It's the politics, stupid

Dec 13, 2012, 07:00 IST | Vikram Sood

Vikram SoodWe had record sales, we had record savings, we had record reinvestment back into our capital....” This is what Scott Lee, President and CEO of Walmart, flamboyantly told his audience of its employees or (associates), shareholders and stakeholders in a packed hall some years ago. Lee spoke about profit, and still more profit. The speech was a throwback to the classical principles of capitalism of maximising profits that Adam Smith enunciated in the eighteenth century. This is from a 2005 Robert Greenwell documentary and evocatively called “The High Cost of Low Prices.” This should be mandatory viewing by the rulers and ruled. The documentary highlights the poor wage and working conditions in the anti-union Walmart outlets. It is also about how FDI in China and Bangladesh has functioned which may be a truer indicator of what can happen in India.

A price to pay: A recent study in the US by the Manhattan Borough found many small retailers would be shut in the neighbourhood of a Walmart, if it were to open there

A recent study in the US by the Manhattan Borough found that between 30 and 41 small retailers would be knocked out in the neighbourhood of a Walmart were it to open there. 60 others would similarly suffer the following year. This study is based on an earlier Chicago study in 2009 which had found that 25 per cent shops within a one-mile radius closed after a Walmart store opened in West Chicago. 40 per cent closed the following year. In addition, as the Robert Greenwell documentary found out, owners of small businesses in the smaller towns had to shut down and seek employment in Walmart at much lower remunerations. Today, discussion about FDI in retail has become a discussion about Walmart practices but there are other players also.

The recent debate in our parliament was an exhibition of caste politics, power and opportunism. It was not about a government of the people acting for the people and by the people but a government for some of the people by the few. Handouts promised just ahead of the vote ensured dramatised walk outs or votes in favour. Politicians were thus able to claim their continued opposition to FDI but also helped the government win the vote with their walk out. We must be naive if we accept this logic and it must be insulting if it assumed that we do not see through this charade.

We need increased FDI as our economy slows down. No one denies that. A measure of the success of our economic reforms is the amount of FDI that is flowing in. But we really need more FDI in infrastructure, technology, energy and power production and distribution, education, health, transport and communications and defence. We need assistance to give a boost to our declining capabilities in manufacturing activity, and we need investments in our agriculture sector where 70 per cent of our people live, mostly in abject poverty. FDI in multi brand retail is certainly not a priority for India.

Besides, FDI is not about just removing the middleman or about preserving 65 per cent of our perishable products in refrigerators and minimising wastage. If 70 per cent of the goods to be sold are allowed to be imported then in the case of Walmart, this would be imported from China who would then happily use the distribution system of Walmart in India, keep its factories running, while our neighbourhood kirana stores will shut down but what is more, small factories in India will close.

While we go headlong into FDI in retail, it is worth remembering that China opened 49 per cent of its retail to FDI in 2002, 24 years after the economic reforms kicked in and after its retail firms had grown sufficiently. In the US, Walmart draws maybe 90 per cent of its products from China. In China, it draws 95 per cent indigenously and supplied by about 15,000 suppliers. This is in complete contrast to what we are planning. Maybe, if there were regulations that such retailers who import products from outside would need to export a similar percentage and that the retailers would also bring in FDI for their capital investment, then there could be a way out.

Neither profits nor FDI are an unmitigated evil; only the excess of either can be devastating because everything has a price. A great deal depends on the sourcing of the products to be sold, the shop floor tactics of the management and the relationships the investor works out with his suppliers. In our country, the economic and social merits or otherwise of FDI in multi brand retail have been lost to electoral compulsions and political considerations.

The writer is a former chief of Research and Analysis Wing (RAW) 

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