17 January 2014

FDI in retail - a laygirl perspective

In the last few months, off and on, you would have come across the topic of "FDI in retail". What does it mean? And why should you have an opinion? 

I am not an economist or public policy expert. Here's why I have an opinion on it though. I think it is needed. Not just some flimsy excuse of an FDI, but a good solid push.

FDI - Foreign Direct Investment. It's a way for our country to attract capital and with that, the industry. Nehru, and with more gusto Indira Gandhi, took our economy down the road where only some people were allowed to setup industry (so no competition to be better), and everything was desi: responsible for the description of a hindu growth rate. While the desiness works for ayurvedic medicines, it does not for technology. The only exception has been the Space department, which has survived and competed successfully internationally. So, we had a country where the State machinery actively ensured that we don't import the best technology and knowledge. 

Enter Manmohan Singh, and freeing up of the Indian economy. That's why you are able to get a job that pays well enough and economy that can lend you money, to buy a home at 35. These policies thus have long term effects on our ability to earn and enjoy!

FDI in retail is mainly to enable Walmart, Carrefour and Tesco types to enter the Indian market. I am not a big fan of big shops such as these; I can't shop at Big Bazaar because it elicits a strong physiological reaction, nausea. However, what I am a big fan off, is the processes and technology that these big companies would bring. Two articles I read recently highlighted how a very small fraction of what you pay for your vegetables, actually goes to the farmer. (articles - India Together, The Economist). The process of procuring veggies involves at least three tiers of middleman, no underlying mechanism to protect the crop during transit, leading up to 30% loss (you pay for this loss as a consumer!) and opaque auctioning where the farmer who grows the stuff, has NO say in prices. Think about that: you slog and work with nature to grow something and you can't decide what to sell it for. Also, the farmers can only sell it at the auction. There is no alternative. 

FDI in retail would mean that giant superstores will want uniform produce (Ok, that's annoying for me as a consumer) but think of what it means to the farmer/producer. There is more demand for their stuff, and there is another alternative for them to sell their produce. Plus, if the stores want to keep prices down they will have invest in cold storage and packing practices that will cut down on the loss from farm to market. 

I support FDI in retail and it's foolish for any State/ Central government not to push for it in earnest. We are starting to surge into our demographic dividend (the largest share of the population are growing to be 15-25 yr olds) - if the state does not figure out how to give them jobs and sustenance, by opening various parts of the economy, and enabling industries that employ them, we will not see a dividend, but a loss. 

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