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any measures that the empowered com mittee may recommend, and must be safely operated with a view to the minimisation of risk. That may require the water storage to be kept at an appropriate level, what ever that may be.

Extent of Adjustment
To what extent will that affect the eco nomic activities and the related prosperity in the beneficiary areas in Tamil Nadu? That question may be answered through a counter question: is water use in the rele vant areas in Tamil Nadu at the optimum level of efficiency, with no possibility of improvement? Is it not possible to main tain the existing level of economic activity with less water? Is it feasible to change to less waterdemanding activities? Assum ing that some supplementing of Mullaper iyar waters is needed, are there possibili ties, and have these been studied? It is not clear whether any work has been done on these matters.

Consider the riparian dispute over Cauvery waters (though the Mullaperiyar dispute is not a riparian one). Tamil Nadu, which has a history of irrigated agricul ture based on Cauvery waters going back to Chola times, has had to adjust itself to reduced flows in the river because of inevitable upstream development over the years. The argument now is about the extent of adjustment. Is it entirely unrea sonable to expect a similar process of adjustment in the areas benefiting from the ageing Mullaperiyar project? Going beyond the Cauvery case, the gen eral prospect in the country is one of in creasing pressure on a finite resource, and all water users, whatever the nature of their use and whatever the source of their water, will have to learn to manage with less water and get more use out of it. Even without ref erence to the state of the Mullaperiyar dam, the people in the Vaigai basin will have to make a similar effort. Such an effort will ipso facto diminish their dependence on

Mullaperiyar waters. (To cite an inter national example, Singapore is trying to reduce its dependence on water from Malaysia and become selfsufficient in water through a variety of measures.) None of the cases cited is an exact par allel to the MullaperiyarVaigai case, but they are illustrative of the possibilities of adjustment to changing circumstances. This dispute is eminently a case for an agreed settlement by amicable talks bet ween the two states. Talks at the inter governmental level must be supplemented by civil society moves to bring the people concerned in the two states together, on the lines of the Cauvery Family initiative. In the talks, both at the governmental and non governmental levels, efforts will also have to be made to remove the strong and continu ing sense of grievance in Kerala over the 1886 agreement, to which a reference was made earlier. The conflict between the two states cannot be fully resolved without some attempt to assuage that grievance.

FDI in Retail: Misplaced Expectations and Half-truths

Sukhpal Singh

The central government claims that allowing foreign direct investment into Indias retail sector will benefit small farmers, expand employment and lower food inflation. What has been the experience in India with organised retail so far and what has been the global experience with FDI?

Sukhpal Singh (sukhpal@iegindia.org) is currently at the Institute of Economic Growth, Delhi.

Economic & Political Weekly EPW

fter being under relentless attack for a week, the United Progressive Alliance government was forced to put on hold its decision to allow 51% foreign direct investment (FDI) holding in multibrand retail trade (MBRT) and raise the FDI ceiling from 51% to 100% in single brand retail trade (SBRT). It was an executive decision taken by the union cabinet on 24 November without any discussion in Parliament or consultation with various stakeholders, despite the fact that the issue had been hanging fire for the last 15 years ever since 100% FDI in whole sale cash and carry trade was permitted in January 1997 on a casebycase basis. After that, the N K Singh Committee on FDI in retail trade in 2002 suggested the ban be continued, which led to the Tenth Plan dropping the proposed recommendation on FDI in retail trade. Metro a German supermarket chain was the first one to
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enter India as cash and carry wholesaler in 2003 with a store in Bangalore. Then, in early 2006, 51% FDI in SBRT was allowed. Since 2007, all the major wholesale cash and carry players like Walmart, Metro and Carrefour have set up shop in India and have multiple outlets ranging from two in the case of Carrefour to as many as 14 in case of BhartiWalmart (Mookerji 2011). Reliance Retail has also made an entry into wholesale sector with a store Reliance Market in Ahmedabad a couple of months ago. Global retail chains have also been present in India in retail through licensing/franchising arrangements like SPAR (a global supermarket with more than 12,000 stores in 33 countries) has a licensee and Max Hypermarkets of Dubai based Landmark Group which operates 10 stores in India (Images Retail, December 2011). Under this arrangement, a domestic player buys a licence/franchising right for a fee from a global brand owner and there is no FDI involved. The conditions for 51% FDI in MBRT in clude a minimum investment of $100 mil lion by each player, 50% of it in backend infrastructure, 30% procurement from micro, small and medium enterprises (MSMEs), and the governments right to

