress of the country. At times the question arises: at whose behest they want to practice such negative politics – which actually harms the interest of the nation? Today the historical reality is: 1. Economic reforms initiated by Congress have rescued the country from bankruptcy, put impetus for development and progress. 2. All the doubts and apprehensions of opposition parties have been proved baseless. 3. Economic reforms should continue - for the welfare of the people and in the interest of our country. FDI and Economic Reforms: Today is the age of globalization - it is the age of market economy involving competition. India is now one of the major economic forces in the world. This is also the time when every economic power is looking for fresh capital, investment and market for economic growth. Because the simple equation is: investment brings economic growth – economic growth brings development – development brings welfare of the people. Thus for fresh investments, foreign capital is a mandatory requirement - in addition to selfgenerated (national) capital. No one can deny this aspect and that’s why we see from Jyoti Basu to Narendra Modi, Navin Patnaik to Jayalalithaa, Chandra Babu Naidu to Vasundhara Raje Scindia – no one stopped short in inviting foreign capital for investment in their states. Once Prof. Amartya Sen said “capital has no country, no nationality, no colour”. Today’s open economic system advocates that four items, namely (1) open system of capital investment (2) infra-structure development (3) modern technology and (4) development of agriculture & industry; should mix well to provide a positive growth. But there are some other opinions as well. Opportunistic and negative opinion advocated by some vested interest – which, in our country, is still propagating the expired models of restrictive and retrogressive economy. There is an unwritten communist philosophy, which says “When people are in distress – they become desperate and aggressive. But when their problems are gone, they are mellowed and become normal self. With full stomach no one West Bengal Pradesh Congress Committee 2012 4 | P a g e will care for a revolution. So the party requires desperate people. While we will be pretending to working for removing their distress - but it will be a mistake if the distress is actually gone.” Most unfortunate recent development is that the TMC party is also subscribing to the same double standard philosophy of the communists. TMC has taken a path of ultra left policy – closing down all possible ways of normal developments of the state as well as of the country. During the course of fighting the left forces – TMC have gradually taken the shape, size and complexion of CPM party itself – they don’t know when. Whoever objected to the FDI policy on principal – it has been observed that whenever they are in power, have earnestly started searching for foreign capital themselves. Former Chief Minister Jyoti Basu had visited USA and Europe several times to invite foreign capital investments in West Bengal. Subsequently the next chief minister Bhuddhadeb Bhattacharya has carried out the same practices. In recent times the Trinamul Congress supremo Ms. Mamata Banerjee also has duplicated the same role – while she was addressing different business meet in Kolkata, pleading for foreign investments. Also on record that she has send Shri Partha Chatterjee, the Industry & Commerce Minister of Bengal to Singapore and Shri Amit Mitra, Finance Minister to Europe and America to solicit foreign capital for Bengal!! Congress believes that these are right steps to go ahead. Then, friends, why do you practice a double standard – saying one thing and practicing something else? This is to be mentioned here that generally Indian Railway is out of bound of FDI policy – except in one area, which is known as “Mass Rapid Transport System” where 100% FDI was allowed in 2001. One cannot deny the role of Ms. Mamata Banerjee, as the Railway Minister, to allow such “only FDI sector” in Indian Railway! At that point of time she was liberal, pro-reformist, and she loved the concept of 100% FDI. At that point of time she never thought that “she was selling her country to the outsiders” due her consent to 100% FDI in one of the most restricted area of Indian economy, i.e., Indian Railway. Congress recognises such progressive and matured outlook – unfortunately which is somehow misplaced in recent days. FDI in Retail Business In this context this is to be understood clearly that there are two distinct segments in the concept of retail business: Single Brand and Multi Brand. Single brand means when a producer markets their product or products with a definite brand name or characteristics. Examples are: Titan (watches, spectacles etc.), Levi (jeans trousers), Adidas (shoes, sports utilities), Samsung (TV, fridge, AC etc.), Macdonald’s (fast food), Haldiram (fast food), Wipro (computers, laptops etc.), Godrej (locks, fridge, AC, office furniture etc.), Pepsi (cold drinks) and many others. West Bengal Pradesh Congress Committee 2012 5 | P a g e Multi brand retail