Is the Modi government in favour of foreign direct investment in multi-brand retailing? In its 2014 manifesto, the BJP said it would bar FDI in the industry, if elected, but the government cannot act on the promise and be seen as investor unfriendly.
Finance minister Arun Jaitley argued lawyerly that the government has only re-stated policy, which allows 51% FDI, and that the party was never in support. Never seems to be a stretch, because in 2004, the NDA in a vision document had made a case for 26% FDI, but the BJP disowns it, even though it anchored the alliance, and, according to the The Times of India, hosted the document on its website.
The re-stated policy is actually an example of cooperative federalism which this government swears by. The policy admits it is an enabling device and it is up to the states to permit foreign retailers. Delhi, Haryana, Maharashtra, Karnataka, Rajasthan and Andhra Pradesh were among the 13 states and Union Territories that had agreed. Many of them are no longer ruled by the Congress.
No Need to Fear FDI
Such is the fear of the efficiency of foreign retailers like Wal-Mart that even pro-marketers are scared there will be large-scale job losses. Studies by Rajeev Kohli and Jagdish Bhagwati and Thomas Reardon of Michigan State University that assert the resilience of mom-and-pop stores in Indian conditions of high population density and small ticket purchases do not convince the skeptics.
The FDI policy in multi-brand retailing is an example of making haste slowly, or what the Chinese call ‘crossing the river feeling stone from stone.’ Even if all states permit, foreign retailers cannot look beyond 53 cities with one million plus population. A third of their inventory by value must be sourced from small and medium enterprises.
They must invest at least $100 million, half of it in back-end infrastructure, within the first three years, and this does not include the value of land and buildings.
Instead of fuzzy talk, Jaitley should have emphasised the safeguards. With so many hoops to jump only large players, like the dreaded Wal-Mart, would make the grade.
Corporations Have Rescued the Farmer
PepsiCo (not an organised retailer, but proxy food processors) buys three lakh tonnes of potatoes annually for its snacks business. It cannot depend on the mandis, so it does contract farming.
Agreed it buys through aggregators. In West Bengal, it paid Rs 8 a kg this year, when open market prices were less than Rs 2. Last year, its suppliers would have suffered notional losses; that is better than the moneylender knocking on their doors.
In Banaskantha district of Gujarat, McCain, a supplier to McDonald’s, does direct contract farming. It has been at it for a decade. Even traditional potato growers have learnt scientific cultivation. Many more buyers have followed: Balaji Wafers, PepsiCo and ITC. Processed potato growers have choice.
There are more than a hundred cold-storages in Deesa town. At 52,000 ha, contract farming acreage is less than 10% of the total under potatoes in Banaskantha. But it was just 13,000 ha in 2003.
Seventy percent of Maharashtra’s banana production comes from just one district: Jalgaon.
If Jalgaon were a state, it would rank fifth in India in banana production. It is all thanks to one company. Jain Irrigation introduced a high-yielding Honduran variety called Grand Nain in the early 1990s. It produces 60 million tissue culture saplings of this variety every year. Demand exceeds supply. Those who adopt its package of tissue culture, drip irrigation and fertigation, report yields of 40 tonnes an acre, against
Maharashrtra’s average of 23 tonnes. There are farmers who began very humble (as chaiwallahs, yes!) and now earn profits in excess of a crore rupees every year.
FDI will Bring in Safer Food
Engagement with farmers on a large scale takes time and money. Not all foreign retailers will be inclined to make the investment. But even they will force an improvement in standards. A top executive on Simplot India Foods, another supplier to McDonald’s, said during a chance meeting in Gujarat, that it was doing contract farming for traceability of the chemicals that go into its produce.
In India, we buy papayas and mangoes and bananas that are ripened with calcium carbide, a carcinogen, when ethylene gas, a synthesised naturally-occurring substance should be used. We can do little about it because the entire fruit trade is unorganised. A large retailer will not be so brazen.
Should we continue to test the patience of those who are willing to invest patient capital?
(The writer is Consulting Editor with Smart Indian Agriculture)
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