The FDI Extravaganza.

English: Walmart Home Office, the headquarters...

English: Walmart Home Office, the headquarters of Wal-Mart – Bentonville, Arkansas Español: Walmart Home Office, la sede de Wal-Mart – Bentonville, Arkansas (Photo credit: Wikipedia)

Prelude:

Politician 1: We have already stolen everything from the country, what do we do now?

Politician 2:  We can still sell the parts of the country to these firangs. This way we will soon be earning in dollars!

Politician 1: Lets do it fast before we are thrown from here.

Politician 2: Hold on, I am already tweeting Barack ji.

The Blog:

I haven’t written much since the past 2 months mainly due to exams but now things look good and I am looking forward to write in a much more orderly and a regular fashion. So this is where I’ll end defending myself and actually start writing about what has been a hot topic in India during the past few months. I have been wanting to write on this topic since a long time especially because I recently wrote this article about how to sell a country in 5 easy steps and the government seems to have taken it seriously.

On a very fundamental level, FDI is an investment by a foreign company into the home country. For instance if Walmart solely makes an investment in India to start its own chain of Supermarket stores, it would be called a 100% FDI. On the other hand if Walmart partners with an Indian company and dilutes it share holding with that Indian company up to 50%, it would be a 50% FDI. Although, if a foreign company merely buys shares of an Indian company up to any extent, it will not be considered as a FDI because that foreign company is free to draw back the investment at any point. In any case, FDI brings foreign assets to India while the return from such assets goes largely to the foreign country. The Government restricts FDI into certain priority sectors to prevent any disorder and protect public interest. This is what forms the basics of FDI and my later comments on the same will be essentially based on this.

We all have witnessed a war between the ruling party and the opposition party in context of allowing FDI into the retail sector as proposed by Dr. Manmohan Singh. A healthy argument is fruitful but an argument that has no logical base or an identifiable trail of ideas is what bothers me. This is exactly what has happened here in India. They have told us that a policy to allow 51% FDI in the retail sector is under discussion, there have been arguments against the same but still no one knows what would be the prospects of the same. This creates a void, a void that leads to falsified ideas floating in the country. Irrespective of this, I have some opinions of my own and well, some stolen from my dad. Frankly, if I wrote this blog during early stage of the introduction of FDI in the retail sector, I would have proposed a very strong opinion against the matter. But now things are different, so much so that I don’t even know if I should be for or against.

English: 'Hand' Election symbol of the Indian ...

Before I begin with the pros and the cons let’s first face the reality. If a bill for FDI in the retail sector successfully passes in the parliament, the major company entering India would be Walmart. We all know this. Also, once Walmart comes to India we can safely assume that the same will slowly start acquiring all other supermarket chains. The third fact is that Walmart being a US based company will obviously transfer its returns from India to the States. I won’t go further because I am sure you know where I am probably going.

Now let’s discuss the pros of bringing a FDI in the retail sector in India. The main benefit we will receive by bringing FDI in the retail sector would be heavy injection of funds into the economy. In the current times of recession, an injection would be of great help to improve market spirits and stabilize the economy. The second important benefit would be an improved balance of payments. This will reduce the rate at which the Indian Rupee is depreciating against the US dollar. The third benefit I believe we will receive is a transformation of the current unorganized retail sector into an organized one. Organized sector usually operate at a higher rate of efficiency hence reducing wastages and abnormal costs. Organized sector in retail will also allow bridging the gap between the farmers and the retail. I am sure that Walmart will not be happy to let the middle men earn hence such an FDI will largely benefit the producers (The Farmers), the distributers (Walmart) and the end customers (Us, unless you are a farmer). It is certain that FDI will surely benefit us. I believe that more that anything else, an inflow of FDI right now will majorly act as a stimulus model considering that our current Industrial Production Index has touched its lowest mark in the past one year.

On the other hand, an FDI into the retail sector will come with a lot of concerns too. The major one may be the effect on local general stores. Once an international chain of supermarkets enters India, it will become really difficult or I may say almost impossible for local traders to maintain those quality standards, and lowered costs and still be profitable. On the other hand the international chain of supermarkets like Walmart will largely benefit from economies of scale hence providing better quality products at a much lower cost. Although there have been some dismissals to the above logic. For instance when Nippon was planning to enter the Indian markets, everyone feared that it will lead to a shut down of Indian Steel Units but that obviously did not happen. Also, this is not much of a concern to the consumers (Us, unless you own a local general store). My second major concern with FDI is that such an investment may really benefit us but it is ultimately for a profit-making motive and that profit is a flat leakage of assets from our economy. We can surely not expect Walmart to be running charity here. They are determined towards coming to India because they have already reached a point where there is no more scope for a further expansion and hence India is like a goldmine for them. My third concern with a FDI in the retail sector is the intention behind bringing the same. It is very evident that the ruling party wants to bring a FDI in the retail sector to divert media attention and boost the economy before elections happen again. I believe this is a very escapist behavior. Corruption and a series of wrong policies is the reason to why we are standing at this position. The solution for the same should be correcting those policies. Just bringing FDI’s into the country is like slowly and steadily, in phases, selling the country. The government needs to understand that Indian firms are capable of doing wonders, probably bigger than the ones Walmart did. It’s just that the Government needs to understand this and introduce policies that will boost these Indian companies and not merely the foreign companies.

As I said earlier, I still remain uncertain about my stand on the FDI. That is the beauty of Economy. No one knows what is right until that invisible hand shows it to us.

Advertisements
Tagged , , , , , , , , ,

One thought on “The FDI Extravaganza.

  1. An interesting take on FDI. actually I am not much following up with this news but got a jest from your post.

    First of all your standing on FDI is indeed correct as you have rights said it’s a economics so you can never be certain. I also agree with it. As it has pros and cons too. Your pros are interesting and too believe they are appropriate upto certain extent. At the same time with your cons I have some doubts. Here we go :

    For an example big bazar, more, spencers, etc. are also giving troubles to our general stores already. I don’t think they or any company like Walmart can replace them. Because it depend on the regions where they want to open their stores. So for small towns and all it will be still be a same situation as of now where the general sotres has a win-win situation.

    Coming to the other point sending money back to US. I feel that’s upto certain extend is right as per me. As our companies also does the same thing. But I would go for FDI with 50 %.

    Keep Writing 🙂

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: