Whats Right with FDI?

Most of the ignorant arguments which are being put forth in opposition to FDI in Multi Brand Retail are laughable and devoid of any factual data. Walmart is being portrayed as some job eating firm which will either displace or take away the livelihood of 44 million side shop keepers operating in India and forming the basis of an industry which is valued at close to $400 billion. First of all, we need to be clear about certain things pertaining to this perceived American monster named Walmart. Walmart along with its other subsidiaries (well over 50) happens to have about 8900 stores in 15 different countries, employs 2.2 million people and has revenue of approximately 447 billion dollars. It’s stupid to think that a company of such size (although huge but tiny in front of the gigantic unorganized retail sector in India) can decimate the Indian economy when it’ll not even operate in more than 50 cities since the policy paper on FDI in Retail states that foreign stores can be opened only in cities with a population of over 1 million. A brief overview of the census provides us with 53 such cities and that keeps nearly 3500 cities and over 6,00,000 villages of India totally insulated from the invasion of any foreign outlets and thus the ‘projected’ job losses. For arguments sake let us assume that even if Walmart was to establish 10% of its total business in India then too it won’t offer more than 2.2 lakh jobs. From where does the question of strangulating 4.4 crore jobs arrive now ?

Some people (including the grand old patriarch of the Bhartiya Janata Party) cite the example of Thailand to highlight the ill effects of FDI in retail where 60% of domestic shops had to be shut down since they could not compete with the foreign players but what they don’t tell us is that Thailand’s economy is not even 1/5th of the Indian Economy as its GDP stands somewhere around 345 billion dollars and the country has an unemployment percentage of less than a percent, to be precise, 0.7% while we happen to have a GDP of 1.6 trillion dollars with an unemployment percentage of over 9% and so it’s completely unfair and absurd to make a comparison between the two nations. However, for our better understanding of FDI in retail we should look at our neighbouring China with whom we share more commonalities. A decade after FDI in retail was introduced in China, the number of jobs grew from 28 million to 54 million, that’s nearly 100% and guess what ? Even after being in the Chinese market since the past 12 years, Walmart has not been able to extract even a penny as profit. This is indicative of the fact that Walmart isn’t eyeing short term gains and is in China for the longer run. 29 developing economies have had FDI in the retail sector for more than a decade now and each experience has happened to be fruitful and prosperous. A study conducted by the CII with the BCG tried to foresee the impact of FDI in retail on the Indian Economy and it concluded that by 2020, business would increase from 26 billion dollars today to 260 billion dollars, direct employment would increase by 4 million people and tertiary employment would go up by 6 million people.

The policy paper on FDI in Retail makes 50% investments in back-ends (cold storages and warehouses) a necessity and this will not only reduce wastage but also create more jobs in rural areas. Farmers would get better remunerative prices for their produce as middlemen would get eliminated. These middlemen are the ones who deprive farmers of genuine profits since the farmers get only Rs 5 of the tomatoes which are sold to us for Rs 20, rest are pocketed by the middlemen. Another big apprehension is that of predatory pricing. Foreign outlets would initially offer items at really cheap rates, eliminate all competition, monopolize the market and would then all of a sudden start increasing prices thereby causing inflation. The best response to this argument was provided by Thomas Di Lorenzo in his research paper titled ‘The Myth of Predatory Pricing’. He described predatory pricing as a ‘conspiracy theory’ and stated that ‘no economist stands by it since it exists only in theory not in practice’ and that ‘there is not even a single example of a business enterprise raising its prices after wiping out competition.’ However, there are numerous ways in which unfair trading practices igniting a price war can be avoided. Germany is a brilliant example of this. In the year 2000, German competition regulators asked Walmart to increase its prices when it initiated a price war with two domestic supermarket chains by selling products at a cost lesser than its wholesale price.

Making unorganized retail more organized will also boost the prospects of the state exchequer as the government will have a big resource pool to extract from. This will ease the burden of taxation on the petroleum industry and effectively distribute the tax burden. The money collected could go into strengthening social security schemes and subsidizing food, education and health. The entry of foreign players into the Indian market would also give a boost to the real estate business and property rates will thrive. The pros of FDI in retail are so many and so serious that they cannot be set aside. Those who are opposing it need to have a broader vision and get over their protectionism after all this is the age of economic liberalism.    

