I was reminded of the ancient maxim, “Those whom the gods wish to destroy they first make them mad (with power)”, the very moment government announced policies approving majority FDI in multi-brand retail (read Wal-Mart stores, USA), an increase in foreign direct investment, because this step united the disparate opposition as shown by its bringing the country to a halt.
How deep is the political weight of Wal-Marts in the Indian government is evident from a cable sent by US Secretary of State Hillary Clinton to her embassy in New Delhi in September 2009, (WikiLeaks India cable series: March 18, 2011), enquiring about “How does (Commerce Minister) Sharma view India’s current FDI guidelines? Which sectors does he plan to open further? Why is he reluctant to open multi-brand retail?” Wal-Mart International Division chief John Menzer took pride in claiming that “We’ve energised the FDI lobby and pre-empted the anti-FDI lobby in India.”
The apparent tempting sop held out by the Minister of Commerce that Wal-Mart will have to procure 30 per cent of its value from the local market is a non-starter in the light of the actual practices followed by Wal-Mart and others. It is universally known that over 90 per cent of the products in Wal-Mart are sourced from China, which in view of the already cheap Chinese imported goods will ruin the local Indian industry. Moreover, Article III of GATT explicitly forbids regulations like specific sourcing requirement from domestic industries.
This touching faith in the all-pervading positive result of Wal-Mart incursion in India is ironically not shared in its home country. Thus, on September 14 New York City shut Wal-Mart out, and mass marches in Los Angeles city (known for Hollywood billionaires) were held in protest against “we do not want you in Los Angeles”. That closing down of small shops at 35 per cent - 60 per cent immediately flows from the entry of Wal-Mart is the finding in a study made by Economic Development Quarterly.
That Indian farmers will benefit by Wal-Mart building refrigerated warehouses is a lie. In the US, out of the 1578 refrigerated warehouses, 839 are in the public sector and 739 are private or semi-private. The public warehouses are much larger, accounting for 76 per cent of the general storage capacity, with private and semi-private facilities accounting for only 24 per cent. As against this, it is shameful that over 95 per cent of India’s cold storage capacity is in the private sector whereas only 0.44 per cent is in the public sector. Does the government need Wal-Mart’s permission to increase the number?
The touching faith of the governments in globalisation is repudiated by Joseph Stiglitz, the Nobel laureate economist, “Globalisation is neither socially benign nor has it been instrumental in reducing poverty; it has been detrimental to the poor and other weaker sections of society. In fact, globalisation has been associated with a growing divide between the richest countries and the poorest, and growing inequalities within most countries around the world.”
To the plea by the corporate sector that businessmen need incentives to invest, let them listen to the jibe of the biggest votary of capitalism, Warren Buffet of the US, who felt compelled to publicly confess, “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.” Is the Central government listening.
I wish the votaries of reform, when talking of increasing the growth rate, were to pay a little attention to the paradox of gross poverty. It shows that while Delhi is supposed to have the highest per capita income in the country, in terms of actuals, according to data presented in the 65th round of the National Statistical Survey Report (2010), it embarrassingly shows that 70 per cent of households in Delhi have a monthly per capita expenditure of less than Rs 1500. Even the self-opinionated Planning Commission has been forced to accept this as the poverty level. Heaps of statistics are thrown at us by the Union government to show that we have no internal resources and, therefore, must invite foreign investment. How deliberately misleading — 500 listed Indian companies have enough cash on their books to double India’s power generation capacity of 2,00,000 MW or build over 40,000 km of six-lane highways every year (compared with the current 800 km). At the end of fiscal year, March 31, 2012, these companies were sitting on cash and cash equivalent — the legend investments that can easily be converted to cash — of over Rs 9.3 lakh crore or $ 160 billion.
How false is the government’s pretended claim of shortage of dollars for investments in India is shown by the fact that in the ending months of 2011, there was a record level of Rs 9.8 lakh crore. The further concentration of wealth is shown by the fact that the top five companies in the Bombay Stock Exchange-500 held about Rs 2.07 lakh crore or 22.3 per cent of the total cash of these companies. And yet by the collusion of the Central government, these companies are permitted to take Indian money out of the country by being permitted to invest in countries like England, Australia and Belgium. The result is that coal, the strategic item needed for an increase in our economic growth, is not being mined in India but is being imported from Australia and other foreign countries. Is the Central government working for the people of India?
