Retail FDI Reloaded: Manmohan Singh says FDI brings jobs. Paul Krugman says unless any business increases labour force, no jobs created.

Employment generation is always on the top of agenda for any visiting Head of State. No, I didn't mean the visiting Presidents/Prime Ministers want to look into the possibility of creating employment in India . What I meant was that they come to India with the hope of creating thousands of jobs back home. I have always heard successive US Presidents spell out how many jobs they are going to bring back when they leave for any foreign country. Lately, I find even Presidents and Prime Ministers of many European countries as well as that of Canada and Australia say the same.

It is in this context that I can understand how important and crucial employment generation is for the Indian Prime Minister Dr Manmohan Singh. More so at a time when he has to justify economic reforms at times of a repeat of an economic slowdown that the world is witnessing. Considering "India's official upper limit of unemployment and underemployment is about 70 million -- that's more than the population of France, UK, Italy, South Korea, Spain and Canada. Even this figure is disputed by experts who believe that the actual number is several times larger. The official 6.6 per cent unemployment rate is possibly a mirage created by the complex nature of labour markets." (Why India is not on the job The Times of India, Oct 22, 2012. http://timesofindia.indiatimes.com/india/Why-India-is-not-on-the-job/articleshow/16908904.cms)

So when the Prime Minister restarted the 2nd phase of economic reforms with the approval of 51 per cent  FDI in Indian retail, employment generation was a big plank. Commerce Minister Anand Sharma had talked of creating millions of jobs in the years to come. In fact, out of sheer excitement he has even been quoted as saying that 10 million jobs will be created within few years. Many experts have worked out the employment potential to be 3 million (both direct and indirect) in the first 3 years gradually rising to 10 million in 10 years or so. (Retail FDI: Why experts expect creation of 10mn jobs. http://www.firstpost.com/economy/retail-fdi-why-experts-expect-creation-of-10-mn-jobs-476213.html). At a number of official programmes, Prime Minister himself has been talking of the potential of retail FDI in creating millions of jobs.

While I will not get into the debate on how many jobs big retail will displace in the process, the Confederation of All-India Traders (CAIT) has made an interesting calculation. It says that if 4 million jobs are to be created in India in the next three years, Wal-mart (or other retail giants) will need to open over 18,600 supermarkets. This means 644 stores in each of India's 53 cities. Now this is a tall order I am sure you will agree.

Nevertheless, let us look at whether Wal-mart and other retail giants will in reality be creating "real" employment. Although I have time and again questioned the employment figures asking the Government  to specify as to how many jobs would be lost in the process (a question that has never been answered), but when I read Nobel laureate Paul Krugman's New York Times blog The New Physiocrats (Oct 27, 2012. nyti.ms/PxYF1q) which possibly was a reaction to a statement made by Robert Samuelson's outburst in NYT, I realised he had provided us an economic explanation that demolishes the argument of job creation by private sector.

Samuelson had said that the Government jobs weren't "real" -- and as explained by Paul Krugman, it meant that these jobs aren't of much value to society. In other words, Samuelson was trying to say that only private sector jobs are worth the investment. To this, Paul Krugman replies: "Unless your business expansion somehow leads to an increase in the labor force, simple arithmetic says that it didn’t add jobs. It may have created better jobs; it may have raised productivity; but more jobs, no."

I am stretching this argument further. As Paul Krugman says if your business is somehow not going to lead to an expansion of the labour force, the job creation is nil. The employment generation claims that have been made by experts as well as the Prime Minister/Commerce Minister on behalf of the big retail giants too is not going to lead to an increase in the labour force. It is expected that while the new jobs may be much better in quality than the existing retail jobs, may improve efficiency, but the additional job creation is going to be zero. In fact, it is going to be in minus considering the displaced and lost jobs from the closure of small local stores.

Paul Krugman concludes: "If you believe that we should have fewer schoolteachers and firefighters — or that education should be privatized — make that case. Don’t try to hide your prejudices under a mystical doctrine in which important, productive jobs somehow don’t count if they come from a place with a gov email address." In that case, it means that even the existing retail jobs in India are in reality productive jobs. And this should not be discounted. 

Subsequently, Paul Krugman writes (in his next blog Denial of Economics. http://nyti.ms/S31cfZ): "Now, what is true is that efficient markets and equilibrium business cycle theory have suffered what should be fatal blows to their credibility — but essentially nobody in that camp is even willing to admit that there is a problem. What that says, however, is that while we obviously need new thinking — we always do! — the biggest problem these days has been the rejection of knowledge we used to have." Try to put this in the Indian context where the business media goes on chanting day in and day out that market are efficient in self-regulation and have the capability to correct itself. I think it is high time that we accept that market efficiency has no credibility left. Markets cannot be left to operate free. They will gallop like an untamed horse if not properly reined in.

