Millennium Post

Decision without logic and merit

The Congress party, it would appear, has gone totally out of its mind. How else could it take such a controversial decision as allowing foreign direct investment [FDI] in multi-brand retail soon after raising diesel, cooking gas and petrol prices all by itself, without any consent of its key coalition partners in the United Progressive Alliance [UPA] government? With the Congress party, people had a double whammy – a steep gas price increase and the fear of a massive loss of jobs in small and medium enterprises [SMEs] as a result of FDI in retail. The two decisions – gas price hike and 49 per cent FDI in multi-brand retail – have generated unprecedented political protests across the country and economic uncertainty as nearly 50 million small grocery shop-owners have vowed to resist the entry of foreign retailers.

What was the tearing hurry on the part of Congress to rush through the clearance of FDI in retail when the next Lok Sabha election is due within 18 months, in its normal course? The Congress party sat over the proposal for over five years. The previous Congress-led UPA government [UPA-I], which for four years owed its existence to Leftist MPs, could not even officially raise the proposal for fear of reprisal from the Left group. One expected the Congress, having a new-found ally in Trinamool Congress [TMC], in the UPA-II to push through its planned reform in the retail trade soon after it returned to power. It is 40 months too late to initiate such a controversial action.

Fortunately for the UPA-II, Congress got the petrol price deregulated soon after it came to power evoking only a mild protest from TMC supremo Mamata Banerjee, who was then happy with her railway ministry and the support from the centre [read the Congress leadership] for her political battle to overthrow the Marxist-led Left Front rule in West Bengal. Banerjee needed the Congress and the UPA as much as the latter needed her. She did make some noise against the deregulation of petrol price, which has since been adjusted several times, but chose not to push the issue beyond a point. In exchange, Banerjee’s anti-CPI[M] and anti-Left Front movement gathered momentum getting increasing public participation and CPI[M]’s strong political opponents such as Maoist groups and Socialist Unity Centre [SUC] with the indirect and direct support from the Centre often through its representative in the state, the governor. If the abolition of petro-goods subsidy and the FDI in retail were so important to Congress satraps to tackle the growing pressure of fiscal deficit and boost FDI, why did the party not implement them immediately after the UPA started its second inning to avoid opposition resistance and political confusion later?

Banerjee won’t allow herself to be manipulated by those Congress satraps in Delhi any longer. The bitterness between the Congress leadership and her increased as the former unsuccessfully tried to split TMC’s parliamentary party on occasions and even nearly succeeded in doing so by allegedly influencing Banerjee’s erstwhile confidante, former railway minister Dinesh Trivedi, to hike rail fares in the rail budget.The spontaneous public and opposition ire against gas price increase – petroleum, diesel and domestic cooking gas – has also something to do with the government deliberately playing down the real story and the end result at the retail distributors’ end. The oil companies were allowed to seize the opportunity within no time to raise the price of the premium variety petrol, which is in high demand among owners of new generation cars for better engine efficiency, by around Rs 4 per litre to around Rs 86.50 per litre. Simultaneously, the price of the premium variety of diesel was raised by around Rs 24 to Rs 70 per litre. The price increase in this category of high speed diesel worked out to be a whopping 50 per cent. The middle-class was particularly angry and felt slighted by this least publicised part of the petrol and diesel price hikes.

No data was made available as to how such higher prices of premium petrol and diesel will impact on the government price subsidy to the petroleum companies. Thus, the government announcement on the increase of diesel price increase lacked transparency. Also, by making additional number of domestic cooking gas cylinders available at the old price in Congress-ruled states, the government sought to pass on the burden of subsidy from the centre to those states which the party at the centre may have agreed to compensate through some hidden or other means.

The logic behind inviting FDI in retail also failed to provide the possible nature of its true impact on the economy and the experience of other countries. Not many countries in the world have allowed overseas take-over of their retail trade, which tends to replace domestic middle-man in trade, especially in agricultural commodities, by foreign middle-man. Soon farmers become an easy prey for greedy foreign retailers, always bargaining to secure higher profit margins. The latter’s global trading muscle has proved to be a big threat to farmers as well as SMEs in high-cost, less-efficient economies such as India. As it is witnessed elsewhere, more than farmers, SMEs stand to lose more because of the operational style of the global retail giants. This is the key reason why global retail giants are not welcome in most countries.

Few may be aware that the world’s biggest multi-brand retailer, Wal-Mart of the USA, operates out of only 15 countries. The 400-billion-dollar-plus family-owned retail behemoth has 8,500 stores, mostly in the Americas – north, central and south, the EU, South Korea and China. Of them, stores primarily in the US, the UK and China are known to be operating well and making a lot of money. China is also Wal-Mart’s biggest procurement center of cheap SME products which get dumped into stores elsewhere. In the US, the company shares 51 per cent of the domestic grocery business. It has done amazing harm to US SMEs forcing a large number of them to shut down as they failed to meet Wal-Mart’s low-price procurement policies. Wal-Mart has been unsuccessful in countries such as Germany and South Korea. There is absolutely no guarantee that multi-brand retail giants will succeed in India. And, the country, at its current state of agricultural and industrial infrastructure, stand to lose more by their presence
than absence. [IPA]
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