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What humbug about retail & other reforms
Issue Date - 22/12/2011
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Now that Maya, Mamta, Jaya and assorted other leaders and ideologues from both the Left and the Right have successfully derailed the attempt to allow FDI in retail, one can only marvel at why the UPA Cabinet so suddenly cleared the proposal in the first place. Delhi is a city teeming with cynics, and this time you have to bow down to their warped wisdom. According to them, the UPA gambit to let the dogs out over FDI in retail is a spectacular success. For almost two weeks, rather than cornering the government over corruption scams and the Lokpal Bill, the BJP and the Left have been exposed as parties who can do nothing else but oppose ( That does give an entirely new twist to the term Opposition!). Just imagine, even our television anchors were not frothing at the mouth over yet another pearl from Anna Hazare about making hunger strikes a serial! To that extent, I salute the UPA for having the smarts to outsmart the opposition this time; it was long overdue anyway with the UPA scoring self goal after self goal over the last year or so. This move clearly indicates that the Chanakyas in the Congress may have been down and out, but they are bouncing back! More power to them.

But forget for a moment about statecraft and the art of manipulating expectations. The two weeks of debate over FDI in retail has revealed yet another facet of public debate in India: the ability of pundits to pontificate with astonishing levels of economic and policy illiteracy. I do not have the space to enumerate it all in this column. So please allow me to pick up a few random points here and there and enlighten you over the sheer stupidity of our so called pundits

One of the major arguments in favour of FDI in retail goes as follows: If giants like Wal Mart and Tesco barge into India, there will be a revolution in storage, logistics and distribution. With their deep pockets and access to technology, these giants will invest in things like cold storages that could transform the lives and livelihoods of millions of farmers. How? Well, more than 70% of the fruits and vegetables grown by Indian farmers is currently wasted because of lack of adequate cold storage facilities. Ergo, that will change since cold storages will ensure almost nothing is left to rot or go waste. Ergo, the incomes of farmers who grow fruits and vegetables will dramatically improve.
Can you be more deluded and idiotic than that? I remember an ambitious policy announced back in 1992 ( yes, 1992) to encourage the setting up of cold storages in rural areas. Almost 20 years down the road, nothing has come out of that policy initiative and more than 70% of fruits and vegetables continue to rot. The reason for that is as blindingly simple as sunlight: there are virtually no roads that can connect the farm to these proposed cold storages and more importantly, there is not enough power generated to keep the cold storages operational. Forget rural India, vast swathes of even Delhi and Mumbai go for hours at a stretch without electricity. There are millions of households who complain that even food stored in their refrigerators rots because power cuts are so prolonged that the batteries in inverters run out. So how do you envisage a giant network of cold storages across rural landscapes in India when there is simply no electricity? Or do you think that Wal Mart will also set up a 1,000 MW captive power plant to satisfy the delusions of FDI in retail enthusiasts in India? Without power sector reforms, these tall claims will remain humbug.

Look at this from another perspective and you will instantly realize the extent of economic illiteracy and ignorance that pervades public debate on this issue, like most other contentious issues. Suppose there is a miracle and vast cold storages spring up all over India so that wastage of fruits and vegetables is minimized. Suppose that then only 15% of vegetables and fruits go waste instead of more than 70%. What then? Any student of basic economics will know that this will lead to a massive increase in the supply of fruits and vegetables in India. That student of basic economics will also know that a massive increase in supply-without a corresponding increase in demand-will lead to a massive fall in prices. That is basic economics. What then happens to the lives and livelihoods of farmers who grow vegetables and fruits? FDI enthusiasts say that the Indian farmer-with the help of retail giants-will find other markets for his produce. But do you know that the Indian law prohibits a farmer in India from taking his produce across state boundaries and selling them wherever he thinks he will get a better price? How about anyone having the temerity to suggest to policy makers that first allow the Indian farmer the freedom to sell within India?

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