Indian Economy - News & Discussion 27 May 2012

vishvak · Post by **vishvak** » 15 Sep 2012 20:57

Wasn't 30%/70% Indian manufacturing clause supposed to bring better infrastructure, storage, better .. etc etc and domestic manufacturing supposed to be more competitive and qualitative with introduction of tech/infra?

So much for advantages of FDI while the infra/storage/ etc will be as it is because of the same corrupt Govt., Chinese will have more jobs and Americans more profits - as the 'big ticket reforms'.

If the executive way to reforms could have improved the fiscal situation with huge investments in FDI was supposed to have aided in development of industries, that much of opportunity is lost perhaps.

So what are the advantage of FDI again?

nakul · Post by **nakul** » 15 Sep 2012 21:03

Wasn't 30%/70% Indian manufacturing clause supposed to bring better infrastructure, storage, better .. etc etc and domestic manufacturing supposed to be more competitive and qualitative with introduction of tech/infra?

So much for advantages of FDI while the infra/storage/ etc will be as it is because of the same corrupt Govt., Chinese will have more jobs and Americans more profits - as the 'big ticket reforms'.

Its all a farce. We don't need FDI in retail for mundane stuff like storage, infrastructure & vendors. We are quite capable of doing it ourselves. If the govt really wants to, that is. Even now we see potholes on roads when there is no rocket science involved in making smooth roads. It is corruption.

If the executive way to reforms could have improved the fiscal situation with huge investments in FDI was supposed to have aided in development of industries, that much of opportunity is lost perhaps.

So what are the advantage of FDI again?

First run down Indian industries (Go Air, Spice JEt, Deccan). Then whine about lack of competition. Solution? FDI. This is how they justify. We don't need American expertise for running kirana stores. FDI should be invited where it is required, not for selling fruits & vegetables.

putnanja · Post by **putnanja** » 15 Sep 2012 21:48

The policy change removes restrictions on sourcing 30% from SMEs only, and instead it is rephrased as "at least 30% sourced from India, preferably from SMEs".

Kakkaji · Post by **Kakkaji** » 16 Sep 2012 07:05

If the Parliament still in session? If so, the opposition, including some constituents of the UPA, may coalesce in opposition to these reforms.

shyam · Post by **shyam** » 16 Sep 2012 08:01

For MNCs, their first requirement is to get inside India with majortiy controlling stake. Any condition will be acceptable to them to get this done. Once they are inside, they can slowly lobby MPs to get those clauses removed one by one without attracting any significant attention.

Suraj · Post by **Suraj** » 16 Sep 2012 08:09

I don't mind the removal of the SME sourcing clause - it was going to be a recipe for abuse, with larger entities sure to maintain sock puppet 'SME' outlets to qualify. However, the 30% sourcing requirement is much too liberal, and I would be rather GoI imposed a much higher local sourcing requirement of 50-75%, if not apply higher punitive taxes on consumption goods imports to encourage local sourcing instead.

JwalaMukhi · Post by **JwalaMukhi** » 16 Sep 2012 08:21

nakul wrote: FDI should be invited where it is required, not for selling fruits & vegetables.

Selling vegetables & fruits with refrigeration is a thin condom to actually mostly peddle processed corn, corn syrups, sugar based products and its derivatives in different flavours. One only will need to see the amount of shelf space those so called "vegetables and fruits" occupy to the processed junk (edible only) that those big chains fill up. Lot of convenient things that do not require any sophisticated refrigeration etc., will be the main stay.

Bade · Post by **Bade** » 16 Sep 2012 08:26

^^^ This is true. I only visit one or two aisles in any grocery store or Walmart/Kmart for my daily needs. Rest of aisles is full of junk stuff that one can live without.

FDI in airline is possibly not a bad idea.

pentaiah · Post by **pentaiah** » 16 Sep 2012 09:07

for any business uncertainty is no no
If you depend on Indian manufacturing goods with the labor laws loaded towards labor ( Maruti labor problems)
you cant do business like Walmart model, their inventory stocking and tracking is the best in the world.

second quality consistency is paramount with returns policy and satisfaction guaranteed slogan.

For that matter when I was in grad school lot of Indian students would use the electronic type writer/ word processor purchased from Target use them for thesis work (instead of going computer lab and print out) and then return them for full refund....
so the business model will be very tough to be the same in US, they may not allow refunds in India

vina · Post by **vina** » 16 Sep 2012 14:05

so the business model will be very tough to be the same in US, they may not allow refunds in India

You'd be surprised what competition can do. All the big stores I know of in Bangalore (Shopper's Stop, Landmark, West Side, Staples, and online stores like Myntra, not to mention Metro Cash'n Carry) allow full returns and refunds ,just like in the US , all this from personal experience.

vina · Post by **vina** » 16 Sep 2012 14:20

nakul wrote:FDI should be invited where it is required, not for selling fruits & vegetables.

You couldn't be more off the mark. Selling fruits and veggies and other perishables is lot more difficult and management and techonology intensive than selling stuff with a long shelf life like soaps and other stuff.

The supply chain and distro systems for those perishables in India is simply grotesquely primitive and largely unchanged since the time of the pyramids. The only thing that changed is for milk , thanks largely to Verghese Kurien and Amul and the model replicated in all other places. For basic fruits and veggies, it is gag worthy.

Consider the typical "veggie market" , consider the Madiwala market. The stench, the slush, the stuff lying on the ground with , a strong stench of urine, dung and rotting discards and the god awful traffic jams and the encroachments, that itself is gag worthy. As for Yeshwantpur wholesale market, dont even venture there. The sheer waste and inefficieny in storage and handling and spoilage is ridiculous and the mark ups each time the product changes hands before it reaches you as a cosumer is mindboggling.

