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Corporate Sep 27, 2012

BJP gives 10 reasons why FDI in retail will hurt

By Sanjay Singh

The BJP seems to have realised that its relentless campaign against foreign direct investment (FDI) in retail and other such reform measures may not be entirely to the liking of its middle class constituency - or at least a section of it.

It is not yielding an inch to the UPA government on the subject, but its top leaders are making a conscious effort at its ongoing National Council meet to differentiate between "economic reforms and change". The party wants to claim that, unlike the Left, it was committed to reform even FDI in areas that were in the national interest.

BJP president Nitin Gandkari talked of the reform measures undertaken by the Vajpayee government and criticised the UPA government for taking up the recent spate of measures as part of a political manoeuvre. Leader of the Opposition in the Rajya Sabha Arun Jaitley went to some lengths to explain why the party was opposed to FDI in retail. "The BJP is committed to economic reforms which are in national interest. Every change in not a reform. Some changes may end up hurting national economic interests," he said.

BJP president Nitin Gadkari. PTI

He presented a point-by-point rebuttal of the government's arguments in favour of opening up multi-brand retail. Jaitley's counter-arguments are as follows:

1. In the first instance, manufacturing sector jobs will be lost in India. Domestic retail primarily sources locally. International structured retail sources internationally, leading to a drop in domestic manufacturing. This is all the more significant since India has not carried out significant manufacturing sector reforms.

2. International structured retail doesn't create additional retail jobs, it merely displaces existing jobs.

3. Only 18 percent of the Indians are in structured jobs; 51 percent of India's working population is self-employed. Along with agriculture, retail trade constitutes the largest fountain of self-employed jobs. Structured international retail will be harmful to job creation in India.

4. Fragmented markets serve the public interest much more than consolidated markets. In the first 12 years of opening up retail for FDI, Thailand saw 38 percent of its consumer market consolidate in favour of three large retailers.

5. The oft-quoted example of China is misconceived. China as a low-cost economy is the predominant and largest supplier to the big retailers. It can't be argued that goods manufactured in China will not be sold only in China.

6. International retailers proceed on the principle of "buy cheap and sell costlier". The initial low prices facilitated by the deep pockets of retailers results in eliminating competition and then raising prices.

7. It is a myth that middlemen will be eliminated and the benefits will go to producers/farmers. The benefits of eliminating middlemen goes to the retailer and not substantially to farmers/producers. International Farm Companies Network (IFCN) data shows that in the US a milk producer gets 38 percent of every consumer dollar spent. In the UK this figure is 36 percent. In India, riding on the strength of the cooperative movement, milk producers get 70 percent of every rupee spent by the consumer.

8. The argument that back-end operations such as cold chains and transport infrastructure will benefit from international retailers is baseless. Building a cold chain is not rocket science; why can't building cold chains, or rural farm roads coexist with MNREGA?

9. The basic principles of trade negotiations have been ignored while making concessions to the US and EU by agreeing to their proposal on big retail without any corresponding quid pro quo.

10. That an option has been given to the states to implement FDI is a myth being spread to mislead people. FDI is a central subject and not a state subject. International treaties on investment, to which India is a party, require a "national treatment". The deception is a trap for future litigation which may force all states to accept FDI in retail.

Beyond FDI in retail, the BJP is open to reforms in the national interest. The party had earlier agreed to support the government on insurance and pension reforms along with certain amendments in the current draft, but the government developed cold feet due to opposition from within the UPA.

While moving its economic resolution, the party leader said the government had the option to proceed with a large number of domestic economic reforms which are pending. There is a broad consensus on these reforms but the government has chosen to ignore these and implement those that hurt national interest.

The BJP will have to make greater efforts to convince a section of the middle class of its position and at the same time emerge as a champion of farmers and the trading class.

by Sanjay Singh

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