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The Truth vs Hype of FDI

There are always many facts of any realistic situation in today's world, especially in a country like ours, where democracy is deemed above anything else, and where the right to freedom of speech and expression is used (and misused) over and over again. Unlike countries like U.S., where there are only two major political alliances (the Democratic and the Republicans), we have, in India, apart from the two dominating alliances, a host of other fronts, all of them persistently engaged in scuffles over every single agenda, sometimes not even paying much attention to what their stands mean, to themselves and to the country.

Same has been the case with the issue of introduction of Foreign Direct Investment (F.D.I) in the Indian retail market. The government has decided to open up the Indian retail market for global players through F.D.I. in multi-brand retail with a 51% threshold (i.e. they can have only 51% equity in the investment) and 100% ceiling in single-brand retail. There are several versions of the possible outcome of this scenario floating in the different spheres of the country. But the different interpretations ought to be backed with rational reasons.

Broadly, there are two different views with regard to the decision of the Indian government to allow F.D.I. in Indian retail market, one supporting it and the other opposed to it. The first argument is put forward by the government itself, quite obviously supporting its resolution. The government claims that 10 million jobs will be created in the retail sector in the next 3 years (though without floating any judicious explanation). It mandates a minimum investment of 100 million U.S. dollars (approximately 500 crores rupees) for the foreign companies, with at least half the capital to be invested in back-end infrastructures, including cold chains, refrigerations, transportations, packing, sorting and storing. Now, this is no secret that India, amongst the other developed and developing nations of the world, falls way behind when it comes to infrastructures( as has been recently pointed out by Ernst & Young that most of the multi-national companies backing out of India cite lack of proper infrastructures as their key concern). Hence, under these circumstances, this step can be deemed most welcoming. Another very influential agenda pointed out by the government is the nuisance of middlemanship. FDI in retail will ensure procurement of raw materials, especially of fruits and vegetables, directly from the farmers, thus filtering out the roles of middlemen. The price that a farmer gets for a kilo of onions today is about half the price at which retailers and vendors sell the same stuff to the consumers. Another proposal buoying this idea is that a minimum of 30% of the value of manufactured items procured should be sourced from small and medium Indian enterprises. The government backs its decision with a host of other reasons, e.g., the presence of foreign retail majors will ensure supply chain efficiency. It also alludes to examples of some other nations (China, Thailand etc.), though they fail to explain why the same system will be beneficial to our country as well.

The second version includes the views of the opposition and those who consider this decision to be inconsistent with the nation's development. There are over 1.2 crores shops in India, employing over 4 crores people, 95% of which are small shops run by self-employed people. The opposition claims that the move will lead to large-scale job losses. Since there is no compulsion to procure all the raw and manufactured materials from Indian sources only, it may lead to domestic agro-industries getting haywire. The move can also lead to market prices being controlled by the foreign giants, further causing a slump of traditional Indian markets and monopoly in the markets. The fact being pointed out by the opposition that any comparison being made between India and someone like China is bogus, is crushingly genuine.

Both these versions of possible upshots are anything but restrained. And going by the history of our nation's reaction to issues pertaining to the common-man's life, a lot of hype is being created over the situation and the issue, by and large, is being blown out of proportions. These extremist views, being largely politically motivated, are far from being the truth. The truth, in fact, lies somewhere in the middle. Firstly, a sheer glance at the whole matter at hand gives anyone the fair idea that this move is going to do more good than harm. Since the government is not directing anything against the Indian domestic enterprises, they can co-exist with the big guns of the world, and a healthy competition is never a bad idea in today's world. They should, in fact, look forward to work in liaison with these companies. If the idea to introduce F.D.I means that the farmers are going to get their worthy rewards and the masses are going to have access to better qualities of commodities at better prices, then this step should be welcomed with open arms, even if this means that a handful of people will be driven out of jobs. Because while choosing between two evils, one should always go for the lesser evil.

However, if the government is backing its decision purely on the basis of examples and references of nations like China and U.S., then it should also keep in mind the grave differences between the highly-disciplined systems of theirs and the ever-worsening chaotic conditions of our system.

The bottom line is that any step of any nature taken by the government is always going to benefit a particular section of the society and at the same time, is going to be harmful for another section. But the million-dollar question is whether this decision has really been taken with a chaste heart, or is just an another example of greedy politics.

- Rishav Jha