Foreign Direct Investment in retail sector is becoming a huge issue that has caused a serious danger on the current UPA government under the leadership of Manmohan Singh, the Keynesian economist. The opposition parties has called on a nationwide strike on 20th of September and every common citizen is still wondering about what is this FDI in retails and how will it affect or benefit the common man. It should be noted that the regular slogan of current government and Congress Party is “Our Hand is with Common Man.” In my last post, I explained why FDI in aviation is actually a benefit for the big corporate in aviation sector of India and how it has nothing for the common man in general. I also explained that FDI in aviation will still prove to be beneficial because government may now feel no inclination towards providing huge bailouts and subsidies for big corporate of India. Yet, this is also true that unless the government completely disinvest its whole share in Indian Air India Ltd. and announces a general policy of not interfering with the aviation sector, it is just a fraudulent way to create another economic bubble which will burst within a few years and will again cause a huge economic trouble and burden for the common Indian. Here, I will discuss about the intricacies of FDI in retail sector.
Is it an Economic Reform?
Prime Minister Manmohan Singh announced a bailout package for suffering Euro Zone nations that are suffering recession. The recent FDI in retail policy will prove to be another stimulus for the corporate houses of Euro zone as they will attain a new market in India. Indian government often deny its responsibility behind the crime of unchecked inflation that causes price rise and blames the retailers, shopkeepers, and other people engaged in retail sector for causing price rise by their mean practices of speculation and hoarding. Furthermore, our Prime Minister Mr. Manmohan Singh regularly keeps offering new dates for when the government will curb the burden of price rise. Both are blatant lies because the major cause of all encompassing price rise is nothing else but the government and RBI’s policy of liquidation and quantitative easing through printing new money and flowing it in the market through bailouts, stimulus, and free gifts for the big corporations, business houses, and vote banks. As money increases and production and quantity of commodities remains somewhat static, the prices of commodities increases blatantly and the common men lose their power to purchase. Inflation is indirect tax through which government taxes the poor, middle class and upper class of India alike. However, this taxation causes most trouble for the poor and middle class. Taxation is robbery; inflation is also robbery as it reduces the value of the money you have saved. There is no role of speculation or hoarding in price rise but, to deny its own responsibility, the government blames speculators and hoarders and claim that they are criminals.
The whole issue of economic reform by providing Foreign Direct Investment in retail sector is weird. However, liberals and progressives and many ill-informed libertarians too feel that FDI in retail is a step towards free market. Obviously, they have some weird notion of free market because, 51% FDI in retail sector is everything against the principles of free market specially when the power sector and transportation sector is still in government’s hands and is hugely subsidized. It should be noted that production depends on electricity, land, and transportation. If these three sectors are controlled by government and are hugely subsidized, we can conclude that production sector itself is controlled by government. Maintaining monopoly over produciton and allowing FDI in retails is not economic reform. The first step needed to be disinvestment and FDI in power sector and transportation sector; e.i; the government needed to privatize roads, railways, and electricity production and distribution first. But that is not the case.
What is Free Market?
Free Market, or market anarchy is the idea that the market and economic activities are best managed when no authority manages them and the economic players, the producers and the consumers remain free of any intervention by government in form of minimum price rates, speculation laws, hoarding laws, minimum wage laws, ban on production of certain commodities, registration and licensing issues and so on.
The current policy of FDI in retail is exactly opposite to the idea of free market or market anarchy. Firstly, the government is not going to free the market by denouncing its license rule over production sector, and secondly, the government is strictly against the practices of speculation and hoarding. Thus, the government in India will keep totalitarian control over the small scale producers and investors. They will still find themselves in jails if they use their mind to earn honest profits by speculating market trends and by other valid economic processes. In addition, the government of India doesn’t have too much control on retail sector at present. By allowing FDI in retail, the government is neither disinvesting any of its subsidiaries, nor is it reducing the control of government over common man’s life. But yes, the government is certainly increasing competition against the small shopkeepers, vendors and small scale producers too.
Thus, claiming that FDI in retails is a sort of economic reform that will lead to individual liberty is a false premise and a fraudulent statement.
Who will gain benefits of FDI in Retail Sector?
Government has announced 51% FDI in multi-brand retail sector. The biggest beneficiary of this policy will be the government itself. As the foreign investors will be able to invest money in big corporate houses of India that are already engaged in multi-brand retails through their malls and big shops, the government will attain more money through taxes. The upcoming FDI will also improve the score of flowing money in the overall economy and that will suggest a higher GDP rate. But, GDP does not denote economic progress, or prosperity of common Indian. Rather, it denotes how much money was flown in and out of Indian economy and what is the rate of increase in that flow. Increase in GDP cannot make a poor any rich, nor can it provide any help for any middle class or upper middle class person.
