Evil impacts of FDI in retail sectors in India

Half ministers

ERA SEZHIYAN

Political sovereignty of a developing country like India has become subservient to a globalised economy.

RAMESH SHARMA

Prime Minister Manmohan Singh with Finance Minister P. Chidambaram.

INDIA is a sovereign state, which means that as a nation it is a self-governing political entity. Sovereignty means full supremacy of the state and its right to have control over the area of its governance, people and law-making authority, to ensure its independent existence, to supply social services such as education and health to its people, to provide them shelter and to regulate the economy.

In March 1950, the National Planning Commission headed by Prime Minister Jawaharlal Nehru set for itself the following goals:

1. to increase production to the maximum possible extent so as to achieve a higher level of national and per capita income;

2. to achieve full employment;

3. to reduce inequalities of income and wealth; and

4. to set up a socialist society based on equality and justice and devoid of exploitation.

The foremost objective of planning in India was to bring about rapid economic growth through the development of agriculture, industry and infrastructure. Normally, the economic development of a country is reflected on the expansion of per capita in real terms. Indian planners assumed that the continuous increase of national income would eventually percolate to the masses and reduce the level of their poverty. But at the end of the Third Five-Year Plan, it was found that the increase of national income at the macro level did not reduce the poverty of the masses at the micro level.

Accordingly, the Fourth Plan emphasised the need to raise the standard of living of the people, especially the less-privileged sections of society. It stated: “While increased production is of the utmost importance, it is equally important to remove or reduce, and prevent the concentration of wealth and economic power. The benefits of development should accrue in increasing measure to the common man and the weaker sections of society, so that the forces of production can be fully unleashed.”

New Economic Policy

The new economic policy of liberalisation, privatisation and globalisation introduced by Finance Minister Manmohan Singh in 1991 marked a total departure from the Nehruvian model of planning. Emphasising the role of a globalised market economy, he declared in his 1991-92 Budget Speech: “A vast number of people in our country live on the edges of a subsistence economy. We need credible programmes of direct government intervention focussing on the needs of these people. We have the responsibility to provide them with quality social services such as education, health, safe drinking water and roads. In the same way, the development of capital and technology intensive sectors, characterised by long gestation periods, such as transport and communications and energy will need to be planned with much greater care than ever before.”

He also assured the nation that the austerity of Gandhiji would be the guiding principle and stated: “In highlighting the significance of reform, my purpose is not to give a fillip to mindless and heartless consumerism we have borrowed from the affluent societies of the West. My objection to the consumerist phenomenon is two-fold. First, we cannot afford it. In a society where we lack drinking water, education, health, shelter and other basic necessities, it would be tragic if our productive resources were to be devoted largely to the satisfaction of the needs of a small minority.”

In his Budget Speech of 1992-93, Manmohan Singh asserted: “We must begin a new chapter in our agricultural history where farm enterprises yield not only more food, but more productive jobs and higher income in rural areas.

The new economic policy initiated by the Narasimha Rao-Manmohan Singh government was faithfully followed by successive governments led by the United Front and the Bharatiya Janata Party. In 2004, when Manmohan Singh became the Prime Minister of the United Progressive Alliance (UPA) government, the policy of globalisation got more importance in all forms and means of governance.

Let us see how far the objectives and targets visualised by Manmohan Singh and followed diligently by successive governments during the last 17 years have been fulfilled, especially in increasing production in the agricultural sector, ensuring higher income in rural areas and providing to people drinking water and roads and “quality social services” such as education and health.

Agricultural decline

Agriculture has always been considered the backbone of the Indian economy as it provides employment to about 60 per cent of the total labour force in the country even now. However, when the economic and industrial growth of the country has significant progress, the share of the agricultural sector in the gross domestic product (GDP) has been falling continuously during the last six decades of free India as follows: 1950-51 – 55 per cent; 1970-71 – 44 per cent; 1990-91 – 31 per cent; 2000-01 – 26 per cent; 2001-02 – 24 per cent; and 2007-08 – 17.5 per cent.

Compared with the steep fall in the share of the agricultural sector in GDP, the proportion of the workforce depending on agriculture has only declined marginally from 72 per cent in 1951 to 69 per cent in 1991 and to 58 per cent in 2001.Thus the per capita earning capacity in the agricultural sector has fallen to irretrievably low levels, forcing farmers into more indebtedness and eventually leading to suicide.

As Finance Minister in 1991, Manmohan Singh was assertive that the main objective of globalisation and invitation to foreign investors was to develop social services such as education and health.

Education and health

In 2004, as Prime Minister, he released the National Common Minimum Programme (NCMP) of his UPA government, giving categorical assurances to the people to raise public expenditures on education to at least to 6 per cent and on health to at least 2-3 per cent of the GDP over the next five years. Even as early as 1965, the government had accepted the recommendation of the Kothari Commission to make annual allocation of not less than 6 per cent of the GDP for education.However, the government has miserably failed to keep its promises. The share of the governments’ expenditures on education (the Central and State governments combined) in terms of the total GDP has declined 3.1 per cent in 1990-91, 2.69 per cent in 2005-06, 2.88 per cent in 2006-07 (RE), and 2.84 per cent in 2007-08 (BE); the budgetary allotments for health by the governments (the Centre and the States combined) for these years have been 1.2 per cent, 1.27 per cent, 1.36 per cent and 1.36 per cent.

