The
Growing Divide between Economics and Politics in India
Arun Kumar
Chairperson and Sukhamoy Chakravarty Chair Professor, CESP,SSS,
JNU.
Mainstream.
Government has gone for a slew of `reforms’
and drawn strong protest from people and the political parties both in UPA and
outside it. The package consists of raising of price of diesel, restricting LPG
cylinder supply at subsidized prices to 6 per annum per family and allowing FDI
in aviation sector and in multi-brand retail trading (MBRT). The first step is
inflationary since it will immediately impact all prices through the cascading
effect. In the current scenario of high inflation it can only further damage
the ruling political party. According to the government, liberalization of
foreign investment will boost investments and raise the rate of growth of the
economy. Quarter after quarter the rate of industrial growth has not only been
falling but even been negative in some of the quarters.
Foreign investment, hardly a few per cent
of the total investment in the economy, cannot change this trend. Even if it
rises, that will take time to materialize and, therefore, cannot have any
immediate impact on the economic growth rate. Further, it is hardly a panacea
for the ills of the industrial sector which is suffering from uncertainty due
to corruption and declining exports. The stock markets have reacted positively
but that cannot spur growth. Thus, the government is unlikely to derive any short
term benefit from this policy. There will be the cosmetic effect that the
charge of policy paralysis may no more stick to UPAII and foreign press can no
more criticize the PM of inaction.
There is no disagreement on the
inflationary impact of the steps taken to reduce under recoveries in petro
goods. This is justified on grounds of the need to control the fiscal deficit
and the health of the petroleum sector. However, there is a sharp divide on the
issue of allowing FDI in multi brand retail trade. The government had proposed
it in November 2011 but withheld implementation due to the widespread opposition
to it. It had said that it would consult everyone before implementing this
policy. The current reaction suggests that there was inadequate consultation
and that the step is being taken for some other reason.
The government claims that FDI in retail will
boost the economy, provide large scale employment to youth, lead to lowering of
consumer prices, better prices to the farmers, reduction in wastage in farm
produce, improvements in technology and creation of infrastructure. It has been
presented as a win-win situation for the nation. It is only supposed to be
anti-middlemen in the supply chain who squeeze both the farmers and the
consumers. Traders are labelled as the vested interests who oppose this step. It
is argued that the MNCs would not displace the neighbourhood stores which will
continue to flourish. Finally, it is said that the Indian corporates are
already operating in this sector and they have not wiped out the local stores.
Walmart, the largest multi-brand retailer
in the world has been itching to enter the Indian markets and has had a tie up
with the Mittals. Its global sales were over $400 billion in 2009 and it employed
2.1 million workers. In India India
and displace the existing retail stores, they would only employ 3 million
workers for India
The small stores would not disappear immediately.
To begin with their growth in sales volume would slow down as the sales of the
big retailers rises. That is already the effect of the emergence of the malls and the coming of
the Indian big retailers like, Reliance and Big Bazaar. The crowds in these
stores are at the expense of what could have been the clientele in the small
stores. Does one see the poor in these stores? No, a huge segregation is taking
place.
The government is touting an increase in
investments in the retail sector to spur growth. But, as small stores begin to
suffer, their rather substantial investments would slow down. One need go to
any market in India Delhi
The government claims that the companies
with FDI will have to source 30% from the MSME sector which will help the
growth of this sector. But does the Indian retail sector which is likely to be
displaced not source more than 30% of its supplies from the MSMEs? Further, given
the global linkages of the MNCs, they are likely to buy more from outside the
country than the Indian small retailers do and this will adversely affect
demand.
Thus, whether it is employment generation
or the amount of investment or the impact on MSME sector, one has to see the
net effect of the entry of MNCs in multi-brand retail trade. In the case of
employment and MSMEs, there would be an adverse effect and in the case of
investment the net effect even if positive would be too small to boost growth.
The expected positive impact of elimination
of middlemen for farmers will be illusory given that India has a large number
of very small farmers (unlike in the USA) and big business would not be able to
deal with them. Further, given the deep pockets of the MNCs, speculation in food
prices in India Delhi
The proponents argue that there would be
backward linkages with the setting up of infrastructure that is presently lacking
and that new technology would be introduced in India. Did Amul not set up
infrastructure for milk marketing? Have the Indian organized sector in retail not
been creating infrastructure? What is the high technology that Indian retailers
cannot set up or evolve in India
Consider the entry of Pepsi Cola in India
in 1988. It promised revolution in tomato and potato farming in India India
Today, the USA and Europe face massive unemployment.
How far have the MNCs in retail which dominate these markets helped in reducing
it? Walmart is growing but wherever it has gone, employment has declined. In India
Given all these imponderables for the
Indian economy why is the government pushing ahead with this policy, in spite
of the disquiet in the public? Indian big business in retail has been tying up
with MNCs through various means like, Private Equity (PE), FII and PN route. The
black funds of the Indian big business and politicians (some of whom are big
businessmen) has been `round tripped’ into India
Genuine Indian big business will not be
able to survive the competition because FDI will come via tax havens like,
Mauritius and be exempt from taxes. The former would have to sell out to the latter
whether of Indian or foreign hue. Is another potential scam brewing? In brief, the
ruling class is acting on its own behalf while over looking the larger interest
of the Indian people – this is the growing divide between politics and
economics in India