Coming back to the bigger question, if Paul Krugman is right in saying that the private sector does not make any significant contribution to employment creation unless the business expansion plan leads to an increase in the labour force than isn't Prime Minister Manmohan Singh, who is also a trained economist, providing a false hope to the nation? Isn't he trying to take the country for a ride? Isn't Manmohan Singh wrong? Aren't therefore the fundamentals of Manmohanomics flawed?

FDI in retail will not provide any "real" jobs, only an illusion of employment creation.        

Corporate lobbying gaining strength in India

Some days back, Dainik Bhaskar published one of my tweets. I wrote: “Wal-Mart has spent Rs 52-crore between 2007 and 2009 on lobbying. Will Wal-Mart tell us how much it spent on the Prime Minister’s office?” A few days later, I noticed the BJP leader Shanta Kumar asking the same question.

Crores of rupees have been spent over the past few years by some of the big multinational corporations to seek an entry into India. What may appear to be economic decisions taken by the government often turn out to be the result of intense lobbying by foreign companies. Besides Wal-Mart Stores, the coffee shop giant Starbucks, which runs a global chain of coffee shops, has been lobbying in Indiaseeking 100 per cent FDI in single brand retail. As per a disclosure statement it made before the American Senate, the company had spent more than Rs 1-crore in the first 6 months of 2011, for “market opening initiatives in India.”

Starbucks efforts have borne fruits. Finally, the govt has approved 100% FDI in single-brand retail.

Wal-Mart Stores, the world’s biggest multi-brand retail chain, had told the US Senate that it had lobbied for “discussions related to India’s Foreign Direct Investment (FDI).” In addition to Rs 52-crore spent between 2007-1009, the company had also incurred Rs 6-crore in the first 3 months of 2010 for the same purpose. In other words, crores of rupees are being spent by foreign companies to influence public policy and the decision making process. Not many of us know that the debate we see on the television or the articles we see in support of the foreign companies are often supported with lobbying money.

At a time when the American and European economies are faced with a recession, at least a dozen Corporate giants are lobbying hard to seek an entry into India. These include Wal-Mart, Starbucks, and financial services major Morgan Stanley, New York Life Insurance and Prudential Financial. The financial services companies have already gained with the approval granted to 100 % FDI in single-brand retail. In addition, technology companies Intel, chemical giant Dow Chemical, pharmaceutical major Pfizer, telecom companies AT&T, Alcatel-Lucent are also engaged in intense lobbying.

Lobbying is a legal activity in America. The companies are therefore required to inform the US Senate about such activities by submitting quarterly disclosure reports. In India, where lobbying is so far not legally recognised, but the industry and business houses have formed association and federations which primarily are engaged in lobbying with the government. Federation of Indian Chambers of Commerce & Industry (FICCI), Confederation of Indian Industry (CII) and the Punjab, Haryana, Delhi Chamber of Commerc are basically lobbying groups. You would have noticed that the CII and FICCI have also been actively supporting the entry of Big box retail into India.

Internationally, lobbying is a major activity. According to Wikipedia, currently around 15,000 Brussels-based lobbyists (consultants, lawyers, associations, corporations, NGOs etc.) seek to influence the European Union’s legislative process. Some 2,600 special interest groups have a permanent office in Brussels. In America, lobbyists target the US Senate, US House of Representative and the State legislatures. There were some 17,000 lobbyists registered in Washington DCalone in 2007. This clearly tells us how corporate lobbying is writing the economic policies of the American and European governments. The economic decisions are in reality not based on what the people require, but how much the business houses can invest in influencing policy decisions.

It is therefore important for us to also know how much money has been spent by companies on influencing the Prime Minister’s office and also on parliamentarians. After all, it is our future that is at stake. #   

Read also: The world of lobbyists, Deccan Herald.
http://bit.ly/rA4o95                                                                          

Allowing Retail FDI in India: lies, lies and damn lies

At a time when Prime Minister Manmohan Singh is refusing to rollback the decision to open the retail sector to foreign direct investment saying it will benefit our country, the American President Obama thinks otherwise. In a tweet on Saturday (Nov 26), President Obama wrote: “support small businesses in your community by shopping at your favourite local store.”