The government cannot silence the discontent in the country arising out of extreme poverty by putting a claim which is false that prosperity so generated will move down and improve the condition of the poor. This is a false claim as given in a warning by Nobel laureate Joseph Stiglitz — “The theory of trickle-down economics is a lie.”
Governments should realise that such ugly poverty and disparity in our country is contrary to the mandate given in Article 39 (c) of our Constitution — to prevent that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment…. In that connection it may be instructive to remind the Central government of the warning given by Mr Justice Brennan of the Supreme Court of the US who put it succinctly, “Nothing rankles more in the human heart than a brooding sense of injustice, illness we can put up with. But injustice, makes us want to pull things down.”
THE recent decision of the Central government to further liberalise foreign direct investment (FDI) in retail marketing and allow 51 per cent FDI in multi-brand retail, paving the way for the opening of mega stores in about 50 major cities of the country is under debate for its possible economic, political and social consequences. It appears that we lack inner strength and fear to get exploited in the process. Let us accept this opportunity as a challenge.
Apart from political whims, the prevailing production and marketing system, if altered, would certainly have implications on growth, economic disparities, employment and various social issues. For a common man (as a producer and a consumer), the ultimate concern is improving the economic efficiency in the marketing process so that quality products move in the system with minimum cost, at reasonable competitive prices and facilitating the establishment of appropriate market infrastructure.
Stagnation in farm growth
About two-third of the working force of the nation is still engaged in agriculture. Punjab and Haryana have only wheat, rice and cotton as the three major but natural resource exhaustive crops. Production has almost reached at the plateau. Marketing by value addition in these crops, to a large extent, is already done. Diversification of agriculture is widely recognised as a way out to break growth stagnation.
Alternatives suggested have highly perishable products such as fruits, vegetables, flowers, milk, fish and meat. But a long chain of market middlemen and their high profit margins, high wastage, spoilage and quality deterioration in the process due to unscientific and small-scale handling, transportation, storage, processing are the basic constraints, resulting in unremunerative prices to the farmers on one hand and high prices and poor quality produce delivered to the consumers on the other.
Over time the economic system has taken a U-turn. A consumer with high purchasing power cannot be forced to accept what is available in the market but he dictates as to what is to be produced to meet his pocket and taste. Therefore, the quality parameter, variety of processed and fresh products and market conveniences apart from price have assumed greater importance. The production system, therefore, has to cater to the specific demand aspects.
Strengthening of the market information system by a frequent assessment of market forces at the national and global levels should have broadened the market sphere of the country, where again we are lagging far behind. No doubt, a vast majority of the population is struggling at the poverty line but the number of the rich is not that small. If we are unable to improve our own house by catering to the requirements of all sections, what is the harm in engaging MNCs to meet the growing requirements of such consumers? It is strange that some people are worried over the failure of some existing chain stores.
Research and development has been another weak link being constrained by funding. An investment of $590 billion is expected, of which half has to be invested in the form of infrastructure like cold chains, processing, packing, grading etc which would help in organised marketing and technology.
Minimising waste
Wastage in small quantities aggregates to an intolerable figure of 40 per cent in perishables and 10-15 per cent in case of semi-perishable food items, which has to be minimised through scientific post-harvest operations. Direct purchases from farms through legal contracts would further shorten the channel. The charging of VAT on sales could also amount to no less than the mandi taxes foregone by the state government. A financial loss would definitely occur to preventable middlemen or cutting the size of those earning disproportionate to the services provided.
A fear of unemployment of petty traders is also not well placed as more value addition would generate more and systematic employment potential. The experience of some countries such as Australia, Thailand and the Philippines has demonstrated that with every such store, a large number of small ancillary production and trade units coexist and thrive well. Advocates of small farmers often lose sight of the fact that their economic future lies in getting organised even without such developments.
A similar controversy arose before our entry into the WTO in the early nineties and a lot of pessimism was injected in public mind. Now, we have already tasted the liberalisation of world trade and to a great extent acclimatised to the new economic order and now need to further strengthen it, for which infrastructural development with appropriate technology is an essential step. For instance, to boost exports, sanitary and phyto-sanitary and technical barriers of trade norms have to be maintained. But lacking suitable infrastructure, we have many times faced serious consequences of return of export consignments.