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procure the farm produce first. But MBRT players are allowed to sell perishables such as fruits and vegetables as unbranded. Further, the permission for MBRT has been granted for cities with a population of one million or more, which brings in 53 cities. In this context, it is important to under stand the implications of FDI in food retail for various stakeholders as it is being permit ted in the name of farmers, supply chain efficiency, and employment generation. The more important questions to be asked on the issue of FDI in retail are: Does it really help farmers, especially small farmers who constitute 85% of all cultivators? Does it improve efficiency of food supply chains and help lower food inflation which India is presently grappling with? And, of course, how does it affect traditional food retailers livelihoods? These questions are important to examine as two days after the announcement of the decision, the Ministry of Commerce and Industry placed fullpage advertisements in all national newspapers to defend and justify the decision by highlighting the employment, farmer and consumer benefits. The advertisement claimed that one crore new jobs will be created in the farm sector. It said nothing about the impact on the traditional retail sector. The advertisement called this policy Another Revolutionary Leap after IT/computerisation and the liberalisation, privatisation and globalisa tion (LPG) policies pursued by the Rajiv Gandhi and Manmohan Singh governments in the past. The advertisement listed myths and realities but without any evidence. This article discusses the three major dimensions of the policy on FDI in MBRT, i e, farmer benefit, the impact on the tradi tional retail sector in terms of employment as there are more than 1.2 crore of such outlets in India, and the role of FDI in MBRT in inflation containment. It suggests alternative policy measures to leverage FDI in MBRT for the benefit of farmers and the national economy. It builds on articles published earlier in this journal as well as other work.

Impact on Small Farmers

The most glaring aspect of the decision to allow 100% FDI was that there was no pro vision for protection of farmer interest. The only protection granted was the mandatory

