On FB Piyush Jain from Kota showed a very good concern on FDI in India.
His Q: AAryan Rao, I say some thing, that foreign companies are coming in India that is very bad bcoz now again India is servant of foreigners.
My reply: Piyush,
There are two ways to look at it.
- It is good that the foreign companies considered putting their money in India. This shows that these companies have studied the economic scenario well and sees that there is potential for high growth and good return on their investments. On the other hand it will also help to increase employment in these sectors. They also need to treat and pay good to their employees as they need to meet certain standards (reduction in exploitation).
- It is also good in disguise as these companies have to produce good quality products to compete with their counterparts in India. Why and how it will benefit the Indian consumers?
- Take a classic case of the fake medicines which got busted recently. The companies who are involved in making fake products want to make quick money and take no ownership of liability. These foreign companies have to stay away from these kinds of practices as one can sue them for such malpractices.
- Secondly, they will educate the consumers about how to recognize the fake products widely, as they need to stay in competition, and develop new technologies for the consumers to identify the fake products as well.
- Lastly, the consumers need to keep up their pace with these new trends and technologies, which will put pressure on education system for better educational support. This will in turn help to raise the bar of the current educational system and in return will help to improve the quality of Life.
I forgot to mention one more thing. There is one more opportunity for India. It can utilise its intellect resources in developing high-end technologies and make more money by selling it to other countries. Thus the highly intellect people does not have to work for low-end technologies. This way India can focus on utilising the existing resources wisely.
The only measures India need to take is to keep an eye on them when these companies tries to take-over the existing companies. Indian Govt. need to develop a policy, in Technology and Human development, to help the local Indian companies to compete with them. The Indian companies need to get better and develop their ability to export and compete these companies on their home turf.
Image Source: http://www.tribuneindia.com/2004/20040526/biz.htm
UPDATE: On Facebook dated 14-Nov, 2012, Mr. Murali Kumar had repeated the same questions and requested to speak to the data provided in the articles published in THE HINDU. The links are attached below.
I have extracted the data from these articles and providing my view here.
Data from article “Made in the United States” The Hindu:
The Indian retail market is estimated to be around $400 billion with more than 12 million retailers employing 40 million people. Ironically, Wal-Mart’s turnover is also around $420 billion, but it employs only 2.1 million people.
Recently, a New York Times expose showed how Wal-Mart had captured nearly 50 per cent of Mexico’s retail market in 10 years. What is important here is that as per the NYTdisclosure “the Mexican subsidiary of Wal-Mart, which opened 431 stores in 2011, had paid bribes and an internal enquiry into the matter has been suppressed at corporate headquarters in Arkansas”.
My view: Indian retail market is adding value worth $10 000/employee (400 000 000 000/40 000 000) where as Wal-Mart alone is adding value worth $200 000/employee (420 000 000 000/2 100 000) which is 20X. This clearly shows that Indian retailers are pocketing more money and underpaying their employees, else there is no way that these Indian retailers can survive.
Regarding taking over the market, like Mexico, we need proper checks and balances. This is the downside of allowing big fish into the pond of small fish.
Data from article “The food crisis and India” The Hindu:
India is not a major food-importing nation and is currently sitting on stocks adequate to meet demand even if the current close to 20 per cent deficit in the Southwest monsoon persists. In April 2012, rice and wheat stocks at 333.5 lakh tonnes and 199.5 lakh tonnes respectively were much higher than the prescribed minimum buffer limits of 142 and 70 lakh tonnes for that time of the year. A consequence has been that the Food Corporation of India has run out of appropriate storage for the stocks it has been able to procure and needs to hold.
My view: This raises serious questions.
- Why India is not able to feed its poor, even though they have surplus production? If you say this is due to price inflation, then who is inflating this price?
- Why Indian labour market is so poor, and who is keeping them poor?
The answer is clearly evident – the culprit is wage and price control; it is the Indian retailers, who are not even bothered about the future and taking shortcuts to survive at the cost of the employees and consumers.
Data from article The role of the small retailer, The Hindu:
What emerges from these data sources is that the unorganised sector in trade accounts for more than three-fourths (78.1 per cent) of employment in the sector as a whole in the country. On the other hand, gross value added in the unorganised enterprises engaged in trade amounts to just 22 per cent of the value added in the trading sector as a whole in the country. Thus, the unorganised trading sector does indeed provide for employment for a substantial majority engaged in the sector, though with net earnings that are clearly very much lower than in the organised sector.
My view: This is very dangerous. The country’s economy cannot survive longer if it is labour intensive. This clearly shows that we are not encouraging the special skills and utilising other resources. History is evident, fall of Gurjar and Satvahana’s economic prosperity due to their lack of naval and defense technological improvements, that Indian economy has doomed whenever it didn’t adapted to new technology and resources for business and trading. A labour intensive country will not stay healthy for long and becomes an easy prey for foreign invasion.