Some thoughts on FDI
Me not having much of a head for money matters, I had not commented on FDI in retail so far. However, I had a conversation with a friend who made several observations which seemed important to me, so sharing them here.
The friend wishes not to be named, since he works for a place supporting the exact opposite of his opinion.
- FDI in Retail may mean a boost for economy on paper, but it will further increase the gap between rich and poor.
- Foreign Direct Investment sounds like India getting money from other countries, but no business invests without expecting to earn more than it invests.
- Large retailers bypassing retailers to source directly from farmers (for example) will make their products cheap, but that doesn’t automatically mean they will pay farmers more than middlemen.
- Their ability to sell cheaper is unlikely to make products drastically cheaper for beyond an introductory period to win business. Post that, they only need to be slightly cheaper to keep sucking business away from small shops and make massive profits – corporate sector profits.
- Farmers may get bulk deals that superficially sound good, but they will retain far less money per harvest.
- Mass leasing of agricultural land will put farmers out of business with no real work options (less labor is needed) – increased migrations to cities.
- Massive profit margins will bring ability to throttle out competition on any part of the chain by out competing. Outbidding middlemen while buying, lower pricing while selling. Monopolizing purchases from farmers and reducing their options. This will kill competition, increase corporate profits.
- Even if the land is leased from a farmer, the amount of the lease is obviously going to be less than the price of harvest. This is money circulating in rural India further going to corporates.
- Big retails will employ people, yes. Pay them better, yes. But it will remove far more jobs all along the food chain – from farmers to middlemen to small retail outlets. In his words, if one Walmart (don’t ask me why everyone uses Walmart as an example) reduces hiring with thirty kiranawalas, their forty employees get paid better, but ninety people lose jobs in another place – only on a much larger scale.
- On paper profits will be there, but they will be concentrated with much lesser people.
- The pluses that people attribute to FDI in retail are largely what the government should be doing to the country’s systems anyway, which it doesn’t, will not, so it seems tempting that the corporates will do it for sure. But corporates are not accountable like a government. Corporates are not required to look after the interests of anyone not their employee or customer.
- Rich/Upper Middle class in city gets cheaper products – he makes this more about rich/middle class because according to him, the bulk purchases happen here – people who stock supplies. Poorer people live more hand to mouth and will stay with kiranawalas buying their 100gms sugar and “das rupaye ka doodh” as needed.
- Quality can be maintained better.
Made a lot of sense, so I put it here. He also explained a lot of technical things, which I have not put here because I didn’t understand them.
But For what it is worth, my stance is now anti-FDI. I can’t ignore this.