The
Indian government last week sent out final notifications to allow
foreign direct investment (FDI) in the country’s huge retail sector,
which by some estimates is more than a $500 billion market. Foreign
companies like Walmart, Carrefour and such have been literally waiting
at India’s door for almost a decade, hoping that someday the doors would
open. The doors did open last week for the much awaited multi-brand
retail sector allowing a maximum of 51% FDI in this enormous market in
India, leaving individual states to decide on whether they would want
this FDI in their states. The minimum investment that needs to be made
to enter this market was set to $100 million, with a mandatory $50
million in backend investments that the government hopes would improve
the rural infrastructure.
And as expected, there was a huge political backlash. While the concern of small retailers, popularly called “mom-and-pop” shops, was always the hot button in this issue, I was also struck by a very popular question among India’s masses. And this time the question came from none another than my own Dad, which I wouldn’t call “surprising”, but was a stark “reminder” on how much re-influence of minds is needed in a country that still carries the wounds of the ugly imperialism brought upon by the British, when India remained a British colony for more than 200 years until 1947. While my Dad did not oppose FDI in this sector, in the heated discussion on this topic over the phone, he put out a strong but worrying comment, with his voice giving way to a mixture of confusion, uncertainty, distrust and fear. The comment was – “I don’t know if this will lead us to a form of financial imperialism, where today’s independent small traders will have to work for or be a subcontractor for these foreign giants, completely dependent on the terms and conditions set by them.”
For some reason, while experts and economists have tried to explain the benefits of FDI in this sector, going to the extent of the prime minister himself appearing on national television to promise that the entry of foreign retail giants would not decimate local small retailers but rather would increase the trade for the very same segment of the population, no one has cared to explain and root out the fear of “financial imperialism” in the minds of the masses.
Will this really lead to India being financially colonized by foreign investors? I think, at this moment, that fear is unwarranted even though I would call that a genuine concern. First of all, the English East India Company that set foot in India in 1600, and that gradually colonized the whole country with the monarch of Britain finally taking charge of the entire administration of British India, is very different than the companies that the country is inviting today to invest. In those heydays of imperialism, companies like the English East India Company were directly backed by their Kings and Queens. These companies had monopoly rights when it came to operating on the soil of their colony. They had their own armed forces, police, judiciary and other agencies to carry out the dictate of their Kings and Queens in the name of protecting trade. In effect, this meant that the British Queen was directly ruling over India with a proxy trading company. When the local populace did not agree with their rules, they were subjected to the law and order set by the British high command, with enough financial and military resources to back them in case of a conflict. Many times in those days, the local traders were either decimated due to the insane rules of the colonizer or due to manipulation of the minds of the illiterate or by just pure force.
But that situation is very different from what is today. Today, we set the rules when the foreign companies want to come in and invest, not them. Today, the country has well passed the threshold of succumbing to any foreign military pressure. And today, these companies are not backed by their governments in military or even financial terms. The country is not devoid of intellectuals and think-tanks anymore. The country is not completely blind to what is happening in the outside world or what these companies’ interests are in. Above all, today, the country is well integrated into the global economic order, for the good.
Debates can go on, but we also have to realize that the country is severely lacking the financial capital that it needs to augment the strengths of the huge human capital that is at its disposal. We tried in the past to use our own money and resources for everything. But that was not sufficient then. And it is not sufficient now. If we ever have to eliminate the crushing poverty, disease, illiteracy, malnutrition and ignorance that prevail in modern India, we need to realize that we have entered a “no-return-zone” in this integrated global economic order that defines and will define the 21st century. The ideologies of the past will not change this definition. And let us remember, this is for good!
In
today’s globally integrated economy, India is a major player. Capital
flows in all directions. It is up to the populace of an area to absorb
as much capital as possible to productive areas where there is a need.
Else, that capital is not going to vanish in thin air, but would rather
flow to other places where it is not desired, or would end up boosting
our own neighbor’s wealth, thereby making us look poorer in the same
street, even though what we earned yesterday is no different than what
we earn today. And of the three forms of capital (FDI, Equity and Debt) –
FDI is the most preferred, as that promises real investments in plant,
machinery, human capital and other infrastructure. All this would lead
to more jobs. This is much better than equity or debt financing through
the Foreign Institutional Investment (FII) route that results in value
of “paper” going up without a promise in the improvement of the lives of
the people who deserve most.
As I have said many times in this blog, the world is awash with liquidity, and it is in India’s best interests to attract as much capital as it can through the preferred FDI route, with promised benefits to millions of people, who deserve that capital the most. Of course, nothing comes without risk and it is the government’s utmost duty to protect the vulnerable,with efficient policies and regulations, who will initially be disturbed by the shake in the economy due to this inflow of foreign capital. But that shouldn’t prevent us from doing what is best for the country and the masses in the long run. We exercise today to remain healthy tomorrow. We were wrong yesterday to allow government backed monopolistic companies to dictate us their rules. We will be wrong today if we do not allow private capital to compete and flow to sectors where there is need and space.
And my Dad finally calmed when I reminded him that by not allowing foreign capital to compete with local capital, we will be inviting imperialism by our own countrymen!
References:
1. http://www.thehindubusinessline.com/news/politics/article3922165.ece
2. http://timesofindia.indiatimes.com/business/india-business/Wal-Mart-eyes-51-stake-in-new-India-retail-arm/articleshow/16583338.cms
3. http://in.reuters.com/article/2012/09/14/india-fdi-reform-retail-facts-idINDEE88D0DM20120914
