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FDI in retail: some thoughts

December 2, 2011 Leave a comment

The Parliament is at a standstill over allowing Foreign Direct Investment (FDI) in the retail business in India. The government, particularly Man Mohan Singh, his close associate Montek Singh Ahluwahlia and to some extent Pranab Mukherjee have been adamant in their support of the decision to allow FDI in retail. Kaushik Basu, the chief economic advisor to the government has been speaking out in support as well.

I don’t have major objections to their arguments that the entry of big retailers will probably bring down prices for the consumer, and push up prices for farmers, although it is not clear if such things will continue to happen if in the end there are only a few major players, constituting a cartel. There is also some merit in the claim that the bigger retail chains will be able to pay their workers better than the small shops can.

But I think the arguments against allowing FDI in retail are much stronger. I agree with with the opposition argument that the small trader will be wiped out if big retail becomes bigger. This is what  happened in the US during the latter part of the twentieth century, and to a great extent in the UK. These countries no longer have small corner shops serving the neighbourhood. Many small shops have been replaced by `superstores’ — the big giants of retail which carry just about everything under one roof, and even small ice cream shops or diners have been taken over or replaced by national chains. The death of small shops, and the related loss of jobs, which cannot be compensated by the jobs in big retail, may be more important to the health of the economy in the longer term than `reforms’. Small business also sources local production; small bookstores and music stores are more likely to carry stuff from local publication houses.  The big bookstore chains currently in Calcutta — Starmark and Crossword — carry almost exclusively titles in English, one small section of Bengali books is not remotely representative of what is actually available.

The other objection, not mentioned by the political parties in this debate, concerns revenue. Businesses based in India, both big and small, pay their taxes to India and spend their profits in India. Foreign businesses will send a large portion of their profits abroad, and because of `tax treaties’ will not pay any tax in India (and negligible amounts in Mauritius or other island nations through which they will operate). So India will get little or nothing from their profits. Of course, both are true for all foreign companies operating in India, and the peculiar reading of these tax treaties has been causing a major loss of revenue for the country. There can be an argument that the loss on both of these counts can be compensated by the investment made by these companies, and in fact the investment in infrastructure justifies the treaties and the legislation which allow the loss. But in the case of retail, there is no infrastructure that benefits from the FDI — procurement is not a manufacturing process, the infrastructure of big retail is not different in character from that of small retail, and in fact does not scale with turnover — warehousing does, outlets do not. So as far as revenue is concerned, FDI is likely to cause only loss, and if we remember  that infrastructure is usually the biggest beneficiary of revenue,  we see that FDI in retail will not contribute to improvements on that front, either directly or indirectly.

Political parties do not wish to bring this line of argument into the discussions, probably because they all benefit from backdoor contributions from businesses based abroad (but not necessarily owned by non-Indians) which take advantage of the tax treaties to move their money to Mauritius and other places.

All in all, FDI in retail  is a bad idea — it may mean short term gains for some people, notably the administration and ruling parties which will grant licenses, the big businessmen who will make things smooth from  the superstores to move in, and the media, which will gain a lot more in advertisements — they receive almost nothing from the small businesses. But in the long run, multinational superstores will destroy the Indian middle class, which is mostly supported by small businesses.

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Categories: Finance, Politics Tags: , ,

Physics and political correctness

November 24, 2011 Leave a comment

I have been meaning to write this since I saw the excerpt from Lubos Motl’s post in Peter Woit’s blog, but for reasons pointed out in an earlier post, I was unable to connect to blogspot.com and read Motl’s post in full. I did manage to read the post today, but (apart from a confusion between 10^(10^100) and the headquarters of Google, Inc.) what interested me was already in that quote:

I think that all the people are being bullied into not criticizing the junk written by other people who are employees of the academic system, especially if the latter are politically correct activists. And be sure, some of the authors of this nonsense are at the top of it.