It is not as if you have an ultra modern and hyper efficient distribution and agri produce supply chain you are going out and batting for , but rather a primitive and very inefficient and wasteful system and whom you are trying to bat for is the "each hand" in the wasteful supply chain that marks up prices and is highly exploitative and inefficeint. I for one cannot understand , why should the encroached on main throughfare and a civic disaster like the Madiwala market be held as something that is worthy to be preserved and a gold standard that everyone should be forced to use!

I shop at metro cash n carry. There is a world of difference. The fish and meat section is a whole planet apart from the neighborhood butcher's next to a running sewer with flies buzzing around. That said, with the likes of Venky's and Godrej and around, the fish and meat sections in most places have seen a sea change..

The thing that strikes me most is , why should I be previleged enough (as a business owner) to be able to shop at Metro and buy better quality stuff at cheaper prices (some of the deals you get and packaging options are simply not seen at a nearby retail store like Nilgiris in even stuff like soaps and food etc) with greater variety and options, while the security guard or the employees of Metro itself , who will possibly find those prices and options of far greater value than I do are denied that privlege!

Why should a security guard be made to buy a bar of soap some 15% more in a shop outside. Why a 1kg pack of iodized salt (which I picked up at Rs 8 a kg), must be bought at Rs 15 outside ? Mind you, none of this is imported, all 100% name branded Indian stuff, all made right here in India !

vina · Post by **vina** » 16 Sep 2012 14:30

Singha wrote:well the faithfool could always target company owned properties in the IT, finance and manufacturing space like GE or GM. but that will generally bring down the police danda hard on their backsides

That is the "model" of the PRC Faithfools. You need govt and police support to do such a thing. Yawn.. Chinese Faithfools burn up a Panasonic plant and a Toyota dealership.

Panasonic plant on fire as anti japan protests escalate

Panasonic, Toyota Report Damages in China as Protests Widen
By Bloomberg News - Sep 16, 2012

A Panasonic Corp. (6752) factory and a Toyota Motor Corp. (7203) dealership in China were damaged by fire as demonstrations over a territorial dispute with Japan widened, prompting Prime Minister Yoshihiko Noda to urge the Chinese government to ensure the safety of its citizens.

Smoke and flames were reported as coming from Panasonic’s electronic-parts plant in eastern Shandong province’s Qingdao city, said Atsushi Hinoki, a Tokyo-based Panasonic spokesman. Keisuke Kirimoto, a Toyota spokesman, said an auto dealership in the same port city was damaged, and the company was checking for losses in other cities.

Tensions between Asia’s two largest economies escalated after Noda’s government said last week his country would purchase disputed islands in the East China Sea from their private Japanese owner, prompting China to dispatch government vessels near the islands known as Senkaku in Japanese and Diaoyu in Chinese. The row takes place as both countries grapple with a global economic slowdown and China’s Communist Party prepares for a generational leadership change.

“I intend to strongly demand that the Chinese government ensure security” of Japanese citizens, Noda said today on public broadcaster NHK’s “Sunday Debate” program. “I strongly object” to the burning of Japanese flags and the protests.

Japan’s new ambassador to China died today after an illness, the Foreign Ministry said.
‘Down with Japan Devils’

Protests occurred in Qingdao, Xi’an, Guangzhou and Hong Kong yesterday as more than 1,000 demonstrators gathered outside the Embassy of Japan in Beijing. Japan’s Kyodo News said more than 40,000 people joined the demonstrations in 20 Chinese cities. Overseas Chinese in Houston and Chicago also protested the Japanese government’s purchase of the islands, the Xinhua News Agency reported.

In Shanghai, hundreds of riot police separated groups of protesters as they gathered outside the Japanese consulate chanting, “down with Japan devils, boycott Japanese goods, give back Diaoyu. ” There were no reports of injuries.

“Japan is becoming more and more arrogant and the feelings of Chinese are increasingly being oppressed,” said Xiao Feng, 26, an office worker who came to Shanghai to join a few hundred other protesters from Jiangxi province. “We need to step up and make our feelings known that they can’t just have their way.”
Fishing Starts

Chinese fishermen from Fujian and Zhejiang provinces may resume their activities near disputed islands with Japan today after a three-month seasonal moratorium, China National Radio reported. More than 1,000 fishing boats go there every year, according to CNR.

Activists from Hong Kong plan to sail to the islands on Sept. 18, China National Radio reported on its website yesterday. Japan last month arrested and deported a group that departed from Hong Kong and landed on the islets to assert China’s claim.

Japan’s incoming envoy Shinichi Nishimiya died this morning after an illness, the Foreign Ministry said in an e-mailed statement. Nishimiya was sent to the hospital for an unspecified illness two days after his appointment, the ministry said on Sept. 13.

Foreign Minister Koichiro Gemba and Defense Minister Satoshi Morimoto returned to Tokyo yesterday after cutting short a visit to Australia, public broadcaster NHK reported.

To contact Bloomberg News staff for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

JwalaMukhi · Post by **JwalaMukhi** » 16 Sep 2012 19:10

vina wrote: Why should a security guard be made to buy a bar of soap some 15% more in a shop outside. Why a 1kg pack of iodized salt (which I picked up at Rs 8 a kg), must be bought at Rs 15 outside ? Mind you, none of this is imported, all 100% name branded Indian stuff, all made right here in India !

Please follow Senthil Mulainathan on issues as to why it is costly to be poor. The following paper addresses few reasons on restriction of choices for the poor. Why poor have to rely on pay day loans, love loan sharks although supposedly banks are friendly etc.
http://www.princeton.edu/chw/events_arc ... 120110.pdf

The folk theory of the \undeserving poor" maintains that poverty is the result
of bad behavior. Might poverty instead cause behavior that appears impatient or
impulsive? This paper reports a randomized lab experiment and a partially randomized
eld experiment, both in India, and analysis of the American Time Use Survey. In all
three studies, poverty is associated with lower performance and control. There is no
evidence of a specic role for willpower or a generic eect of scarcity. Poverty, by
making economic decision-making more dicult for the poor, appears to have depleted
cognitive control.

