FDI: FOUND DIVIDED INDIA! GOOD OR BAD?

 

BY Prof. (Dr.) SUDHIR GAVHANE

After the 1990’s move of economic liberalisation of India and allowing Foreign Direct Investment (FDI) in various sectors of economy and taking advantages of capital gain and economic boost and some socio-political disadvantages resulting out of it

such as victimisation of unorganised labour class & poor sections of society, India has again re-entered the controversy of FDI in Retail sector, of which bill has passed in first week of December 2012 in winter session of Parliament. Though, bill has got approval from both the Houses, it is seen by the country that, there was almost equal political divide and the Government could get it cleared by just few votes and because of; what I call it as Absentee politics of Opposition, turning into saving the face of the Government by indirect support by two political parties of Utter Pradesh - Samajwadi Party (SP) and Bahujan Samaj Party (BSP) against the FDI in retail sector in India. Indian political class in strongly divided on this issue, though the FDI in Retail sector bill is passed by both Houses of Indian Parliament, with the provision of State Government shall  have final word in allowing FDI in their respective states. The aftermath of this bill passage shall come before us in years to come, as the present time is so complex and uncertain, that one can’t predict exact effects by traditional analytical framework or pattern. There are strong and appreciable arguments from both the sides of retail FDI, but only actual effect shall prove who is correct and who is wrong.

Questions of multi-billions
The definition of FDI as per International standards is as follows. “First, FDI involves the transfer of other resources than capital (technology, management, organisational and marketing skills, etc.) and it is the expected return on these, rather than on the capital per se, which prompts enterprises to become MNEs. Thus capital is simply a conduit for transfer of other resources than the raison d’etre for direct investment. Second, in the case of direct investment, resources are transferred internally within the firm rather than externally between two independent parties : De jure control is still retained over their usage. These are the essential differences between portfolio and direct investment." (-- John H. Dunning, 1993

Anyhow, it is all certain that, there shall be huge investment in India retail sector in terms of FDI. These FDI inflows shall create retail infrastructure and new retail business model in India as it possesses more than 300 million white collar middle class and affluent middle class in the role of growing consumer class with higher surplus for purchase. It shall definitely create a new market for agro-based products and vegetables, fruits, milk, milk products, food items and consumer goods. But there is going to be fierce battle between present players and players willing to enter independently or in collaboration. Whether farmers are going to benefit from this? Whether small retailers are going to be hurt from this? Whether small retailers are going to be hurt from this? Whether Indian consumers shall be really benefited from this FDI? These are the questions raised by many; but only future will tell us the effects of FDI on Indian economy, consumer, farmer and small retailers. However, it is also sure that, there shall be capital inflow in India from Western World, USA, UK, Canada & others; when their own economies are not worth for new investments because of recession and slow speed of economic recovery. Indian economy, although not growing with expected GDP, is yet growing with GDP better than Western World and Europe. Truly, ‘BRICS’ (Brazil, Russia, India, China and South Africa) are economically performing better than the so-called developed world. Therefore, India is global investment destination providing better opportunity in terms of ROI (Returns on Investment). Hence, there was pressure from global agencies to open Indian economy for more FDI possibilities. Indian reforms of 2012 are responses to these economic and global pressures. Can India see it and convert these challenges into an economic opportunity? Only the next decade shall mirror before us the reality. 

Looking Back: FDI Way!
Inflow of Rs. 6.5 lakh crore
Since 1990s, after adopting policies of liberalisation & economic reforms during last 20-22 years, how much FDI inflow has India got? What are the effects of these FDI inflows on India & the Indian economy? Let us take an account of these inflows and their effects on India, its economy & the society. As per the RBI (Reserve Bank of India) figures, during 2000 to 2011, total FDI inflow in India was very high amounting to Rs. 6,58,586 crore (i.e. US$  1,47,088 million). More than Rs. 6.5 lakh crore investment has taken place in India during last decade. In just the year 2011-12, the FDI inflows in India were to the tune of Rs. 77,864 crore (US$ 17,370 million). It’s a huge investment in India indeed! Whatever shifts we are noticing in the industry, service sector, infrastructure, IT sector, Electronics and Automobile sector, are due to this huge inflow of Foreign capital. In response to FDI, our Indian corporate world also invested within and outside India, and Indian national corporate houses successfully attempted to become MNCs (Multinational Companies). India became a happening country and changed its fortune and face as a modern and fastest growing economy. 

The statistical information about last decade from 2000 to 2011 shows that India attracted FDI inflows in the sectors of service, Telecommunications, Computers, Housing-Real Estate and Construction, Power, Automobile, Metallurgy, Drug-Pharma and Petroleum & Natural Gas. In this prime sector list, the retail sector shall now attract foreign capital in a big way in the years to come. It will generate a new environment, new market conditions, new competition and new employment and naturally, new problems. Every common man on the street feels, 'all kind of goods and capital are powered in India during last two decades under liberal policies, what’s new in more FDI in retail?' Is India, structurally a weak country, which can be fearfully damaging to the Indian economy? I think India must try and test. What’s wrong in experimenting?

(Professor (Dr.) Sudhir Gavhane is a media expert and a political & economic critic. A former Vice-Chancellor, he is presently working as Professor & Head of Dept. (Journalism) at the Dr. Babasaheb Ambedkar Marathwada University in Aurangabad, Maharashtra)

 

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