Jun 29, 2016

Opening the floodgates of Indian economy to FDI is not desirable

The floodgates have been opened. In what is being termed as the second phase of sweeping reforms, India has opened up for aviation, defence, pharmaceutical, single brand retail and food processing besides opening up animal husbandry and apiculture. Prime Minister Narendra Modi says that a radical liberalized FDI regime will turn India as the most open economy in the world providing major impetus to employment and job creation.

Whether it is water or economy, opening the floodgates certain brings in a surge. But unlike the opening of the floodgates of a dam, wherein flood waters do not flow back, the unhindered flow of FDI does not only mean that it will bring in a deluge of foreign capital but eventually for every dollar invested in the country, two dollars are repatriated. Moreover at a time when the world is witnessing a jobless growth, I don’t know how the government is confident that the FDI inflow will end up creating more jobs.

The desperation for creating jobs is clearly visible. The Labour Bureau has estimated that only 1.35 lakh jobs were created in 2015, which is the lowest in the past six years. You will agree this is not even a drop in the ocean. In a country where roughly 1.25-crore people join the employment queue every year, only 1.35 lakh people finally getting through clearly shows that the economic system is failing to deliver. Well, one year’s job creation data is certainly not enough to pass a judgment but the employment graph for the past 12 years, beginning 2004 when Dr Manmohan Singh took over as Prime Minister, has remained equally bleak.

Only about 1.6-crore jobs have been created in the past 12 years whereas roughly 14.5-crore people were in search of a job. 

The pressure to create jobs therefore is evident. But that’s exactly what the Manmohan Singh government was trying to explore when it had tried to open up to more FDI. In a tweet on Dec 5, 2012, the then Chief Minister Of Gujarat, Narendra Modi had written: “Congress is giving nation to foreigners. Most parties opposed FDI but due to sword of CBI, some didn’t vote & Congress won through the back door”. While in Opposition, Arun Jaitley had in 2013, said: “FDI is not in favour of the consumer, farmer, trader, manufacturer and the country. That’s why we are opposing it and will continue to oppose till our last breath. We stand united with the traders and the people of this country.”

So what has transpired in the last four years that has made the NDA go in for a complete U-turn of its earlier stand? Former Finance Minister P Chidambaram calls it Opposition Syndrome. While I may dismiss Chidambaram’s criticism of the Narendra Modi government opening up to FDI in a big way, but one certainly fails to understand the reasons for the new found love towards FDI. Noting has transformed so dramatically in the past four years as far as the global experience with FDI is concerned that a 180 degree turnaround can be justified but then that is politics.

India had recorded its highest ever FDI inflow at $ 55.46 billion in 2015-16.

Although Commerce Minister Nirmala Sitaraman has made it clear that the policy has been tweaked to ensure that it does not hurt domestic jobs, but the sudden announcement of the opening up f Indian economy without any nationwide discussion raises more questions than provides answers. For instance, I don’t still understand what is the problem with bee-keeping that FDI has been allowed in apiculture. Bee-keeping is a supplementary income source for the farmers, already under a severe distress, and any effort to allow control over the market by big business interests from abroad will only push these small farmers out of business.

Relaxing the requirement of ‘controlled conditions’ in animal husbandry, pisciculture, aquaculture and apiculture has been welcomed by the industry. With the improved technology coming in from the western countries, the domestic industry feels it will bring in better breed of milch animals, and there will be increased investment by foreign research laboratories. In reality, this runs counter to the NDA government’s policy of promoting desi breeds. What is being overlooked is that India does not need new improved exotic breeds but needs to bring back its own domestic breeds which are doing exceptionally well in Brazil. Over the years, Brazil has become the biggest exporter of Indian breeds of cows. A purebred Gir cow in Brazil provides a milk yield as high as 73litres/day.

The conflict will become more pronounced when major dairy multinational corporations begin setting up big cattle farms to get into industrial dairy farming operations. Although the FDI rules are still not available, the fact remains that the Indian dairy cooperatives have been under assault from private ventures keen on setting up big industrial dairy farms, which have come under a lot of criticism in the west for the environmental damage it wrecks. On the other hand, the milk cooperatives in India have been economically helping 80 million milk producers, a dominant part of which comprises farm women. The livelihood of these small producers will come under threat.

Earlier, FDI was justified in the name of bringing in ‘state-of-the-art’ technology into the country. Although Defence and civil aviation has been opened to 100 per cent FDI route under the government approval, it is now clear that investors are not keen to bring in cutting-edge technology into the country. Similarly for the single-brand retail, the government has practically done away with the clause that ensured 30 per cent local sourcing. The primary objective of seeking FDI should be to provide new technology and enable the domestic manufacturing to gain from business integration with the foreign companies. Bypassing the domestic manufacturing sector will certainly not add to job creation.

The pharmaceutical sector is where it is also expected to be hit most. India has so far been hailed as the drug factor of the world providing cheap generic drugs. While this has been under attack at the World Trade Organisation which has relentlessly been pushing the commercial interests of the drug multinationals, forcing India to accept the patenting norms to make it compliant to the industry needs, allowing FDI in both greenfield and brownfield projects could spell doom for the domestic industry. While this would hit the average consumers with high prices impacting the health for all programme, it will also limit job creation.

Returning back to the promise of job creation, it has always been a forgotten promise. When Pepsico entered India in the 1980s, it promised to create 50,000 jobs. In a reply in Parliament, Ministry of Commerce had later acknowledged that less than 500 jobs were created. Pepsico is not the only exception. It will be interesting to know the facts and realities about the tall promises being made to create jobs whenever foreign companies try to enter the country or special economic zones are created.#

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