Money does grow on trees, Prime Minister

The U.S. experience proves that big retailers like Walmart are destructive for the community and will not generate the benefits that India has been promised

September 28, 2012 12:43 am | Updated June 28, 2016 11:40 pm IST

120928- Lead- Economy and FDI.jpg

120928- Lead- Economy and FDI.jpg

There is no way we can take lightly the Prime Minister’s recent address to the nation. It was, unarguably, an exceptional step for him to take, renowned as he is neither for his loquacity, nor for his oratorial skills. Why then did he mount his Rocinante of ‘91 vintage and futilely lance opponents of his policies by alleging that they were “spreading canards”? Also, which Sancho Panza on his staff persuaded him to use this insulting noun? But for this, his otherwise rather nondescript address would have been best left to its inevitable fate of oblivion. Not, however, now.

Telephone call

First: this rather admonitory “money does not grow on trees”. Just a day after this astonishing, also so unneeded, reprimand, I received a telephone call from a retired soldier colleague, who had served with me as my tank driver, sharing with me for many years my tank lean-to shelter at night. I save his name lest he be nagged by the otherwise inefficient Intelligence Bureau. “Sahib”, he said in his thick Shekhawati dialect and accent, “please educate the PM that money does actually grow on trees and plants; we get all our fruits, vegetables and animal feed and also firewood from a ‘tree’. So tell him to think of the farmers, not of the ‘foreigners’, who over two centuries back came as a company and took away our land. Not one ‘biswa’ [a measure of land] was left to us”. I promised him I would do so, but advised him not to disturb his retired life over such depressing thoughts, for just as our ‘dhabas’ defeated a rather cocky Colonel from Kentucky, US of A, India will defeat this, too. And not one word of this anecdote is made up.

Therefore, next to the fabled merits of multiple retail shops of (in)famous names.

Please reflect first on the merits of India’s unorganised and widely dispersed retail trade, explained with admirable clarity and succinctness by S. Gurumurthy (“‘Reform’ at Nation’s Cost,” New Indian Express , September 20) : “The unorganised retail trade in India represents the traditional, community-centric, low-cost … employment intense retailing that includes, but is not limited to, kirana shops, owner-run-general stores, paan-beedi shops, convenience stores, and hand-cart and pavement vending. In this model a whole family works in one shop and a whole community is engaged in the trade in a defined area. Most advocates of corporate … and retail firms … ignore [this] critical contribution of the [existing system] to the Indian economy and society (emphasis added). This “multi-layer retailing is the most decentralised economic activity in India after agriculture. Second, it constitutes almost 98 percent of the total trade with an estimated 12 million outlets. In contrast, organised trade accounts for just 2 percent. Third, it is the largest employment provider after agriculture, employing an estimated 40 million people”. In contrast, the world’s largest retail chain, Wal-Mart, employs just about five lakhs. Fourth, being “self-employed … with their families”, this activity comprises “120 million people”.

It is “retailing that continuously generates … huge community-based entrepreneurship”. And then “it contributes over 14 percent of India’s GDP, while all [the] companies in the BSE 500 Index, put together is some 4 percent”. Also that the “unorganised retail segment has been growing at an average rate of over 8 percent a year for the last eight years (1999-00 to 2006-07). … second only to construction …” Let us consider seriously that “if [this] social capital link to retail trade is unsettled, the entire distant and remote supply chain will suffer over a period, disturbing the social equilibrium and the organic social links that have evolved over … centuries”.

There is then a further ‘canard’ spread by our dear PM and his ilk, suggesting that concerns like ‘Walmart’, and others of that variety, overflow with the milk of human kindness and act only out of empathy and compassion for India’s farmers and poor. Gurumurthy very effectively comes to our assistance here, too, the evidence, even in the U.S. being to the contrary: “Walmart entered in Austin neighbourhood of Chicago in 2006. And by 2008, some 82 of the 306 small shops had closed down.” Further, “the Economic Development Quarterly study found the closure rate around Walmart location at 35-60 per cent.” Such studies in the U.S. reject the UPA’s assertion that FDI in retail does not hurt small shops. On job creation, a January 2010 report titled ‘Walmart’s Economic Footprint’, prepared for the New York City Public Advocate, says that “Walmart kills three local jobs for every two it creates”. Jayati Ghosh, an eminent Indian economist cited by Karan Thapar, asserts that “one Walmart store in India will displace 1400 small retail stores costing 5000 jobs”. This, too, is dismissed by the government as “meaningless”.

Misplaced view

As for Walmart offering better prices, please recognise it does not buy or pay for goods over the counter. It purchases the nation’s next harvest in futures market and fixes farm prices. It also “imports cheap goods and destroys local production like it has done in the U.S.” And an outstanding example of this is provided by President George W. Bush, who gratuitously observed “that [rice] prices had gone up because newly prosperous Indians had begun eating more”. In truth, as detailed by USA Today (April 23, 2008) and CNN (April 24, 2008) the “California Rice Commission and USA Rice Federation” denied there was a “shortage of rice”, explaining that it was because ‘Sams Club’ (Walmart’s wholesale division) was holding ‘huge stocks’, and ‘pushing up the prices’.

Two UPA government reports — of the Planning Commission Working Group on Agriculture for the XI Plan (2007-2012), and the 19th report of the Standing Committee of Parliament on Food (2006-2007), to Parliament — “themselves nail the lie that Walmart will link farm-gate to its gate and make Indian farmers rich”.

There is then that absurd assumption that this variety of capital inflow is the answer to our present trade and current account deficits. First, this is neither true nor tenable. Secondly, whose misgovernance/absence of governance has brought about this situation? Please do not place all blame on the ‘global situation’ when you do not hesitate to pat your back about crossing the 2008 fiscal obstacle course. “The trade account deficit of about US$150 billion and the current account deficit exceeding 3 per cent of GDP is very alarming and may lead to a balance of payments crisis of much graver nature than the 1990 position”. It is this continuous pressure on the “trade account and the sudden withdrawal of funds by FIIs from the stock market that has weakened the Indian Rupee”, (Rs. 16 in 1991 to as low as Rs.50 per U.S. dollar) during the UPA-2’s Rule, resulting in a “devaluation of more than 300 per cent”. (Thus becoming) one of “the major causes of imported inflation in the country during the past two decades”. Should our domestic savings, contributing almost 90 per cent of investments in the country, go down, which without fiscal and monetary incentives could well happen, and should the Investment to GDP ratio fall below 30 per cent, then surely we will revert to a ‘sub-Hindu rate’ of growth. That is why prime ministerial favours to foreign investors and step-motherly treatment to our dear desi s is so difficult to grasp.

Finally, a brief word about the totally wrong phraseology, to which all have by now succumbed. The measures recently undertaken are not in any sense ‘reforms’, and I am very glad our distinguished Deputy Chairman of the Planning Commission has candidly and correctly said so. These, at best, are ‘administrative’ measures which the government has now, with much fanfare, announced. Misplaced again, for the first reform needed, the very first is ‘reform of government’, and reforming governance is vital so that corruption is minimised and efficiency in administration maximised. I am doing what I promised my soldier colleague I would do. Are the knights of “El ingenioso hidalgo …” listening?

(The writer is Member of Parliament.)

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