30% procurement from MSMEs though it is still not clear how this can be restricted to only Indian MSMEs when the World Trade Organisation (WTO) rules under the provisions of the Trade Related Invest ment Measures (TRIMs) may not permit this Indiaspecific protection since it will violate the national treatment clause of the agreement. One of the arguments made for bringing FDI into MBRT is that it will help reduce wastages in the farm produce sector. Here it is important to point out that this aspect of wastages is exaggerated as there is no absolute wastage. Wastage is value loss across the chain as finally all qualities/ grades of produce sell in the market at some price though price realisation is lower for lower grade produce. In fact, one of the corporates in retail/agroprocessing had planned to use a perishable produce like tomato for different uses, i e, fresh produce in supermarkets and local markets, and for processing into paste. Further, wastage in major vegetables like potatoes and onions, which account for a large proportion of the produce, is not more than 10% and it is only 1012% in cabbages and cauliflowers. Thus, only 1020% of vegetable production is lost due to poor postharvest practices (Pulamte 2008) and some of it is inevitable as shown by the experience of domestic supermarkets. Further, if the operations of domestic fresh food supermarkets in India and those of the global supermarkets are any indication, then unlike what many propo nents of liberal FDI in MBRT policy claim, the entry of foreign retailers will not make any difference to the producers share in the consumers rupee. The only impact so far has been in lowering the producers cost of marketing, as supermarkets have collection centres in producing areas. The supermarkets procure from contact (not contract) farmers without any commit ment to buy regularly as they do not want to share the risk of the growers. Thus, the involvement of supermarket chains with producers in India is low and there is no delivery of supply chain efficiency. So far, during the past decade, none of them domestic retail players or wholesale cash and carry players have made any signi ficant backend investments other than in setting up small collection centres in
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procurement regions and some distribu tion centres in cities/markets. They have mostly focused more on opening stores in a drive to capture mar ket share than on making supply chain im provements and operational efficiencies (Singh and Singla 2011; Dutta 2011). This may not change even with FDI in MBRT though 50% investments in backend infra structure is a reasonable condition. Further, due to the sheer size and buying power of foreign supermarkets, producer prices may be depressed. In the United Kingdom (UK), there was a negative rela tion between the relative market share of a supermarket and the price paid to the suppliers in relation to the average price. The UK supermarket chain Tesco paid its suppliers 4% below the average price paid by retailers (Stichele et al 2006). There have been a large number of super market malpractices across the globe which include payment to be on the supplier list (listing fees); threats of delisting if supplier price is not low enough; payment and dis counts from suppliers for promotions/open ing of new stores; rebate from producers as a percentage of their supermarket sales; minus margins under which suppliers are not allowed to supply at prices higher than the competitor price; delayed payments; lowering prices at the last minute when the supplier has no alternative; changing quantity/quality standards without notice; justintime systems to avoid storage/in ventory costs; removing suppliers from list without good reason; charging high interest on credit, using tough contracts and pen alties for failing to supply. Supermarkets also resort to unfair and unethical practices. Carrefour was fined in South Korea for unfair business practices, i e, forcing suppliers over 10 months to cut prices to save 1.737 billion won in 2005. It was also fined $170,000 by the Indonesian Business Competition Authority in 2005 for not sourcing goods from a listed supplier who then went bankrupt, which was con sidered an unfair competition practice. It was asked to stop minus margin practices. Its agreement was found to include listing fees, fixed rebates, minus margins, regular discounts, common assortment costs, opening costs/new store, fees for biweekly advertisements and penalties. Its listing fee was significantly higher than that of
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competitors and was applied before the suppliers could sell in its supermarkets (Stichele et al 2006). Further, there is no assurance that farmers will receive higher prices, as prices are more about the rela tive bargaining power of the buyers and the suppliers. It is also known that the problems of Indian farming are not about market risk alone but also about produc tion risk and structural factors like irriga tion, technology, credit and so on which MBRT players may not address. The State needs to invest in these areas and cannot hand over responsibility to FDI in MBRT. It is surprising that with 85% of Indias farmers being small or marginal land operators, no restrictions on procurement of farm/allied produce were included to protect the primary producer or smallholder interest. In fact, there are no incentives even to encourage small farmer inclusion. The supermarkets are known to prefer large suppliers of farm produce. Further, there was no provision in the decision for formal registered contract farming being mandatory. Even after so many years of domestic supermarkets operating in India, 6070% of their procurement is from wholesale markets, and not directly from farmers (Singh and Singla 2011). Thus, the last mile which is a must for farmer benefit may not be reached.

needed just four persons for the same vol ume of produce handled (Wiggerthale 2007). Metros cash and carry employed 1.2 workers per tonne of tomatoes sold in Vietnam compared with the 2.9 persons employed by traditional wholesale chan nels for the same quantity sold. The spread of supermarkets led to a 14% re duction in the share of mom and pop stores in Thailand within four years of FDI permission (Stichele et al 2006). In India, 3360% of the traditional fruit and vegetable retailers reported a 1530% decline in footfalls, 1030% decline in sales and 2030% decline in incomes across the cities of Bangalore, Ahmedabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket penetrated cities in India (Singh and Singla 2011). Therefore, it is important to include the potential employment loss in the tradi tional retail sector when calculating the employment benefits from modern retail and the net employment effect should be considered in policy decisions. Further, as supermarkets use modern technology, not many jobs may be forthcoming from their operations even with 50% investment in backend operations.

food prices and, therefore, with better food security of the poor consumers. Therefore, the inflation containment logic for FDI in food retail does not stand ground, given the empirical evidence from across the globe (Singh 2011). Supermarkets would instead lead to concentration of market power, with upstream suppliers facing buyer power in terms of lower prices and consumers (buyers) facing higher prices due to lower competition.