In 1991, Manmohan Singh emphasised the need of foreign investments under the globalised economy in India “to provide them with quality social services such as education, health, safe drinking [and] water”. Where did the government allow all the flow of foreign investments to be invested? It has not been able to come anywhere near its targets in the most vital sectors of human development such as education and health.

It is obvious that the grand march of globalised economy and the rapid flow of foreign exchange into India have failed to develop in any way the agricultural sector or the social services of education and health. Instead of development, there has been a steep deceleration in these vital fields, affecting large sections of society.

The government claims to have succeeded in raising the foreign exchange reserves from $5.8 billion at the end of March 1991 to $310 billion at the end of March 2008. In his 1991-92 Budget speech, Manmohan Singh said that his purpose was “not to give a fillip to mindless and heartless consumerism we have borrowed from the affluent societies of the West” and that “our productive resources were to be devoted largely to the satisfaction of the needs of the poor”.

Has the government prevented the frittering away of the procured resources in “heartless consumerism”, which is reflected in the spread of the supermarket culture? It is true that in 1996, Finance Minister P. Chidambaram, under pressure from some constituents of the Deve Gowda government and its Left allies, put a complete ban, by law, on foreign direct investment (FDI) in retail trade. In India, more than 20 million people are small retail traders and the average size of the shop run by an Indian trader is less than 500 square feet.

In 2004, the Congress party solemnly promised in its election manifesto to create “legal space in the cities and towns for hawkers, vendors, food-sellers and all such informal sector service activities that enrich urban life, so that they are spared the risk of extortion, eviction, confiscation and harassment”.

Supermarket culture

In spite of the laudable promises given by the Finance Minister in 1991 and the Congress manifesto of 2004, and despite the fact that FDI in retail trade is banned, giant international corporations are entering India, overtly and covertly, through the long chains of retail shops established in the names of big Indian trading groups.

Mukesh Ambani’s Reliance Industries, with assets worth $43 billion (Rs.18,57,600 crore), has planned to invest Rs.25,000 crore in 15,000 retail shops across the metros in India. It has tied up with the second largest international retailer, Carrefour (of France), whose annual income in 2006 was €72,737.7 million (Rs.4,67,679 crore). Sunil Bharti Mittal of Airtel, with assets worth $12 billion (Rs.5,12,400 crore), is entering the retail trade in India with the world’s largest supermarket chain Wal-Mart with an annual revenue of $388 billion (Rs.1,67,46,480 crore).

Tata Industries plans to establish retail trade with the backing of Woolworth, and other big business houses in India are competing with one another to get international partners for organising their retail trade in India.

Unrestrained invasion

D. GOPALAKRISHNAN

At a cramped primary health centre, which functions in the panchayat office building at Pichanoor near Tirupattur in Tamil Nadu's Vellore district. The combined budgetary allocation for health by the Central and State governments has only marginally increased from 1.2 per cent in 1990-91 to 1.36 per cent in 2007-08.

The United States has 85 per cent of its retail trade organised against India’s 4 per cent. Departmental stores and supermarkets cater to the higher income groups in large cities; India has 70 per cent of its people in rural areas with very low income. It is calculated that every departmental store employing 40 persons will make 400 retail traders unemployed. Against the unrestrained invasion of powerful foreign giants with the help of national business barons, the future of 21 million retail traders of India and their families is bleak. Unless the government takes effective steps to create alternative employment facilities for all retailers thrown out of job, India will witness growing unemployment and poverty will prove to be a great disaster for the country.

East India Company came as a trading group to India and built a political empire. At the present, from all directions, India is being invaded by more powerful corporate giants. Under the globalised economy, the gap between the developed and the developing countries has increased, and between the rich and the poor within countries.

India, according to its Constitution, is a sovereign, socialist and democratic republic. It is the largest democracy in the world, but in terms of human development index, it occupies the 128th place in the list of 177 countries of the world. According to the 2007 World Development Indicators of the World Bank, 34 per cent of the population of India subsists on an income of less than $1 a day 80 per cent on less than $2 a day. Politically, India is a free country but economically it has become utterly subservient to foreign domination.

The per capita income of an Indian is $3,460 at purchasing power parity (PPP) value whereas the per capita values of GDP of the U.S. is $41,890, Norway $41,420, France $32,153 and the United Kingdom $33,238.

It cannot be denied that economic inter-dependence at the global level has come to stay. While the globalised economy has certainly added to the economic development of India in respect of national income at the macro level, the government has failed miserably to achieve its stated objective of alleviating poverty and backwardness through its new economic policy.