Advertisements

India’s Parliamentary Democracy – The Way Forward

Recently MP Shashi Tharoor commented on the need for India to adopt a Presidential system of democracy in order to bring stability in the system. He further urged Indians to rekindle the debate on the kind of democracy we should have in India. I must say and clear at the very outset that I don’t agree with him. I feel that the parliamentary system of democracy which India has just now is best suited for it. I will support my stand with many reasoned arguments but before that we need to have a look on the arguments given by Mr Shashi Tharoor and on the contemporary system of governance.

All of us know that over the last few years, more precisely the last one decade, the amount of business transacted in the Union Parliament and the various State Legislatures has gone down. This has been because of the frequent adjournments which seem to have become an intrinsic part of our parliamentary proceedings. Terms like disruption, ruckus and pandemonium are quite often linked to the Parliament. A number of dissenting MP’s all of a sudden erupt, start speaking out of turn, resort to sloganeering, wave placards, march into the well of the House and ultimately force the Speaker to adjourn the House. This has become a very common scene nowadays. In some State Legislatures we have even seen MLA’s indulging in physical brawls, making use of filthy language and throwing shoes on one another. On one occasion we even saw a chair being flung on the Speaker. Thankfully the more violent scenes of House disruption have remained relegated to the State Assemblies and haven’t been seen in the Union Parliament till now.

Mr Tharoor argues that a Parliamentary form of democracy makes the Executive more responsible but doesn’t provide it with stability. He says that only a Presidential form of democracy can provide the highly pulsating Indian Polity with much needed stability but he doesn’t shy away once from saying that in a Presidential form of democracy there is stability but less of responsibility. Recently Mr Pranab Mukherjee, Union Finance Minister, in a statement issued on the floor of the House said, “Political instability leads to economic instability.” It is possible that Mr Shashi Tharoor wants to see India quickly get back on the road to recovery and therefore he is stressing on the need for political stability. Mr Tharoor writes in his article titled ‘Shall we call the President’ that in the era of coalition governments, governments stay in office not to govern but to ensure that they remain in office during the remainder of their term and are not forced into a premature exit. Mr Tharoor even elaborated on the fractured state of ideology in the political arena. He says that political parties in India keep changing ideologies and don’t stick to one. I do agree with him on this particular issue. I honestly feel that apart from the Left, I haven’t even seen a single political party which has stuck to its ideology all along. Mr Tharoor further added that it is because of no concrete political ideology that at all times individuals fighting elections become far more important than parties and the caste-communal factor seeps in and now it becomes important to know whether a person is a Dalit or a Muslim. Mr Tharoor believes that Parliamentary form of democracy has serious limitations because it doesn’t allow the Government to facilitate talent. In the sense that a Government cannot make any expert a minister until and unless he gets elected to either House of the Parliament thus making it imperative for an expert or a technocrat to be a politician whereas in a Presidential form of democracy one can develop a Cabinet independently as it does not require Ministers serving in the Cabinet to be Members of Parliament.

Mr Tharoor even stresses on the fact that the large size of the electorate in India makes it undesirable for India to have such sort of a democracy. He feels that the growing number of regional parties will worsen the situation and a Presidential system will give the Indian Executive much required stability and independence from the Legislature. In the longer run it will also help India in evolving as a mature democracy as Presidential systems usually yield a strong bi-party system where only the two fittest political parties vie for public offices. Mr Tharoor did not fail to mention that his idea wasn’t received with much anticipation by his counterparts as they are familiar with the current system and know how to make it work.

