The Hindu Business Line : Caution, please, on FDI in retail

MUCH OF the political class and economists across the country sing the foreign direct investment chorus — some with enthusiasm and some with reluctance. FDI flow, they say, will address India's perennial problems of poverty, unemployment and backwardness. And then there is the inevitable comparison with China.

Foreign media cite the example of China's phenomenal growth. The pressure is mounting on India to perform. Various surveys by international agencies point to India as the investment destination.

A recent Unctad survey on "FDI Prospect — 2005-06," ranks India as the third most attractive global destination and the second most attractive location for investment. Politicians and planners are busy developing infrastructure, reorganising banks and increasing the pace of privatisation. MNCs will invest in nations that have the right infrastructure and environment.

China provides infrastructure, power and labour, to MNCs cheap. The greatest attraction for global manufacturers in China are its millions of disciplined, hard-working and silent workers.

To escape from perennial rural poverty, China has aggressively embraced the market economy to be manufacturer to the world. According to a World Bank survey, China has 16 of the world's 20 most polluted cities. Its village economy is on a decline.

India is a different story. A vibrant democracy, political activists, trade unions, environmentalists and economists have an opinion on everything. Also, the media is strong enough to start a public debate on all development issues.

For instance, the new buzz: FDI in retail sector. It is touted to boost growth and generate quality jobs on a sustainable basis. But it is not clear how technology-driven modern retailing can provide jobs to some 40 crore self-employed who earn their livelihoods by setting up small establishments that provide goods and services on a small scale.

The unorganised sector is only second to agriculture in providing employment. For many, this is way of life, integrated with the local culture and lifestyle, and often passing from one generation to the next.

But, now, the Government plans to provide space to MNCs to set up 150 shopping malls across the nation, which will make the 200 million strong middle-class happier.

The unorganised sector has seldom demanded social security, only asking for infrastructure to improve its offerings.

A poor artisan in a remote village wants to sell what he creates in a nearby city. But going there costs him money and time because of the poor, often public transport.

So, he is compelled to sell his items to traders/middlemen. A pomegranate grower from the Satara region of Maharashtra comes to Pune to distress-sellhis fruits to middlemen at Rs 8 a kg, though the fruit retails at Rs 30 a kg in the city market. It is the state's responsibility to provide the right marketing infrastructure for small entrepreneurs and limit, if not end, the middlemen's monopoly over the market.

It must be well understood that MNCs are primarily coming for business and not to provide jobs. And how much these quality-conscious MNCs will source from small entrepreneurs is open to question..

This may, at best, partially activate the supply chains. The wide variety of cheap products the shopping malls will sell, thanks to their economies of scale, may sound the death-knell for of local producers.

So the Government must exercise utmost caution in allowing FDI into the unorganised sector, as the livelihood of millions of people may hang in the balance.

(The author is a Pune-based freelance writer.)

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