FDI: Hearing the Protestor’s View

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FDI3 FDI: Hearing the Protestor’s View

After agriculture, India’s retail sector provides livelihood to maximum people. As per the National Sample Survey (NSS), during 2009-10, around 40 million people were working in the retail sector. Most of them were unorganized and self-employed small retailers, for whom it was not possible to easily seek job in other sectors of economy.

A sample survey carried on unorganized retailers and done by Indian Council of Research and International Economic Relations (ICRIER), revealed that, an unorganized retailer has an average shop size of 217 square feet. The annual business of unorganized retail sector during 2006-07 was around $408 billion. The number of traditional shops were 13 million. So on average a shop did a business of $ 30 thousand per year. Another finding was that min 2-3 people were associated with each shop. (ICRIER Report: Impact of Organized Retailing on Unorganized Sector, May 2008).

In America, a typical Walmart super-market has average size of 108,000 sq. feet, with a workforce of 225 persons. In 2010, Walmart sold items worth $400 billion through its 9,800 outlets across 28 countries employing 2.1 million persons.

It infers that a single store of Walmart can engulf 1300 small shops in India; thus, about 3900 persons will get unemployed. And that a single store of Walmart can employ a maximum of 250 persons.

Commerce minister Anand Sharma claimed that FDI in retail will create 10 million jobs in three years. Let us have a view of world’s top retailer’s postion.

Walmart has a total of 9,826 stores employing 2.1 million persons. So the number of employees per store comes out to be 214. Carrefour has 15,937 stores employing 0.48 million people. So employees per store is 30. Metro – 2131 stores, 0.28 million employees, thus there are 133 employees per store. Tesco has 5,380 stores having workforce of 0.49 million persons giving average employees per store to be 92.

It means in order to create 10 million jobs within three years, Walmart has to open 46,500 stores. If we take the average number of employees per store for the top four retailers of  the  world, the figure worked out is 117. So to employ 10 million people, 85,450 stores have to be opened, and that too in 53 cities, as listed by rule by Indian Government. So, per city, 644 stores will be required to be opened up. Can we take the claim of our commerce minister with seriousness?

The fact that FDI in retail will help small and medium scale enterprises (SME) in India, as the MNC  have to do 30 percent of total purchase from SME in India is vastly misguiding. As per the World Trade Organisation pact India is bound to give the same business opportunities for a defined scaled enterprise, who are involved with WTO pact. It means that MNC retailers will be absolutely free to import cheap items from any corner of world, and thus hampering local SME and farmers.

Another claim is that FDI in retail will help farmers as it will eliminate the chain of middlemen, as MNC will buy directly from farmers, hence farmers will be paid in rational and handsome manner. But the truth is that MNCs will be at higher end as compared to small middlemen, while negotiating with farmers.

International experience says, these big MNC retailers, at first, bid at higher prices to attract farmers, meanwhile, the MNCs survive in its deep pockets. And gradually, other small competitors die out, and the field remains open for the two to three giant buyers.

Though there are several other big and small claims to be investigated in favor of FDI in retail, we examined the major one.

Lastly, let’s shed light on the most popular claim that is in circulation. It emphasizes the success of FDI in China. But, a major fact is always kept unreported. The biggest retail chain in China being run is the Shanghai Bailian Group, and it is controlled by the Chinese government. The strategy behind creation of this big chain was to counter the engulfing effect of MNC retailers. But, even that step did not help China to check the decreasing numbers of small traditional shops.

During recessions of 2008 and 2011, we witnessed that just a small coughing of two-to three countries sent a wave of fear across the globe. Aren’t we inviting a pandora’s box at our doorstep through this FDI?

There must be steps to revive and give a pace to current stagnant economy, but at least the claims and facts should be well communicated to people of India, where according to government reports 75 percent of Indian population earns just $ 0.37 per day. This FDI will definitely help the diving economy of America, but will be suicidal for majority of India’s population.

If there are certain changes in FDI policies like lowering the amount of investment, restricting the store size, enforcing the stores to open up in specific location of cities and many other involving monitoring of their activities with transparency starting from farmer’s field or material supplier shop till the end, i.e. into the cart of consumer, can give assurance to suspicious and fearful farmers and small retailers that this new wave of reform will help them to prosper, unlike the 1991’s which definitely gave pace to GDP and sensex, but, widened the gap between the rich and the poor.

Manish Aagneya

Image Source [http://im.rediff.com/money/2012/jan/17ma2.jpg]

References:

  1. http://www.icrier.org/page.asp?MenuID=182&SubCatId=187&SubSubCatId=381  (ICRIER Report)
  2. http://labourbureau.nic.in/Final_Report_Emp_Unemp_2009_10.pdf  (NSS Report)
  3. http://www.asianage.com/columnists/which-world-do-economists-live-754  (Indians Daily Earning Stat)
  4. http://www.euromonitor.com/medialibrary/PDF/Book_WRDAS_Ed70.pdf (Figures for world’s retail industry)

 

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