Abhijeet · Post by **Abhijeet** » 16 Sep 2012 19:14

I've never understood this fascination on BR with the corrupt, inefficient small retailers who run things in India currently. Injecting foreign competition into the market has so many benefits it should really not be a point of debate at all:

- Farmers and other producers get stable buyers for their products
- Middlemen get cut out because the large companies control the entire supply chain
- Consumers get lower prices because of economies of scale and no middlemen
- Subsistence retailers simply get another supplier who offers good prices and a good shopping environment. The kirana shops won't go away because they offer neighborhood convenience, but they will no longer be the only game in town.

I don't see who loses here, unless tears are being shed for the corrupt middlemen who exploit the system to raise prices without adding value. Do we really want to protect them?

The hue and cry over China flooding the market: (a) is already happening through Indian retailers, and will remain that way till Indian infrastructure gets its act together; and (b) can be easily handled through other laws (which I personally disagree with, but that's a different story).

Monopolies will not form unless we decide to allow only a single company to come in, or unless you believe that Walmart, Carrefour and Tesco -- multibillion dollar companies from three different countries -- are going to collude to defraud the Indian consumer.

The majority of Indians are under-educated, simple-minded people who are easily persuaded by emotional arguments like "it's the East India Company all over again!" -- despite 20 years of evidence that foreign competition benefits everyone. I don't expect a better level of discourse from them. To see the same empty arguments on BR is unfortunate.

JwalaMukhi · Post by **JwalaMukhi** » 16 Sep 2012 19:38

FDI is just a starting step, without additional reforms the gains whatever will not have desired impact. Making liberalization within the country is more important. Abolish inter state taxes and other such bottlenecks, that truly kill free trade practices.
http://www.nber.org/papers/w11614.pdf

Variation in pre-liberalization industrial
composition across districts in India and the variation in the degree of liberalization across industries
allow for a difference-in-difference approach, establishing whether certain areas benefited more
from, or bore a disproportionate share of the burden of liberalization. In rural districts where
industries more exposed to liberalization were concentrated, poverty incidence and depth decreased
by less as a result of trade liberalization, a setback of about 15 percent of India's progress in poverty
reduction over the 1990s. The results are robust to pre-reform trends, convergence and time-varying
effects of initial district-specific characteristics. Inequality was unaffected in the sample of all Indian
states in both urban and rural areas. The findings are related to the extremely limited mobility of
factors across regions and industries in India. The findings, consistent with a specific factors model
of trade, suggest that to minimize the social costs of inequality, additional policies may be needed
to redistribute some of the gains of liberalization from winners to those who do not benefit as much.

Kakkaji · Post by **Kakkaji** » 16 Sep 2012 21:32

Here is my take on the latest reform measures.

Even though I am a BJP supporter, there are some economic reform measures that the BJP just cannot do. The following two are the major ones that I had been hoping for from the UPA Govt ever since it came to power in 2004:

1. Implement VAT
2. Open up retail to FDI.

The BJP, because small retailers and traders are among its core supporters, could not have done the above two, even if its economics-savvy leaders may have felt the necessity.

The UPA delivered on no. 1 in the teeth of opposition in its first term, and now it has finally delivered on no. 2. I am happy though I am still apprehensive they will roll it back in face of opposition like they did before.

The next big reform that the UPA can deliver on is the implementation of GST, which is a logical continuation of no. 1 above. I hope they do it before the next parliamentary elections. The MMS/ PC/ MSA combo can deliver it if they are determined and are allowed by SG.

Further to that, the next big reform that is needed, is the reform of labor laws. This one, I believe only the BJP can deliver. Neither the Congress nor any left-supported third front can deliver it, because of opposition from their core constituencies. You need someone like NaMo who can steamroll opposition even from the BJP-supported trade unions, to deliver on labor law reform.

As for FDI in retail killing the kirana stores, that is hogwash. The Indian market is so large, and its demographics so diverse, that it can support both big retail (MNC and domestic), and the kirana stores. If the supply chains get efficient, it helps small retailers too, who will change their models of procurement and delivery. Do not underestimate the ability of Indian businessmen to innovate, adapt, and survive/ thrive.

As for Wal-Mart selling cr@p, nobody forces anyone to buy from Wal-Mart. Wal-Mart is not the unidimensional monster that people are making it out to be. They have revolutionized retail in the U.S. A huge percentage of US households shop at Wal-Mart at least once a year. No one is forcing them to. I myself shop at Wal-Mart once or twice a month. But we shop at Kroger and Target once or twice a week. There is no Wal-mart monopoly, nor will there ever be in a market the size of India.

JM2Rs.

Theo_Fidel · Post by **Theo_Fidel** » 16 Sep 2012 22:48

vina wrote:The supply chain and distro systems for those perishables in India is simply grotesquely primitive and largely unchanged since the time of the pyramids. The only thing that changed is for milk , thanks largely to Verghese Kurien and Amul and the model replicated in all other places. For basic fruits and veggies, it is gag worthy.

Consider the typical "veggie market" , consider the Madiwala market. The stench, the slush, the stuff lying on the ground with , a strong stench of urine, dung and rotting discards and the god awful traffic jams and the encroachments, that itself is gag worthy. As for Yeshwantpur wholesale market, dont even venture there. The sheer waste and inefficieny in storage and handling and spoilage is ridiculous and the mark ups each time the product changes hands before it reaches you as a cosumer is mindboggling.