business means marketing of several groups of commodities, of different brands (or non-brand items) under the same roof. Examples are: Big Bazar, Reliance Fresh, Spencer’s, Metro, WalMart etc.. Please note that there are both Indian and also multinational companies in both the lists. In single brand retail business, 100% FDI is allowed in our country for quite long time. All the states of India has accepted and allowed this policy without any visible protests so far. Initially some political parties raised some hue & cry saying that if 100% FDI is allowed in single brand retail, then Indian small producers of similar items will suffer. But such apprehensions were already proved as baseless and wrong. Different reviews and studies of business communities and Chambers of Commerce have clearly established the fact that during last decade, despite inflow of FDI in single brand retail, the businesses of small & medium Indian retailers have attained a growth of 8-10% - which is quite remarkable. For example: Haldiram or roadside Dhabawalas did not suffer due to establishments of Macdonald’s fast food shops. Or for that matter small sweet-meat shops did not have to bother. Rather, due to increased purchasing power of people, the businesses of such small entrepreneurs have enhanced. The FDI in single brand retail actually has introduced several positive measures in Indian economy. It has increased the capital input in the market, new production facilities (factories) have been built, new technologies have been introduced in India, new jobs were created, competition has reduced the retail prices and increased the quality perception, the consumers got options of products at a competitive price - so on and so forth. How one can ignore the fact that the products like computers, mobile phones, colour TVs, ball point pens, and many more regular items are now available at a much cheaper prices than before and that too with enhanced quality and features? Now let us take up the issue of multi brand retail. In this sector large investors of Indian origin are doing 100% business for quite some time. Big Indian business houses have their multi brand retail chain stores in whole of India. The examples are Reliance Fresh, Spencer’s, Big Bazar, Metro, C3 and many others. Today there are more than 6000 shopping malls in India and the numbers are increasing every day. All state governments have given their consent to big investments (Indian) in multi brand retail business. All political parties virtually accepted the entry of big Indian corporate houses in multi brand retail trade. Some of the so called self appointed pundits have again apprehended that entry of large capital in multi brand retail business will destroy the business of small and medium producers and traders. Again that doubt has been proved totally baseless and wrong. On the contrary small farmers and small manufacturers were immensely benefitted due to the scope of selling their product directly to the multi brand retail chain stores. The system of middlemen infested market could be avoided – resulting better price realization for the small and marginal farmers. At the same time consumers are also benefited due to rationalization of prices. West Bengal Pradesh Congress Committee 2012 6 | P a g e Now the only question remains: If Indian big corporate houses can carry on multi brand retail business without harming the interest of small and medium stake holders (farmers, manufacturers, traders etc.) – then what is wrong with 51% foreign capital in the same sector? The Background of the Proposal of FDI in Retail The first draft proposal for FDI in multi brand retail business was placed by NDA government in 2002. It was in favour of 100% FDI. Records show that Ms. Mamata Banerjee was an alliance partner of NDA government at that time and was a cabinet minister during most of the tenure of the government – at times with portfolio (Rail, Coal etc.) and some time without portfolio. Hence it is assumed that she was well aware of the proposal – and there was no recorded objection whatsoever from her side on this account. In 2002, while supporting 100% FDI in retail business, the then finance minister Shri Yashwant Sinha said “Many said that Kentucky (KFC) will drive the dhabas out of the market. The dhabas have driven out Kentucky. The Indian sherbet is still there despite Coca Cola and Pepsi. Don’t underestimate India.” Congress applauds such declaration by BJP on their trust on the inherent strength of Indian economy. It is to be noted that Trinamul Congress led by Ms. Mamata Banerjee has continuously supported FDI in retail during that period of time time. In 2004 she fought the Parliamentary election as an alliance partner of NDA. The NDA manifesto has clearly proposed FDI in retail. She never protested against it at that time. After the political wilderness for some time she has joined Congress led UPA alliance in 2009 parliamentary election. In the election manifestos of both Congress and Trinamul Congress the proposal of FDI in retail was mentioned. Trinamul Congress election manifesto mentioned specifically: (1) Farmers should get right prices for their products (2) Farmers usually get only 10-20% of the final market price (3) The middlemen system in the market, who are taking the lion’s share of the sale proceeds, should be stopped at any cost (4) This is the age of globalization (5) FDI in retail business is required. These stands are correct in every respect – and should have been respected for the sake of growth and development of the economy. But unfortunately now she is going back on her promises. Further to mention that FDI would bring modern technology which is now essential for better conservation, preservation, packaging, handling and logistics supports for large retail market. It is reported that about 30-35% of perishable farm products get destroyed even before they reach the market. This is mainly due to lack of infra-structural facilities in rural areas. This is a great national loss. West Bengal Pradesh Congress Committee 2012 7 | P a g e One time or other, most of the political parties felt that FDI in retail is a mandatory requirement for Indian market, especially due to three reasons: 1. Small farmers and small producers will be benefited through direct purchase system. Middlemen system can be removed from the market. 2. New technology and capital investment will help to stop wastage of perishable farm products. 3. Consumer’s price will be rationalized due to (a) absence of middlemen system (b) healthy competition. It is evident that who have changed their colours and now opposing the proposed FDI in retail, are doing so mainly because: (A) To protect the interests of the middlemen / commission agents and (B) To protect the interests of some of the Indian corporate houses who want to avoid competition in their protected market Small Farmers & Middlemen – an one-sided system In a vast country like India, small and marginal farmers require a well developed system of direct marking of their products. This is related to the very basic question of their survival. In absence of such direct access to the market, they are the victims in the hands of the touts and middlemen. Middlemen or commission agent are less in number but are powerful in the locality and very often they take the maximum benefits out of the “farmer to the consumer” cycle. In one hand farmers are helpless and only get about 10 to 20% of the actual sell price of their product. At the same time the consumers are paying much higher prices due to artificial jacking up of the price by the middlemen. Such system is actually acting like a cancer disease in our economic system. It should be addressed sooner than later. Suicides by the farmers are also an ailment of our society. Congress always believes that farmers should get the right price for their products. UPA government has, thus always fixed a comfortable “minimum support price” for the major farm products. But the execution of extending the “minimum support price” to the farmers is the responsibility of the state governments. In Bengal the present government has seriously failed in their designated responsibility towards the poor farmers. The middlemen again took control of the system and as a result large number of farmers did not get their minimum support price. And in some extreme situations there were cases of farmers committing suicides. It’s a shame on the image of the present government. But no one expected that such thing would occur – especially after a new government comes in to power after the 34 years of misrule of Left regime. But little investigation reveals the core cause behind the today’s plights of the farmers in West Bengal. During CPM regime most of the middlemen were CPM cadres in their respective localities with money and muscle power. They used to control the fate of the farmers with iron hand and party machinery. After the win of Trinamul Congress in the last assembly election, those bunches of middlemen have changed their allegiance to Trinamul Congress – and now carrying out West Bengal Pradesh Congress Committee 2012 8 | P a g e the old methods of tyranny on the farmers with a new party flag. As a result two things happened in Bengal: 1. Incidents of suicides of farmers continues. 2. Trinamul Congress forced to support the cause of the middlemen – and forced to oppose the FDI in retail. Thus the reason for changing own declared stand on FDI in retail by TMC is clearly understood. A party full of vested interest of middlemen cannot take a pro-farmer stand. Thus the present government is devoid of any progressive plan of economic revival of the state. There is no sign of adequate capital inflow. At the same time committed investors are panicked and trying hard to leave the state. There is no positive message from the government on the economic reforms. Due to total lack of fresh capital investments in the state the economic situation is rapidly turning towards bankruptcy. Present Proposal of FDI in Retail: Is it anti farmers? Is it against the interest of the small traders? In India major portion of the retail business is in the un-organized sector – amounting to almost 