One wonders if he should be happy or sad with the govt’s decision of allowing FDI in retail. The decision marks a sad day for the country but happy that it will hasten to conclusion the obituary of reforms and reformists thus paving the way for a new beginning.

FDI is another form of debt that will attempt to temporarily avert the crisis of falling rupee and rising inflation but alas! only at the cost of greater future pains. FDI gives us capital account surplus, which is a liability. It is a debt which has to be paid back. We have been using this money on capital account not to open factories but to pay FOR OUR IMPORT BILLS because we are a trade deficit (Import > exports) nation. Now when FII’s starts cashing in their profits and pull out from markets, we need to pay them back their money. The point now is that how do we do it? Because we are a trade deficit nation (read it as a poor nation) , options available before us are fairly limited.

1) by raising more debt either by selling our assets or interests to FIIs and asking for investments

or

2) by taking loans from IMF, World bank etc which also we have been doing aggressively last few years.

Any 3rd option of meeting this pull out demand from current account, which is possible for a trade surplus country like China has, in not available to us. From the last 2 decades, we have been adopting both methods to pay our rising import bills and enjoying this debt financed prosperity. This exposes how successful these reforms have been all these years. Recently, we saw another example of how hollow and dangerous this debt financed growth has been, when our rupee was in free fall a few days back and have reached all time low and RBI was scared of intervening due to lack of reserves. The reason was that our foreign exchange reserves is close to external debt. So what good FDIs have been doing in last 20 years? It has made us no wealthy a nation but one that is more on debt than it was earlier.

Wallmart is not here for charity. All it will do is to kill our entrepreneurs and create a few slaves with lesser buying power. It will take the profit out thereby increasing the outflow. When it will do that, rupee will fall and our import bills will drastically rise. On top of it, massive unemployment, that it will cause will mean less purchasing power with people therefore low production. And eventually after sucking the nation when these foreign firms will shut their shops and move out, we will face the same consequence as southeast asian countries had faced in 1997 during the asian tigers crisis. Our rupee would have been devalued to a greater extent thereby giving way to rampant inflation marked with low growth, and massive unemployment. This STAGFLATION causing series of unrest, anarchy and chaos will be the order of the day. That surely looks like the trend unless some intervention saves or change the course.

Advertisements

Comments on: "FDI in retail – Another form of debt financed consumption" (10)

  1. Shailendra said:

    So debt is bcoz of stupid UPA policies with no vision

    Like

    • Amitabh Pandey said:

      Yes indeed. Since independence our economic policies were flawed. But since 1991 we have been raising one debt to meet obligations from another debt. We have been using FII’s money to pay for our import bills. Despite of raising interest rates 3%, in last one year, our rupee is falling. Do you know why? because FII’s are withdrawing their profits. Government now wants more debt so they are asking for more foreign investments.

      Like

  2. The point on Wal-mart shunting our own entrepreneurs was spot-on. We need people from our country to be more enterprising in the retail sector. We do not need more competition that too from a retail giant like Wal mart 🙂

    And yes, in my opinion Retail sector has already eaten into our traditional vegetable and grocery ‘markets’ displacing many vendors, that I guess is a price we need to pay for ‘development’

    Like

  3. As a bullish investor, I feel supply chain may work well with giants like walmart coming in. Production may increase as we have proper supply chain and prices may come down too.

    Like

    • Amitabh Pandey said:

      OK so answer me. If the production would have increased due to FDI, would you not be having a trade surplus from 20 years of reforms? Do we not have more debt than it was earlier? Is it good to have more debt or bad? 400 billion turnover company just employ 21 lakh people while the local employment we have is upto the tune of 40 crore.
      Regarding quality I just want to say this…”स्वतंत्रता की प्रथम शर्त आत्मनिर्भरता है, जो स्वयं से शुरू होकर गांव, गांव से शहर और फिर राष्ट्र तक अपनानी चाहिए| अतः:गुणवत्ता (quality) के लिए आत्मनिर्भरता जैसे गुणों से समझौता न करें”. Let us not compromise on our self reliance for quality else we will turn out to be parasites.
      Also let us not be shortsighted. It will benefit you in short term but at what cost? By destroying our entrepreneurs, the only thing that will happen is that credit will move from small businesses to walmarts. And they will take this profit out of country. This will further devalue the rupee, cause low demand thus low production but with high inflation due to high import bills and massive unemployment. Tell me at what point you disagree?

      Like

  4. See it is like this , congress lives by the day and to get the amul baba on the gaddi they need the fsa desperately and how do u finance a 100 th crores of expenditure that when the nrega bill is unaffordable…. through inflation and money printing? …Simple by opening up the fdi tap so that there is no run on the rupee…

    The maharajahs had sold their sovereignty to the british for staying in power … congress is no different.

    i had major issues when i heard the buffoon Kaushik basu, Chief Economic Adviser says: If we don’t open up FDI in retail, food inflation won’t decline.

    Like

  5. Fact is that the supply chain in India is politically controlled and in a big mess, some say that there are 6 chains of intermediaries , and apmc is the place where the product sees a radical jump in costs,,, no wonder onion that sells at 2rs a kg in satara reaches mumbai household at 20 and delhi at 35…

    Fdi in retail, or anything else will mean little unless such middlemen are evicted from the supply chain…
    it aint a bad thing but the sheer numbers in $$ terms are too daunting as lobbys can force any govt to cut down controls. As it is movement of money bags are a part of popular political culture especially pre elections……

    Like

  6. Excellent points Amitabh!
    As you suggest if the Indian entrepreneur needs to be strengthened, whats your solution to make the cold supply chain more efficient by technology/processes import? Is there room for other players apart from APMC and the 6 other intermediaries? Can you guys name the others? Is there room for a foreign player in the cold supply chain?
    – Satish, Boston, USA

    Like

    • Amitabh Pandey said:

      1. Adopt principle of self reliance starting from self and then fulfill as much requirements locally by using local resource.
      2. Develop a cooperative based model in rural areas which are rich in resources, for inclusive development of all. Learnings from dabbavala, Amul etc
      3. Decentralised governance at village level providing framework of good laws, technological sharings etc. Learnings from Ralegan Siddi / Anna Hazare.
      4. Well connected network of local goverment’s (village level) distribution system

      This can be further discussed and brainstormed but debt financed consumption is no solution. Debt financed consumption is living your today at the cost of tomorrow.
      thanks for commenting.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: