Sunday, June 20, 2010

Inflation and the Case for FDI in Retail

As the debate opens up again for FDI in retail, it is interesting to examine the contours of the issue.

As things go,only 51% investment is allowed in single brand retail and 100% is allowed in wholesale operations.Almost no one, not even the opponents of FDI have any argument against the economic benefits of FDI. The reasons are political. The ICRIER in its report had strongly and staunchly enunciated the benefits of FDI and the fact that it has had manageable adverse impacts in emerging countries. The reasons for opposition are political and it is good fodder for the press.

But the question is can any country manage without a large organized retail and can any emerging country do it without FDI?

The Government has woken up to the fact that inflation is a monster that can be tackled only by efficiency and productivity. With the world economy likely to remain vulnerable for some time, sustaining fiscal deficits is not the answer. The Indian interest rates are also high enough to make the economy uncompetitive. A key source of inflation in India is the wastages and inefficiencies between the farm and the fork.

The story of FDI in the world economy makes for some astonishing reading. The world annual GDP is around $67 tr and the total FDI in the world is $ 16 tr.USA has cumulative FDI of $ 2.3 tr and UK and France have more than $1 tr FDI. The FDI in China is close to 800bn and even Srilanka has $250bn. India’s cumulative aggregate FDI in all sectors is barely $150 bn and we keep raising enough hue and cry to ensure that each additional billion is fiercely resisted. The single brand FDI in retail till Sept 09 is barely $48mn.

The following extract from a GOI site mentions retail along with gambling and lottery where FDI is not allowed.

The extant policy does not permit FDI in the following cases:

i. Gambling and betting
ii. Lottery Business
iii. Atomic Energy
iv. Retail Trading
v. Agricultural or plantation activities of Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)


For a 20% slice of the $450bn total retail market, we need to invest $15 to $20 bn and it is in the country’s interest to allow this for unleashing a cascading effect on the retail sector, inflation management and the economy.

Sunday, June 06, 2010

Roots of Denial

In a recent discussion on TV after Mamata’s triumph in the municipal elections, the Trinamool spokesman Deerk O’Brien kept on saying to several points the CPM spokesman raised that the communist were living in denial. We see denial every time when seemingly intelligent people refuse to see the truth. The latest scientific studies suggest that denial has its origins in power play and emotions.

1. Most denialists deny anything that they cannot see. Their vested interest survive because of this denial. For example, the society has denied global warming (as long as it did not see it directly),keeps denying evolution and earlier denied harmful effects of smoking. These denials serve to perpetuate the old mindsets preserving established interests.

2. Most denials are based on emotions and anecdotal evidence. So there is no rational study or assessment of evidence but the mere occurrence of event is touted as causality. Human beings also tend to react to emotions and thus it is fertile ground to deny the truth if it happens to elicit the right emotions. We also tend to feel safe in the stability of regular thinking.

3. Most denialists also suffer from ‘paranoid personality disorders’ with anger, intolerance and a sense of disproportionate self-importance. Their distorted sense of reality brooks no opposition.
However denials in the face of evidence extract terrible prices. Bengal is a classic example where the party doctrines have not changed and a once proud and prosperous state has gone into serious decline blighting the lives of millions. The denial of the hazards of smoking destroyed millions of lives again. It was first proved in 1951 that smoking can cause cancer and only in the 1990s, it became part of the mainstream thought.

Individual liberty overrides group identity

  Group identity vs. individual Liberty has played an outsized role in human progress and by inference societies. After the early Greek flou...