FDI Logjam in India

Today, the srtcle in indepent, UK publishes this –

Tesco and Wal-Mart fuel Indian political crisis

The crux of the article is here –

“The real fears however should stem from Wal-Mart’s appalling international record of treating suppliers harshly and employees shabbily. The latest opposition to its worldwide ambitions came in South Africa a few weeks ago, and there are frequent campaigns elsewhere against its expansion. Tesco is only a few shades better and its expansion is frequently opposed.

Any idea that Wal-Mart will treat farmers enormously better than the often crooked and corrupt traders and middlemen that they have to deal with currently is far-fetched, as are government claims that the advent of foreign investment will rapidly create jobs and bring down prices, helping to curb India’s currently high rate of inflation.

Experience has shown that farmers often do not benefit from bulk buying and contract farming that Wal-Mart and others will want because they find it difficult to sell below-standard produce that is rejected by their primary buyers. Anand Sharma, the commerce minister, was last week quoted saying 10m jobs would be created over three years, which is frankly ludicrous (maybe he was misquoted!). It will take three years at least for FDI to make any real impact on jobs and prices and it could be far longer, given regulatory and other hurdles that companies would have to tackle.”

You concur with the thinking expressed in this article and wonder about Indian decision making and its media, doubting if the country is a genuine democracy and debates its issues seriously and takes the decisions responsibly in the interests of the nation. The real motive behind this decision seem lying elsewhere. How can any one paint it as problem of parties support base. It will not benefit farmers and it would n’t benefit current retailers because it will wipe them out. Farmers will not get paid any more than they get paid now by mere elimination of middle men.  The extra money simply will go on to grow the Walmart, Tesco etc. Yes, it is true the Stores(Tesco etc) will have more sway and power over the farmers because they will be buying directly from them but why would they offer more money to farmers from whom they are buying their input raw-material like eggs or milk. Nobody wants to pay more for their purchases so why would Tesco etc pay more to farmers. Is govt going to fix the price of each item payable to farmer otherwise please lay off this claim that farmers will get paid more. The processing etc of local produce could start happening perhaps only after 5/10 years of the opening  of any store as most of these stores will be supplied by Chinese, American, European goods. Very little will be sourced locally unless it is cheaper and of same or better quality. So, basically granting the FDI in retail, indirectly will be benefiting China and other countries who are currently supplying Walmart and Tesco etc . What is needed is the processing capacity, cold storage and cold distribution of perishables and build that capacity first. The existing wholesale merchants should be made to invest in those areas. For this they can be given some tax benefits on such new capacity and some targets e.g. that in next 6 months, one such facility will be required in this area if as a wholesaler you want to carry on operating etc. Moreover, tax leakage from Kirana shop can be contained if the VAT is implemented perfectly and linked with Tax returns. So, input tax VAT reclaims can give the turnover of business of any Kirana shop.