I would guess, from the experience of occasionally reading his posts, that by `politically correct activists’, Motl means people whose political beliefs are left of center, support liberal positions including feminist and climate-control positions. Thus he seems to suggest that if physicists who are politically on the left write junk, most of their colleagues are `bullied into’ silence.

I would be very surprised if people like Witten, Strominger, Polchinski or Sen (to name a few) could be `bullied into’ silence. And on the flip side, I would consider myself as much on the political left in my beliefs as any leading physicist, and there has been no shortage of criticism of my work even if it was not `junk’. A likelier explanation is that political beliefs are not very important in the criticism or the lack of it.

Women are property

June 9, 2011 Leave a comment

After the khap panchayats, it was the turn of the Karnataka high court to demand an amendment in the Hindu Marriage act. Both demands are based on the belief that women cannot decide what is good for themselves, and need to be guided by their elders. To be precise, the High Court sets an age limit of 21 after which women may be allowed to choose their partners, but “Parents should choose the boy for a girl aged below 21”. So For women between 18 and 21, the Karnataka High Court views them in the same way as khap panchayats, namely the property of their `parents’ or `elders’. (They are `property’ because they may be given away, not because they are to be protected, although the latter one is the argument given by both parties.)

For the specific case mentioned in the news report, the girl in question was reported missing some days before she turned 18 and she turned up after she turned 18 and got married (so that it would not be an underage marriage). It strikes me that a case of kidnapping could have been established without too much difficulty as she went away with the accused before she was 18. Surely there are statutory provisions for this in criminal law, without requiring amendments in the apparently unrelated marriage laws?

Ramdev: Wronged is not Right

June 5, 2011 Leave a comment

What the government did to Baba Ramdev is wrong. But that does not make him, or his demands, right. While it is difficult to maintain a nuanced view in the middle of such high drama, I hope the civil society will remember that it is the nuances that makes a democracy.

Corrupting the movement

June 2, 2011 Leave a comment

The day opened to a very strange piece of news: the megastar yogastar Baba Ramdev has refused to call off his `fast unto death’ on the issue of black money. Ok, it’s not very strange if we simply view this as a publicity stunt. But is it only for publicity or does he have deeper reasons for this fast? Some think that he is doing this at the behest of his political masters to derail the Jan Lokpal Bill. I think the bill is a bad idea, and I think Ramdev has other, more personal reasons to go on this fast. The trusts that he is associated with are enormously wealthy, and little is known about the source of their income, or the source of income of people who donate to these trusts. One politician did ask for an investigation into the source of his assets, but nothing else has been heard about it since. My feeling is that Ramdev is trying to establish himself as a leader of the anti-corruption lobby in order to avoid any serious charge of corruption for himself or his financial backers. Right now, any investigation into his amassed wealth, or even of his followers, can be projected as an underhanded scheme by the government to undermine his credibility. So all his financial dealings remain unseen by the probing eyes of the Income Tax department — and I think he is only the face of an organisation, not the brains — there are others behind the financial dealings of his organization.

Someone really should go on a fast unto death for investigating the finances of Ramdev.

Paint the town green

May 15, 2011 Leave a comment

The people have spoken. Congratulations Mamata Banerjee and her motley crew of the (All India) Trinamool Congress. The Left Front was in power for 34 years, more than a generation, always with an overwhelming majority.

Many feel disconcerted that the AITC, and in particular Mamata Banerjee, does not have a discernible political philosophy. I would say that in this election the people have rejected political philosophy as a basis for governance. But it is not difficult to argue that even the Indian National Congress has no political philosophy. Only the Left, and the ultra-right BJP, swear by political philosophies. And in general they keep getting rejected by the Indian public.

One might say that the rejection of political philosophy as a basis for governance is in fact an international phenomenon, seen both in the failure of fascist or right-wing dictatorships as well as of communist dictatorships to survive a proper election.

Can the law reach the rich?

May 9, 2011 Leave a comment

How many people want to bet that Kanimozhi will not get bail in the 2G scam case? And how many think she should?

Update: She didn’t get bail, was arrested and sent to jail.