A recent Supreme Court judgement has said that the Government’s policy allowing FDI in retail is not ultra vires, besides also a means of providing a positive influence on the farm sector.

Yet, it is time the impact of FDI in retail in India is reviewed not just along the usual axes of consumer choice and benefits to farmers, but also along the lines of the overall economic and environmental impact on the nation. India, for all its faults, does not need the ‘benevolence’ of these mega corporations.

Consumer benefits: The proclaimed benefits are those involving increased choice/convenience to consumers and reduced prices. But a retailer, however large and well-organised, is limited by space and will stock only the fastest moving products, the most profitable, or those that are essential to consumers. This, in practice, means the top two or three brands in every category and their own private labels. It also means the retailer can influence the choices of the consumer.

As far as prices are concerned, yes there will definitely be a fall in prices, but at what cost? The fall in prices in supermarkets cannot be attributed purely to economies of scale in buying or streamlined processes or the negotiating skills of retailers. There is an element of abuse of power in the relationship that leads to lower prices from suppliers. A study of the Competition Commission’s report on supermarkets in the UK is a revelation of this power. It can be witnessed in the relationship between large retailers and farmers and also the booming of low-cost manufacturing aided by exploitative labour practices in developing countries. The costs of these low prices are high socially: Poor wages, limited accesses to benefits and poor working conditions. These are indirect costs to all, consumers and non-consumers alike. Further, the benefit from these retailers will be concentrated at the top of the income ladder (of the 1.2 billion Indians, only a small percentage can afford to shop at these retail outlets).

Economic impact: The economic impact of foreign retailers has to be considered from the point of view of job creation and the effect on national economy and policy.

It has been claimed by Government that the retailers would create 40 million jobs, but organisations such as the Centre of Indian Trade Unions claim there would be a loss of 17 jobs for every job created. Even if the job losses were on a one-to-one basis, the issue would be the kind of jobs created. The majority of the latter would be unskilled at minimum wages, whereas the job losses would be those of small traders and the self-employed. Therefore the comparison in terms of numbers alone does not do the argument justice.

The other issue, national economy and policy, is multi-faceted and consequential: Increase in imports from across the world and the effect on national trade deficits, the skewing of our trade patterns and national currency exchange rates, and international trade patterns. It is not an exaggeration to claim that nearly 70 per cent of Wal-Mart’s US sales are globally sourced; extrapolate that for an estimated Indian retail market in excess of $ 300 billion and the economic consequences would be very real.

The reaction of foreign retailers to the conditions suggested by Government regarding sourcing from indigenous manufacturers would imply that the long-term strategy is to source from the cheapest global source. This would imply that indigenous manufacturers would increasingly be pushed aside to make way for existing cheap suppliers. The long-term effect of this will be catastrophic, as we start to lose the advantages that have been hard won in Indian manufacturing over the last few years. There is, of course, a valid argument to be made about tax receipts and the benefits of organised retail to exchequer, but that is more a reflection of the labyrinthine, multi-tiered and opaque tax system than on the structure of the industry.

Benefiting farmers?: It is also claimed that these retailers will benefit farmers by paying a fair value for their produce and in effect diluting the interests of “middlemen”. The requirements of large retailers in terms of quantity and consistency of the ‘look’ of the produce means that they will rely on their existing global suppliers of fresh produce to source products that ‘look’ good, and which will be priced much lower than those produced in India. This is because these suppliers utilise industrial farming and do not farm on smaller holdings as in India. The net effect would be more locally-grown produce not sourced and displacement of agriculturists further down the road. So, instead of the disguised unemployment, we can happily report we have revealed unemployment.

The issue of waste also needs to be addressed here; it is accepted wisdom that around 40 per cent of fresh produce is wasted. But actual research and field study would expose this as a myth. India has an informal system that allows for the consumption of products in various conditions: For example, perfect looking vegetables in large air-conditioned supermarkets and bruised ones selling at lower prices in various informal markets around the country.

Environmental concerns: The import of products and their transportation using large vehicles across the world and the country are extremely environmentally unfriendly activities that lead to a depletion of our natural resources. The food miles debate is one which most large multinational retailers do not like to participate in; instead they claim to be champions of consumers as if the consumers are somehow divorced from the citizens of the country.

Is India ready?: Another argument is that such retailers would somehow alter the supply chain mechanism in the country through “best practices” and inward investment. This can be, if one is feeling charitable, called post-colonial disorder or if one is feeling particularly distressed, racist. Is it the belief of the Indian Government that this country’s infrastructure and law enforcement require the intervention of a foreign private enterprise?

Has it been mandated or is it accepted practice that private economic entities created for the purpose of profit be charged with social and legal enforcement issues in a foreign country? If the farming sector needs to be freed from the grasp of middlemen then the Government should act on that and not invite large profit seeking companies to act by proxy.

If the Government does not have the ability or skill to protect its farmers, consumers, businesses and the country, but must invite foreigners under the guise of development to do so, then we believe it is time for this Government to consider that maybe the disguised unemployment does not reside in the farms but in the corridors of power across the nation.

(Manghat is an academic in UK and Balasubramaniam is an independent consultant in India)

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