I do agree with Mr Tharoor that comfort lies in familiarity and MP’s or MLA’s will not be willing to tamper with the existing set up or system. I feel that there is no need for India to move towards a Presidential system because India’s strength is its pluralistic form of Parliamentary democracy but I don’t hesitate from saying that we need to revamp the existing system up to a considerable extent to make our Parliamentary system of democracy an ideal one. The first problem is in relation to House disruptions. Why does that happen? The answer to the question is that we are not electing the right individuals as MP’s or MLA’s. Now this in itself is based on another thing. Mr Tharoor says that in India during elections individuals take precedence over the party because of lack of political ideology. I differ with him. I think that in India, politics is party oriented instead of being individual centric. It is actually party affiliation which matters as all parties have a trademark trump card of theirs. For the BJP it’s the Hindutva agenda, for the Congress its Minority Appeasement and for regional parties like SP, BSP and RJD it’s the formula of Social Engineering. Voters choose parties and not candidates. They align with a particular party and vote for that party’s candidate, many a times voting without even knowing the name of the candidate they are voting for. It is this mentality and practice which we need to overcome. Parties do need to have ideologies but they need to be flexible on them. They cannot be caught up in the web of ideologies. Look at CPM, today they are forced to oppose many good policies just because of their ideological alignment. Even a sensible capitalist venture doesn’t make sense to them. So the important thing is to understand that ideologies are necessary but not paramount. The only necessary ideology is the one which is ‘pro-people’. A party can have an ideology at the national level and individual candidates do need to express them during election rallies as to what will his party strive to do if it comes to power but along with it they also need to elaborate on their personal ideologies and development agendas. What kind of plan of action do they have for the constituency which they may represent in the future? Where are the problems and how will they be overcome? Politics has to be centered on individuals. Elections have to be won by candidates not parties.

We have added a flavour of ‘president like leadership’ in our elections where we have star campaigners and party presidents coming and campaigning for their party’s candidates. Let’s take an example to understand this. Recently Aamir Khan asked his fans on Twitter to vote for his sister in a competition. He was accused of using his influence to make his sister benefit and ultimately he withdrew his comments following the outcry. Isn’t this what we are doing in the political arena? A very famous party leader whom the people know may come and persuade them to vote for their party’s third class candidate who may win just because of that star campaigning and may eclipse past sincere candidates fighting as independents, who may have a better vision for the constituency but may lose out to him just because they could not get political stalwarts to campaign for them. So the Election Commission needs to take cognizance of such kind of things. Individuals should speak for themselves and not get political heavyweights to endorse their candidacy. This will lead to the election of better individuals to State Assemblies and the Union Parliament. Now inside Parliament when we’ll have better individuals as MP’s then we’ll have lesser disruptions or maybe even no disruptions. To deal with disruptions the Speaker needs to react very strictly and comply with the code of conduct in the hardest possible manner. Misbehaving MP’s and the ones who speak out of turn need to be thrown out by the guards present, immediately on the instruction of the Speaker and they should be suspended. No apologies should be accepted from them. The Parliament is not an agitating forum or a demonstration spot.

