Thursday, December 13, 2012

On FDI in retail

It can't be good for the farmers.
As long as farmers don't have the ability to say no to a bad deal, they will never make more money. Two things are required for that to happen: 1) They have enough to eat and 2) They have place to securely store food until they find a good buyer. Since FDI doesn't ensures either of these, all we are talking about is who will make money from the farmers, not if farmers will make money or not.

It might be good for the consumers in the short run.
Any new retailer needs to find customers and one of the ways is to price below its competitors. But it is not the only way. So in the short run, we can expect prices of some of the things to come down.

What about the %age?
All I said above was with reference to 100% FDI in retail. When the percentage is below 100%, the real beneficiaries would be be companies with which the foreign companies need to create joint ventures. These are the current organised retail ventures from India. If it is 49%, Indian companies get to control the joint venture, if it is 51% foreign companies get control. The percentage ensures that whatever "good" is going to happen with FDI, almost 50% of that goes to owners of the Indian retail ventures.

So, forget about farmers or small shopkeepers or consumers, the deal with FDI is to ensure current owners of Indian retail companies make money, who will otherwise collapse if foreign companies were to directly compete with them.  And who pays for that -- us and who decides for that - "our" government.

If government is so keep on interests of farmers,  they should probably open up FDI in farming and not in retail. Same rules, 49% of the companies owned by farmers who do the farming and 51% control for foreign companies which can create storage facilities or in general figure our how to make money with the farmers and not from the farmers.

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