(Published in The Hitavada on November 29, 2011)
By Kartik Lokhande
Once upon a time, there was a King named Midas. He was very
fond of gold. One day, a fairy gave him powers to turn everything he touched
into gold. He was very happy and turned every inanimate thing into gold with
his touch. However, when he touched food to eat, it, too, turned into gold. He
could not drink water from a spring as it also turned into gold sprinkles.
While he was thinking about the ‘gift’, his lovely daughter Marigold came to
him. He hugged the person he loved the most in the world. To his horror, his ‘golden
touch’ had reduced ‘Marigold’ to ‘mere gold’ statue. Then, he realized gold was
not everything in the world.
Everyone knows this story. Still, it is recounted in a shorter
version. Because, in the next lines one would find that the story holds true
even today. The only difference being the characters. Today, in India, the
Centre and its ‘wiser heads’ collectively represent King Midas and their
consistent pursuit of opening up sector after sector for foreign direct investment
(FDI) represents greed for ‘gold’ (which is today called profits for
investments or in some cases, consumerism). And, though the time has not come
for them to realize, Marigold is more than a billion Indians including members
of their own families or even extended families.
While the day of realization is ‘not-on-horizon’ for them,
India as a nation is pondering over the latest moves of the Government
including the one of opening up multi-brand retail sector to big foreign
companies like Wal-Mart, Carrefour, Tesco etc. The decision is drawing flak
from different quarters nad also being hailed by some quarters. Against this
backdrop, once again the issue of FDI is back in discussion, requiring some
examination of past experiences.
At present, in India, FDI is permitted in agriculture,
mining, manufacturing, defence, information services, civil aviation, airport
development, construction development including townships, industrial parks,
satellites etc. Barring insurance, domestic airlines, and print media, FDI over
50 per cent is allowed. According to Department of Industrial Policy and
Promotion under the Union Ministry of Commerce and Industry, till some time
back, sectors prohibited for FDI included retail trading (except single-brand
product retailing), lottery business, gambling and betting including casinos
etc, chit funds, trading in transferable development rights, real estate
business or construction of farm houses, manufacturing of products of tobacco
or tobacco substitutes, atomic energy, and railway transport.
However, now the Government is ready selling FDI in
multi-brand retailing. Those speaking in defence of FDI in multi-brand retailing
are quoting multi-digit figures to paint a rosy picture and are trumpeting that
it would bring in huge foreign investment and generate employment. But, the
experiences in sectors opened up so far paint a not-so-rosy picture. For instance,
in insurance sector, several big foreign companies came in and joined hands
with Indian insurance service providers. It was said that the good-old Life
Insurance Corporation (LIC) will be out of business. Initially, it appeared so.
However, soon, the investors realized that most of the private companies with
foreign investment were exposing them to market risks through unit-linked plans
under which returns were dependent on share market fluctuations. The lure of
making big money through investment in these plans faded with the subsequent
falls in share market. Besides, claims settlement ratio was not what it was earlier
with LIC. It forced private insurance companies modify their plans and make
them more investor-friendly.
Meanwhile, realizing potential threat to FDI in private
companies, the Government stepped in and acted in a manner as to break down the
spine of LIC by way of curtailing incentives/commissions to agents and other
such measures. The Government wants to effect more changes to attract ore FDI
in insurance sector. Unfortunately, for the Government, Insurance (Amendment)
Bill is pending since 2008. Raising FDI in insurance sector up to 49 per cent
is possible only with passage of the Bill in the form proposed by the
Government.
Take another example. Earlier this month, the Government
approved changes in pension Fund Regulatory and Development Authority Bill,
2011. While approving the changes, it announced that it would allow 26 per cent
foreign investment in pension sector. At the same time, the Government
expressed desire to retain flexibility of changing the FDI cap ‘as and when
required’. The Bill, which is likely to be passed in winter session of
Parliament, also provides for establishment of a statutory authority to
undertake promotional, developmental, and regulatory functions regarding
pension funds. For insurance sector also, India has got IRDA. How far it has
been successful in protecting interests of the investors is yet to be accessed
fully.
There are other examples also. So are the questions. Has the
Government or any other agency evaluated India’s gains and losses post-FDI? Has
the Government come up with sector-wise assessment after FDI? If yes, why has
not it put before public the facts regarding gains and losses both? If not, is
the Government even thinking of conducting any such exercise? It is not visible
to the Government that since opening up of agriculture sector for 100 per cent
FDI, prices of vegetables have not come down and food inflation is ever-rising?
Is it not visible to the policy-makers that with opening up of insurance sector
for 26 per cent FDI, though insurance coverage has increased, claims settlement
has not increased proportionately? Is it not visible to the learned economists
that country’s saving culture that had saved it from impact of global
recession, is giving in to market-risk based investment called share market? From
the Government, which has people like Dr Manmohan Singh, P Chidambaram, Pranab
Mukherjee, Montek Singh Ahluwalia who have worked for IMF and/or World Bank; a
common Indian cannot expect answers to these probing questions
Here is an interesting contrast of behavior in the
Government. When anti-graft crusader Anna Hazare’s agitation picked up steam
and the Government was cornered, those in powers said that Anna and a ‘handful’
of people who had gathered across the country could not dictate the elected
representatives in a democracy. Now, the Government’s stand appears to have
changed. Many elected representatives who represent an entire State in India
are opposing opening up of multi-brand retailing for FDI. Still, the Government
is pushing its agenda of selling FDI idea. Isn’t it insulting the elected
representatives in a democracy? Or, does the Government not want democracy’s
definition to be told by people?
There are too many things to be said or written. But, coming
back to the point of inviting Wal-Mart and likes through FDI in multi-brand
retailing, the move is fraught with dangers. There are reports that since 2006,
Wal-Mart has been punished 21 times in China for false advertising and ‘mis-labelling’
products. Earlier this year, Wal-Mart and Carrefour were fined for ‘over-charging’
on promotional goods. While opening up multi-brand retailing, is India ready to
deal with these type of consequences?
Questions, questions, and questions! Every aspect of FDI
story offers a question or the other. Does the Government has answers to these?
Or, it wants to play King Midas till the dear Marigold is turned into ‘mere
gold’, thanks to unforeseen dangers of consumerism that come for free with FDI?
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