For Agricultural Revolution Allow FDI in Retail

Posted on March 24, 2010 in Business and Economy

Abhishek Jain:

There is nothing more difficult to arrange, more doubtful of success, more dangerous to carry through than initiating change….the innovator makes enemies of all those who prosper under the old order, and only lukewarm support is forthcoming from those who would prosper under the new.

Nicholas Machiavelli, The Prince, 1513

Today when we think of India’s core competencies, what comes to mind is India’s huge educated workforce, the ones who are working in the knowledge industries like information technology, financial services, etc. However, there is another sector where we could be a world leader. In fact, it was what made India one of the richest nations in the world once. It is the agriculture and dairy industry. India has vast fertile tracts of land, abundant supply of water, a huge workforce, coupled with a domestic market of a billion. Somehow a strange belief has garnered, that farming is not a business and farmer’s can never be businessmen. One of the arguments often given against economic reforms is that they are anti- poor, and that they do not benefit the people living in the rural areas or the hinterlands. The fact is that even though every politician may claim to be pro-poor, pro- farmer, none of them have done anything substantial for their progress.

Australia is one of the largest exporters of wheat in the world. There have been instances where even India had to import wheat from Australia to meet the shortfall in its domestic market. Every year India loses wheat equivalent to Australia’s annual production due to inadequate storage and distribution facilities. Even after having the largest amount of cattle in the world we do not export a large share of dairy products in the world market. An example of how controls are hampering the growth of agriculture could be the Agriculture Produce Marketing committee act (APMC ACT) which restricts a farmer’s ability to decide where to sell its produce. He cannot sell his produce across state borders directly and he is at mercy of middlemen at mandi’s who are better organized than the farmer. The beneficiary of the recent system is neither the consumer nor the farmer but the middleman, who despite massive inefficiencies make unreasonable profit margins.

For India to grow at an 8 to 10% economic growth rate our agricultural sector has to expand. For that to happen there is a need for reforms in our agricultural sector in the way which calls for agricultural produce to be procured, stored and marketed, for huge investments in the supply and distribution chain and the most importantly, for ushering in competition in the supply and distribution chain where the farmer decides whom to sell and at what price. The government can always decide the ceiling price. Also, India should open up its retail sector to foreign capital and competition. Foreign retailers would bring with them the best practices and investments in the supply and distribution chain and at the same time open up linkages to the global markets for Indian agricultural and dairy products. Modern retailers procure in bulk and sell at low prices. They thrive on reducing the inefficiencies in the supply chain bringing down the cost substantially for the consumers and getting a better deal for the farmer. The argument often given against FDI in retail is it will severely affect mom and pop shops; they won’t be able to survive the competition. But we already have homegrown modern retailers like Big Bazaar, Nilgiri’s etc. who are thriving along with the traditional kirana stores. So, in any case, we have modern retailers in the market. The Indian retail market is very different from the Western retail market. In India consumers like to make purchases frequently and in small quantities. Instead of travelling to the large retail stores far from their own place of residence, people still prefer the convenience of the traditional neighbourhood kirana store. Kirana stores enjoy the advantage of good consumer relations built over a period of time. More over the kirana stores can buy from the cash and carry stores and reduce their cost of procurement.

Agriculture still accounts for 60% of India’s labour force and an improvement in the agriculture sector would directly benefit them. Allowing 100 % FDI in retail would lead to an agricultural and a dairy revolution in the country. THIS is the need of the hour and the government should bite the bullet.

The writer is a correspondent of Youth Ki Awaaz.

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