India has failed to impose strict restrictions on the area and extent of domination available to giant corporations, whether Indian or foreign. In many countries, there are significant market access restrictions on foreign investments in retail trade, on foreign equity ownership, on purchase or renting of real estate, on practices of service suppliers and on forming joint ventures with local suppliers.

Restrictions

Whenever there is an application for setting up a supermarket store, the Ministry concerned in Japan first ascertain the possibilities from local authorities and find out the views of the local small-scale retailers. As a policy the Japanese government does not to allow foreign traders to deal with the sale of rice, prepared food, liquor, tobacco products and soft drinks that are normally available in small retail shops.

If there is an application for setting up a supermarket with a space of 300 square metre or more, the French government accords permission only after getting the approval of the local authorities and consulting the local traders.

In the U.S., the local authority impose restrictions while allowing a supermarket to establish a branch in its area. Wal-Mart, which has its headquarters in the U.S., was not allowed by the New York City to open even a single retail store in New York. New Yorkers objected to Wal-Mart on the grounds that it paid low wages and provided deplorable health benefits to its employees. Wal-Mart does not allow any union to be formed by its employees. In several counties and cities, the local authorities, by law and in some places by referendum, banned Wal-Mart from setting up its stores in areas under their control.

For instance, the world’s biggest retailer could not get the permission of the local authority to set up a super centre in Inglewood, California. Under the law there, Wal-Mart appealed for a referendum. In the public opinion taken in April 2004, 61 per cent of the people gave a big rebuff to Wal-Mart’s efforts to open a store in their area.

In India, there are no legal restrictions or limitations on the allotment of space to the retail giants or on the variety of commodities to be sold by them. Nor is there any consultation with the local authority or the retail traders in the area concerned.

It is wrong to assume that farmers and producers will benefit much by selling their products to supermarkets. The truth is that global retailers have been competing with one another to place bulk orders from the low-cost markets of the world where cheap labour is available. Owing to low costs and abundant supply of labour, China has become the biggest sourcing location for world retailers. It is estimated that Wal-Mart purchases $12 billion worth of goods from China for its stores all over the world and Carrefour gets 61 per cent of its purchases from China.

Larger than governments

It may be noted that the annual income of Wal-Mart in 2007 was $388 billion (Rs.1,67,46,480 crore). The total revenue of the Central, State and Union Territory governments in India in 2007 was Rs.8,84,765 crore.

Regarding the grim impact of globalisation on developing and poor countries, Joseph Stiglitz, a Nobel laureate in Economics, stated that “globalisation has unleashed market forces that by themselves are so strong that governments, especially in the developing world, often cannot control them. Governments that attempt to control capital flows may find themselves powerless to do so, as individuals find ways of circumventing the regulations.” (Making Globalization Work, 2006, page 20.)

It is very difficult for anyone to pinpoint correctly the extent of the benefits that India or any other developing country may be able to get by being part of the globalised economy, but it is abundantly clear that the present arrangements accepted or imposed on India have totally failed to bring about sustainable development or to contribute to the process of equitable distribution of benefits to all sections of society.

The globalised market economy introduced in India is concerned only with consumerism, attracting high-income groups that mostly live in the cities. The agricultural sector, the rural economy, basic social requirements, decent employment and standard of living are all out of focus in the present strategy of growth under globalisation.

How much damage, politically and economically, the globalised economy has caused India was openly admitted by Manmohan Singh, as the Leader of the Opposition in the Rajya Sabha, to Thomas L. Friedman, a noted American journalist, who met him in 1998. In his book Lexus and the Olive Tree, the author reports the anguish and distress felt by Manmohan Singh by the process of globalisation in India:

“We learned that there were advantages in having access to international capital markets, [but] the government’s ability to deliver and control shrank the more it opened to the world…We have a world where our fates are linked, but [India’s specific] concerns and aspirations don’t get taken into account…If you are operating an exchange-rate policy, or monitory policy, your policies become an adjunct of what Allan Greenspan [chairman of the U.S. Federal Reserve from 1987 until his retirement in 2006] does. It reduces your degree of freedom, even in fiscal policies…I have a friend from a neighbouring country who also became a Finance Minister. The day he got his job, I called to congratulate him. He said, ‘Don’t congratulate me. I am only a half minister.

PAUL J. RICHARDS/AFP

Shoppers at The Wal-Mart store in Fairfax, Virginia. In a referendum held at Inglewood, California, in April 2004, 61 per cent of the voters gave a big rebuff to Wal-Mart's efforts to open a store in their area.

The other half is in Washington' " (page 108, April 2000).

This was the startlingly sad confession of Manmohan Singh who, as Finance Minister in 1991, was responsible for introducing the globalised market economy. After having gone through the bitter experience of loss of freedom and ability to ensure a free economic development, he bewailed the fate of a Finance Minister in a developing country. It will be interesting to know his assessment of the present status of the Prime Minister or the Finance Minister of India under the globalised economy.