However, some defensive measures are also necessary. One safeguard essentially required is to effectively check the deviation of such investment from the agreed norms. For example, investment in real estate in India is a lucrative business at times, in which direct or indirect investment may lead to distortions in resource use
AN ALTERNATIVE
DR. VERGHESE KURIEN not only made India the world’s largest milk producer through Operation Flood, but also demonstrated how a cooperative movement among the dairy-farming community can succeed and emerge into a world-class procurement and marketing company. Working under difficult rural conditions he helped thousands of dairy farmers create cooperatives to produce and market milk, all by themselves, making it remunerative for them. The genesis of this unique experiment by milk-farmers, which got rid of middlemen, was depicted admirably in the 1976 feature film ‘Manthan’. Kurien applied the model later to other commodities like vegetable oil where he tried to restructure the marketing system to protect the small producer from middlemen, or the oil kings. Fruits and vegetables are now produced and marketed through a cooperative network of over 250 farmer-owned retail stores in Delhi.
A question comes to mind: why can’t this co-operative model be applied to the farming community growing wheat and rice in the country? More so, because though the annual production of these two foodgrains is more than adequate, the open-market trends and distribution have created a paradox that hungry millions and grain mountains co-exist! What is even more worrisome is the financial lot of farmers, driving some even to commit suicide. Therefore, why cannot the co-operative marketing model be applied to the grain-producing farmers of this country so that they handle the marketing and distribution themselves, disbursing a reasonable profit to be decided by farmers’ cooperatives to farmers, and wiping out the huge extra profits made by middlemen, thereby keeping the open-market prices of foodgrains also affordable. If it can be done to milk and dairy-products, which are perishables, then it should be much easier to do so for foodgrains.
Exploitation by middlemen
Over the years, the lot of an average farmer has not improved much, barring the possible difference that he brings his produce in tractor-trailers now, vis-a-vis bullock-carts in olden days. The arhtiyas (middlemen) make sure that the monopoly purchase of wheat by the FCI is made through them on a commission basis, and any farmers’ co-operatives do not appear on the scene.
Incremental hikes in the procurement price of grains made every year by successive governments have not been adequate to offset the rising costs of farming. Barring a few progressive farmers, most small farmers have struggled to break even, because they always need advances against the future crops to pay off for the increasing cost of inputs like seeds, pesticides, diesel for pump-sets, etc. This makes them go for raising loans from unscrupulous money-lenders or ‘arhtiyas’, underlining the dependence of farmers on middlemen.
The increased grain production over the years has also brought forth related issues like an excessive use of pesticides, causing health and environment problems, and excessive pumping of water by farmers which sent the water table down. Sops like free electricity were hardly effective due to huge power cuts. Many of these problems, which escalated with time, were not unique to Punjab, and came up in other states, too. Provisions of soft bank loans or loan-waivers did not ameliorate the financial condition of farmers. We see the after-effects of all this in suicides committed by some farmers.
Inadequacies in the system expected to handle millions of tonnes of grains within a short time-window of the procurement season has led to storage and transport problems. The differential in open-market prices of grains at point-of-source, say rural Punjab and urban places like Mumbai, where I live, are too large, mainly due to profiteering.
Profiteering supply chain
I used to wonder in the early 70s, why good quality wheat was sold in Mumbai at over Rs. 3 per kg, when the price of ration wheat was only Rs. 1.03 per kg? Even today good quality wheat costs twice as much as ration wheat in Mumbai. Surely, it does not cost so much to transport wheat to justify the large differential, which is created by the profiteering supply-chain. The point is, as long as traders and middlemen don’t have scruples, peasants and consumers will continue to be exploited alike.
If farmers can come forward to form a nationwide co-operative network, which can handle the procurement of foodgrains and related products, and their storage, sales and marketing, and distribute all profits equitably to its members, it would be a boon to farmers of this country.
Luckily, the cooperative model has already been established by Kurien, whose Gujarat Co-operative Milk Marketing Federation disburses Rs.15 crore everyday in cash to its members! But there is a caution that the new movement should be in the true spirit of a ‘co-operative’ and not where the management of a co-operative is hijacked by some influential members like in the case of some of the sugar-mills in the co-operative sector.
