FDI will not improve livelihood

MNCs need reliable supplies and, so, favour contract farming and large-scale suppliers, which will pose a challenge to unorganised market

By Author Dr Ramesh Chennamaneni   |   Published: 10th Feb 2018   12:02 am Updated: 9th Feb 2018   10:45 pm

Despite the present macroeconomic slowdown, the country’s real gross domestic product (GDP) is expected to grow at 6-7% per annum. As a result, the new consumer class with annual household incomes above Rs 90,000 is estimated to rise to about 600 million in 2018. In tune with this, India’s retail market is expected to grow annually at 10% to $1.6 trillion by 2026 from $641 billion in 2016. While the organised market is valued at $60 billion, which is only 9% of the total sector, the unorganised market constitutes the remaining 91%.

Given this scenario, the decision to permit 100% foreign direct investment (FDI) in single-brand retail through the automatic route will pose a big challenge to the unorganised market. Moreover, the government has dropped the 30% mandatory local sourcing for FDI trade entrants. This will hit the informal, small and medium sector manufacturers and producers, who are yet to recover from demonetisation.

Implications of FDI

Policymakers are not fully aware of the FDI implications in a country like India with high socio-economic differences and deficiencies. A number of studies show that it is the poor and deprived, particularly women, who are at high risk to secure their livelihoods. Moreover, the timing of the decision is absolutely wrong particularly when the economic growth is under pressure, demonetisation effects have not eased, GST has not yet stabilised and global FDI investments are at a low.

Traditionally, the urban food retail system is run by the unorganised sector — street vendors, kirana shops, local producer markets, owner-manned general stores, cart hawkers and pavement vendors. India has around 15 million retail outlets, the highest shop density in the world.

The traditional food provisioning system is characterised by high levels of self-organisation and low capital input. Though the decentralised and low-emission retail system provides income opportunities to millions of people, in this changing scenario, traditional retailing comes under severe pressure. It is, therefore, important to understand the economic and social forces to evolve a good policy in the interest of producers, retailers and consumers.

Small Farmers’ Economy

If India wants to continue to support small and marginal farmers and ensure their employment and food security, it should be a market which actually promotes the small farmers’ economy. This will indeed be in danger if economies of scale creep in and contract farming will establish itself as part of FDI investments in agricultural production, exchange and distribution. Therefore, one cannot speak of FDI as a separate issue; it is intrinsically linked with the whole food system and can influence it substantially.

According to development studies specialist Terry Cannon: “A food system can be defined as the specific combination of social (including economic and political) and ‘natural’ (climate, resources) components that leads to the potential satisfaction of nutrition for a given individual or household through their combination of livelihood activities based on asset and incomes”. A food system can be divided into four subsystems that are dynamically linked across spatial levels and multiple scales:

Production: It covers all activities around the provision of inputs for producing food, including assets available to a person or household that enable them to farm (ie access to land, water, tools, labour, financial capital, technology), preparation and caring of land, breeding and planting, weeding, harvesting and slaughtering. It also includes processing of primary products and packaging of food.

Exchange: Consists of all activities that relate to transaction and transfer of food (material transport, sale and trade, storage, marketing and advertising among others) and their determinants.

Distribution: Involves physical transport of food from producer to consumer, including all logistical and political factors that are independent of production, exchange and consumption. Also included are regulations through governmental bodies of city, national or global institutions and macroeconomic price mechanisms.

Consumption: Describes the part of the food system in which people’s nutritional needs are met and involves every step from selection and preparation of food to eating.

All the four subsystems are dynamically interconnected across spatial, functional, political, cultural, and economic levels. Food systems are structured
by internal processes and external driving forces.

Reframing Food Systems

In the context of globalisation and India’s decision towards 100% FDI, these food systems will see far-reaching economic and social changes. These processes of reframing food systems can be found in all activities ranging from production to consumption. For example, food production is influenced by intensified commercialisation, growth of processing and packaging of food plays a major role in the subsystems of production and exchange, corporate concentration in retailing and distribution transforms the retailing landscape, and a large number of urban consumers amplifies the influence on the whole food system.

Major corporate giants have already entered organised food retail and announced ambitious expansion plans. In addition, transnational corporations will now enter the Indian market to set up retail chains in collaboration with big Indian companies. With 30% mandatory local sourcing also no more, we may get vegetables, fruits and other products from China or other countries as well!

The main argument usually is that FDI improves back-end infrastructure and reduces wastages in farming. But that alone hardly improves their livelihoods. As experiences from other parts of the world shows, MNCs are not famous for improving the situation of farmers by paying better prices. They need reliable supplies and, therefore, favour contract farming and large-scale suppliers, because they are more reliable. This gags farmers and pushes prices down. They will definitely induce more efficient supply chains through improved infrastructure but who will profit from these efficiencies is the question.

They will certainly introduce new technology and more varieties, but there is no guarantee that they will source this only from India. They are usually able to achieve price reductions through economies of scale but certainly at the cost of a huge number of jobs in traditional sectors. The quality of food produced and the environmental implications of this production are also under severe criticism worldwide. Therefore, given no structural changes and safeguards for those affected, it is not possible to expect that this policy of FDI can benefit farmers, the retail market and consumers equally.

(The author is an MLA)