It is not as if you have an ultra modern and hyper efficient distribution and agri produce supply chain you are going out and batting for , but rather a primitive and very inefficient and wasteful system ....

....The thing that strikes me most is , why should I be previleged enough (as a business owner) to be able to shop at Metro and buy better quality stuff at cheaper prices (some of the deals you get and packaging options are simply not seen at a nearby retail store like Nilgiris in even stuff like soaps and food etc) with greater variety and options, while the security guard or the employees of Metro itself , who will possibly find those prices and options of far greater value than I do are denied that privlege!

I do share this unhappiness over the state our farm to fork system but it is wrong to think that there is no economic principle behind it.

I have pointed this out many times before that our present distribution system is dirt cheap. It keeps the cost of vegetables and fruits very very low during harvest season, which in India is most of the year for most vegetables. It is not unusual to buy a kg of potato's/Tomato's for Rs 5 during harvest season. And the farmers are still able to break even. This is the equivalent of 5 cents per pound. Compare that with the USA.

We can demand that our vegetable markets be cleaned up and be spick and span and that spoilage be reduced and perfect red shiny shiny tomato's show up in A/C comfort. But don't expect it to be cheap. I suspect prices will need be between 2 to 3 time higher at the retail end to produce that slick eye-candy type system.

The way this works is that Wal-mart type companies buy out and shut down the low cost suppliers. Next they will demand that governments implement ever tighter product rules, these will be rules that gradually force the regular farmer/retailer types out of business.

The oddest thing about the west is it has a hyper efficient food system along with some of the highest food prices in the world. The poor saps are locked in as well.

Suraj · Post by **Suraj** » 16 Sep 2012 23:48

Welcome back Kakkaji, and thanks for the good discussion folks. As to depending on UPA to deliver VAT and FDI in retail, they have not yet accomplished either, with election fever (and attendant policy paralysis) less than a year away.

member_20292 · Post by **member_20292** » 17 Sep 2012 00:07

Theo Fidel;

I used to pay;

2.5 $ per gallon of milk in Houston
140 Rs per 3.78 litres of milk
37 Rs per liter.

In Delhi I pay a similiar price ( do no remember) for FAR WORSE tasting ( dont know about nutritious qualities, American milk is rumored to be UNHEALTHIER)

The prices of Apple, Oranges etc. in Chinatown in Houston are lesser than the same brand in Delhi. Houston, I used to get Fuji apples, Delhi not possible.

Houston salary of a brand new Exxon mobil employee is 90000 USD. Delhi, 12 lakh rupees.

I believe the Houstonian economics are better than the delhi economics, good supply chain or not, hyper efficient poor Indian chankian farmer or not.

Theo_Fidel · Post by **Theo_Fidel** » 17 Sep 2012 02:47

Again. You appear to be misreading the situation on the ground.

The Indian system is a dirt cheap system. It is not hyper efficient. I very much agree that 20%+ of all produce is simply wasted/spoiled. Moving to the Wal-mart type system is NOT cheap. Take a look at China where food inflation has raged out of control for years now. So much for Wal-mart keeping costs down.

Milk is a loss leader in USA Grocery stores. This afternoon it was $4.84 for Gallon of whole milk here in the mid-west. And even then it was being sold at a loss.

Apple is an exotic fruit for most of India. Right now a single Kent Mango of indifferent quality goes for $3 in my midwest Grocery store.

Yes it is better to live in Houston, USA than in Delhi, India.

Theo_Fidel · Post by **Theo_Fidel** » 17 Sep 2012 03:27

Meanwhile....
I wonder how much of inflation is due to this flood of foreign money pouring in. I assume it causes ramped up money supply.

http://www.ptinews.com/news/2949502_Ind ... n-2011-12-

India received over USD 66.13 billion in remittances in the year 2011-12 as compared to USD 55.62 billion in the previous, a hike of 19 per cent.

JwalaMukhi · Post by **JwalaMukhi** » 17 Sep 2012 04:01

Each store of the big chain throw away approximately 800 pounds of food every single day. Approximately, 2 tonnes to 3 tonnes of food is normally thrown out by each of the stores in the big chain. One doesn't see them as grossly discarded and is out of sight. It is all about image management. Admittedly, walmart and big chains are very capable of that. Walmart announced "zero wastage", which meant all those food that were to be thrown is now converted into compost.

JwalaMukhi · Post by **JwalaMukhi** » 17 Sep 2012 04:11

On top of it usually in khanland there is wastage of food at the end user too. So what is more appalling would be, this food would probably have spent substantial amount of time in the "sophisticated storage and advanced refrigeration process".
http://www.naturalnews.com/033885_food_ ... erica.html

Many Americans today give very little thought to the amount of food they throw away, naively assuming that there will always be "more where that came from." And such disregard for the precious nature of food has become so prevalent that roughly a football field's-worth of food waste is produced every single day in the US, according to estimates.

Jonathan Bloom, creator of WastedFood.com and author of the 2010 book American Wasteland, says that Americans waste as much as half of the food produced every year. Somewhere between 160 and 295 billion pounds of food is thrown away every single year, which is the equivalent of filling a 90,000 seat football stadium to the brim at least once every single day.

In the old days, many people had their own family farms, and they understood the very real volatility involved with farming -- and, thus, quite a bit more about the real value of food. Today, however, most people have no idea where their food comes from, and since many of the staple crops used in food production are government subsidized, much of the food sold in stores is artificially inexpensive, which means people have less qualms about wasting it.

RamaY · Post by **RamaY** » 17 Sep 2012 04:32

FirstPost quoting FirstPost quoting Mint article...