While President Obama is talking of what is good for America, Manmohan Singh too is adamant on protecting American interests. It is primarily for this reason that Manmohan Singh’s assertion that retail FDI will benefit our country and ‘improve rural infrastructure, reduce wastage of agricultural produce and enable our farmers to get better prices for their crops’ is not borne on facts. In the midst of the rhetorical contests in the TV studios, the real facts have been sacrificed for the sake of political partisanship.

A lot has been said and written about the virtues of allowing FDI in retail into India. Let me make an attempt to answer some of the bigger claims that Commerce Minister Anand Sharma as well as the Prime Minister have repeatedly made. Frankly, their arguments seem to be driven more by political expediency rather than any economic understanding, and that is more worrying. It only shows how economic facts can be twisted, tailored and manipulated to justify the political agenda of the ruling party. There can be nothing more damaging for the future of a country.

First, the biggest argument in favour of multi-brand retail is that it will create 10 million jobs by the year 2010. There is no justification for this claim. In the United States, Wal-Mart dominates big retail. It has a turnover of US $ 400 billion, and employs 2.1 million people. Ironically, the Indian retail sector too has a turnover of US $ 400 billion, but has 12 million shops and employs 44 million people. It is the Indian retail which is a much-bigger employer, and any effort to allow retail FDI will only destroy millions of livelihoods.

Take the case of England. The two big retail giants are Tesco and Sainsbury. Both had committed to create 24,000 jobs between them, in the past two years. A British government enquiry found out that instead of creating any additional job, these two big retail companies had actually thrown out 850 people from existing jobs. The big retail units which failed to create jobs in their own countries cannot be expected to create additional employment in India.

Second, Anand Sharma says that retail FDI will provide 30 per cent more income to farmers. There can be no bigger lie than this. In the US, for instance, if Wal-Mart was able to enhance farm incomes there was no reason why the America government would dole out a massive subsidy of US $ 307 billion under the US Farm Bill 2008, which basically makes a budgetary subsidy provision for the next five years. Most of these subsidies are clubbed in the category of Green Box under the WTO. And as per an UNCTAD-India study, if the Green Box subsidies are withdrawn, American agriculture faces a collapse.

Agriculture in America is therefore sustained with agricultural subsidies. In OECD countries, a group comprising 30 riches countries, the situation is no different. A latest 2010 report states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. Despite this, every minute one farmer quits agriculture in Europe. This is happening at a time when farmer’s incomes are dwindling. In France alone, farmer’s income has fallen by 39 per cent in 2009.

Third, big retail helps remove the middlemen and therefore provides a better price to farmers. Again, it is a flawed argument and is not borne on any evidence. Studies show that in Americain the first half of 20^th century, for every dollar worth of produce a farmer sold, 70 cents was his income. In 2005, farmer’s income had fallen to 4 per cent. This is despite the presence of Wal-mart and other big retailers in America.

In other words, the middlemen are not squeezed out as is the general understanding but in reality their number actually increases. A new battery of middlemen – quality controller, standardiser, certification agency, processor, packaging consultant etc – now operate under the same retail hub and have been walking away with farmer’s income. Moreover, due to the sheer size and buying power, big retail generally depresses producer prices. In England, Tesco for example paid 4 per cent less to producers. Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce.

Fourth, retail FDI will source 30 per cent from the small and medium enterprises and therefore will benefit Indian manufacturers. This is an afterthought, especially after a section of the media highlighted the discrepancy. Even though Anand Sharma says 30 per cent products would be sources from within the country, the facts remains that under the WTO agreements, India cannot limit the big retail from outsourcing its products from anywhere in the world. This is against the WTO norms, wherein no member country can apply any investment restriction that is inconsistent with the provisions of Article III or Article XI of GATT 1994.

Using the WTO provisions, multi-brand retail will flood the Indian market with cheaper Chinese manufactured goods thereby wiping out the domestic SME sector. At the same time, the ‘Indian Stamp’ on multi-brand retail that Anand Sharma claims will have at least 60 per cent investment on ‘back end’ systems is also not based on facts. As per the definition of ‘back-end’, anything that is not ‘front-end’ becomes ‘back-end’ and has to be self-certified. Which means even the expenses on the corporate headquarter becomes ‘back-end’ investment. In any case, 51 per cent FDI in cold storages etc is already provided and yet no investment has come. Let us be very clear, big retail is not coming to Indiato provide a network of food storage silos and cold chains.  

Fifth, more importantly, in an eye-opening study entitled “Wal-Mart and Poverty”, Pennsylvania StateUniversity in the United Stateshas clearly brought out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up. This is something that the government is not talking about but should ring an alarm bell for a country which is reeling in poverty, hunger and squalor.