Another beneficiary of the FDI in retail sector will certainly be the big corporate houses engaged in retail sector such as Reliance, TATA industries, Sahara, and others. These big industries are certainly struggling against the competition by the small shoppers and vendors. Now when they will be able to attain huge monetary support through their foreign partners, they will be able to strengthen their position in market. They will also be benefited because the same license laws and regulations that restricts a common small shopkeeper, won’t be able to stop the big corporate houses any more as they can take advantage of their foreign partners. Government will also provide other advantages for these big corporate houses by offering cheap electricity which is subsidized, cheap transportation, which is subsidized, and cheap land through SEZ policies. This all represents corporatism and it is strictly against the free market, or market anarchy.
The rules offered by government for FDI ascertains that the multi-brand retailers will have to buy 30% of saleable products from Indian producers. Rest of the 70% can be bought from foreign producers. Obviously, it will be a great benefit for foreign producers; they will get a good market in India which will be safe. And who are these foreign producers? China is considered as the production house of the world. Americans claim that they are losing jobs because of Chinese products. Now Chinese producers will attain a new market to explore. It should be noted that most of the investment may come from western countries like the United States, but Unites States is not known as the producer country, the producer country is still China.
In addition, the stock market players will also gain profits through the FDI in retail sector. Value of their shares will enjoy a big boom in upcoming years. But hey, every economic boom bursts after a period. Even the US investors are crying foul against the crony capitalist policies of the United States that are now being followed in India. Furthermore, not more than 2% of Indians are actually engaged in the game of Share Market, economic bubble, and boom and burst cycles. 51% FDI in retails is just like providing security for Indian corporate houses at the expense of small scale producers, retailers, investors, and businessmen. This fake economic reform is actually a process of socializing the losses (Power sector and transportation sector are still subsidized and controlled by government), and privatizing the profits.
What for Common Man of India
The upper middle class and upper class Indians will have more places for entertainment, enjoyment and shopping as new Malls and better infrastructure will appear in India. But the middle class and lower class Indians won’t get anything out of it.
The small scale producers will face a stringent competition from their Chinese counterparts and that competition will be unfair because of the Indian government’s socialistic and restrictive policies of license raj. Government’s control over power sector and other production sector further exacerbates the issue of Indian small sector producers. Producers in Uttar Pradesh and most of the India fail to attain enough electric power and are dependent on Diesel generators for electricity and production. The shortage of electricity will increase and in small cities, towns and villages and this will further cause harm to production sector. Foreign producers have better facilities and they will win the market especially when they already have 70% slot available for their products.
The procurement of agriculture products will still remain in government’s hand, thus, government is not going to lose any hold on the market and it will decide the minimum price. Thus, farmers may not get hurt because of FDI in retails.
Small scale producers, retailers and shopkeepers will face huge burden and their market share will be reduced comprehensively. Many of them will lose their jobs. It wouldn’t have been a worry for me if power and transportation sector had been disinvested and augmented by FDI, but in absence of that, it is shear robbery of small scale producers, and consumers of those cities which are not big enough.
Government suggests that FDI will provide jobs too, and this is true, but the number of new jobs that will be created will be much lesser than the number of jobs in small scale production and retail sector will be destroyed.
Am I Against FDI in Retail Sector?
I am not against free market, but I am certainly against corporatism (also known crony-capitalism) and governmental intervention in the market. I will certainly approve a policy that restricts the Indian government from taking any interfering decision in the market economy, but that is not going to happen through FDI in retails. FDI in retail sector is in no way a step towards free market or market anarchy and that is why I am against this idea of FDI in retail sector. It is not an economic reform. Rather, it is just another economic bubble that will let the government of India and other crony capitalist governments to enjoy a little bit more fun of boom and increasing statistics of GDP while the poor will continue to become poorer and the rich will keep becoming richer. After that, this economic bubble will also burst and all those false figures of progress will go in vain while the common man will continue to suffer the burden of inflation and price rise.
The government will enjoy the benefits of incoming currency and will show better progress card in terms of GDP but it will further promote its socialist programs like Education for All, Food Security Bill, Health Regulators, Universal Health Care system, higher DA for pensioners etc. and will keep increasing the burden of national debt and fiscal deficit which will become unbearable when this economic bubble will burst and this loss will further be socialized. When this furtherance of corporatism or crony capitalism will fail again, people will blame for free market capitalism because the government is fradulently claiming that FDI in Retail sector is a step towards free market which is a blatant lie. It will be a step towards Free market or market anarchy only if the government decides to disinvest the Indian power sector and transporation sector completely, because electricity and transportation are the basic pillars of production sector.