The second issue which needs to be dealt with is stability. It’s true that Executives in India are purposely destabilized to score political points. It’s because of opportunistic and competitive politics. All parties intend to come to power desperately and indulge in power politics. The Opposition parties in India feel that opposing all the policies of the Government and thwarting all their legislations will help them politically. It will give them an opportunity to accuse the Government of inaction or misgovernance. Because of frequent or rather never ending opposition from the Opposition we are already witnessing a policy freeze or a policy paralysis, more famously referred to as governance deficit. I think that the solution to this problem lies in further fusion of the Executive and the Legislature, not in a clear demarcation between the two as in Presidential systems. A Presidential system is not the solution to the problem of instability. If the Opposition hijacks the Parliament (just like the Republicans in the US Congress) then they will resort to blocking every initiative of the President for the sake of their political fortunes. So what do we do? We need to empower the Parliament and at the same time take away some of its powers. In India the problem is that when a draft bill is prepared (usually by bureaucrats, politicians are involved only in a partial way) it is passed without even five minutes of debate. The Opposition has only two options, either to support the bill or to oppose it and in most of the cases they resort to opposing. The only constructive process that the bill goes through is the one relating to the Standing Committees but even their recommendations are not binding on the Cabinet. So what happens is that the Cabinet prepares the bill and gets it passed by means of its majority inside Parliament. Thus the Executive (having a majority in the Parliament) acts both as the Legislature and the Executive. We need to get the Opposition actively involved in the process of legislating but in order to bring about stability in the system we need to take away from the House the right to kill a bill. How do we do that? This can be done by empowering the Standing Committees. The Standing Committees should be constituted by members of various political parties and the representation of members from each party should be in proportionality to their representation in the Parliament. What does the Standing Committee do now? It examines the bill right from head to toe. Calls experts, intellectuals, stakeholders, MP’s and has everybody’s opinion on it. Then it needs to exercise power. It will decide whether the provisions of the proposed law are in consonance with the existing law or not. After this the Standing Committee decides whether to forward the Bill to the House or to kill it thereby sending it back to the Cabinet for redrafting. In order to give a nod to an ordinary bill or money bill a simple majority of the Standing Committee’s members shall be required and in case of a Constitution Amendment Bill the required majority shall be 2/3rd of the members of the Committee. Once the bill is cleared it’ll be sent to the House. Now the Standing Committee will not prepare a final draft but send a list of recommendations. Like in case of every clause, it will forward to the Parliament a number of alternatives and different approaches. The task of preparing the final draft shall be left to the Parliament. How does the Parliament do that? Remember the right to kill the bill has already been taken away from the Parliament. There are debates on each and every clause of the proposal in both the Houses. At the time of voting both Houses are summoned together. In case of money bill only members of the Lok Sabha shall vote. Now voting will not be in favour of or against the bill as the final draft bill doesn’t even exist till now. Voting will be on each and everyone clause. Suppose if provision 1 of a proposed legislation has four options then MP’s will have to vote for one of the four options. The option which will receive the maximum number of votes will be included in the draft bill. Similarly all provisions will be put to vote and the same exercise will be followed. The process will continue and finally we will arrive at a result. No party shall be allowed to issue whips. Each MP shall act independently. By doing so we will make the Opposition members as active participants in the process of legislating and the draft bill in the real sense will be prepared by the Legislature and not the Executive. After that it will be sent to the President for his assent. Such proactive participation from the Opposition in the process of legislating will help in strengthening parliamentary form of democracy and the Opposition term will cease to exist as they will be active stakeholders in the process of legislating.

Mr Tharoor said that Parliamentary form of democracy doesn’t allow the Government to facilitate talent as it is imperative to be a Member of Parliament to be a Minister in the Government. Such sort of a handicap can also be overcome. It is not always necessary for the Government to facilitate talent by making them Ministers as in Presidential systems. We can set up extra constitutional bodies like the National Advisory Council and undertake extra constitutional initiatives and exercises thus making use of the talent pool and facilitating it. Hectic consultations can be held with NGO’s, think tanks, independent organizations and corporations. They will emerge as partners to the Government and help them in effective governance. The ruling party can also make an offer to certain opposition members to serve as Ministers in their cabinet. This will further erase the line of demarcation between the Government and the Opposition and India will move towards a truly National Government. The last thing that I want to talk about is related to regional parties and bi-party system. I think that in a country as huge as India, in a country where you have such different kinds of people having different languages and cultures, you can’t have just two parties. The growth of regional parties can be viewed constructively as well. We have parties solely concentrating on certain areas. They’ll be far more aware of the ground realities than a party looking after the entire country. It is not necessary that we need to have a bi-party system in order to have stability. We can have that in the era of coalition governments and a multi-party system as well. We just need to put things into order. If we’ll do that then we’ll surely get stability. Elect the right people and you get the right results. Again I would like to mention that elect individuals not parties. Forget about the permutations and combinations inside Parliament while voting. The party which will field the best set of candidates will eventually come to power and this is what is required. Multiple-partners in the ruling coalition signify decentralization in the true sense. We don’t need an Executive President as it is hard to believe that a demi-god will all of a sudden fix all the problematic things in our country. The present pluralistic form of Parliamentary democracy is ideal, it just needs a bit of revamping. That’s all!