Who Will Benefit from Foreign Direct Investment in Retail?

Revolutionary Democracy

In its obsession with the welfare of the multinationals, the UPA government has agreed to open up retail trade to foreign investment. Now foreign investors will be permitted to enter the multi-brand retail segment, they can hold equity up to 51 per cent. Foreign direct investment (FDI) in retail has now been permitted up to 51 per cent, and the FDI limit for single-brand retail has been increased to 100 per cent. This move of the UPA government is a declaration, to all, that they are bent on implementing the neo-liberal programme irrespective of what is happening in Europe and US. They have acknowledged their unflinching loyalty to neo-liberalism and the World Bank – IMF prescription of so called ‘market reforms’.

The global consulting firm AT Kearney has ranked India as top of the Global Retail Development Index. The big retail cartels were clamouring for this proposal since long, especially during a time when they are facing a virtual decimation in Europe and US due to the on-going economic crisis which is showing no sign of receding in the near future. For these companies India with its approximately US$ 395.96 billion retail market is the El Dorado that can save them from going kaput.

Some of the prominent players keen to enter into India include Wal-Mart from the US (sales last year of over $400 billion (bn) from 9,000 stores), Carrefour from France (sales $130 bn from 9,500 stores), Tesco from UK (sales $100 bn from 5,400 stores), and Metro from Germany (sales $96 bn from 2,100 stores).

The Indian government has proclaimed that the entry of multinational retail chains would enhance efficiency that will benefit the producers and consumers. The economist Prime Minister Manmohan Singh, claims that
‘We believe that it will bring modern technology to the country, improve rural infrastructure, reduce wastage of agricultural produce and enable our farmers to get better prices for their crops.’ 

But the fact says something else; in 1950s the US farmers received over 40 cents for every food dollar spent at supermarkets now they receive just 19 cents. So the claim that the Indian farmers would receive more from the multinational retail brands than what they are getting today is nothing but falsified propaganda by the Indian government.

Similarly the clamour regarding farmers benefitting in high value horticultural crops like fruit and vegetables is also fallacious. These crops account for only 2 per cent of the total cropped area. Fruits and vegetables being highly perishable items and in the absence of a cold storage and related cold chain facilities, the small producers will have no option but to sell their products at the price demanded by big retailers. No big foreign or domestic private retailer is going to invest huge amount of money in building rural infrastructure. So allowing FDI will in no way enable farmers to get better prices for their crops.

There have been a large number of supermarket malpractices across the globe that are normally screened from the public gaze. Tesco and Asda (owned by Wal-Mart), Britain's two largest supermarket chains, have been accused by their suppliers of a raft of abuses including non payment to suppliers, demanding upfront payments from their suppliers and ‘contributions’ to promotional costs. Suppliers, like the Windward Islands Banana Development & Exporting Company, have alleged that Asda sparked a price war in 2002 had ‘seriously damaged’ the banana trade, seriously jeopardising the livelihood of small producers and the economies of the Caribbean islands.

Further there is no restriction put in place to protect the primary producer or smallholder interest when 86 per cent of farmers are small or marginal. The supermarkets are known to prefer large suppliers of farm produce.

Another misinformation being propagated by the protagonists of these big business is about the creation of ‘millions’ of jobs, The initial estimates by the government is that it will create over four million jobs in the small and medium industries and another 5-6 million jobs in the logistics sector in the coming three years, proclaimed Anand Sharma Minister of Commerce. This again is nothing but a wishful thinking that holds no ground when analysed objectively.

Unlike the developed countries, 51 percent of the India’s total workforce is self-employed. Retail trade is one of the biggest avenues of self employment, due to the little entry barriers and low capital involved. There are roughly between nine to eleven million retail outlets in India, most of them run as family business with a very small amount of capital involved and catering to the needs of consumers in their immediate vicinities. Compared to this, the US, has only 1.5 million outlets, catering to a market, which is almost 13 times bigger than India.

Between 1951 and 2011, the population of the US almost doubled to 312 million from 155 million, but the number of stores declined from 1.77 million in 1951 to 1.5 million in 2011. The number of ‘mom and pop’ stores employing less than ten people declined at an alarming rate from 1.6 million to only 1.1 million from 1951 to 2011.

Today the total number of people employed by Wal-Mart – the world largest retail chain – is over 2 million the world over, out of which 1.4 million are employed in the US. Due to the ongoing recession Wal-Mart has withdrawn from parts of Europe. So from which calculation is the government proclaiming that 10 million new jobs will be generated? Further Wal-Mart has a long history of high-profile labour rights violations including forced labour, minimum wage violations, denial of the right to form Trade Unions to name a few.

Analysis of the supermarket’s functioning revealed that it employs less number of workers than the traditional supply chain. Metro Cash & Carry employed 1.2 workers per tonne of tomatoes sold in Vietnam, compared with 2.9 persons employed by a traditional wholesale channel for the quantity sold.

According to a report on impact of FDI in Retail:

India has 35 towns each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store in each of these cities and they reached the average Wal-Mart performance per store – we are looking at a turnover of over Rs. 80,330 million with only 10195 employees. Extrapolating this with the average trend in India, it would mean displacing about 4,32,000 persons. If large FDI driven retailers were to take 20% of the retail trade, as the now somewhat hard-pressed Hindustan Lever Limited anxiously anticipates, this would mean a turnover of Rs.800 billion on today’s basis. This would mean an employment of just 43,540 persons displacing nearly eight million persons employed in the unorganised retail sector.
(FDI in India’s Retail Sector More Bad than Good?)

The evidence from Latin American (Mexico, Nicaragua, Argentina), African (Kenya, Madagascar) and Asian countries (Thailand, Vietnam, India) illustrate that the supermarket prices for fruits and vegetables and some other basic foods were higher than those in traditional markets.

No other country excepting China has a large a population as India. It is a challenge for India to feed its population of 1.2 billion where almost 400 million live below poverty line. Imagine if such a process takes place in India, it would pose a serious unemployment problem. With the coming of predator multinationals the government is doing nothing but creating a vast army of unemployed workforce.

The predatory market practices to oust small competitor adopted by several multinational retail chains are well known. For instance, in Thailand three foreign retailers increased their market share to 38 percent in 13 years, thereby throwing thousands of local retailers out of business. Given their huge capital base, big multinational players can invest and sustain losses for years in order to wipe out competition. Thailand is now struggling to contain the expansion of big retailers, and prevent monopolistic practices. This is a normal predatory strategy used by large players to drive out small and dispersed competition. This entails job losses by the million.

Organised players directly contact the manufacturers and get products much lower than the minimum retail price, while the small retails outlets are saddled with low margins.  Big retailers like Wal-Mart play on volumes and even contract manufacturers directly to have goods manufactured for them at their specification, which a traditional retail shop can never do.

As the supermarket chains have deep pockets to sustain losses so is their predatory appetite for gobbling their competitors. The effect on the small retail may not be visible at the moment but they would certainly be perceptible in next couple of years, by then several of the self-employed would be condemned to join the army of the unemployed and some may even be forced take up the extreme step like the cotton farmers of Vidarbha and Andhra Pradesh who have themselves been the victim of the agro multinational’s hunger for profit.

So it is clear that there is no prudence behind any of the logic being mooted by the government, this entire action has been obviously taken in consonance with the vested interests acting in concert with the international capital with their Indian agents the CII & FICCI.

But then who cares!

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