Wednesday, December 7, 2011

Farmers want more organized retail…..not worried about FDI

More and more stories are emerging about how farmers have benefited from the arrival of large format retail stores. Today’s TOI lists several such stories. These are stories from all over the country – many from BJP ruled states. Farmers are talking about the advantages that they have derived from selling directly to the stores. Apparently, profit margins have increased by 25% or so on account of this. Exactly what do the opponents of FDI in retail – most notably the opportunistic BJP – have to say about this?

Earlier, a farmers association that met Anand Sharma had also supported the government’s move to allow FDI in the retail sector. If farmers were better organized, they could have let their stand be better known more strongly. Unfortunately, in a political system based more on caste and religious divisions, the class of farmers has been rendered politically weak. While all politicians claim to represent farmers, none of them has any problem opposing a decision that helps them.

The BJP has argued that large format stores have better buying power – and hence farmers will get exploited even more. While that possibility exists (at least theoretically), farmers get exploited even today by the mandis that they are forced to sell their produce to. With large format stores, they in fact get paid more for better quality goods. Very importantly, since the extent of wastage reduces by as much as 40% when selling directly to large format stores, even with lower prices, they make more profits. Farmer want more large format stores, so that they can offload more to them; saving them the bother of selling to mandis. In fact, the example talks of Bharti Walmart first starting to buy directly from just some 60 odd farmers in Punjab – and very soon extending the scheme to cover more than 3000 farmers in Punjab, UP, Haryana and other states. If farmers were not getting a good deal, why were they rushing to sign up with Bharti Walmart? Why were they selling as much as possible to large format stores before selling the balance to the mandis?

Some commentators have said that Walmart will start sourcing all their goods from China. The truth is that even large format Indian retailers can source all their goods from China. There are no import restrictions that prevent them from doing so. Even today, many large format stores stock loads of Chinese goods. But everyone knows that the quality of Chinese goods is pathetic – except in a few areas like plastics, toys etc. That’s why the presence of Chinese goods is limited. It will be no different in FDI backed retail stores. And hypothetically, if the share of Chinese goods does increase, who benefits? The Indian consumer who buys what he/she thinks is a better deal. Maybe the Chinese product is a little cheaper; maybe a little more innovative in its design? It is ultimately only the pressure put by consumers that forces manufacturers to upgrade their products. As soon as there is competition, manufacturers tweak their products and strategies to meet the new demands. Hardly anyone goes out of business. After large format stores opened up in India a decade back, has manufacturing increased or decreased in India? Has any manufacturing unit closed as a result of large format stores coming up?

The TOI stories also talk about the amazing adaptiveness of the Indian kirana store. They’ve upgraded facilities; modernized product displays; modified product mixes (a lot of them carry lots of imported goods and brands); improved the shopping experience; become polite; starting delivering at home…..In short, they’ve adapted. Has anyone heard of any kirana shop closing down at all since large format stores emerged? What kind of lies is the BJP spreading? Why is it opposing what the urban middle-class wants? And what is beneficial to it? Will they ask questions to their local BJP netas?

Some people say that retail is not rocket science – and so we don’t need FDI. That’s absolutely right. It’s not rocket science. Neither is road building, mining, construction or most manufacturing sectors. By this logic, why allow FDI in sugared water (Pepsi, Coke), or chocolates or noodles or toothpaste? We need FDI because we need all possible investments we can get. Investments lead to creation of jobs. That starts off the virtuous spiral of economic growth. By several estimates, we need more than $1 trillion of investments in our infra sector. It’s not about rocket science; it’s about a quick need for resources. It’s the same with retail. I look at retail as infrastructure – as important as roads to us common folks.

I focus my attack on the BJP because the BJP was hitherto known as a pro-reforms party. Even now, the party is at pains to explain that it is not anti-reform. It is only anti-retail reforms. Why? Whose interest is it protecting? The local kiran stores’ interest? Or the middleman’s? Is it willing to forego the consumers as well as farmers for this narrow section of people – who in any case won’t lose out? The other parties are mostly regional parties. They cannot be expected to be savvy about such issues. A Mamata Banerjee in any case is just behaving like the B team of the Left. Yesterday’s papers talked about the big challenge that the Left is facing from Mamata – because Mamata is trying to occupy the exact same position that the Left has traditionally occupied! She is being more Leftist than the Left themselves are! Is this what Bengal voted her to power for?

To that extent, I am happy that the FDI decision has not been rolled back. It has only been suspended – whatever that means. Suspended till a broad political consensus emerges. Now this is a play of words. What does “broad consensus” mean? Does it mean that all parties must support it? If this definition were used, there would never be any political decisions made. How can there ever be consensus? Basically, what it means is that the day Mamata Banerjee relents; or the day SP comes out in support of the Congress (post the UP elections), the matter will be revived (hopefully; most would say). If this is true, it will certainly be proof that the decision was right, but the timing was wrong.

In all of this, there was the interesting remark that Anna made that the FDI move was anti-farmer. Of course, he didn’t deem it necessary to explain why he thought so. He’s been spinning a lot of similar remarks recently – the one (flipflops included) about the slap on Sharad Pawar’s face being one such. The other remark was the one that Rahul Gandhi was somehow (just don’t ask him how) responsible for the exclusion of Group C and D workers from the ambit of the Lokpal. What I find interesting is that Anna has no obligation to offer any evidence for any remark he makes (will his Lokpal setup also work without evidence?)

Another interesting nugget of information came out on Times Now last night. Arnab was able to show to Rahul Bajaj that in 1997, he (Bajaj) was opposed to FDI in manufacturing as well. And today, he (Bajaj) is an avid supporter of FDI. Bajaj fumbled his way through an unconvincing answer. Instead, he should only have said that he was wrong in 1997. He was part of the Bombay club which was opposed to liberalization – fearing that they would go out of business. Today, Bajaj is giving Honda a good run for its money. Today, TVS is a strong bike manufacturer even without holding on to Suzuki’s supporting hand. Today, Bajaj is not afraid of MNCs. Today, Bajaj has learnt that his doubts and worries were misplaced. Just as misplaced as the doubts of the naysayers of FDI in retail are. Bajaj’s is a typical case. Locals fear the “invasion” of foreigners – fears that are fanned by self-serving politicians – but once the foreigners come, they realize that they can fight them back. India today is not the India of the 18th century when the British came and occupied us through the trade route. More often than not, India sets the agenda at global meets these days. Even in the ongoing environment talks in South Africa, India is setting the agenda for the talks. Politicians love to play on the fears in people’s minds to serve their own interest; but they claim they are doing so for the national interest!

Here’s another point that most people have missed out. With the huge growth of the internet in India, shopping is increasingly going online. The biggest airline ticket sales happen online. So also hotel bookings, railway tickets, etc. A few years from now, most people will be shopping in some measure online. Are there any FDI limits there? None! And why is that so? Because our politicians haven’t understood the power of the online medium yet!

I will end by again asking the BJP pointedly. Which is your core constituency? The urban middle-class consumers? The farmers in the rural areas? Or the banias inbetween? How long will your obfuscation of facts continue? Is this the nuclear deal moment for you too – when a large reason for your losing the 2009 Lok Sabha elections could be your opposition to that deal? The BJP will surely be grilled in private meetings with its supporters…..

The real truth is that it is becoming increasingly clear that FDI in retail is good economics. In reality, it is also good politics. Those who oppose it could suffer politically as well. I am confident the matter is not over yet. Just “suspended”, not “rolled back”!

No comments:

Post a Comment