Policy Issues and Mechanisms

The biggest fear in India for farmers is not that FDI in MBRT per se is worse than do mestic corporate investment; it is that there may not be adequate institutions and effective governance mechanisms to regulate and monitor the operations of the global retailers and leverage them for benefits like better prices for farmers, more employment generation and lower prices. If the monitoring of wholesale cash and carry stores so far is anything to go by, there is no regulation and the norms are being flouted openly at the store level by the existing players. They are found to do retail sales in the garb of wholesale as the size of a single purchase (minimum ticket size) is just Rs 500 or Rs 1,000 which does not seem to be governed by any regulation. The socalled freedom being given to states on the FDI decision is not a good step as it may fragment the market and the benefits of FDI will be undermined. This is evident from the experience of freedom given to states to amend the Agricultural Produce Market Committees (APMC) Act. Even eight years later there are still some states which have not amended the Act, many others have done it in their own way and this has become a thorny issue in agribusiness policy and practice. Further, given that FDI is an important global issue in terms of TRIMs and WTO negotiations and involves foreign relations, it is important to treat it as a national, and not a regional issue. Regarding the protection of traditional retail interest, if there could be the Milk and Milk Products Order (MMPO) in the dairy sector to protect dairy cooperatives from private and multinational onslaught in the post1991 phase, why cannot there be protection of the traditional

Impact on Food Inflation

As far as the role of FDI driven food super markets in containing food inflation is con cerned, the evidence from Latin American (Mexico, Nicaragua, Argentina), African (Kenya, Madagascar) and Asian countries (Thailand, Vietnam, India) shows that the supermarket prices for fruits and vegetables and other basic foods were higher than those in traditional markets (Singh 2011). In fact, in China, where large global retailers like Walmart, Tesco and Carrefour have hundreds of stores, since 2004 food infla tion has been an issue and this year some local governments have offered a subsidy to lessen its effect on consumers (Mei and Shao 2011). Even if it is accepted that supermarkets are able to offer lower prices, the low income households may face higher food prices because they live far from super markets and because of the higher prices charged by supermarkets in lowincome areas. Thus, there is no direct correspond ence between modern retail and lower
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On Traditional Retail and Employment

It is being claimed that one crore new jobs will be created. But, it is not clear where these jobs will be created as farmers sup plying to these supermarkets are already doing some work and are not unemployed. This claim by the government is similar to the argument made when Pepsi was brought to Punjab in 1989 when it was claimed that 50,000 new jobs would be created by its various projects. But later it was found that to make its claim Pepsi was also including in that number the potential supplying farmers! In fact, the supermarket expansion leads to a pheno menon of retail Darwinism in which only the fittest survive (Bijoor 2011). Thus, there is employment loss in the value chain. For example, as compared to 18 jobs created by a street vendor, 10 by a tradi tional retailer and eight by a shop vendor in Vietnam, a supermarket like Big C
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retail sector for some time to give it breath ing space? Given the global and the Indian experi ences of supermarkets so far, it was impor tant to slow down supermarket expansion using mechanisms like zoning within cit ies, business licences, and trading restric tions. Further, there is a need to limit the buying power of the supermarkets by strengthening competition laws as in the legal protection given in Japan to subcon tracting industries in their relations with large firms. These provisions are moni tored by the Fair Trade Commission. If contract farming is only another name for subcontracting prevalent in industry, then it is only logical to extend such legal provi sions with necessary modifications to farming contracts. The example of China is quoted to justify the FDI permission. China took over 12 years to liberalise its FDI regime, and in stages. It first allowed only 26% FDI in retail in 1992, took another 10 years to raise the limit to 49%, and allowed full foreign ownership in 2004, but only in

