Sunday, December 30, 2012

Multi-Brand FDI! Should we celebrate?

The world is cautious after a recovery, albeit meek, from the global gloom of economic meltdown of 2008-9 and its reappearance during 2011-12 rivaling only the depression of the 1930’s. Some recovery has occurred by resilient growth in China and India and large bailout and economic restructuring packages offered by the US and European economies. While China has pushed down Japan to take second place next only to the US, India has also found a place in the top ten or trillion dollar economies and poised to take 5th position much before 2030. India indeed has come a long way to create a niche for itself in the global economic space. The world foresee a demographic advantage that India can harness, given young age structure and a fast and consistent pace of income growth in GDP which is propelling shifts in consumption classes generating huge domestic demand for practically all types of modern goods and services. The markets for such products in the west are close to saturation and at the most meager. The investors world over, look into India as the power house to manufacture and export goods and services through cost effective contracts. There is also an expectation that India during the next 20-30 years will continue to provide trained manpower to the firms and business in the western world due to its relatively higher fertility levels and larger young age population. Recently, the National Government in India has made it easy for the international corporates to invest in multi-brand retail. The policy has secured assent of the parliament, yet still remains controversial and many taking opposing positions and agitating. One of the main concerns is that FDI will push small traders out of business and hurt domestic markets, therefore the policy is exclusionary. Given traditional division of labor, specified communities are involved in unorganized small business and trade, therefore, the policy is also accused to be discriminatory. Structural Issues: To understand the inclusive development strategy, especially mainstreaming of the excluded and marginalized, one must understand the development frame of India in the modern context. The paradigm of economic and social development in India has evolved from out of the socialistic pattern, to the one, of openness and private-public partnership. This transformation is an ideological reversal took shape since mid-1980s and more specifically from 1991, and thereafter Indian economy has seen formidable levels of growth, nearing 10% annual, which is nothing but magical. Ideologically socialistic performance of the government soon after the Independence ensured that private corporate and other vested interest could not appropriate national resources such that the masses could have been adversely affected. Although the trigger happy economic evangelists did abuse the older economic system, what should be recognized at the time of the Independence, fresh with the influence of Gandhian thought and preaching, there could not have been any other choice to socialistic thought, which promoted a sense of equality although the private ownership was suppressed. Government’s control over resources did accord a sense of safety and that they are not overexploited or looted. The Nehurivian concerns therefore during the first few decades after Independence appear not only relevant but necessary. At a philosophical plain such a social and economic ideological frame provided an illusionary feeling of inclusiveness, and the minorities and marginalized believed that newly formulated democratic structure would protects their social identity and economic interests. The safeguards and special provisions enshrined in the Indian Constitution added further to a psychological equilibrium that the excluded such the SCs/STs and minorities intended to achieve soon after the trauma and turbulence that preceded and succeeded the Independence. During this phase of governance and development, marginalized groups had little knowledge as to the relative position they occupied in the complex web of diversity amongst the population which was explicit in terms of the caste, ethnicity and religion in India. During the early period after the Independence, the overall governance and bureaucratic structure was heavily represented by highly educated upper caste Hindus and the welfare schemes and poverty alleviation programs were in the league of pilot projects or at the most in the genre of relief programs. It is now a recorded history, however, that socialistic pattern of economic policy did not facilitate fast pace of economic growth rather it was characteristic of rigid state control and bureaucratic overbearing. A reminiscence, of the process of development in India during the eighties, invokes a considerable amount of satisfaction that India indeed has gone through a transformation from the highhanded license raj to opening up towards promoting private initiatives to exploit resources, in a way at the right time, although such a change was forced upon due to the technocratic and purely fiscal prudence. The recognition and promotion of the private initiative in development as a policy response to fast growth has been commendable. The current state of mixed economy with a clear bent over to the privatization of resources and sectors of the economy is a game changing process. It is, therefore, timely and essential to find out what kind of inclusive space has been carried forward or what new opportunities have become available to the marginalized and those in the periphery of the social and economic domain in the present ‘new-deal Indian economic policies? It is necessary to ponder upon as whether lopsided development and growth can occur; should the government continue to absolve the role of the ‘trustee’ of the national and natural resources, while the private sector engulfed with the forces of free economy and competition (often export lead) penetrates to such economic domains that were thus far insulated from exploitation, mostly due to lack of demand and also due to lack of investments which governments could not bring. Therefore, the economic processes which are private but in principle endorsed by the public systems, also claim to be ‘inclusive’ can damage the very fabric of nationhood and nation building. The economy and markets must therefore operate and indeed promote the concepts of nationhood and national integration, while making profits by exploiting local natural and human resources and adding value to the GDP. The caste system and religious discrimination are dominant of the causes for communities with specified identities to be poor and continue to remain poor even after 65 years of the Independence and democratically guided governance. In a pluralistic and diverse society that India is, it is important, therefore, to find out as to how different groups of people such as those identified based on caste, ethnic origin (tribes), religion, occupation, place of residence (rural- urban), remote, hilly and forested areas and so on are able to overcome deprivation. Important also is to know as what role the social system and culture has either to promote or inhibit communities overcome inequality and what proactive initiatives are needed from the government systems. Another issue which has relevance to equity emanates from regional differentials. Thus the communities which are excluded from the mainstream are found concentrated in states and regions which are less developed. There is a sort of double whammy faced by