I’m not an economist! However, I believe in economics with sense, sensitivity and pragmatism to address a market gap. One sees market correction every now and then in the stock market and we all accept it without any questions?! When it comes to essential commodities, we (Consumers) and the producers (predominantly farmers) are at the mercy of the middlemen!
The media went ‘gaga’ over the proposed removal of FDI Cap in retail sector and one of the articles I read, referred this move as a major milestone towards controlling the food prices and attributes that to the utilization of better systems and supply chain practices by the MNCs coming in from abroad! The article further went on to add that this move would help the farmers to get better prices as there would be direct procurement by these foreign retail giants…! This seems to be pure work of a sub – standard PR professional (Like Nira Radia), who buys over the media to create a conducive atmosphere for the Govt. to push through the reform in the favour of these MNCs! You can read the street smartness of the agency when they mention about safeguarding the interest of farmers (who had been a sentimental factor for all politicians to take advantage always in our country)!! It paints a picture that the saviors of farmers are coming from the west!!
Let us analyze each points with basic common sense and answers are very simple and it will reveal vested interests of the media in this aspect…
1) FDI Cap removal will control the food prices:
This is absolute crap as no MNC will have any influence on the monsoons and agro – production of a country like ours, where we still depends on rain Gods for cultivation.
If the argument is that the MNCs can introduce contract farming for direct procurement, then it is possible by any of the Indian organized retail firms and it could have been promoted by now, with an integrated technology partnership programme to effectively improve the productivity as well as profitability. There is no necessity of foreign investment in this regard when Indian conglomerates are capable of investing in many MNCs outside India!
2) Supply Chain efficiency will improve with the ‘rich’ experience of these companies:
Why our organized retail sector is not able to improve their efficiency now? Is it because our companies do not have this ‘rich’ experience?!
These questions point at the sad state of our SCM (Supply Chain Management) systems and the reasons behind it. When I had an opportunity to present a demonstration of a German “Enterprise Retail Solution” to one of the leading retail chain even before they launched their stores across the country, it was a revelation for me that an Indian company was so professional and serious about their business roadmap! The panel which was evaluating our software included some of the best paid retail consultants from Europe, USA and Middle East! In fact, we were evaluated by consultants from each formats of retail and in each discussion they were putting across 500+ scenarios to map and demonstrate! I'm sharing this incident to indicate that this ‘Rich’ experience can be hired, if required, and not necessarily should be through FDI…!
The fact of the matter is the enthusiasms of such corporates were dampened by the very Governments who now, sheepishly try to present MNCs as the saviors of the sector! Whatever may be the vested interest behind such manipulation, the reason behind the non – improvement of SCM systems is predominantly because of the unholy nexus between the ‘Agent – Criminal’ mafia in the markets and the 'Politicians'. This prevented every retailer from introducing improved systems and techniques as they are still forced to source the products from the wholesale agents of each region! There were multiple incidents where these goons were unleashed towards these retail outlets to pressurize them to source it from the conventional sources!
3) Direct sourcing from the farmers:
This is another misinterpretation as initially, this was the original plan of every retailer present in the country and it was sabotaged by the market agents’ mafia with the silent support of the politicians as they attacked the outlets to force the sourcing back to the conventional wholesale merchants. There were contracts signed between some farming groups and such retailers, which were cancelled due to such interventions!
Now, the Govt. should be responsible enough to answer the following questions…
1) What is the perceived change that had occurred in the market to claim that by infusing FDI, we can empower farmers?
2) What guarantee/ assurance the Government proposes to give these foreign institutions in this regard?
3) Why the same support mechanism was not offered to the existing organized retail sector?
Though it looks complicated, the problem is simple…it is not the lack of ‘rich’ experience which triggered the price hike, instead it was a combination of inefficient systems, lower production and above all the artificial scarcity manipulated by these market agents, which caused the problem and the inefficiency of Government mechanism to crack down on these people kept the process of bringing down the prices so long…! Correlating this with the 'politicians – Market forces' nexus, people with common sense can understand the dynamics very well!
Well! I called this phenomenon as Sensinomics as this is what I request our super economists at the helm of power to understand before forming such critical policies!
The effect of the proposed release of FDI Cap in retail sector:
With a potential of a billion+ people with a major chunk of them in the mid income group and a GDP of average 8%, India is one of the juiciest markets in the World right now. As one of the articles couple of weeks back published in the same media attributed, the cautious opening of our markets has actually insulated our economy from most of the ill effects of the recession and the habit of savings had actually shielded our society from the distress and depression during these turbulent economic times. We are one among the very few countries who were least affected (except for the hype our media had created) and we should thank our conventional economic programme that we followed so far for the same.
When we have cap on the FDI in critical sectors, we restrict foreign investors from acquiring majority stakes in such firms and thus restricting them from having upper hand in policy making. This, in simple words means that there will be enough safety mechanism for ploughing back the money earned from this business in our economy rather than taking it away to other countries and Indian partners will have an upper hand in the board on such decisions.
If it was in the case of cryogenic engines (even for that we developed it ourselves after splitting with the Russians), it is understandable that with such a partnership, we will gain as there’s a huge saving in time in transferring/ acquiring the technology. But when it comes to retail, there are enough organizations inside our country, which can invest and run it here without any specific hitches. The expertise is available in plenty in the international market which can be hired and used to improve our systems and practices. To improve the situation, there are some major corrections to be made immediately as it is already late…
1) There should be enough investments made in agriculture sector to attract youth into farming as a profitable business model.
2) There should be intense and continuous training programme to empower farmers.
3) A suitable participatory adaptation of technology need to be initiated to make farming less labour & climate intrinsic.
4) There should be training on ‘Post Harvest Handling’ and facilitation centres with cold storages and enough infrastructure for the farmers to lean upon and resist middlemen’s exploitation.
5) There should be a pragmatic programme on bringing in participatory research programme and introduction of precision farming with the focus of enhancing the productivity.
6) There should be a Government appellate authority like Agro Production & Marketing Authority (APMA, in line with TRAI & IRDA) to proactively monitor and intervene in the market whenever necessary.
7) Above all, the farmer should be educated and empowered to calculate the production cost and should be allowed to fix the prices for their product under the norms & limited controls induced by the above said agency.
8) In brief, the illegal/ unethical intervention from the middlemen’s lobby should be prevented to safeguard the farmers as well as the consumers, equally.
The World is so small now and my intention is not to prevent any organization from entering here, but to provide equal opportunities to everyone and obviously the better ones will thrive and to provide an ideal scenario to thrive, enough precautions should be taken by the Government by setting up of APMA to effectively check ‘predatory’ practices in the sector. Otherwise, we will create another mess in the sector like what happened in 'Micro Finance' and wait for reaction from authorities after multiple mishaps, instead of being proactive!