Mint article by Himanshu of the JNU: “One of the studies commissioned by the US Congress in 2008 was on the linkage between farm gate and retail prices. The average value of farm share (the share of total retail price received by farmers) declined from 41 percent in the 1950s to around 35 percent in the 1970s, and then declined sharply after the 1980s to only 18.5 percent in 2006…. For the record, an Indian farmer gets anywhere between 60 percent and 70 percent of the retail price for rice and wheat. The percentage varies, but it is upwards of 50 percent for most of food items, including eggs and poultry.”

RamaY · Post by **RamaY** » 17 Sep 2012 04:34

R Jagannathan in FirstPost

http://www.firstpost.com/business/the-m ... 864.html/2

FDI in retail: This is the most enigmatic decision of the UPA. It is both bold and probably least needed, given the potential for a political storm. The fact is Big Retail scares the daylights out of many politicians since small kirana stores running into millions are a strong political force in many states. Even Reliance Retail faced opposition in states like Uttar Pradesh, so Wal-Mart is not going to have an easy ride.

The question is: why did the UPA do this when the benefits, if any, will be long in coming? Setting up cold chains and sourcing produce from thousands of farmers and vendors is not going to happen overnight. Even states that back big retail – like Punjab, which sees farmers benefiting from the improving efficiencies of big retail – will find that the benefits will not come immediately.

What Big Retail does is eliminate middlemen in the supply chain. But the net gains accrue more to the retailer (and consumers) than producers. As Yogi Aggarwal wrote in Firstpost, quoting a Mint article by Himanshu of the JNU: “One of the studies commissioned by the US Congress in 2008 was on the linkage between farm gate and retail prices. The average value of farm share (the share of total retail price received by farmers) declined from 41 percent in the 1950s to around 35 percent in the 1970s, and then declined sharply after the 1980s to only 18.5 percent in 2006…. For the record, an Indian farmer gets anywhere between 60 percent and 70 percent of the retail price for rice and wheat. The percentage varies, but it is upwards of 50 percent for most of food items, including eggs and poultry.”

In India, cooperatives like Amul and Mother Dairy have done more to eliminate middlemen than Big Retail.

If farmers are going to get only a small increase in benefits, why did our politicians bite the bullet on FDI in multi-brand retail?

The answer relates to narrow self-interest, and helping cronies out. Consider who will benefit first.

One, the big Indian retail companies like Pantaloons (Big Bazaar, Food Bazaar) are overleveraged and drowning in debt. Allowing FDI in retail will enable these companies to reduce debts by selling stakes to the Wal-Marts of the world. Subhiksha went under due to debt. In recent months, Kishore Biyani of Future Group has sold stakes in Pantaloons (the garments part) and Future Capital to raise money and reduce debt. Other retailers with high debts too will be happy for foreign capital. FDI is thus a partial bailout for Indian Big Retail.

Two, banks are fretting about high exposures to Indian retailers. Allowing FDI will enable them to rescue their loans from turning into non-performing assets. Since most of these banks are public sector ones, it is a benefit to P Chidambaram’s fiscal deficit efforts too.

Three, FDI in retail – currently restricted to big cities – means commercial real estate will start stabilising in prices. While actual investment in malls and stores may be some years away, there is little doubt that FDI is required to lift sentiment in the depressed realty markets of the big cities. Not to forget: politicians are often the biggest benami owners of retail assets. And in election years, these assets have to be encashed to finance re-elections. FDI will bail some of them out too.

Four, the only way Chidambaram can raise revenues is by selling household silver like public sector shares when tax revenues are weak and the economy is into a cyclical slowdown. But this can’t happen if market sentiment is weak. FDI in retail is a huge sentiment booster, since it not only rescues Indian retailers from debt, but also boosts bankers and, more importantly, makes foreign investors more interested in Indian stocks. (President Obama, for example, battled for Wal-Mart). Chidambaram cannot even begin his fiscal correction with more disinvestment – and only FDI in retail can help.

JwalaMukhi · Post by **JwalaMukhi** » 17 Sep 2012 04:56

In the case of apples, the entire cost of growing it accounts for just 16 percent of the final price, while the other 84 percent goes to the "advanced infrastructure" that helped make it to the supermarket and is attributed to as marketing. The farmer is only getting 16 percent. Since farmer gets 16 percent, the farm worker will get a pittance, much worse than farmer. Which is reflected that more than 50% of farm workers live in appalling housing conditions and not the "first world living", in advanced distribution and packaging nation.

Hari Seldon · Post by **Hari Seldon** » 17 Sep 2012 05:10

The egregious Agricultural Produce Marketing Committees (APMC) Act must first be scrapped before any real reform, lift to farmers can be envisaged starting off everything from food processing becoming more attractive at source (rurals) to contract farming and assured prices etc. That would also fall well within the ambit of "internal liberalization" benefitting desi players first and foremost. Perhaps, thats why our wise Govt has been slow to even moot the idea - no foreign constituency to pander to.

vina · Post by **vina** » 17 Sep 2012 05:15

The prices of Apple, Oranges etc. in Chinatown in Houston are lesser than the same brand in Delhi. Houston, I used to get Fuji apples, Delhi not possible.

I don't think that is true. Some of the freshest and best produce anywhere in the world is in NYC , given the high turnover on a daily basis. I used to live in Upper West Side and from my experience there, for an equivalent thing (say, Navel Oranges or Apples (Washington, Fuji, Green, New Zealand...etc)) , the prices for that "global" produce is cheaper in India.. of course , when you compare that as a % of salary /spending power, US wins hands down.

For eg, the Washington Red Delicious used to sell for around Rs100 a Kilo and now with the drop in value of rupee, it sells for around Rs 120 or so. Granny Smith/ Green around 140 , NZ apples around similar ranges, the Chinese Fuji apples slightly less than Washington Red delicious. You do get Fuji apples here (but it being Chinese, I am scared of touching them, especially after all the food scares). I doubt you will get a Kilo of Washington apples for $2.5 in the US anywhere.

