Pernicious move

The release of a discussion paper on allowing foreign direct investment in multi-brand retail shows that the government is seriously pursuing the proposal which has been in cold storage for years. The prime minister has indicated this too. One only hopes that the government has not already made up its mind and is going through the motion of a public debate. The issues involved are well-known through public debate in the last many years.

A fresh debate cannot shed any fresh light on them. Hundred per cent FDI in wholesale and single brand business is allowed now. But its acclaimed benefits are hardly seen, many years after the idea was implemented. The stakes are much higher in the case of retail business as it involves a market worth about $ 425 billion, spread all over the country, and livelihood and employment of millions of people.

The entry of multinational behemoths like Wal-mart and Carrefour will inevitably lead to the demise of the retail trader who is at the centre of the retail business in the country. The small neighbourhood shops will not be able to compete with the MNCs with resources and pricing power. It can lead to a social and economic crisis of unprecedented magnitude. It has been suggested that legal and other measures can be put in place to protect the small trader. But it is a fanciful and impractical suggestion. The claim that FDI in retail can help farmers to get a better price is also unconvincing.

It is true that the big difference between farm gate and shop floor prices is pocketed by intermediaries of various kinds now. There are also huge losses and wastage of produce because of the absence of a storage and cold chain infrastructure. But leaving the development of such infrastructure to MNCs is risky. Experience shows that the operation of Indian companies in the retail sector has not benefited the farmers. It is wishful to hope for these benefits from the working of MNCs.

India’s agricultural sector has to grow with better production and marketing infrastructure and other facilities. It is for the government to provide them. Leaving the task to big international business which covets the Indian market is wrong and unrealistic. The government has probably chosen a politically safe moment to push the idea. But the consequences will start haunting it sooner than later.