deprived groups and further the depth of deprivation and exploitation emerges from other factors such as occupational and work related exploitation, child labor and gender bias. Therefore to understand mechanism to address deprivations amongst the SCs/ STs and Muslims it is essential to lay bare all such dimensions which are a type of whirlpool or a sort of trap from which those affected have to be rescued and rehabilitated not only on the basis of empathy but with the aim of empowering whole communities so that they make their rightful claim of equal citizens of India. The social backwardness has the inbuilt disadvantage inhibiting access to equal opportunities. Socially backward groups face problems in access to natural resources as well as the resources created by the public at large. Since the senior positions of administration are dominated by the upper caste, those in the lower levels of the caste ladder have serious educational and skill-set dis-advantage. It is important note, that equity, equality, inclusion and mainstreaming is possible only when there is a pie to share and that the size of the pie keeps on increasing to meet the growing demand. Demographic Dividends: Notwithstanding the above narrated background of the Indian societal and economic spheres, it would now be appropriate to ponder over the role of international ‘foreign direct investment’ (FDI) in multi-brand retail in India. Key question is as how such investment will affect the lives and livelihood of the marginalized. India is an expanding consumer market, bound to expand for many more decades during the 21st century. The hallmark of the Indian growth story is an extraordinary increase in domestic demand, the demand created by millions of consumers making billions of small purchases per annum, however, small or trivial the purchases are, they adds up huge amounts and quantities. Such demand creates huge supply constraints. India is facing a kind of puzzle, where even a small increase in income pushes up demand of practically all sorts and types of goods and services one can imagine. While this happens, if there is no concomitant increase is supply of the good and services, the economy can enter into a trap of price inflationary spiral which India has never experienced so far. Remember the 1980 Latin America where inflation reached 50% or more per annum. The key to sustaining growth in a fast growing economy, therefore, is increasing investments across the board – infrastructure, agriculture, industry, trade, including retail and so on. Financial investments are also needed for technological up-gradation which is essential to increase the efficiency of investments for mass production of quality goods and services at costs which are affordable. Remember the mobile revolution of the last about one half decade. This is the result of a prudent mix of investment and state of the art technology. Today, it is far cheaper and affordable to use mobile phone services in India, than for example, in the USA and Europe. The IT enabled technological revolutions in India was made possible by FDI and associated technology. Multi-brand International FDI: One of the major causes for low income growth amongst the Indian poor is because over 85 of the labor force is unorganized and self-employed in highly divers sectors of the economy. Such a labor force can be helped only when there are consistent efforts on the part of the governments to provide organized production, supply and marketing opportunities across the country. India already has a number of domestic organized retail chains and shops. Why and how then, an international company harms our markets and trade - can someone explain? In the following is a series of benefits which will emerge from organized retail irrespective of whether such trade is funded by domestic Indian rupees or international dollars and yens. 1. Game changer - promotes transparent consumer marketing practices. 2. Helps small producers, entrepreneurs and even farmers to organize and integrate into lager organized market system. 3. Bulk purchase helps small traders and retailers higher profits. 4. Eliminate irresponsible and exploitative middle man – who is neither a producer not a trader just a middle man, largely responsible for jacking up prices. 5. Create organized sector jobs. 6. Good and better paid front desk and floor level jobs. 7. Better quality jobs at the level of the sourcing of products. 8. Outsourcing of products and sub-contracting will create a new type of employment. 9. Help create an entirely new set of skill development. 10. Reduce transaction costs in product and goods trade. 11. Improve product quality and standards. 12. Promotes consistency in quality. 13. Certainty in availability of required goods both to the small trader and individual consumer. 14. Pre-measured package improves accuracy in weights and measures. 15. Increase the shelf-life of many products, much of it through the use of climate control technology. 16. Reduction in wastage at the place of sourcing and during transportation. 17. Reduces at home wastage due to better selection and sorting of products and goods. 18. Reduce the unit cost of practically all goods, products and services. 19. Promotes ‘return back’ policy, at the moment unknown in India. 20. Promote easy payment and advance purchase systems in trading. 21. State-of-the-art technology will become common in India. 22. Shopping becomes an experience for the whole family, promote happy family. 23. Increases consumer satisfaction. 24. Improves consumer information. 25. Reduces unnecessary and unhealthy road side advertisements. Note that this is not the end of the list. Unless India adopts global standards and adapts the global business and marketing strategies, there is a danger of losing out from a race in which it is already in. Indian economy is now vibrant enough such that both the modern and traditional economic schemes not only co-exists but thrive. The government however, must put in place a relief and rehabilitation program for those who would get adversely affected due to multi-brand modern markets. Another policy option is to provide financial incentives for businesses who promote sourcing local products, conceptualize new lines of products and services to meet the local tastes and preferences and enhance local employment. The demographic dividends are expected out of labor supply potential that India has over other emerging economics of the world. However, it is also important to note that India’s population will also generates domestic demand in such a way that a substantial labor and skill pool is required to sustain domestic markets thus thrusting a considerable pressure on the global demand for labor either through fewer leaving India for other greener pastures; or though increase in exports of manufactured goods and services. The structure of global competitive economy is such that India was the seventh largest in terms of volume of output at the time of its Independence; but in spite of the apparent high growth trajectory it is nowhere closer to that ranking presently. However, at the beginning of the 21st century the world is taking India seriously, mostly due to the imminent demographic advantage that this country is demonstrating to the world. India has many puzzles and dualisms: for example the debates over ‘India’ versus ‘Bharat’ or the urban rural divide; the unorganized versus organized workforce; continuance of abject poverty and hunger when the growth rates are best in the world; and issues revolving around social and income poverty.