certain cities. It even revoked some pre viously granted approvals, in order to reduce the foreign retailers footprint (Mei and Shao 2011; Dutta 2011). Also, provisions for legally binding and clearly worded rules for fair treatment of suppliers, and the establishment of an independent authority like a retail com mission to supervise and regulate super markets on supplier, consumer, and labour issues and to support local retailers are required. The authority should ban buying of products and selling below cost, make contract farming a must, improve local traditional markets for small growers, slow the pace of supermarket expansion, establish multistakeholder initiatives in the chains and provide support to small producers and traditional food retailers. Producer organisations and the NGOs need to monitor and negotiate more equitable contracts with the supermarkets. The gov ernment should play an enabling role with legal provisions and institutional mecha nisms for helping farmer cooperatives, producer companies and producer groups

in a smooth functioning of the supermarket linkage and to avoid its illeffects.

References
Bijoor, H (2011): Small Is Beautiful, But Big Is Cheaper, The Hindu Business Line, 1 December, Brand Line, p 4. Dutta, D (2011): FDI in Retail: More Heat Than Light, Financial Express, FE Reflect, 26 November. Mei, L and D Shao (2011): Too Cheap Hurts Farmers, too Expensive Hurts Customers: The Changing Impacts of Supermarkets on Chinese Agrofood Markets, Millennial Asia, 2(1), 4364. Mookerji, N (2011): A Whole New Opportunity, Business Standard, the Strategist, 28 November, pp 13. Pulamte, L (2008): Key Issues in Post Harvest Manage ment of Fruits and Vegetables in India, downloaded from www.nistads.res.in/india/2008, on 13/09/11. Singh, S (2011): Controlling Food Inflation: Do Super markets Have a Role?, Economic & Political Weekly, 46(18), 1922. Singh, S and N Singla (2011): Fresh Food Retail Chains in India: Organisation and Impacts (New Delhi: Allied). Stichele, M V, Sanne van der Wal and J Oldenzeil (2006): Who Reaps the Fruit? Critical Issues in the Fresh Fruit and Vegetable Chain (Amsterdam: Center for Research in Multinational Corpora tions (SOMO)), June. Wiggerthale, M (2007): Expansion of Supermarkets in the Food Sector: Who Reaps the Benefits?, presented at the G8 Alternative Summit, June, Rostock, www.faireragrarhandel.de/mediapool/ 16/163463/.../Supermarkets_G8.pdf, accessed 19 July 2010.

Human Development: How Not to Interpret Change

Achin Chakraborty

indices usually attract media attention, particularly when such rankings are pre sented in the press briefing by an agency such as the Planning Commission. People are naturally keen to see where this or that state stands in the ranking.

The India Human Development Report 2011 makes a number of mistakes in its analysis of the relative performance of states and also offers conceptually wrong perspectives in its comparison of the sectoral performance in health and education.

Achin Chakraborty (achinchak@rediffmail. com) is at the Institute of Development Studies Kolkata.

he publication of the second human development report for India after a gap of 10 years is undoubtedly a major event. Yet, the recently released India Human Development Report 2011 (IHDR 2011 or report for short), prepared by the Institute of Applied Manpower Research under the aegis of the Planning Commis sion, disappoints for the shockingly poor quality of commentary and analysis. When the reports commentaries are not obviously wrong, they indulge in trivia and platitudes. In the end, the report leaves the reader no more informed or illuminated than she was before. As a matter of fact, the reader is positively misled, which ought to be taken seriously. We could have ignored the report, had it not had the Planning Commission stamp. The rankings of states in terms of some
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Analysis of Change: 1999-2000 to 2007-08

The reports main contribution is sup posed to lie in the analyses of the changes in the Human Development Index (HDI) and its three components for India as well as the states between two time points, viz, 19992000 and 200708. The three com ponent indices are the Education Index, the Health Index and the Income Index. Not only does the report focus on spatial disparity, it also presents in detail the rela tive status of various social and religious groups in terms of various indicators of human development and changes in the relative distance between the groups over the greater part of the past decade. The choice of the time points has been guided by the two rounds of National Sam ple Surveys (NSS) that were conducted in these two years, respectively. The period is
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