The best choice is usually the Himachal & Kashmir apples that sell for Rs 85 a kilo and taste far better than the imported stuff (from anywhere). Of course the Indian apples dont have that shiny wax finished like appearance and packaging like the "foreign" ones and you have to pick through the pile to discard bruised pieces (you would do that with the foreign fruit too, given the prices).

I think we are going off the tangent here. The argument is NOT whether you get imported fruit or Fuji apples or not. You do. But rather it is this.

EVERYONE (including the Metro Cash & carry), get supplies of fruit like Apple from the cold chains (now available in many places in India). However, that same washington apple, sourced from the same cold chain is LESS expensive by 10 to 15% at Metro vs the SAME apple sold out of a cart or a "retail" market . THAT is the issue. Not imported/Chinese stuff.. this or that. Surf soap is less expensive than outside. There is a difference of a minimum of 10 to 15% in most cases, and in some stuff, approaching 25% to 30% (stuff like diapers).

vina · Post by **vina** » 17 Sep 2012 05:20

Hari Seldon wrote:The egregious Agricultural Produce Marketing Committees (APMC) Act must first be scrapped before any real reform,

Fruit and veggie produce marketing in India is a Mafia, with strong political and street level thuggish back up. APMC act is by the state govts. The central govt can do nothing about it.

And why do you want the APMC to be scrapped ? It is GOOD for you, it is "socialist", and hence "scientific" and "egalitarian" and everything. You are saying that the Rich guy is getting his stuff much cheaper at other places ? Whaddya know, just because Mukesh Ambani also gets salt at the same price as a poor farmer, should salt now be priced to Ambani levels of affordability?

Hari Seldon · Post by **Hari Seldon** » 17 Sep 2012 05:23

^^^Eh, what are you talking about? Who is asking for prices to be raised? Bol sakte matlab kuch bhi bol denge? Just that middlemen be cut out and a greater proportion of the price currently paid go to producers. Only. BTW, the enabling legislation for APMC is central.

JwalaMukhi · Post by **JwalaMukhi** » 17 Sep 2012 05:58

Regarding 10 to 15% price difference, that is the only wicket on which the big chains can compete i.e, the price. once established, everyday low price is a strategy of sticking to a consistent range of markup, instead of promotional reduction.

Loss leading, building consumer base to only pare the losses back is standard marketing strategy of the big chains. It is aimed at driving out competitions to only have very few standing in the end. Once the number of competitors reduce to a handful, then paring of the losses will start in a hurry. That's SOP of big chains and especially of walmart.

Theo_Fidel · Post by **Theo_Fidel** » 17 Sep 2012 09:38

Also to be noted is that Wal-mart type system sets farmer against farmer in a mad dash to the bottom. Now in the USA where millions of farmers have gone out of business the safety net sort of saves their bacon. In India with its zero safety net the consequences can be devastating. I'm not sure our system is strong enough or mature enough to deal with 10% of farmers going out of business every year.

vina · Post by **vina** » 17 Sep 2012 10:02

Theo_Fidel wrote:Also to be noted is that Wal-mart type system sets farmer against farmer in a mad dash to the bottom

Dude! This is a country with massive malnutrition and fruits and veggies are largely un-affordable for large segments of the population. If productivity increases, and there is a glut of fruits, you can bet that each and everyone will be consumed and not wasted. There is massive demand that doesn't get satisfied.

So, have no fear, just like what happened with wheat, when because of the productivity during the green revolution, where prices DROPPED (adjusting for inflation), the farmers still came out on top because unit costs dropped FASTER because of productivity. If that sort of productivity is unleashed in fruits and veggies and of course in handling, storage and distro, the entire country will become both wealthier and of course healthier! The farmers will be BIG beneficiaries.

I'm not sure our system is strong enough or mature enough to deal with 10% of farmers going out of business every year.

Long term, folks have to move out of farming. There is too many people doing that in India. This farm to fork is just a side story. The equally big one is in industry.

For eg, today, Indian industry (especially the SME) will find it very difficult to get a hearing beyond a very narrow basket of things in the sourcing of WalMart, Target, Tesco, Carrefour and others of thier ilk. If each state with an industrial base puts in a condition that okay, we will let you in, but... you need to pump up sourcing from our state.. For eg, if TN, with it's textile industry wants to elbow into the quota and other ridden markets abroad, tell those guys, okay , you can set up in TN, but you need to start sourcing from our textile, leather , metal and other industries for your operations globally. That is how the Chinese got their scale. Do that, the big boys will drop Pakiland and others like a piece of turd and come running.

Do that in 10 big states in a variety of industries and you will see exports soom and Indian industry can start getting to the Chinese size scale and put millions into employment. Ikea source around Euro 1b out of India. They can easily step it up to 10b Euro. Other than betsheets and clothes and stuff, none of the other stuff comes out of India. A whole range of stuff can be sourced from here in a couple of years. This is an opportunity , a gift horse in the mouth. We shouldn't stare at it , but play our cards deftly and play it well and seize this opportunity by the b*lls.

Of course, Kerala, West Bengal kind of congenitally Commie states can stick to their sloganeering and remain in the rut. But what happened in IT will happen there as well, where those states remained bystanders and rue their head stuck in the mud with a** in the air attitude and desperately in 20 years after deep chastening try to get a piece of the action.

Just wait for the folks from Kerala, streaming across the Palakkad pass into TN to start shopping in truck loads . The people will vote with their feet.

