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
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.