Tuesday, 6 December 2011

FDI (Direct Foreign Investment) - another invitation to East India Company?

FDI  -good or bad for India ?

The Indian Parliament is presently facing a unique crisis. The reason is introduction of FDI (Foreign Direct Investment) in retail sector which Govt. is adamant to enforce while opposition & other political parties are opposing tooth & nail. Both sides have their points of view to justify their arguments. Government says this will allow multi-national companies like Wall-Mart etc. to operate in India which will bring in foreign investment & in turn result in development of infra-structure. Besides this will help Indian farmers since these companies would directly purchase produce from them at better price thus cutting down the middle man etc.

I am not an economist. I can barely plan my personal economics efficiently.  But I do believe the basic fact of life where bigger fish eat away the smaller fish, rich dominate the poor, stronger bully the weaker and so on. This also reminds me of an incident which confirm my view.

The place was Namibia (earlier known as South West Africa), and the year was 1991. The country was newly librated from South Africa and was keen to stand on its feet in every respect. I was posted in the Indian Embassy, Windhoek at the specific request of SWAPO for some project. This is what I witnessed about big fish eating smaller fish.
Prior to achieving independence, the cotton produced in Namibian farmers, was purchased by SA (South Africa) mills. But now Namibia wanted to have its own ginning mill. An Indian industrialist promptly reached Windhoek. Negotiations were held with the local Govt and it was decided that all the cotton produced it Namibia will in future, be sold to this Ginning mill only and no more to SA.

The mill got commissioned soon and the trouble also started along with it. The bigger fish could not tolerate smaller fish getting in to its territory. So the SA mills which earlier used to purchase raw cotton at the rate of Rand 10/- per bail, raised their purchase price to Rand 15/- and subsequently to Rand 20/-. Obviously the farmers were too happy to get such a jump in price which they had never thought of and thus continued selling their cotton to SA only. The local Ginning mill set up by the Indian could not effort to purchase raw cotton at such a high price & compete with the giant SA mills. After 3 years of unsuccessful competition, the mill closed down & poor Indian industrialist quit & returned to India.

After 3-4 years, finding no more competition, the SA mills returned to their original rate of purchase of the raw cotton, leaving no choice with the farmers but to sell their product at what so ever rate SA mills fixed.
Any lesson learnt ? Yes. The multi national companies if allowed to come in India in retail sector, will be here to earn profit and not for welfare of India and its farmers. We should manage our own affairs ourselves. Only thing needed is a clean Govt, strong desire to do & less foreign oriented economists at the helm of the affairs. 

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