Received from a friend an article published in MINT titled, ‘The perils of retail therapy in India’. The article gives the impression of being rigorous with its references to the empirical experience in the United States on farmers’ incomes arising from the rise of retail chains, etc. It quotes statistics too. But, the article is flawed on several counts:
(a) Experience of United States is not transferable to India. Economic policies must be rooted in one’s own context, culture and experience.
(b) The aims of liberalised wholesale and retail trade are not just farm prices. Government MSPs are doing that job, more than adequately. If retail chains do not offer good prices, farmers can always dump them on the benevolent GoI.
(c) It is not clear if farmers in the US were exploited by middle-men and mandis. If not, then it is no loss to them if retail chains did not compensate them.
(d) Share of farm income (the article is not talking about absolute dollars) may drop if the value generated in the entire retail chain rises such that the share of value-added going to farmers drops. Moreover, if farmers’ prices received drop, it could also be due to their improved productivity. In that case, the right metric to look at is their net income and not a vague percentage share.
(e) If farmers are not made worse off but if end-consumers are better off, then it is still better than status quo
(f) Even if farmers become worse off but end-consumers become better off and if the latter trumps the former, the Government should find a way to share the enhanced welfare gains with the former (i.e., farmer)
(g) If protests against Walmart take place in the US, then it is because Walmart has diverted procurement to developing countries. That is a plus for us. Hence, protests in the US are not necessarily a warning signal for India’s interests.
(h) There is no reason to assume that the Government of India policy is only about giving license to one entity, Walmart.
(i) It is important to find out how much kirana shops rob the government of revenues. A reasonable hunch is that they trade only in cash. They possibly evade Income and Sales Tax. They do not pay for the electricity they consume. These are unlikely to happen in the case of retail chains. That benefit has to be factored in, given India’s budget deficits.
(j) My guess is that Indian shoppers are unlikely to abandon kirana shops and migrate the whole hog to retail chains. If, in fact, they do, then that shows how much they have been fleeced by the existing kirana shops.Pl. check back with points (e) and (f) above.
(k) The Central legislation on FDI in retail is only an enabling legislation. States are in the lead. Those states that are open and keen can do so.
(l) FDI in retail can be done on a pilot basis in willing States. Based on lessons learnt, it can be either confidently advanced or persuasively argued against. The best place to test policy decisions is the real economy and not the Op.-Ed pages of newspapers or bully pulpits.
(m) The pursuit of necessary reforms in agriculture – really creating a single market in India for agricultural produce – is not a EITHER/OR thing with FDI in retail. The GoI can and should do both.
Postscript: For a country with a current account deficit of around 4%, foreign capital is a MUST. It is neither an option nor a luxury. Better if it is equity than loans. Government of India recent foreign capital liberalisation measures have all been in the direction of welcoming more portfolio capital and that too, debt. Both are bad.
Even if some one were to disregard the list of points I had raised above totally, the sheer signalling effect of the implementation of FDI in retail could be substantial in terms of restoring faith among investors, entrepreneurs and industrialists in the Indian economy, in the Indian government and thus bring back economic growth.
As to why economic growth matters – contrary to all that we have heard from the members of the National Advisory Council of the Government of India – read what Dr. Pratap Bhanu Mehta had written
(ht: Nandakumar) in ‘Indian Express’ recently.