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FDI in Retail in India – The Issue and Deeper Perspective


The past few weeks have seen a lot of heated debate on the issue of Foreign Direct Investment in retail. There has been lot of noise both for and against the issue.

The Issue

In 1997, the Indian retail sector witnessed the first inroads of FDI with 100% FDI being permitted in cash & carry wholesale trading under the government approval route, subsequently brought under the automatic route in 2006. As a step ahead, FDI in single brand retail was permitted to the extent of 51% in 2006, while FDI in multi-brand retail remained prohibited till recently. In July 2010, the Department of Industrial Policy and Promotion (DIPP) had put up a discussion paper proposing FDI in multi-brand retail. In July 2011, a Committee of Secretaries (CoS) had cleared the proposal to allow upto 51% FDI in multi-brand retail, which has been approved by the Union Cabinet in November 2011, albeit with a few riders. The Union Cabinet has also approved increasing the FDI limit in single brand retail to 100% with government approval.

The following are the main arguments put forward by those in favour of foreign investment in retailing and those opposed to it:

Those in favour:

• It will cut intermediaries between farmers and the retailers, thereby helping them get a better price for their produce

• It will help in bringing down prices at retail level and calm inflation

• Big retail chains will invest in supply chains which will reduce wastage, estimated at 40 percent in the case of fruits and vegetables. Estimated value of the loss being around Rs. 40,000 crores

• Small and medium enterprises will have a bigger market, along with better technology and branding

• It will bring much-needed foreign investment into the country, along with technology and global best-practices

• It will actually create employment than displace people engaged in small stores

• It will induce better competition in the market, thus benefiting both producers and consumers

Those against:

• It will lead to closure of tens of thousands of small family-run shops across the country and endanger livelihood of 40 million people

• It may bring down prices initially, but fuel inflation once multinational companies get a strong hold in the retail market

• Farmers may be given remunerative prices initially, but eventually they will be at the mercy of big retailers

• Small and medium enterprises will become victims of predatory pricing policies of multinational retailers

• It will disintegrate established supply chains by encouraging monopolies of global retailers

There have been numerous articles both in print as well as circulating on the internet to show the futility and falsity of the arguments advocating the introduction of FDI in Indian retail markets. But behind all the arguments for or against the whole issue there are deeper issues of vital importance that are involved but have not been hinted at or simply have been overlooked. The stakes are not only economic well being of the people but the very existence of the people and the culture. Here we would like to draw attention to some of these involved issues of greater importance.

The Underlying motive: one thing very obvious is the underlying motive with which the multinationals are eyeing the Indian retail market. Given the present ethics of business, it is not unreasonable that it is out of purely commercial intention and not for any public service or out of some sympathy for the dilapidated condition of Indian Economy at present that they wish to establish themselves on Indian land. Considering the present condition of our country – which we have elaborated extensively in our previous article on Corruption and Present Indian Scenario – where under the sway of western utilitarianism and commercial mentality all the values of our culture seem to be falling apart; where all our present systems – may they be political, social, administrative or any other – seem to be completely under the sway of this one single motive, so much so that even the entire education system, medical system and food industry have become really corrupt, at such a juncture to open the gates of the nation for more and more of the same virus is nothing short of madness. Haven’t we already seen the working of these multinationals in countries where they have flourished and where they have their stranglehold? Are people happy with them in these places? If the recent demonstration against the corporate companies in thousands of cities across the Western World are any indication, then the emphatic answer is No. Things must have gotten pretty bad for masses to rise in such spontaneous uprisings against the culprits.

Food Inc. – a documentary film unveiling the practices in American food industry – an industry that has often put profit ahead of consumer health, the livelihoods of American farmers, the safety of workers and our own environment.

Some of the facts that the documentary reveals are:

• In the 1970s, the top five beef packers controlled about 25% of the market. Today, the top four control more than 80% of the market.

• In the 1970s, there were thousands of slaughterhouses producing the majority of beef sold. Today, we have only 13.

• In 1998, the USDA implemented microbial testing for salmonella and E. coli 0157h7 so that if a plant repeatedly failed these tests, the USDA could shut down the plant. After being taken to court by the meat and poultry associations, the USDA no longer has that power.

• In 1972, the FDA conducted 50,000 food safety inspections. In 2006, the FDA conducted only 9,164.

• During the Bush administration, the head of the FDA was the former executive VP of the National Food Processors Association.

• the Bush administration, the chief of staff at the USDA was the former chief lobbyist for the beef industry in Washington.

• Prior to renaming itself an agribusiness company, Monsanto was a chemical company that produced, among other things, DDT and Agent Orange.

• In 1996 when it introduced Round-Up Ready Soybeans, Monsanto controlled only 2% of the U.S. soybean market. Now, over 90% of soybeans in the U.S. contain Monsanto’s patented gene.

• Supreme Court justice Clarence Thomas was an attorney at Monsanto from 1976 to 1979. After his appointment to the Supreme Court, Justice Thomas wrote the majority opinion in a case that helped Monsanto enforce its seed patents.

• The average chicken farmer invests over $500,000 and makes only $18,000 a year.

• The modern supermarket now has, on average, 47,000 products, the majority of which is being produced by only a handful of food companies.

• 70% of processed foods have some genetically modified ingredient.

