why FDI in retail is bad for India

Way back in November I was asked by Abhirup Bhattacharya to contribute an article to his blog. Abhirup runs the very successful blog called Ideas Make Market and on there he discusses many pertinent business topics as well as invites guest writers to post their views. At the time of writing, FDI (Foreign Direct Investment) was the buzz in the air. My thanks to Abhirup for this opportunity for presenting my views to his audience. You can follow him on @ideasmakemarket

Please see below for the article that was posted on his site or go here to read directly on his site.

The last few days have seen big debate around the issue of retail foreign direct investment (FDI). It has split politics as well as business into two opposing camps. 51% for FDI is a huge amount, one that could change the retail landscape in India, perhaps forever. One of the conditions for this proposal is that multi-brand companies should source at least 60% of their farm produce from small farmers. The justification is that this will give a boost to small farmers but there is an inherent flaw in the argument. Since the 1970s, farmers in the US actually make less because they supply to big stores and the same thing could likely happen in India.

The second argument is that this FDI will create jobs. However, nobody is talking about the kind of jobs it will create and the kind of jobs that it will threaten, namely the small grocer and kirana shops that is the hallmark of any Indian neighborhood. Finally and most worrisome of all, nobody is addressing the kind of down-the-line problems FDI will create.

The model of multi-brand supermarkets is hardly working nor is it sustainable. It involves massive supply chains ranging from remote corners of the globe, encourages consumerism, cheap produce and planned obsolescence. It creates more waste and more pollution.

India already struggles with massive infrastructural problems with waste management –what is the proposal to deal with the excessive amounts of waste created by the FDI investment? What about actually making space for building the Walmarts, Tescos, Carrefours that propose to come in? What is going to happen to home-grown super-market chains? Are Indian cities going to look like soul-less American ones with no character and only neon signs and parking lots for decor?

The multi-brand supermarket is a failed business model even in those countries that pioneered them, notably the United States. The more enlightened shun these business establishments and are moving towards encouraging local produce. If the Indian government is really serious about encouraging small farmers, then they will be rejecting GMO and making sure locally produced organic food is more widely available. If the government is serious about creating jobs then they should be focusing on improving sectors within the country namely waste management, agriculture and infrastructure development.

The great experiment of consumerism in the United States that started off in the 1950s is moving into India in leaps and bounds with advent of malls, multiplexes and now multi-brand supermarkets. However, now this model of consumerism is showing serious cracks – instead of using resources to come up with something that works, something that is progressive and fits in with the Indian ethos, why do we insist on blindly following something that does not work?

The way I see it, the retail sector in the country does not need a new business model. India as a country needs a new business model that embraces the principles of long-term sustainability and eschews the policy of short-term financial gain. Let the supermarkets go create jobs, encourage farmers and flood shelves with cheap Chinese products in their own countries. India need not follow suit, indeed India should not follow suit.

This country needs to be developed from ground-up in a holistic manner. All we are currently doing by encouraging foreign investment that does not fit in with systematic growth is focusing on the embellishments whilst the foundations lay crumbling.

the state of governance

Yesterday the people in the Coimbatore District, India took to the streets in protests over the power-cuts that have been plaguing the city. On Monday and Tuesday, the city saw eight hours of total power cuts! This has affected several MSMEs, hospitals, vaccine banks, schools, offices and even homes. The common complaint among businesses was that they still had to pay their workforce even as they sat idle.

Small health care centers had to stop procedures and even surgeries half way through the procedure. Several of the bigger hospitals have resorted to switching on diesel generators up to the capacity of 125 KV to tide them over. Traffic signals were mere decoration on the street. Many students were affected as power-cuts in certain areas occurred in the evening, when they are about to study. Housewives could not do their morning chores without electricity to run their mixers, grinders, washing machines and refrigerators. Milk soured and vegetables rotted and people are sleepless.

Electricity is something that many of us take for granted and power-cuts of this scale on a daily basis, is not something that people in Western countries can even comprehend. People thoughtlessly leaving lights and fan switched on as they leave the room or leaving gadgets charging endlessly - all of it leads to increase in power demand. The Tamil Nadu Generation and Distribution Corporation (TANGEDCO) has stated that power cuts are likely to continue because there simply isn't enough power generated to meet demand. The state currently faces a shortage of 3000 MV.

Although there is a 'scheduled load-shedding' for two hours everyday, the past month has seen up to six hours of 'unscheduled load-shedding' everyday. TANGEDCO needs to regularize this, so that at least people are aware of the times when there will be no electricity.

The state of governance is such that, the government has given away free televisions, mixers, grinders and laptops for the needy, sharply spiking the need for power but yet has done nothing to ensure that there is more power being generated. The Kudankulam Nuclear issue is currently at a deadlock and no further investment is being made into tapping other sources of energy. With India's tremulous safety record, setting up further nuclear plants is a bad idea. Funds need to be diverted into safer sources like solar, wind and geothermal.

Subsidies for small-scale power generation is also seriously required. Foreign investments in building up infrastructure like roads and power systems are the need of the hour, not FDI. As the Tamil Nadu government lays floundering over the issue, our neighbouring MPs in Karnataka are watching porn on their mobile phones during a state assembly.