FDI – A Contentious
Issue
I am sure even curious young ones in school have begun to
ponder over this issue. A contentious issue indeed!! A lot has been said,
written, analyzed and discussed etc. about this. Politicians have taken “keen”
interest in this for various reasons. Every coin has two sides and so does this
one.
Let us have a look at the various parameters involved here.
Firstly – The Farmers
The farmer is paid a fraction of the amount the end consumer
pays to buy his produce. 70% of the population in India is dependent on
agriculture to earn a livelihood.
40% of our farm produce is wasted before it reaches the end
consumer due to logistical issues. In other words if 100kgs of apples are
produced only 60kgs reach the market. The rest rot on their way due to lack of
proper infrastructure
The farm produce exchanges hands with a whole lot of middle
men, thus helping them earn a livelihood and this also leads to unjustified
increase in price of the produce.
The end consumers have to pay more thus burning a hole in
their pocket.
And finally the stars of this issue..local kiranas - will be
replaced by retails giants.
The suicide rate of farmers in India is increasing at an
alarming rate. They have to manage everything on their own to cultivate a good
crop. They cannot buy tractors or modern equipments due to unavailability of
cheap credit, lack of infrastructure (irrigation, electricity) is another
concern. Farming in India is heavily dependent on rains. Excess or lack of rain
will lead to heavy loss due to the investments made on the seeds, fertilizers,
pesticides etc. Even if they manage to grow a good harvest, most just about
manage to repay their loans and can rarely enjoy their own harvest. The reason
is obvious; they are not paid enough for their harvest. The productivity too is
low due to lack of modernization in farming. That explains why 70% population
is dependent on farming.
Conclusion – Productivity should increase along with
increase in the income of farmers which can be partly achieved through
modernization in farming.
Farm produce has to exchange hands with a many middlemen
before it reaches the market. A simple eg.Person 1 is responsible to collect
the farm produce and deliver it till the outskirts of the village. From there
Person 2 brings it to the outskirts of the city. From the outskirts of the city
the product is made available to various wholesalers in different areas and
then finally the product reaches the local kirana. Each contact point adding
his own profit leading to increase in the overall cost. Contrary to this,
imagine a scenario wherein a single person is responsible to bring this product
to a shop nearest to your place. How efficient does that sound??
A large chunk(40%) of the farm produce is wasted before it
reaches the consumer. Where does this 40% go? Well it rots..becomes unfit for
consumption and hence has to be discarded. But the end consumer still has to
pay for the 100% so all the investors in the chain get their money back. In
simple maths, consumer has to pay for 100kg of apples and he gets 60kg for that
amount.
How can this be avoided? Improve the infrastructure, cold
storage, clean and dry go-downs etc. This obviously requires huge investment
which the middle men most of them living from hand to mouth are incapable of.
And last but not the least local kiranas- Imagine a scenario
where your mother has to attend a formal function somewhere on the outskirts of
the city and she has to leave early morning. She cannot find a safety pin and
she wants you to get it for her immediately. You have two choices, dress up à search for your wallet
à goto the nearest mall à buy a safety pinà stand in queue to pay
the bill à
and then come home. Choice 2 à
Get it from your local kirana on credit and you are DONE. The second one sounds
quite comforting doesn’t it and that will be the preferred choice for most of
the people in similar scenarios. This means local kiranas were, are and will be
the preferred choice when it comes to buying things in small quantities and
when it comes to large quantities local kiranas do not maintain that much stock
and have to place special order as and when demand arises.
So the bottom line is FDI or no FDI modern retail is her to
stay for the simple reason that it is more efficient if handled with some care.
Yes the middle men will lose their jobs and we will have to find alternate
solutions for that. But throughout history modernization has met with
resistance for the fear of job losses but innovation has always created new
opportunities too.
We did not shy away from using washing machines so that the
dhobis do not lose their jobs.
We did not shy away from using cars just for the sake of
providing employment to rickshaw pullers.
Similar is the case with modernization of modern retail.
Advantages of FDI
- The credit in India is very expensive and hence we need
cheap capital which is available outside.
- Foreign Retailers have the expertise in running the
business by putting to use modern technology effectively.
Either we wait for the credit scenario to improve within the
country and then start the process of modernization leading to more delays.
Either we implement the tried and tested methods available
outside or we start from scratch and invent something that is already
available. For eg. Did we invent the telephone again in India before we started
using it?
Disadvantages
-
Foreign institutions take the profits out of
this country
-
They will not be punished for any wrongdoings. At
the most they will have to discontinue their business in the country.
Unlike China which is heavily dependent on exports, India is
a consumption led economy. This means the markets are governed by the
consumption scenario within the country and less dependent on external factors.
It has been observed that the moment foreign investors start investing in India
the markets rise exponentially. Similarly once the same investors withdraw the
investments the markets come crashing down. Hence, we have to tread with
caution before opening our markets to foreign investors. Proper checks and
mechanisms should be put in place to avoid the markets from faltering.