90% of the total estimated market of Rs. 24 lakh crore. Organized sector is defined as: where traders are registered with tax regime (sales tax, service tax, professional tax etc.) and carry out the business with statutory permissions of local authorities. Organized sector has benefits for both the traders as well as for the government. On one side Government gets the benefits of tax revenue. On the other side traders get official status, bank support, insurance coverage etc. The unorganized sector has no set system of trade ethics. As a result small farmers or traders mostly become victims of touts, middlemen, money-lenders and local mafia groups. They usually get only 10-20% of the final price of their products – and perpetually remain in the clutches of poverty. Marketing the products is always a hard task from them. It is estimated that 30-35% of perishable products like vegetables, edibles, flowers, fruits, fish etc are wasted due to lack of suitable storage or preservation facilities. Considering such situation it is advisable that retail trade should get under the organized sector sooner than later. What will be the benefits for the small farmers, producers and traders? 1. Producers (including farmers) will get definite and defined market 2. Producers will get right price for their products 3. The raj of touts and middlemen can be terminated West Bengal Pradesh Congress Committee 2012 9 | P a g e 4. Storage, preservation and packaging system can be upgraded. Insurance system can be introduced 5. Consumers shall get right quality product at right price 6. Market will not be controlled by hoarders or black marketers. Competition will determine the market Retail sector in India accounts for 14% of the GDP and provides more than 8% of the employment. It requires support and attention for growth. Big investments – both national and foreign, is required to infuse necessary capital, infra-structure, technology – which in turn will bring development in the retail business of India. All small entrepreneurs and small farmers will be benefited from these developments. Some relevant Information: The growth rate of Indian retail sector is highest in the world Size of Indian retail business is estimated to be USD 450 billion (Rs. 24 lakh crore), accounts for about 14-15% of Indian GDP Small farmers, vendors, producers and traders are occupying about 90% of this sector. Even after introductions of big retail chain stores - the recorded growth of small stake holders are about 10%. Big retail chain stores only occupy about 4% of the Indian retail market. It is estimated that even FDI enters multi brand retail market the combined Indian and international retail chain stores will not account for more than 10% China has allowed 100% FDI in multi brand retail. Walmart has opened more than 300 outlets in 130 cities. There were new employment generations of 2.5 crore. Substantial new technology has been introduced to reduce wastage of food products. In 2020 India will have a gross population of 130 crore, out of which the average age will be only 29 years. Indian will have the most effective youth dominated human resources in the world. To utilize such huge human resources, we require adequate planning, followed by investment and developments. Why We Require Large Investment (National & Foreign) in Retail sector: India is a very large country – where farmers require well organized retail sector for marketing their products. Right price should be ensured for the Producers. The two most important stake holders, producers and consumers, will be benefited through an organized retail sector West Bengal Pradesh Congress Committee 2012 10 | P a g e The touts and middlemen will be rusticated from the market mechanism To introduce new technology and to reduce wastage of perishable products Small producers will get different options for their marketing strategy Quality of the product will be enhanced – also packaging of the product will be more scientific To take Indian product to world market (China has shown the potentiality) – to dominate the world with good quality Indian products. What are the safety features of present proposals: 1. To reduce the control of the foreign investors, 51% FDI has been proposed – instead of 100% (which was initially proposed by NDA government) 2. To safe guard the interest of small & medium producers and traders, FDI will be allowed in cities with minimum 10 lakh population. 3. Minimum USD 100 Million (estimated Rs. 550 Crore) is required for FDI in multi brand retail. 4. Minimum 50% (approx. Rs. 275 Crore) should be invested in back-end infrastructure development, like storage, preservation, packaging, transport, quality development etc. 5. Minimum 30% of the products to be procured from small scale producers 6. Any of the State governments will have the right to decline the policy. (Prepared by Jay Prakash Majumdar, on behalf of WBPCC. Published and circulated by Media Committee, WBPCC, website: wbpcc.org, email: wbpcc.web@gmail )
Posted on: Mon, 09 Sep 2013 08:44:08 +0000
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