Many of the arguments against foreign investment in retail in Parliament were fuelled by fear, self-interest and economic illiteracy. But one of the most pregnant statements was that big retail stores in the future would be owned by American or British companies, sell goods of Chinese origin while India becomes a nation of sales boys and sales girls. This statement implies that foreign companies have unfair advantages, sales is an inferior job, and buying goods made in China means the Chinese make all the money. It also implies that India will become like the Wimbledon; it is played in England but a Britisher almost never wins. I disagree and believe the opposition to FDI in retail was wrong for three reasons:
Jobs: We know that kirana (unorganised retail) shop owners are a much smaller population than exploited kirana workers. We know that unorganised retail is the biggest user of child labour. We know the tragic costs of informal employment (no PF, no ESI, no appointment letters and no minimum wages). We know that 100% of net job growth since 1991 has been in informal jobs; the slavery of the 21st century. We know that kids dont view employment as a lifetime contract (mai-baap) but a taxicab relationship that is intense, intimate and short. We know that 10 lakh kids will be joining the labour force every month for the next 20 years. We also know that a sales job is the most blue-collar white-collar job. The notion that agricultural jobs or manufacturing jobs pay more, provide higher job satisfaction or offer better physical environments is not a myth; it is a lie. I am not sure where the romanticism of shop floor or fields comes from but our economy is driven by domestic consumptionstrength as the global crisis enters its sixth yearand that means sales and customer service will be the biggest job creator in the next two decades. So, there is nothing horrible about India becoming a nation of sales boys and girls. This will be a less poor India.
Economics: The notion that foreign-owned retail will sell more foreign goods or have higher margins is irrational. Foreign retailers can only sell whatever sells and whatever prices consumers are willing to paythey are the waiter, not the chef. But the notion that goods made in China overwhelmingly benefit the Chinese is a myth; only $50 of the $700 retail price of an Apple iPhone is retained by Chinese assemblers. About $200 goes to components but most of goes to individuals and firms in America. Organised retail has interesting implications in food because it is clear that the self-interest of agricultural food supply chain intermediaries lies in lower transparency and efficiency for the farm-to-fork journey. But many consumers and farmers today are not clients but hostages; they will be much better off with economies of scale and scope that comes with organising the unorganised. Organised retail is more productive than unorganised retail because of capital, IT, process and human investments. Higher productivity means lower prices for consumers. Lower prices mean more saving or consumption.
Self-esteem: One of the saddest underlying narratives of the retail debate was a notion that foreigners will always win against Indians. Im not sure whether people believe this is because they are smarter or richer, and usually people who talk like this reveal their age. The 10 lakh kids joining the labour force every month for 20 years are not midnights children but reform babies. These kids have high expectations and dont idealise or fear the Westthey understand more than the earlier generation that you dont have to be western to be modern. This higher self-esteem and ambition is not only individual but organisational; witness the spate of overseas acquisitions by Indian companies. It is also clear that Indias youth is less fearful than our politicians about foreigners or the future because there was never anything cultural about Indias poverty, productivity or lack of multinationals. A more confident India, like China, should not care if a cat is black or white if it catches mice.
There were six stakeholders at the table in the retail FDI debate; incumbent organised retail, current workers in unorganised retail, future workers in retail, consumers, domestic and foreign capital, and producers. But one stakeholderincumbent unorganised retailmanaged to mobilise the opposition into positioning its self-interest as national interest. Economist Mancur Olson would not have been surprised by this choice; his work on interest groups showed how a small but vocal and organised minority can hijack the agenda in a democracy. The absence of foreign investments in retail allowed one stakeholder to impose costs on the other stakeholders. In fact, opposing foreign investment in retail amounted to choosing the old over the young, middlemen over farmers, and producers over consumers. The vote was more than symbolicit represented the first policy stance in recent times where faith in jobs and productivity drove politics. The narrative that jobs dont win elections has not been tested but is widely believed. Yesterday was a great start in signalling that making India a fertile habitat for job creation is a policy priority. Now for action on labour laws and power.
The author is chairman, Teamlease Services