Indian companies are eying the retail market in a big way and a tie-up is in the offing between Wal-Mart and Bharti Enterprises. All is well in response to the growing Indian Economy which is poised to soon register a double digit growth rate within the next decade.
The trouble however is that the regulations which need to be in place before such turning points in the economy are absent. I am not talking about the age old Nehruvian socialist regulations on the FDI. I am talking about the minimum level of state interference that is needed to protect the interest of workers and the society as a whole in a capitalist economy. It has been academically established that the market left on its own is not competent enough to take the large interests of the community into account while still maximizing profits in a capitalist scenario.
Walmart first started in 1962 as a regular departmental store in the US. At that time nobody realised what consequences it would have on the community around it. It was only in the last 10 years that the adverse effects of its cut throat operations began to surface.
Firstly, Market saw a free fall in prices owing to the penetration, scale and resulting negotiating power of Wal-Mart. Thousands of retailers lost their jobs as they were forced to sell below cost. When Thailand opened FDI in retail in Bangkok, about 60000 retailers lost their job only there. With a saturated 4000 stores in the US, Wal-Mart is looking to expand in other markets where it has 2700 stores. But what happens when it enters a poorly regulated market like India. At first there is always an increase in the employment but soon retails begin to lose their jobs on mass scale.
Secondly, Its interesting to note that the lowest prices of Wal-Mart are also the result of subsidies by the tax payers indirectly. Wal-Mart employees are payed so low that many of them are dependent on social welfare program for the schooling of their children, and for health needs etc. And with that indirect social subsidy, cutting on the cost of its operations, Wal-mart cuts the prices.
China is being touted as a model for India but even there FDI was opened up in retail over a 10 year period. And the Chinese government has an agreement with the company to respect workers' rights. In India there are no such contracts yet.
India can learn from the experiences of others and follow a socially favourable policy to let FDI in retail. Even most major US cities do not allow a Wal-Mart store. In Florida, the company has to prove the scope for a super store in a saturated market before it gets the permission to open one. With the experiences of the likes of US and Thailand and with the socially favourable policy adopted by China, India can probably learn how to allow FDI in retail even as it ensures community welfare in a capitalist economy.
I hope that in an attempt to correct the blunder done by the Nehruvain socialism for 44 years, we do not make unimaginative moves as those made by Boris Yeltsin in Russia that led to the misery of community on the whole even as its productivity and industrial exports rose leading to wide income disparities and social inequalities.
The trouble however is that the regulations which need to be in place before such turning points in the economy are absent. I am not talking about the age old Nehruvian socialist regulations on the FDI. I am talking about the minimum level of state interference that is needed to protect the interest of workers and the society as a whole in a capitalist economy. It has been academically established that the market left on its own is not competent enough to take the large interests of the community into account while still maximizing profits in a capitalist scenario.
Walmart first started in 1962 as a regular departmental store in the US. At that time nobody realised what consequences it would have on the community around it. It was only in the last 10 years that the adverse effects of its cut throat operations began to surface.
Firstly, Market saw a free fall in prices owing to the penetration, scale and resulting negotiating power of Wal-Mart. Thousands of retailers lost their jobs as they were forced to sell below cost. When Thailand opened FDI in retail in Bangkok, about 60000 retailers lost their job only there. With a saturated 4000 stores in the US, Wal-Mart is looking to expand in other markets where it has 2700 stores. But what happens when it enters a poorly regulated market like India. At first there is always an increase in the employment but soon retails begin to lose their jobs on mass scale.
Secondly, Its interesting to note that the lowest prices of Wal-Mart are also the result of subsidies by the tax payers indirectly. Wal-Mart employees are payed so low that many of them are dependent on social welfare program for the schooling of their children, and for health needs etc. And with that indirect social subsidy, cutting on the cost of its operations, Wal-mart cuts the prices.
China is being touted as a model for India but even there FDI was opened up in retail over a 10 year period. And the Chinese government has an agreement with the company to respect workers' rights. In India there are no such contracts yet.
India can learn from the experiences of others and follow a socially favourable policy to let FDI in retail. Even most major US cities do not allow a Wal-Mart store. In Florida, the company has to prove the scope for a super store in a saturated market before it gets the permission to open one. With the experiences of the likes of US and Thailand and with the socially favourable policy adopted by China, India can probably learn how to allow FDI in retail even as it ensures community welfare in a capitalist economy.
I hope that in an attempt to correct the blunder done by the Nehruvain socialism for 44 years, we do not make unimaginative moves as those made by Boris Yeltsin in Russia that led to the misery of community on the whole even as its productivity and industrial exports rose leading to wide income disparities and social inequalities.
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