Pro versus anti: Is FDI really a demon that will kill us?

India at this moment is clearly polarised in two camps on the issue of foreign direct investment (FDI) in multi-brand retail. While one camp is in favour of allowing FDI, the other one is strongly opposed to it. The huge uproar that we are witnessing over the FDI is mainly because it has turned out to be a more political issue than economic.

By seeing the way in which events have been unfolding, one can only get the feeling that FDI is just another political agenda of the corrupt political class to earn oxygen to live another day. While the ruling coalition, despite being led by a noted economist, decided to take up the issue at the fag end of its decade-long rule and particularly when it has been discredited and tainted to the core, the principal Opposition party resorted to a compulsive opposition to a policy, which it had approved during its stay in power. Both sides have been forwarding their positions as the 'true protectors' of the national interest although it seems neither of the sides are much clear as to how the FDI scenario will unfold in this country.

How do the common people judge the FDI issue? Political sources are highly unreliable for they will only cater to this or that camp. Instead, we can try to understand the basic issues of FDI through the lenses of experts.

FDI as a 'bad thing'

First, we look at FDI as a 'bad thing'. According to some experts, huge foreign retail is a kind of threat to the nation's security and will endanger both the farmers and consumers. Shekar Swamy, for instance, mentioned about slaughtering of 31 million wild buffaloes in the USA in the mid-19th century period. The massive blood-game was conducted not just because the animals were economically viable but also and more importantly, they formed the source of food for the American Indians. Hence, erasing the buffaloes meant that the American Indian population could be endangered.

The post-FDI in retail story in India will, according to Swamy, be like the post-buffalo situation for the Indian Americans. Not only India's food security will be in danger if foreign organisations are allowed to control its food supply but also the country's small retailers will be crushed if they are allowed to compete with the big and powerful foreign retailers. Those who oppose FDI in multi-brand retail feel that the actual ill-effects will become visible after a considerable time period. The government will feel assured by a momentary gain but in the long run, it will only be disaster.

The naysayers question the nature and intent of foreign companies that will enter Indian markets, think big foreign retail will only encourage unfair concentration and threaten national security, create massive unemployment by eradicating jobs, displace existing players in the market and increase prices. It is said that these foreign retails will only put pressure on the country's existing supply chain infrastructure, contrary to the claim that they will help improve it. The thinking is: The only way for us is hence 'do nothing' and if at all necessary, develop our own solutions to overcome the drawbacks in the retail sector. It is claimed that India's market is near-perfect and finely balanced and any effort to tamper with it will only lead to bad consequences.

FDI as a good thing

But when one looks at the positive aspects, there is an equal number of logic waiting to be understood. That FDI will bring in huge amount of foreign capital into the country is not its most important advantage. The actual advantage of FDI is that it will allow the indigenous Indian mind to come into contact with foreign knowledge and know-how, as economist Swaminathan Aiyar has rightly said.

There is no reason to feel apprehensive about foreign capital for this is not the 17th or the 18th century (some political party has said it will be a repeat of India becoming a slave to the East India Company) and neither this country is a poor African state where a dictator, acting as the stooge of western power interests, will keep his own country under great misery. Just like Swamy's buffalo slaughtering example to show the bad side of FDI, Aiyar has given the example of foreign auto companies that had entered India to make a profit from India's protectionist policy that bred uncompetitiveness but eventually turned India into a global auto power. Today, from the days of Ambassadors and Fiats, we have come a long way and everyone can see and feel the difference.

To borrow Aiyar's words: "Foreign companies entered under the illusion that India had a huge middle class dying to buy cars. They made the same mistake in China. In both countries, they found the market small, competition fierce, and profits non-existent. But once established in China, they found that domestic component manufacturers had remarkable potential, which could be harnessed to lower costs through new design and know-how. Foreign investors started exporting, reaped scale economies that further lowered costs, and became profitable. Ditto with India."

The same can be seen in case of cold drinks, movie-watching experience, telecom, gadgets and what not. FDI integrates national economies with the international market and can help a closed sector with potential to find a new market. This is the advantage of foreign investment and the fact that several people in this country today are earning a livelihood because forces of globalisation has opened new avenues for them.

Prior to the advent of foreign goods in India in the early 1990s, it was also apprehended that all indigenous goods will be displaced from the market. Don't we see a kirana store operating in a locality today side by side with retailing chains like Big Bazaar or Metro Cash and Carry? Even those kirana stores sell goods of foreign brands. Then how do we say that FDI is only bad and will invite disaster?

Ultimately it all depends on us

It is the game which can not be anticipated. Our political leaders have not done anything for all these years, even to improve conditions for a better operation of those kirana shops that they are sympathising with today. What has the socialistic pattern of economy brought to the country all these years apart from deep socio-economic fissures? Why the state protectionism has not been able to solve problems of agriculture, employment and poverty and now parties point at a 'potential threat' for worse situation. We already have foreign retailers working in many states of India. Ultimately, it depends on our own preference on how we treat the market forces. If we fail to withstand the FDI onslaught, it is not Walmart which will be responsible but our own inefficiency.