These Cassandra cries of job losses remind me of what happened 20 years ago. The Commies were jumping up and down against ATM (and put in ridiculous requirements of only inside the bank, you have to hire 2 clerks for every ATM etc) and warned of huge job losses in the banking sector and fought tooth and nail against computerization . Today the banks are 100% Kampooter, no paper ledger and entries etc. AND the employment in the banking sector today is MORE than what it was in the 80s ! Same with insurance, same with telecom and of course general IT /Vity (hmm.. glorified typists. IT vity cannot be a sizeable industry, harrump.. ) and now they are on their knees begging the IT/Vity boys to set up shop in Kerala and WB!

Adrija · Post by **Adrija** » 17 Sep 2012 10:07

OK, let me see if I can make sense of this:

1. Indian farmers get FAR more of the value add as a % of the final price than US farmers (Himanshu in Mint, cited above). I am not drawing any causality between organized retail and this, at least not yet
2. Indian consumers get farm produce more cheaply, both as a % of income as well as in absolute terms (except the current inflationary times, which is more a UPA mismanagement issue). Yes, fruits and meats are still unaffordable to a significant % of our population..........that requires overall growth (which this government has done more to kill than anything else) and not retail FDI
3. Thanks to lack of food processing AND the presence of cooperatives such as Amul, we get our food with much less "processing" (in reality laden with preservatives, chemicals, hormones, etc)............and Hari Seldon garu, this is directly due to the presence of legislative "retrograde" barriers such as APMC, which require the corporates to buy wholesale from mandis and (and yes, it also forces farmers to do likewise)............ensuring that we don't go down that path is enough reason actually to keep FDI out
we may have our own ideological perspectives on the loss of freedom/ market curbing mechanism that is (I work in the private sector, and am no Nehruvian socialist btw, but aware of what private and govts bring to the table, or at least are meant to). But, at least it prevents corporates from entering into agreements with farmers directly, and in some way maintains a balance of power which otherwise is always biased against an individual and loaded in favour of a corporate. Also, forces our food to be least processed as feasible, which BTW the world is now slowly trying to revert to except that it is fancily called "locavores/ fresh" blah blah..

So someone tell me again why we need FDI in retail? What we need is investment in cold chains, which BTW is happening already, and has already resulted in a substantial reduction in % losses (will try tracing an article by Ashok GUlati or Surinder Sd which wrote that, am unable to do so right now). I have worked with a few players in this industry and do you know what actually prevents these players (all Indian, BTW, inspite of FDI being allowed) is lack of reliable power, NOT anything else. Do we see the UPA government taking any steps to solve for that? Last I checked, no............but of course such mundane root causes require real work

Think the article in firstpost summed it up brilliantly- this move is about Indian retail chains, and Indian realty companies getting their asses saved.........anything but the rural farmer............am okay with politicians posturing (that is their job) but it does seem a bit amusing to have BRFites parroting the same...

My 2 paise. apologies for any offense caused, not intended for any person...

Thanks

Adrija · Post by **Adrija** » 17 Sep 2012 10:12

^^^^

finally managed to trace Himanshu' article, actually worth posting in full (all emphasis mine)

http://www.livemint.com/Opinion/xlXA7xI ... India.html

Thu, Jul 19 2012. 07 24 PM IST
The perils of retail therapy in India
The perils of retail therapy in India
ByFarm Truths | Himanshu

Amit Bhargava/Bloomberg
There is no dearth of advisors for a government considered to be in the grip of a policy paralysis and whose prime minister is dubbed an “underachiever”. In this season of India-bashing, US President Barack Obama spared some time from his election campaign and offered some pearly words of wisdom on the Indian economy. This came at a time when in his own backyard, thousands of people marched in Los Angeles on 30 June against Wal-Mart, accusing it of underpaying and exploiting workers. This was followed by marches in other US cities on 2 July, the 50th anniversary of Wal-Mart.
Amit Bhargava/Bloomberg
One example of paralysis that Obama specifically mentioned was the government’s inability in opening the retail sector for foreign direct investment (FDI). While our private sector and government spokespersons have not taken Obama’s statement lightly, they do agree that FDI in retail does remain a visible symbol of reforms for a government seen to be reversing the reforms that it started with. Their anger was not against the content of Obama’s statement, but on grounds of nationalist pride.
But why has this issue become a symbol of the government’s commitment to reforms, or the lack of it as policy paralysis? Ever since the debate began, FDI in retail has been seen as a cure for all our ills. It will bring foreign exchange, which is important in the face of a rising current account deficit and the falling rupee. It will certainly help reduce inflation by bringing down prices of goods, particularly agricultural produce, thus, obviating the need for any intervention by the central bank. As a result, interest rates will come down and investment will pick up, and we will be back on the path of high growth, away from the current situation of double-digit inflation. Not only that, at a time when the country is going through “jobless growth”—the United Progressive Alliance government having created only a million jobs in its first incarnation—a liberalized FDI regime will create more than 10 million jobs in the retail sector alone. Finally, it will also ensure higher incomes for farmers and help reduce poverty.
So why should one oppose FDI in retail? Primarily, because none of the above assertions are based on facts and is nothing more than wishful thinking. The US is the best place to analyse the role of retail giants on farm produce prices (the prices received by the farmers) and retail prices (prices paid by the consumers). The US Congress commissioned studies in the wake of the spike in food prices in 2008 on the causes of the problem. One of the studies was on the linkage between farm gate and retail prices. The average value of farm share (the share of total retail price received by farmers) declined from 41% in the 1950s to around 35% in the 1970s, and then declined sharply after the 1980s to only 18.5% in 2006. That is, for every dollar worth of food bought by the consumers, only 18.5 cents were received by farmers. The rest was accounted for by advertisements, marketing, profits and so on. This varied across food crops, with a slightly higher share to farmers for eggs and poultry to as low as 8% for cereals and bakery products. For rice and wheat, the price received by farmers was only 19 cents for every dollar worth of these commodities sold in supermarkets. For the record, an Indian farmer gets anywhere between 60% and 70% of the retail price for rice and wheat. The percentage varies, but is upwards of 50% for most of food items, including eggs and poultry.
In real 1982-84 dollars, the total spending by consumers on food increased by almost four times. But the total income received by farmers declined in real terms after reaching a peak in the mid-1970s. So where did the increased spending go? It went to the retail chains as profits. Another interesting finding from the study is on the nature of price stickiness of food items, which seems to depend on the extent of monopoly enjoyed by retail giants. In those markets where the concentration of market power is very high among the retail giants, the markets also exhibit a trend of downward price stickiness (that is, prices adjust upwards, but do not come down even if farm prices come down). So what was the impact of such retail chains on inflation? Data from the Food and Agriculture Organization on food prices does not suggest any evidence that countries with higher penetration of retail giants did any better than those without it. Food prices rose in almost all countries, including the US and Europe.
What about their potential effect on employment in India? An ICRIER study in 2008 estimated the Indian retail market to be close to $409 billion. Compare that with Wal-Mart’s revenue of $405 billion. While for the same revenue, the Indian retail sector employed close to 40 million workers, Wal-Mart employed only 2.1 million workers. The total employment of the top five retail giants together was less than four million, close to 10% of the total employment in the retail sector in India. While it is sure that the total employment created by these retail giants will not be close to 10 million as the government has been claiming, it will certainly destroy livelihoods of millions of workers currently engaged in the sector.
Needless to say, the evidence is hardly conclusive on the lofty promises made in favour of FDI in retail. But more than that, these claims seek to divert attention from real issues of reform required in the agricultural sector. The short cut to containing inflation is not in bringing FDI in retail but in our own existing policies of food-supply chains and archaic laws that govern our markets for agricultural products.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi
Comments are welcome at theirview@livemint.com