• ‘SB63 Consumer Right to Know’ measure requiring all food derived from cloned animals to be labeled as such passed the California state legislature before being vetoed in 2007 by Governor Schwarzenegger, who said that he couldn’t sign a bill that pre-empted federal law.

• 1 in 3 Americans born after 2000 will contract early onset diabetes; among minorities, the rate will be 1 in 2.

• E. coli and Salmonella outbreaks have become more frequent in America, whether it be from spinach or jalapenos. In 2007, there were 73,000 people sickened from the E. coli virus.

So, how could one expect that the results would be any different in India. At present the Indian consumer has a very wide choice, but when the show will be orchestrated by giant companies both the producer as well as the consumer would be left with very little to choose from.

At present, the whole trend in the world economy is towards monopolization. But food is not the sector that humanity can safely afford to leave in the hands of a few who are incurably suffering from the malady of Commercialism. One can only fondly recall the days when the chemical culture (advanced technology!) was not so developed and all pervasive. People could buy organic, wholesome and fresh food products in the market. With the advent of commercial spirit and advanced chemical technology one can practically get nothing which is fresh or free from an overdose of chemicals. The growing incidence of diseases such as diabetes, cancer, all kinds of allergies in addition to new and previously unknown diseases can be unmistakably traced to the increasing use of the chemicals to preserve the appearance (never the quality) of the food for longer and longer periods to make it easier to transport and store and hence commercially profitable. Food is a sector where real quality must be of utmost concern, for on it depends the health and the very existence of a society. The dire effects of this trend are too numerous and too obvious to need any elaboration. The direction in which we have been moving in the food sector is wrong and must be reversed; we cannot continue to run on it with ever increasing speed – something we will be inevitably doing if we allow the big food chains to enter the retail market. There is already an awakening in various pockets here and there on an individual and small scale organizational level against this trend and this desperate situation. There are a growing number of people who have taken it on themselves to revive the fertility of their land by adopting organic and even natural cultivation – i.e. Guru Nanak Kheti in Punjab – and to produce wholesale food for themselves and those around who appreciate the value of such food. This movement is not confined to a region or a nation but is becoming increasingly popular globally. It is in this direction that we must move. Our government should be made to direct its efforts towards this single most important issue facing the country. To allow FDI in retail is just the opposite of what we desperately need.

A Deeper Perspective on the Situation Facing Humanity in General and India in Particular

“…man intellectually developed, mighty in scientific knowledge and the mastery of gross and subtle nature, using the elements as his servants and the world as his footstool, but undeveloped in heart and spirit, becomes only an inferior kind of Asura using the powers of a demigod to satisfy the nature of an animal. According to dim traditions and memories of the old world, of such a nature was the civilisation of old Atlantis, submerged beneath the Ocean when its greatness and its wickedness became too heavy a load for the earth to bear, and our own legends of the Asuras represent a similar consciousness of a great but abortive development in humanity. – Sri Aurobindo” (CWSA 1, 439)

“… the naked and unabashed pursuit of capitalism during the past two decades after the collapse of communism in Russia has been increasingly leading humanity towards an ever higher and higher level of a new kind of barbarism – the barbarism of the economic man – which is proving dangerous not only for the existence of the Capitalistic economic system but even for the very existence of the human race.”

“…in a commercial age with its ideal, vulgar and barbarous, of success, vitalistic satisfaction, productiveness and possession the soul of man may linger a while for certain gains and experiences, but cannot permanently rest. If it persisted too long, Life would become clogged and perish of its own plethora or burst in its straining to a gross expansion. Like the too massive Titan it will collapse by its own mass, mole ruet sua.”(CWSA 25: 79-81)

“If human beings are ever going to truly come out of the repeated rounds of wasted efforts, emotions, untold suffering and useless strivings, they must first realize that the working of things in this universe is such that all works from within without and that nothing can really manifest unless it is already within. Therefore, what they (human beings) are within that alone they shall enjoy outside. It can never be otherwise. In the words of Sri Aurobindo, “This erring race of human beings dreams always of perfecting their environment by the machinery of government and society; but it is only by the perfection of the soul within that the outer environment can be perfected. What thou art within, that outside thee thou shalt enjoy; no machinery can rescue thee from the law of thy being.”(CWSA 12: 468)

“If you give up … spirituality, leaving it aside to go after the materialising civilisation of the West, the result will be that in three generations you will be an extinct race; because the backbone of the nation will be broken, the foundation upon which the national edifice has been built will be undermined, and the result will be annihilation all round. – Swami Vivekananda”

The whole situation is very very clear and those who care for the future of the race must see clearly the direction in which to move.

Some related links to this issue:

1. Food Inc. Documentary

2. Food Inc. Official Site

3. ICRA Analysis 

4. Foreign Direct Investment in Indian Retail Sector – An Analysis by Pulkit Agrawal, Esha Tyagi

5. John Company Days Again by Sandhya Jain (An article published on 6th Dec. 2011 issue of the Newspaper – The Pioneer, Page 8 )

6. FDI in retail: Whom are you kidding, Mr PM?

7. Wal-Mart: The High Cost of Low Price

[media url=”http://www.youtube.com/watch?v=Hftb_DVuelo” height=”400″ width=”600″] 

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