vina · Post by **vina** » 17 Sep 2012 10:19

Adrija wrote:^^^^

finally managed to trace Himanshu' article, actually worth posting in full (all emphasis mine)

http://www.livemint.com/Opinion/xlXA7xI ... India.html

Sorry. This "farticle" is a whole load of garbage and classic JNU ding-dong giri.. None of it backed by any study or analysis, but rather selectively quoting from someother country' study with a different industry structure out of context.

The US is the best place to analyse the role of retail giants on farm produce prices (the prices received by the farmers) and retail prices (prices paid by the consumers)

.
Farts like that make you gag. Why is the US the best ? Why not France with the equally dominant Carrefour ? Why not Tesco ? Why not Aldi and other German chains ? You can argue against the fundamental tenent of this article with counter example and facts!
With garbage like that passed off as "analysis" , you know this is a JNU ding-dong hack job.

Adrija · Post by **Adrija** » 17 Sep 2012 10:31

^^^^

Oh.........a few reasons could be (1) easy data availability- there is a US Congress study he refers to (2) language- French is not so easily read?

it is very tempting to trash viewpoints which don't match ours

Anyways, last post.........very clearly we are not going to change each other's views on this

vina · Post by **vina** » 17 Sep 2012 10:41

Oh.........a few reasons could be (1) easy data availability- there is a US Congress study he refers to (2) language- French is not so easily read?

Ah, I see. US is the "best" place for comparison, because of "data availability" and Himanshu can't read French!

So, despite, have huge logical fallacies from drawing observations from a maybe very limited sample (fallacy of composition), it doesn't stop that author from doling out "prescriptions" and "predictions" from a basically sophomoric article that has more holes than Swiss cheese.

member_20292 · Post by **member_20292** » 17 Sep 2012 10:47

^^^

vina ji.....your posts are getting full of rhetoric...just like the article you just panned.

Kindly write more precisely. Us nanhas learn a lot when you folks spout (more detailed) wisdom!

amit · Post by **amit** » 17 Sep 2012 11:34

Actually Vina is spot on as usual on this issue. That is not to say that there's no histrionics and rhetoric being bandied about by others.

Many moons ago there was a very - er - vigorous discussion on this subject in a thread that still exists here, the poll on FDI on retail.

Allow me to cross post two of my replies in that thread.

First one:

Link

amit wrote:The ICRIER study on FDI in retail in 2008 still remains the most exhaustive one for India.

Any one interested can have a look at it here

The interesting point in the report is this:

Profit realisation for farmers selling directly to organised retailers is about 60 percent higher than that received from selling in the mandi. The difference is even larger when the amount charged by the commission agent (usually 10 percent of sale price) in the mandi is taken into account.
So 60-70 per cent more income to marginal farmers, means less money for the fatcat mandi owners who rip off both the end consumer and the primary producer. Is it any wonder that they've orchestrated such fierce political opposition?

Folks should read a bit, its an interesting subject.

The people who feel threatened are not the local kiranas. Its these corepati mandi walas.

This is what the ICRIER study has to say:

• Unorganised retailers in the vicinity of organised retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organised retailers
• The adverse impact on sales and profit weakens over time
• There was no evidence of a decline in overall employment in the unorganised sector as a result of the entry of organised retailers

The rate of closure of small retail stores on account of competition from organised retail was found to be 1.7 percent per annum. Further, there was optimism in the small retail community: There is competitive response from traditional retailers through improved business practices and technology upgradation. A majority of unorganised retailers is keen to stay in the business and compete, while also wanting the next generation to continue likewise.

Anyone interested in this subject should read up the ICRIER study before forming an opinion. Till date it's still the most relevant and detailed study done in India on organised retail. It useless to rake up studies in other countries. There is no one size fits all. If that were the case the great evil Walmart wouldn't have had to close shop in places like Korea and Germany because they could not compete with local and other retailers.